• by Sarah Mahoney , December 13, 2006

Cash registers are ringing at Best Buy--at a price.

The Minneapolis-based electronics retailer Tuesday reported that revenues in its fiscal third-quarter were up a hefty 16 percent, to $8.47 billion, and comparable-store sales and Web sites gained 4.8 percent over the same quarter last year.

Net income came in at $150 million--still up compared with $138 million a year earlier, but substantially below Wall Street expectations.

"While a very competitive climate put pressure on our margins, resulting in earnings below our original expectations, I continue to support the strategic choices we made," said Brad Anderson, vice chairman and CEO of Best Buy, in a statement. "The market share gains we saw, and the new customers we acquired, give us momentum as we begin our fourth quarter, which generates the largest percentage of our earnings for the year."

Best Buy's gross profit rate declined to 23.5 percent from 24.4 percent, driven by increased promotions on notebook computers and gaming systems, as well as a "highly promotional Thanksgiving weekend."

Flat-panel TVs continued to be a bright spot, posting a "very strong double-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 more Magnolia Home Theater store-within-a-store experiences."

Best Buy, along with its rival Circuit City, is also dominating Internet sales, reported Lazard Capital Markets. "Seven of the top 10 e-commerce sites this year are multi-channel retailers, with Amazon, Dell, and Yahoo ranking as the only Internet pure-plays on the list. And multi-channel retailers BestBuy, Wal-Mart, and Circuit City generated the highest spending growth rates over last year.

"We believe e-commerce sales trends remain positive, with one more week remaining of significant online holiday sales," the company said Tuesday, thanks to "the increasing tenure of online shoppers, gains in spending per user, better integration of offline and online shopping by traditional retailers, and the increasing popularity of the Internet for holiday gift purchases."

Lazard said e-commerce sales totaled $15.6 billion over the 38-day period from Nov. 1 through Dec. 8, which represents a 25 percent increase in spending over last year, "at the high end of our 20 percent to 25 percent forecast growth range."