百思買 (BBY) 2002 Q3 法說會逐字稿

LADIES AND GENTLEMEN THANK YOU FOR STANDING BY AND WELCOME TO THE BEST BUY THIRD QUARTER CONFERENCE CALL FOR FISCAL YEAR 2002. AT THIS TIME ALL PARTICIPANTS ARE IN A LISTEN ONLY MODE, LATER WE WILL CONDUCT A QUESTION AND ANSWER SESSION. AT THAT TIME IF YOU HAVE A QUESTION YOU'LL NEED TO PRESS 1 ON YOUR TOUCH TONE PHONE. AS A REMINDER THIS CALL IS BEING RECORDED FOR PLAYBACK AND WILL BE AVAILABLE BY NOON ET TODAY. IF YOU NEED ASSISTANCE ON THE CALL PLEASE PRESS THE * FOLLOWED BY THE 0. I WOULD NOW LIKE TO TURN THE CONFERENCE CALL OVER TO JENNIFER DRISCOLL, DIRECTOR OF INVESTOR RELATIONS. JENNIFER, PLEASE GO AHEAD.

THANKS OPERATOR, GOOD MORNING EVERYBODY, AND THANKS EVERYBODY FOR JOINING US TODAY. WITH ME ARE DICK SHULZE, FOUNDER, CHAIRMAN AND CEO OF THE COMPANY, WHO WILL PROVIDE AN OVERVIEW FOR THE QUARTER, ALLEN LENZMEIER, PRESIDENT OF BEST BUY STORES, WHO WILL REPORT ON OUR LARGEST BUSINESS, KEVIN FREELAND, PRESIDENT OF MUSICLAND, WHO WILL REPORT ON OUR MALL BASED RETAILERS, AND DARREN JACKSON, OUR CFO, WHO WILL GIVE OUR FINANCIAL HIGHLIGHTS AND OUTLOOK, KEVIN LEIGHTON (SP?), PRESIDENT OF FUTURESHOP, IS ON THE CALL FROM VANCOUVER, AND HE WILL UPDATE US ON BEST BUY INTERNATIONAL. ALSO WITH ME IN THE ROOM AND AVAILABLE FOR A Q&A SESSION ARE BRAD ANDERSON, VICE CHAIRMAN AND CHIEF OPERATING OFFICER, JOHN WALDEN, PRESIDENT OF BESTBUY.COM, AND SUSAN HOBB, SENIOR VICE PRESIDENT OF PUBLIC AFFAIRS AND IR. WITH THAT I'LL TURN IT OVER TO DICK SHULZE WHO WILL BEGIN OUR PREPARED REMARKS.

THANKS JENNIFER AND GOOD MORNING EVERYONE. I'M VERY PLEASED TO REPORT THAT THE COMPANY'S EARNINGS FOR FISCAL 3RD QUARTER 2002 ROSE 40% TO $80 MILLION OR 37 CENTS PER SHARE. THAT'S A PENNY OVER THE ANALYST CONSENSUS AVERAGE OF 36 CENTS PER SHARE AND 3 CENTS HIGHER THAN OUR EARLIER GUIDANCE OF 34 CENTS. BEST BUY STORES OPERATING EARNINGS GREW ALMOST 70% OBVIOUSLY EXCLUDING THE DILUTIVE IMPACT OF MUSICLAND AND THE MONTH OF OPERATIONS FROM OUR NEWEST SEGMENT, BEST BUY INTERNATIONAL. WE FACED UNUSUAL PRESSURES IN OUR PERFORMANCE THIS QUARTER INCLUDING A NATIONAL RECESSION AND OF COURSE THE TRAGIC EVENTS OF SEPTEMBER 11TH. BUT AT BEST BUY LIKE AT MANY OTHER AMERICAN COMPANIES ADVERSITY TENDS TO BRING OUT THE BEST IN ALL OF US. I AM PROUD OF OUR EMPLOYEES FOR STAYING FOCUSED IN THESE DIFFICULT TIMES AND SERVING OUR CUSTOMERS SO WELL. DURING THE QUARTER WE LOWERED OUR GUIDANCE WHEN IT APPEARED THE TERRORIST ATTACKS WOULD HAVE A MORE SUSTAINED IMPACT ON OUR SALES. TODAY WE'RE PROUD TO REPORT RESULTS ESSENTIALLY IN LINE WITH OUR ORIGINAL GUIDANCE BEFORE WE KNEW THAT THE SLUMP IN THE FIRST HALF WOULD EXTEND INTO A FULL RECESSION AND BEFORE THE EVENTS OF SEPTEMBER 11TH.

OUR TOTAL SALES GREW BY 27%. COMPARABLE STORE SALES GREW BY 1.6% AND NET EARNINGS BY A FULL 40%. TO ME THE HIGHLIGHTS OF THE QUARTER WERE AS FOLLOWS - WE OPENED 39 NEW BEST BUY STORES IN THE THIRD QUARTER. WE TYPICALLY OPEN THE MOST STORES IN THE THIRD QUARTER, TIMED SO THAT WE GET THE FULL BENEFIT OF HOLIDAY SHOPPING. BUT I MUST SAY THAT AS THE CEO OF BEST BUY I AM PROUD TO HAVE NOT ONLY INCREASED SALES BUT ADDED 5,000 JOBS DURING A NATIONAL RECESSION. THAT'S ON TOP OF OUR NORMAL SEASONAL HIRING OF ANOTHER 30,000 PEOPLE COMPANY WIDE. A SECOND HIGHLIGHT WAS THE TRANSFORMATION OF 7 SAM GOODY STORES AND THE OPENING OF 9 TEST StORES IN OUR SMALL MARKET FORMAT.

