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Best Buy's 'Geek Squad' to the rescue
CEO says the retailer is looking to its in-house repair team to drive business as comps get tougher.
June 16, 2004: 4:26 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - When the going gets tough, who's Best Buy gonna call? According to CEO Brad Anderson, it's the "Geek Squad" to the rescue.

The Geek Squad is Best Buy's in-home technical support service, making 24-hour house calls to Best Buy shoppers for any type of computer-related glitch.

Geek Squad employees -- with titles like "Double Agent," "Special Agent" or "Inspector" -- dress for the part. They wear uniforms of white shirt, black tie, white socks, black shoes, badges and sunglasses. They drive around in a Geekmobile, which is a black-and-white painted Volkswagen Beetle.

Best Buy (BBY: Research, Estimates), which introduced the squad in Oct. 2002 is now hoping that its "agents" can help out with a different kind of problem -- the retailer's tougher sales comparisons going forward.

Minneapolis-based Best Buy, the No. 1 electronics retailer, on Wednesday reported a first-quarter profit that edged past Wall Street's forecasts by a penny, citing cost controls, new store openings and strong demand for flat-screen televisions, digital cameras and DVDs.

The retailer earned a profit of $114 million, or 34 cents a share, for the quarter ended May 29, up 63 percent from $69 million, or 21 cents, a year ago.

Total sales for the quarter rose 17 percent to $5.5 billion, while sales at stores open at least a year -- a key retail measure known as same-store sales -- rose 8.3 percent for the period.

Flat gross margins

Despite the positive numbers, shares of Best Buy were lower in afternoon trading on the New York Stock Exchange Wednesday.

The concerns?

"Gross margins were flat in spite of a fairly easy comparison because of pressure from Reward Zone," Merrill Lynch analyst Danielle Fox wrote in a research note.

Launched last year, the Reward Zone is a customer-loyalty program through which members can accumulate points from purchases they make at a Best Buy store. Those points are redeemable toward future purchases.

"We like the program but think gross margin driven upside will be hard to sustain," Fox wrote.

Industry watchers say Best Buy probably saw faster redemption from the program last quarter than the company had anticipated.

Crowell, Weddon & Co. analyst James Ragan said he isn't too worried about Reward Zone's pressure on profits just yet. He thinks the bigger worry is the period of tougher same-store sales comparisons in the second-half of the year.

"Last year Best Buy had comparable sales in the high single digits in the second-half. Investors are probably looking for something new that could help pad sales going forward," Ragan said.

Enter the Geek Squad.

"The services business is a relatively new segment for the company, and I think it can help sales," Ragan said.

CEO Brad Anderson said in a statement that he expects the expansion of the Geek Squad to boost customer loyalty, and in turn boost same-store sales.

Best Buy is currently rolling its Geek Squad nationwide and expects to offer the service in all of its 750 stores, including ones in Canada, by the end of its fiscal year.

"The services business is a higher profit margin area for the company," said Ragan. "With Best Buy's success in the home theater business, I think they have rightfully determined that providing installation services and other types of work is a good investment."

For the second quarter, Best Buy forecast earnings to be in the range of 47 to 52 cents a share. Analysts estimate a profit of 50 cents for the second quarter.  Top of page

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