Best Buy last week reported solid fiscal first quarter results, but did dish out enough detail to bring out a few worries. Home office gear is selling, but the consumer is winded. But the big takeaway is that Best Buy's services business--specifically Geek Squad--is posting twice the growth of the rest of the business.
First, the numbers. Best Buy reported revenue for the three months ended of May 31 of $9 billion, up 13 percent from a year ago. Net income was $179 million, or 43 cents a share. The results topped Wall Street estimates by 6 cents a share and same store sales were up 3.7 percent. Best Buy also maintained its fiscal 2009 earnings and revenue targets.
Here's the breakdown:
You could worry about the weak consumer, but relative to what Circuit City reported--a fiscal first quarter loss of $164 .8 million, or $1 a share, on revenue of $2.3 billion--it's clear that Best Buy (all resources) is taking share and thumping its rivals. Best Buy estimates that it took 1.5 percent more market share in the first quarter and the retailer is getting a bump in the home office category courtesy of Apple and Dell products.
But the real--and potentially overlooked factor--in the Best Buy quarter is the performance of Geek Squad (gallery of Geek Squad City at right). Best Buy services are the thing that's keeping the retailer going amid pricing pressure and a weak economy.
Here's what Best Buy operating chief Brian Dunn had to say on the company's earnings conference call:
Our Geek Squad services grew at twice the rate as the rest of the business in the first quarter. Our in-store Geek Squad attachment rates in computing were up. We think that is incredibly compelling evidence that customers want more than just a transaction and that our commitment to never leaving our customers hanging has massive implications across every part of our business.
Add that growth up and Geek Squad grew at a 26 percent clip. It's growing enough to give Best Buy a nice cushion if other businesses slow.
Best Buy outlined the grand plan for its services business at a recent investment conference, noting that computing services will grow even as product sales growth slows.
Bottom line: Geek Squad will be a buffer as Best Buy's customers struggle. Here's what Dunn noted on the conference call about the hopes of tax rebates propping up the consumer:
We have typically gotten a benefit from (tax rebate checks) in the past but honestly if we thought about that at the beginning of the year, given the other pressures on the consumer, particularly driven by the housing environment and energy costs, we did not expect a major lift in our business coming from rebates at the beginning of the year. And we actually don’t know how that’s going to play out this year, so I’d say one of the factors that we continue to look at is we know the consumer environment on spending is going to be choppy.
Dunn then noted that Best Buy can navigate the choppy waters by focusing on what it can control--like the growth of Geek Squad.