TWO OF OUR KEY OBJECTIVES ARE TO INCREASE THE SALES PRODUCTIVITY OF SAM GOODY STORES AND TO EXPAND OUR SMALL MARKET STORE COUNT. SO THESE TESTS ARE VITALLY IMPORTANT TO MUSICLAND. KEVIN FREELAND, MUSICLAND'S PRESIDENT, WILL DISCUSS THESE EXCITING INITIATIVES LATER IN THE CALL. A THIRD HIGHLIGHT OF COURSE WAS THE COMPLETION OF OUR ACQUISITION OF FUTURESHOP, CANADA'S TOP RETAILER OF TECHNOLOGY AND ENTERTAINMENT PRODUCTS. IT'S OUR FIRST INTERNATIONAL VENTURE, AND WE'RE REALLY EXCITED ABOUT THE OPPORTUNITY TO GROW INTO ANOTHER COUNTRY MUCH SOONER AND WITH LESS DILUTION THAN OUR PRIOR STRATEGY OF GREENFIELDING IN CANADA. WE ALSO ACQUIRED, THROUGH THIS TRANSACTION, 8,000 NEW CANADIAN EMPLOYEES WHO KNOW THE CANADIAN CONSUMER AND CAN HELP US TO BUILD ON THE STRONG PLATFORM WE ALREADY HAVE IN PLACE THERE.

KEVIN, I'D LIKE TO TAKE THIS OPPORTUNITY TO PERSONALLY WELCOME YOU TO OUR BEST BUY TEAM. WE'RE PLEASED TO HAVE YOU AND EVERYBODY FROM FUTURESHOP JOIN THE BEST BUY FAMILY. THROUGHOUT THE COMPANY WE CONTINUE TO BENEFIT FROM AN EXPANDING DIGITAL PRODUCT CYCLE AS WELL AS STRONG NEW PRODUCTS SUCH AS GAME CUBE, XBOX, MICROSOFT'S XP, AND A HOST OF BRAND NEW DVD SOFTWARE MOVIES. AT MAGNOLIA HI-FI, COMPARABLE STORE SALES DECLINED IN THE MID-TEENS COMPARED TO FLAT COMPS A YEAR AGO DESPITE A STABLE AVERAGE SALES PRICE. MAGNOLIA HI-FI WAS SIGNIFICANTLY IMPACTED BY UNEMPLOYMENT IN THE WASHINGTON AREA WHICH IS CURRENTLY THE HIGHEST IN THE COUNTRY. WE'RE ANTICIPATING A COMPARABLE STORE SALES DECLINE OF APPROXIMATELY 10% AT MAGNOLIA IN THE FOUTH QUARTER. FOR DETAILS ON OUR OTHER BRANDS, I'D LIKE TO TURN OVER THE CALL TO THE LEADERS OF OUR THREE BUSINESSES, BEGINNING WITH AL LENZMEIER, THE LONGTIME BEST BUY EMPLOYEE AND PRESIDENT OF BEST BUY STORES.

THANKS DICK AND GOOD MORNING EVERYONE. SALES AT BEST BUY RETAIL STORES ROSE 13% IN THE THIRD QUARTER TO 4.2 BILLION. WE OPENED 39 STORES IN THE QUARTER BRINGING THE TOTAL TO 59 NEW STORES IN THE CURRENT FISCAL YEAR. WE EXPECT TO OPEN SEVERAL NEW STORES IN THE FOURTH QUARTER. WE SAW STRENGTH IN NEARLY EVERY DIGITAL CATEGORY, INCLUDING DIGITAL TV'S, DIGITAL CAMERA'S, DVD HARDWARE AND SOFTWARE, AND WIRELESS COMMMUNICATIONS REFLECT IN THE NEW PRODUCT CYCLE AS WELL AS CONSUMER TRENDS TOWARDS COCOONING AT HOME. ANOTHER TREND WAS KEEN INTEREST IN VIDEO GAME HARDWARE AND SOFTWARE AS THE LAUNCH OF TWO NEW PLATFORMS IN THE QUARTER BENEFITTED THE ENTIRE GAMING CATEGORY.

IN ADDITION, THE LAUNCH OF XP HALFWAY THROUGH THE QUARTER BENEFITTED THE SALES OF PERIPHERALS AND COMPUTERS. AS WE MENTIONED IN THE NEWS RELEASE, SALES OF DESKTOP COMPUTERS DECLINED IN THE QUARTER, BUT TO A LESSER DEGREE THAN IN THE FIRST HALF OF THE FISCAL YEAR. COMPARABLE STORES AT BEST BUY INCREASED BY 1.6%, A MATERIAL FACTOR IN THE GAIN WAS THE CALENDAR SHIFT, WE HAD THE SAME NUMBER OF DAYS IN THE QUARTER BUT THE LAST WEEK OF THE QUARTER WAS OF MUCH HIGHER QUALITY COMING AFTER THANKSGIVING. ADJUSTED FOR THE CALENDARD SHIFT COMPS WERE DOWN .8%. AGAIN, AS DICK MENTIONED, BUSINESS IMPROVED THROUGHOUT THE QUARTER, IN FACT, OUR NOVEMBER COMPARABLE SALES INCREASE APPROACHED THE HIGH SINGLE DIGITS. AND WE HAD A VERY SUCCESSFUL THANKSGIVING WEEKEND. IT WAS A FINE PERFORMANCE GIVEN THE UNUSUAL PRESSURES WE FACED.

