For the fiscal 2007 second quarter, Best Buy's revenue increased 13 percent to $7.6 billion, compared with revenue of $6.7 billion for the second quarter of fiscal 2006. The revenue increase reflected the net addition of 237 new stores in the past 12 months and a comparable store sales gain of 3.7 percent for the second quarter. The company's revenue growth included the impact of recent acquisitions; namely, 14 Pacific Sales Kitchen & Bath Centers showrooms added in March 2006 and 131 Jiangsu Five Star Appliance Co., Ltd. locations added in June 2006 (Five Star is expected to be included in the company's comparable store sales figure beginning with the fiscal 2008 third quarter). The comparable store sales gain was driven by an increase in the average transaction size, as the company's revenue mix continued to reflect a shift toward higher-ticket items. Best Buy also noted that consumers made more purchases online, as the company continued to add features and capabilities to its Web sites; total second-quarter online revenue grew more than 35 percent, as compared with the same quarter of the prior year.

The gross profit rate for the second quarter was 25.0 percent of revenue, a decrease from a gross profit rate of 25.5 percent of revenue for the prior-year second quarter. The 50-basis-point decline was primarily due to increased promotions for DVDs and notebook computers. This decline was partially offset by benefits related to growth in the computer services business. During the quarter, Five Star reduced the company's gross profit rate by approximately 15 basis points as Five Star's business model carries a lower gross profit rate (and a lower SG&A rate).

Best Buy's SG&A expense rate was 20.7 percent of revenue for the second quarter, compared with 21.6 percent of revenue for the prior year. The year-over-year improvement in the SG&A rate was primarily due to short-term lower advertising spending, broad-based productivity gains and reductions in outside services and travel.

The company reported net interest income of $21 million, up from $18 million in the prior year's second quarter, due to higher investment yields offsetting a slightly lower average cash balance.

Jackson said, "Our revenue growth matched our expectations, and our expense management was stronger than anticipated. Our first half results are terrific."

He added, "As we look ahead to the back half of the fiscal year, we share our customers' excitement around increased availability of flat-panel televisions, coupled with the arrival of two new gaming platforms in November and the launch of Microsoft Vista. So, with more than 60 percent of our revenue and earnings still ahead of us for the fiscal year, we are reiterating our earnings guidance for fiscal 2007 of $2.65 to $2.80 per diluted share. We expect gross margins to be constrained by Five Star's lower gross margin business model and revenue growth in lower-margin products such as gaming hardware–with the second-quarter being a good proxy for the fiscal year's gross profit rate. Yet, we expect to exceed our SG&A rate goals for the year. However, in the second half, our rate of expense improvement will moderate as we aggressively grow our home theater capabilities, services and advertising. We continue to expect an operating income rate improvement of approximately 40 basis points for the fiscal year."

Best Buy's international segment generated second-quarter operating income of $2 million, compared with $6 million in the prior year's period. The segment is comprised of Future Shop, Best Buy and Geek Squad operations in Canada, and Five Star operations in China. International revenue rose to $982 million, an increase of 39 percent. The Canadian revenue increase reflected favorable foreign-currency exchange rates, a comparable store sales gain of 9.3 percent and new store openings. The closing of six stand-alone Geek Squad stores in Canada during the quarter reduced the international segment's operating income rate by approximately 30 basis points for the quarter.

In addition, Best Buy acquired a 75-percent interest in Five Star on June 8, 2006, as previously reported. Five Star's results are included in the quarter from the date of acquisition through June 30, 2006. The company is reporting results from its acquired operations in China on a two-month lag basis in recognition of China's statutory requirements. Accordingly, the international segment reflects the partial quarter revenue of Five Star for the period under Best Buy ownership ending June 30, 2006, totaling $80 million. Start-up and acquisition costs associated with Five Star and preparations for the first Best Buy store in Shanghai reduced the international segment's operating income rate by 30 basis points. The company expects that Five Star will be neutral to earnings for the year.

During the second quarter of fiscal 2007, Best Buy's comparable store sales gain was driven by higher revenue from flat-panel televisions, notebook computers, gaming and computer services. These gains more than offset comparable store sales declines in tube and projection TVs, CDs and desktop computers.

Best Buy's revenue mix for the second quarter of fiscal 2007 reflected continued growth in the consumer electronics product group. Consumer electronics, which represented 44 percent of second-quarter revenue, posted an 8.9-percent comparable store sales gain and again led the company's results. Within consumer electronics, flat-panel TVs experienced a triple-digit comparable store sales gain due to higher volumes (driven by declining prices), improved assortments of TVs in larger screen sizes, and the addition of 55 Magnolia Home Theater store-within-a-store experiences in the last six months. Total television comparable store sales grew by solid-double-digits as flat-panel TV growth was partially offset by declines in comparable store sales of tube and projection TVs.

The home office product group accounted for 33 percent of fiscal 2007 second-quarter revenue and had even comparable store sales. A double-digit comparable store sales increase for notebook computers and a continued double-digit increase in computer services revenue fueled the growth. The gains from notebook computers and computer services were offset by declines in comparable store sales of desktop computers and printers.

The entertainment software product group, which comprised 15 percent of second-quarter revenue, increased 0.8 percent on a comparable store sales basis. A solid double-digit gain in comparable store sales of video gaming was partially offset by expected declines in CDs. The video gaming strength was fueled by increased availability of the Xbox 360 console in conjunction with easing comparisons with the launch of PlayStation Portable in spring 2005. Comparable store sales of DVDs increased by the low single digits.

The appliances product group, which totaled 8 percent of fiscal 2007 second-quarter revenue, had a comparable store sales decline of 2.6 percent for the quarter due to a slower industry environment. U.S. Best Buy stores have trained three-fourths of its appliance departments to use its new selling model, called appliance customer expert (ACE). The company believes such investments are supporting sequential market share gains and distinguishing Best Buy in the industry for the long-term.

During the second quarter, the company opened 17 U.S. Best Buy stores, including three 45,000-square-foot stores, eleven 30,000-square-foot stores and three 20,000-square-foot stores. At the end of the second quarter, the company operated 771 Best Buy stores, 20 Magnolia Audio Video stores, 14 Pacific Sales showrooms and 12 Geek Squad stores in the United States. It also operated 119 Future Shop stores and 44 Best Buy stores in Canada, and 131 Five Star stores in China. In addition, the company's Canadian operations closed six stand-alone Geek Squad stores. For the trailing 12 months, the company opened 245 new stores (including 14 acquired Pacific Sales showrooms and 131 Five Star locations) and closed eight stores. More details regarding historical store counts and square footage are available on the company's Web site under "For Our Investors."