WE BELIEVE WE CONTINUE TO EXPAND OUR MARKET SHARE GAINS IN SEVERAL CATEGORIES INCLUDING INTERACTIVE SOFTWARE, MUSIC AND MOVIES, CONSUMER ELECTRONICS, PERSONAL COMPUTERS, AND CAR STEREO. IN ADDITION, OUR BESTBUY.COM SITE IS BECOMING AN INCREASING INFLUENCE ON OUR SALES IN THE STORES. TRAFFIC TO THE SITE HAS DOUBLED AND NEARLY 40% OF CONSUMER PURCHASES IN OUR STORES WERE DONE BY CONSUMERS WHO SAY THEY VISITED BESTBUY.COM BEFORE COMING TO THE STORE. OUR PRODUCT MIX, SHIFTED AWAY FROM THE LOWER MARGIN HOME OFFICE CATEGORY, AND TOWARDS DIGITAL PRODUCTS. WE ALSO CONTINUE TO IMPROVE ON PROVIDING CUSTOMERS WITH COMPLETE SOLUTIONS. THE CHANGES IN OUR SALES MIX, COMBINED WITH MORE TARGETED PROMOTIONS, AND CONTINUED IMPROVEMENT IN INVENTORY MANAGEMENT RESULTED IN A GROSS MARGIN IMPROVEMENT OF AN EXTRAORDINARY 1.9% OF SALES.

AT THE SAME TIME, WE WERE ABLE TO STEM THE RISING TIDE OF SG&A EXPENSES WHICH INCREASED BY 80 BASIS POINTS. AS A RESULT, OUR OPERATING INCOME, FOR BEST BUY RETAIL STORES, ROSE TO 3.4% OF SALES, UP 110 BASIS POINTS. IN TERMS OF OPERATING INCOME DOLLAR AMOUNTS, THIS IS AN IMPROVEMENT OF 70% OVER THE PRIOR YEAR THIRD QUARTER. WE ARE POISED FOR A STRONG HOLIDAY SEASON AND NEXT QUARTER WE EXPECT TO SEE CONTINUED STRENGTH IN ENTERTAINMENT SOFTWARE AND DIGITAL PRODUCTS. IN PARTICULAR, WE ANTICIPATE GROWTH IN SALES OF GAMING HARDWARD AND SOFTWARE, DIGITAL TV'S, DIGITAL CAMERA'S, DVD HARDWARE AND SOFTWARE. WE ANTICIPATE CONTINUED IMPROVEMENT IN SALES RELATED TO XP AS WELL, SUCH AS DIGITAL IMAGING, MEMORY, HARD DRIVES AS WELL AS PERSONAL COMPUTERS. NEXT WE WILL HEAR FROM KEVIN FREELAND, PRESIDENT OF MUSICLAND STORES. KEVIN?

I'D LIKE TO COMMENT BRIEFLY ON OUR RESULTS AND THEN TALK ABOUT THREE IMPORTANT TOPICS IN MUSICLAND TODAY. THE SHIFT IN OUR PRODUCT MIX, THE TRANSFORMED OF SAM GOODY TEST STORES IN THE MALLS, AND THE OPENING OF NEW SMALL MARKET STORES. THE MUSICLAND SEGMENT GENERATED TOTAL SALES OF $420 MILLION REPRESENTING [INAUDIBLE] .3%. WE NOW OPERATE 1,327 STORES COMPARED TO 1,348 STORES LAST YEAR. I VIEW OUR COMPARABLE STORE SALES INCREASE AS IMPRESSIVE, GIVEN THAT SALES COMPS AT MALLS DROPPED 7.5% IN THE QUARTER. I CREDIT OUR EMPLOYEES AND OUR MALL BASED SAM GOODY AND FUNCO STORES FOR OUTPERFORMING OTHER MALL RETAILERS AND I'D LIKE TO THANK ALL OUR EMPLOYEES FOR REMAINING FOCUSED DURING THESE DIFFICULT TIMES. COMPARED TO PRO-FORMA INFORMATION FOR LAST YEAR, OUR GROSS MARGIN DECLINED BY 3.3% OF SALES. THE DROP REFLECTED CHANGES IN OUR PRODUCT MIX, DRIVEN BY WEAKNESS IN SALES OF MUSIC AS WELL AS OUR REMERCHANDISING OF SAM GOODY. SG&A EXPENSE INCREASED BY .8% OF SALES REFLECTING THE INVESTMENTS WE MADE IN SAM GOODY. OUR OPERATING MARGIN DECLINED TO A NEGATIVE 4% OF SALES YET REMAINED WITHIN OUR EXPECTATIONS. MUSICLAND'S OPERATING LOSS OF $17 MILLION WAS IN LINE WITH OUR PROJECTIONS. HOWEVER, MUSICLANDS BOTTOM LINE EPS IMPACT OF 6 CENTS DILUTION WAS AHEAD OF EXPECTATIONS ON ACCOUNT OF LOWER INTEREST COST DUE TO THE REFINANCING OF DEBT IN THE SECOND QUARTER. YEAR TO DATE MUSICLAND IS MODESTLY AHEAD OF THE EARNINGS GUIDANCE WE PROVIDED NEARLY A YEAR AGO DESPITE THE CURRENT ECONOMIC ENVIRONMENT.

NOW I'D LIKE TO DISCUSS KEY RECENT DEVELOPMENTS AT MUSICLAND STORES. FIRST, A COMMENT ON THE TESTS AT SAM GOODY. AS YOU KNOW WE SHIFTED THE PRODUCT MIX AT OUR SAM GOODY STORES DURING THE SECOND QUARTER NEARLY DOUBLING OUR DVD MOVIE OFFERINGS, INTRODUCING GAMING HARDWARE AND SOFTWARE, AND INCREASING THE SELECTION OF CONSUMER ELECTRONICS. IN THE THIRD QUARTER WE SAW LARGE GAINS IN SALES OF DVD MOVIES AND GAMING AND A MODEST INCREASE IN CONSUMER ELECTRONICS. THE COST ASSOCIATED WITH SAM GOODY'S TRANSFORMATIN BEGAN TO IMPACT OUR RESULTS IN THE THIRD QUARTER WHICH IN TURN RAISED THE SG&A RATE FOR THE QUARTER. IN THE LONGER TERM WE EXPECT THE CHANGES TO INCREASE OUR TOTAL SALES WHICH ENABLES US TO BETTER LEVERAGE OUR HIGH FIXED COSTS. WE ALSO EXPECT TO REDUCE OUR RELIANCE ON SALES OF PRE-RECORDED MUSIC WHICH HAVE BEEN DECLINING ALL YEAR. SECOND, AS TO SAM GOODY TRANSFORMATIONS, I HAVE VISITED OUR 7 SAM GOODY TEST STORES AND AM PLEASED WITH THE NEW LOOK.

WE ADJUSTED THE SIGNAGE, THE COLOR SCHEMES, THE LIGHTING, THE FIXTURES, AND HAVE ADDED LISTENING STATIONS. EARLY RESULTS ARE FAVORABLE BUT THE [INAUDIBLE] THROUGH THE HOLIDAYS WILL BE THE TRUE TEST. IN MID JANUARY, AFTER WE HAVE THOSE RESULTS, I WILL REPORT BACK TO YOU ON WHETHER WE WILL BE TRANSFORMING ADDITIONAL STORES IN THE COMING FISCAL YEAR. THIRD, OUR NEW SMALL MARKET TEST STORES. AS PROMISED WHEN WE ACQUIRED MUSICLAND, WE ARE TESTING 9 TRANSFORMED [INAUDIBLE] STORES. THE TRANSFORMATION CHANGED THE PRODUCT MIX, IN STORE ENVIRONMENT, IN STORE PLAYS, AND INTERACTIONS. AS WELL AS THE BRAND NAME. SMALL MARKET STORES ARE LESS COSTLY TO BUILD TO OPERATE THAN OUR TYPICAL MALL STORES DUE TO THEIR RURAL LOCATION. ON CUE'S PRIMARY CHALLENGE HAS BEEN CREATING BRAND AWARENESS AND FOR THAT REASON WE ARE ALSO TESTING A CHANGE IN BRAND NAME TO SAM GOODY. WE EXPECT TO SHARE THE RESULTS OF THAT TEST AFTER THE HOLIDAYS. 00:14:0O I'D LIKE TO CONCLUDE WITH A FOURTH QUARTER OUTLOOK. AT MUSICLAND WE EXPECT COMPARABLE STORE SALES TO BE FLAT TO UP 2%, THE UNDERLYING DRIVER IN OUR OUTLOOK IS THE BENEFITS FROM THE REMERCHANDISING STRATEGY WHICH ARE PARTIALLY OFFSET BY THE ECONOMIC CLIMATE. OVERALL WE EXPECT MUSICLAND TO CONTRIBUTE 14 TO 16 CENTS PER SHARE TO BEST BUY'S EARNINGS FOR THE QUARTER. THAT IS IN LINE WITH OUR ORIGINAL GUIDANCE AND ON A FULL YEAR BASIS EARNINGS MIGHT HIT OUR ORIGINAL GOAL OF NO DILUTION TO BEST BUY'S EPS. WE WOULD SEE THAT LEVEL OF PERFORMANCE AS A BIG WIN IN THE CURRENT ENVIRONMENT. NOW I'D LIKE TO TURN THE CALL OVER TO KEVIN LEIGHTON, PRESIDENT OF FUTURESHOP.

THANK YOU KEVIN. ONLY ONE MONTH HAS PASSED SINCE FUTURESHOP JOINED BEST BUY BUT A LOT HAS HAPPENED. WE ARE VERY HAPPY ABOUT THE PROGRESS WE ARE MAKING. OUR EMPLOYEES HAVE EMBRACED THE INTEGRATION PROCESS AND OUR RETENTION HAS BEEN EXTREMELY HIGH. WE ARE WORKING TOGETHER AS A TEAM ON MANY FRONTS, AND WE ARE PARTICULARLY EXCITED ABOUT IMPORTING BEST BUY'S SUPPLY CHAIN MANAGEMENT AND ADVERTISING EFFECTIVENESS PRACTICES. DURING BEST BUY'S FISCAL THIRD QUARTER, WE OPENED 5 NEW STORES AND RELOCATED 7 OTHERS. TOTAL SALES AND COMPARABLE SALES BOTH INCREASED 11% IN THE QUARTER, A COMPARISON IN CANADIAN DOLLARS. TOTAL SALES, ON A PRO-FORMA BASIS TOTALED US $350 MILLION. FOR THE MONTH OF NOVEMBER TOTAL SALES WERE APPROXIMATELY $1240 MILLION, US. GOING FORWARD WE EXPECT TO REPORT COMPARABLE STORE SALES, BASED ON LOCAL CURRENCY, BUT TOTAL SALES IN US DOLLARS. IN CANADA WE CELEBRATE THANKSGIVING IN EARLY OCTOBER AND SALES REMAINED FAIRLY CONSISTENT THROUGH THE PERIOD. OUR VERSION OF BLACK FRIDAY ACTUALLY OCCURS THE DAY AFTER CHRISTMAS AND IS KNOWN AS BOXING DAY. SALES FOR THIS DAY ARE NORMALLY 2 AND A HALF TIMES AS BIG AS THE NEXT LARGEST SALES DAY OF THE YEAR. WE HAVE A VERY POSITIVE OUTLOOK FOR THE FOURTH QUARTER.

IN OUR COMPARISONS WE WILL USE OUR PRO-FORMA RESULTS AND NOT OUR ACTUAL HISTORICAL RSULTS SINCE WE ARE NOW OPERATING ON BEST BUY'S FISCAL CALENDAR AND APPLYING US GAAP. WE EXPECT DIGITAL PRODUCT CYCLE, AND NEW PRODUCT RELEASES, TO DRIVE TOTAL SALES GROWTH OF 10- 12% AND COMPARABLE STORE SALES GAINS OF 8 - 10%. WE ANTICIPATE THAT THE GROSS PROFIT MARGIN WILL DECREASE REFLECTING CONTINUED CHANGES IN THE PRODUCT MIX. HOWEVER, WE ALSO EXPECT AN EQUIVALENT DECREASE IN SG&A EXPENSES AS WE LEVERAGE OUR EXPENSES OVER A LARGER SALES BASE. OPERATING INCOME, WHICH WILL BE CONSTRAINED BY INTEGRATION COSTS DURING THE FOURTH QUARTER, IS EXPECTED TO REMAIN AT APPROXIMATELY 2.9% OF SALES. BASED ON THOSE ASSUMPTIONS, WE ASSUME FUTURESHOP WILL ATTAIN OUR TARGET OF 1 - 2 CENTS OF ACCRETION TO BEST BUY'S FISCAL FOURTH QUARTER.

NEXT DARREN JACKSON WILL RECAP THE QUARTERS FINANCIAL RESULTS AND PROVIDE THE OUTLOOK FOR THE BALANCE OF THE COMPANY'S 2002.

THANKS KEVIN AND WELCOME AND GOOD MORNING EVERYONE. I'M PLEASED TO BE REPORTING ANOTHER STRONG QUARTER OF PERFORMANCE FOR BEST BUY. THIS MORNING I WILL GIVE YOU MY ANALYSIS OF THE QUARTERS RESULTS AND THEN OUTLINE OUR EXPECTATIONS FOR THE NEXT QUARTER INCLUDING OUR ASSUMPTIONS OF FOURTH QUARTER SALES AND OTHER KEY FACTORS. RATHER THAN REPEAT THE NUMBERS THAT WERE CONTAINED IN THE PRESS RELEASE, I WILL FOCUS ON SOME SPECIFIC HIGHLIGHTS. FIRST I WOULD LIKE TO COMMENT ON THE TREND OF BUSINESS. SALES WERE SIGNIFICANTLY BELOW PLAN FOLLOWING THE TERRORISTS ATTACK AND THEN STEADILY IMPROVED THROUGHOUT THE QUARTER. THE NOVEMBER COMPARABLE STORE SALES, AS AL MENTIONED, APPROACHED THE HIGH SINGLE DIGITS WHICH GIVES US CONFIDENCE IN THE FOURTH QUARTER OUTLOOK. BEST BUY'S MARGINS INCREASED A DRAMATIC 190 BASIS POINTS IN THE QUARTER, THE PRINCIPAL FACTOR WAS RATE IMPROVEMENT AS PROMOTIONAL MARKDOWNS WERE SIGNIFICANTLY LOWER IN THE CURRENT YEARS QUARTER VERSUS A YEAR AGO.

IN ADDITION, SALES MIX AND INVENTORY MANAGEMENT CONTINUED TO AID MARGINS. WITH RESPECT TO SG&A, WE WERE UP APPROXIMATELY 270 BASIS POINTS OVER THE PRIOR PERIOD LAST YEAR, DRIVEN BY THE INCLUSION OF MUSICLAND'S HIGHER EXPENSE STRUCTURE. THE MORE RELEVANT COMPARISON WOULD BE TO LAST YEAR'S PRO-FORMA SG&A RATE WHICH ADJUSTS LAST YEARS RATE TO INCLUDE THE IMPACT OF OUR ACQUISITION SO AS TO ALLOW AN APPLES TO APPLES COMPARISON. ON A PRO-FORMA BASIS, OUR SG&A RATE INCREASED 50 BASIS POINTS DESPITE THE ABSENCE OF DOTCOM AND NEW YORK CITY LAUNCH COSTS WHICH OCCURRED IN THE PRIOR YEAR. OUR SAVINGS IN THE LAUNCH COSTS AND OTHER PRODUCTIVITY GAINS THROUGHOUT THE COMPANY WERE OVERCOME BY THE DELEVERAGING IMPACT OF LOWER COMPARABLE STORE SALES AND THE HIGHER PENETRATION OF NEW STORES WHICH INITIALLY HAVE LOWER PRODUCTIVITY. AS AN ENTERPRISE, OPERATING INCOME GREW A SOLID 52% TO $129 MILLION OR 2.7% OF SALES.

TWO MORE ITEMS BEFORE I GET TO THE FORECAST. INTEREST INCOME AND THE BALANCE SHEET. INTEREST INCOME DECREASED BY APPROXIMATELY $5 MILLION DUE TO LOWER INTEREST RATES EARNED ON OUR CASH BALANCES. THE BALANCE SHEET IS VERY STRONG WITH A CASH BALANCE OF NEARLY $850 MILLION AT QUARTER END. OUR AVERAGE INVENTORIES PER STORE ARE DOWN 2% COMPARED WITH A YEAR AGO, SO THEY ARE OBVIOUSLY GROWING SLOWER THAN SALES, CLEARLY WE ARE DOING AN EXCELLENT JOB AT MANAGING PRODUCT TRANSITIONS AND INVENTORY LEVELS OVERALL.

NOW I'D LIKE TO ELABORATE ON THE FORECAST IN OUR NEWS RELEASE. IN THE FOURTH QUARTER WE EXPECT TOTAL SALES TO GROW BY APROXIMATELY 25% TO $6.8 BILLION, DRIVEN BY NEW BEST BUY'S STORES AND RECENT ACQUISITIONS. WE EXPECT THE DIGITAL PRODUCT CYCLE, AND OTHER NEW PRODUCT RELEASES, SUCH AS VIDEO GAMING WOULD CONTRIBUTE TO A COMPARABLE STORE SALES ICNREASE OF FLAT TO PLUS 2%. THAT FIGURE INCLUDES THE NEGATIVE IMPACT OF THE CALENDAR SHIFT WHICH WE ESTIMATE AT $100 MILLION OR 2% OF SALES. FUTURESHOP IS EXPECTED TO INCREASE SALES BY $425 MILLION US FOR THE QUARTER. OFFSETTING FUTURESHOP'S SALES WILL BE ONE LESS WEEK OF BUSINESS DUE TO LAST YEAR'S 53RD WEEK WHICH ADDED 280 MILLION IN SALES TO THE FOURTH QUARTER LAST YEAR. FINALLY, TO SUMMARIZE, THE BALANCE OF THE ENTERPRISE ASSUMPTIONS ARE AS FOLLOWS: GROSS PROFIT MARGINS IN THE FOURTH QUARTER ARE EXPECTE TO SHOW A MODERATE IMPROVEMENT REFLECTING CONTINUED IMPROVEMENT IN PRODUCT MIX AND INVENTORY MANAGEMENT. SG&A EXPENSE RATE IS EXPECTED TO IMPROVE MODESTLY VERSUS LAST YEAR. IF THESE ASSUMPTIONS PROVE TO BE RIGHT, WE WOULD EXPECT EARNNINGS PER SHARE OF $1.25 TO $1.30 BRINGING THE FULL YEAR TO $2.28 TO $2.33, AN INCREASE OF NEARLY 25% ON APPROXIMATELY 19.5 BILLION IN SALES. WITH THAT. I'LL RETURN THE CALL TO DICK.

THANKS, JOHN. ALL OF US THROUGHOUT THE BEST BUY ENTERPRISE ARE QUITE OPTIMISTIC ABOUT THIS YEAR'S ALL IMPORTANT HOLIDAY SELLING SEASON, AND WITH GOOD REASON. I'M HAPPY TO REPORT THAT MONTH-TO-DATE, SALES OF ALL OF OUR BRANDS ARE IN LINE WITH OUR EXPECTATIONS. CERTAINLY WE CAN'T IGNORE THE UNEMPLOYMENT FIGURES, THE RISING HEALTH CARE COSTS OR THE SIGNS OF RECESSION THAT ARE ALL AROUND US. NOR CAN WE DOWN PLAY THE IMPACT OF OUR NATION'S WAR ON TERRORISM. IN ADDITION THE HOLIDAYS ARE THE MOST COMPETITIVE TIME OF THE YEAR FOR EVERY RETAILER. THIS YEAR IS NO DIFFERENT. IN GENERAL, WE BELIEVE THE PROMOTIONAL ENVIRONMENT IS, IF ANYTHING, MORE PROMOTIONAL THAN LAST YEAR. WHAT'S DIFFERENT ABOUT THIS HOLIDAY SEASON IS THE INCREDIBLY STRONG BRANDS WE OFFER. A YEAR AGO WE HAD ONLY OUR BEST BUY STORES WHICH TARGET THE TECHNOLOGY AND ENTERTAINMENT ENTHUSIASTS TO A DESTINATION STORE. NOW, WE VIEW BEST BUY STORES AS THE FOUNDATION OF OUR BRAND PORTFOLIO ON WHICH WE OVERLAY SEVERAL NEW BRANDS WHICH AFFORD US THE OPPORTUNITY TO TOUCH MILLIONS OF NEW CONSUMERS. THROUGH OUR MALL-BASED STORES WE EXTEND OUR REACH TO CONVENIENT SHOPPERS WHO ALSO TEND TO INCLUDE MORE WOMEN. WITH OUR SMALL MARKET FORMAT, WE TOUCH PEOPLE WHO LIVE IN COMMUNITIES FAR SMALLER THAN WE COULD REACH BEFORE. IN OUR MAGNOLIA HI-FI STORES WE GAIN ACCESS TO THE AFFLUENT CONSUMER AND PROVIDE A WHOLE DIFFERENT LEVEL OF SERVICE. FINALLY THROUGH HOUR ACQUISITION OF FUTURE SHOP, WE SERVE OUR FIRST INTERNATIONAL CUSTOMERS. WITH THESE NEW BRANDS AND ADDITIONAL WEB SITES, WE WEATHERED A RECESSION AND PRODUCED SIGNIFICANT EARNINGS INCREASES. THIS TIME, AS WE TURN OUR ATTENTION TO THE NEXT YEAR, I HAVE NEVER BEEN MORE EXCITED ABOUT THE BRANDS WE OFFER, OUR PROSPECTS FOR TAKING MARKET SHARE, OR OUR LONG TERM STRATEGY. WHEN THIS NATION RECOVERS, AS WE ALL KNOW IT WILL, BEST BUY WILL BE IN AN EVEN STRONGER POSITION TO FULLY BENEFIT. WITH THAT, I WOULD LIKE TO KENT -- ASK KENT TO OPEN UP THE FLOOR TO QUESTIONS FROM OUR INVESTOR AUDIENCE. THANK YOU VERY MUCH.

LADIES AND GENTLEMEN IF YOU DO WISH TO ASK A QUESTION, PRESS THE ONE ON YOUR TOUCH TONE PHONE. YOU'LL HEAR A TONE INDICATING YOU HAVE BEEN PLACED IN CUE. YOU MAY REMOVE YOURSELF FROM CUE BY PRESSING THE POUND KEY. IF YOU ARE USING A SPEAKER PHONE YOU MAY NEED TO PICK UP YOUR HAND SET BEFORE PRESSING ANY OF THE NUMBERS. THE FIRST QUESTION COMES FROM THE LINE OF DAVID SCHICK WITH SUN TRUST.

GOOD MORNING DAVID.

HI, GOOD MORNING. CONGRATULATIONS.

THANK YOU.

I HAVE THREE QUESTIONS. THE FIRST IS COULD YOU TALK ABOUT THE STATUES OF SUPPLY. I'M ASSUMING THE DEMAND IS EVERYTHING WE ARE ALL THINKING ABOUT. THE SUPPLY SIDE OF THE GAMING PLATFORMS AND YOUR EXPECTATIONS FOR THAT AS WE CLOSE-OUT THE YEAR AND GO INTO THE NEXT YEAR. THE SECOND QUESTION IS IF YOU COULD UPDATE US ON THE NEW YORK MARKET AND HOW THAT'S STARTING TO COMP IF YOU CAN TALK ABOUT THAT. LASTLY, I JUST WANTED A CLARIFICATION, I THINK AL INCLUDED PCS AS EXPECTING TO SEE STRENGTH IN PCS NEXT YEAR. IF YOU COULD QUANTIFY THAT OR QUALIFY THAT A LITTLE BIT YOUR OUTLOOK FOR PCS AS WE GO Q4 AND THE NEXT YEAR.

THE THREE PLATFORMS WE ARE DOING A LOT OF BUSINESS IS IN IS PLAYSTATION-2. THE SALES HAVE BEEN VERY, VERY STRONG AS HAS THE SUPPLY FROM THE VENDOR BEEN VERY STRONG. THERE'S NO ISSUES THERE. WE BASICALLY CAN GET AS MUCH AS WE WANT IN TERMS OF PLAYSTATION-2. IN TERMS OF THE NINTENDO GAME CUBE, YOU KNOW THERE WAS KIND OF LIMITED SUPPLY INITIALLY, BUT AS THE WEEKS ARE PROGRESSING, WE ARE STARTING TO GET A LOT MORE, AND WE WOULD EXPECT WE'VE GOT A FAIRLY SIGNIFICANT NUMBER AVAILABLE FOR IS SALE THIS WEEK AS WELL AS NEXT WEEK. X BOX THE SUPPLY ON THAT HAS BEEN A LITTLE MORE CONSTRAINED. WE EXPECT THAT TO PROBABLY BUILD NEXT YEAR. WITH RESPECT TO THE NEW YORK COMP STORE SALES, I THINK WE INDICATED IN OUR PRESS RELEASE THE NEW YORK MARKET WAS OUR STRONGEST COMP STORE GROWTH MARKET. AND ALSO MIGHT ADD THAT NEW YORK IS MAKING INCOME AS WELL. AND THEN THIRD ON THE COMPUTER FRONT, WE SAID THAT, YOU KNOW, COMPUTER SALES WERE DOWN, BUT THEY WERE DOWN LESS THAN THEY HAD BEEN IN THE FIRST HALF OF THE YEAR. I THINK WHAT WE ARE HEARING FROM THE VENDOR SIDE OF THE BUSINESS IS THAT, YOU KNOW, BUSINESS, AGAIN NEXT YEAR WILL DECLINE FURTHER. AT THE SAME TIME, BEST BUY IS CONTINUING TO AGAIN MARKET SHARE, EVEN THOUGH THE PIE IS SHRINKING, OUR PIECE OF THE PIE IS CONTINUING TO INCREASE BOTH IN THE DESK TOP AND PARTICULARLY IN THE NOTEBOOK SIDE OF THE BUSINESS. WE HAVE, IF YOU LOOK AT THE MAJOR -- FOUR MAJOR RETAILERS THAT SELL PCS FROM AN INTEL-BASED PROCESSOR STAND POINT, BEST BUY IS SELLING MORE THAN 50% OF THOSE PROCESSORS.

THANKS.

THANKS, DAVID. NEXT QUESTION, PLEASE.

THE NEXT QUESTION COMES FROM ALAN RIFKIN'S LINE WITH LEHMAN BROTHERS. GO AHEAD.

CONGRATULATIONS ON A GREAT QUARTER.

THANK YOU.

A COUPLE OF QUESTIONS WITH RESPECT TO MUSICLAND. CAN YOU PROVIDE SOME COLOR ON HOW INVENTORY IS POSITIONED THERE. SECONDLY I BELIEVE ORIGINAL GUIDANCE FOR Q4 WAS A LITTLE BIT ABOVE THE 14 TO 16 CENT GUIDANCE. CAN YOU ELABORATE WHY YOU ARE TAKING THAT DOWN DESPITE YEAR-TO-DATE MUSICLAND IS TRENDING ABOVE YOUR EXPECTATIONS. THIRDLY IF YOU DON'T MIND COULD YOU PROVIDE A LITTLE MORE COLOR AS TO EXACTLY LIKE WHAT PRODUCT LINES YOU ARE SEEING THE HEAVIEST PROMOTIONAL ENVIRONMENT IN?

THANKS, ALAN. KEVIN, WHY DON'T YOU GO AHEAD. IN TERMS OF INVENTORY LEVELS, INVENTORY LEVELS ARE SLIGHTLY BELOW SAME TIME LAST YEAR. THEY HAD BEEN SUBSTANTIALLY BELOW AS WE WENT THROUGH THE TRANSITION IN SAM GOODE GETTING OUT OF PRODUCTS WE WERE DISCONTINUING AND, IN ANTICIPATION OF BUILDING INVENTORIES IN DVDS, GAMES AND CONSUMER ELECTRONICS. THEY ARE DOWN LOW SINGLE DIGITS BELOW WHERE THEY WERE LAST YEAR. IN TERMS OF THE ORIGINAL GUIDANCE. IT LOOKED AT I BELIEVE 20 TO 25 CENTS. WE HAVE LOWERED THAT NUMBER PRIMARILY WE ALSO HAD GIVEN GUIDANCE OF SIGNIFICANTLY HIGHER COMP INCREASES IN THE FOURTH QUARTER. WE HAD TAKEN A LOOK AND THE MAJOR ISSUE WE ARE CONFRONTED WITH RIGHT NOW IS MALL SALES AT THE BEGINNING OF THE YEAR WERE ESSENTIALLY FLAT, AND WE WERE SUBSTANTIALLY DOWN, BEING NEGATIVELY AFFECTED BY THE DECLINE IN CD SALES AS OF THE 9-11 EVENT FORWARD, SALES IN THE MALLS HAVE GONE DOWN SUBSTANTIALLY. WHILE WE HAVE BEEN ABLE TO BASICALLY HAVE SLIGHT COMP INCREASES, BUCKING THE TREND, WE ARE NOT HAVING -- WE WILL NOT REPORT THE LEVEL OF COMP INADDRESSES IN FOURTH QUARTER WE HAD ORIGINALLY BUDGETSED.

THANK YOU.

WITH RESPECT TO THE PROMOTIONAL SIDE OF THE WORLD, ESSENTIALLY OUR REFERENCE WAS TO A STEPPED UP LEVEL OF PRICING ACTIVITY ON CD SOFTWARE IN PARTICULAR DURING THE THANKSGIVING HOLIDAY WEEKEND. AND WE ARE ALSO SEEING A LITTLE BIT OF STEPPED UP INCREASE IN THE NUMBER AND PRICING LEVELS OF THE ENTRY LEVEL OF THE LARGER SCREEN TELEVISION PRODUCT. SPECIFICALLY 30, 31, 32-INCH COLORED TELEVISION. AND A CERTAIN AMOUNT OF INCREASED ACTIVITY THAT IS BEGINNING TO STEP UP A BIT AS REAPPROACH THE HOLIDAY SEASON ON SOME OF THE VIDEO GAMING SOFTWARE. THOSE ARE BASICALLY THE THREE AREAS WE HAVE SEEN SOME PROMOTIONAL ACTIVITY FROM SOME OF OUR COMPETITION. OTHER THAN THAT EVERYTHING SEEMS TO BE FLOWING ALONG REAL SMOOTHLY. WE ARE REAL, REAL PLEASED WHERE THINGS ARE POISED FOR THIS ALL IMPORTANT WEEK WE ARE IN NOW BEFORE CHRISTMAS.

THANKS AGAIN AND CONGRATULATIONS AGAIN.

THANK YOU. NEXT QUESTION, PLEASE.

NEXT QUESTION FROM BILL GUILIAN FROM SOLOMON, SMITH BARNEY.

GOOD MORNING. I'LL ADD MY CONGRATULATIONS.

THANK YOU, BILL.

I'M CURIOUS ABOUT YOUR THOUGHTS IN GENERAL ABOUT THIS RECESSION. DO YOU FEEL COMFORTABLE, SPECIFICALLY WITH YOUR CURRENT COST STRUCTURE? DO YOU FEEL IT WILL GET YOU THROUGH THE REST OF THE RECESSION WITHOUT ABOUT A EARNINGS MISS? ARE YOU LOOKING AT WAYS TO FINE-TUNE THE.GOV STRUCTURE?

ONE OF THE THINGS I HAVE BEEN THE PROUDEST ABOUT DURING THE COURSE OF THIS VERY BUSY YEAR ACTIVE IN THE RECONFIGURATION OF THE MUSICLAND STORES, THE MOVING OF PERSONNEL WITHIN COMPANIES, OBVIOUSLY THE EXCITEMENT THAT SURROUNDS THE RECENT EDITION OF THE FUTURE SHOP CHAIN TO OUR STORE, THE EXTRAORDINARY ACTIVITY THAT'S GONE AROUND PUTTING NEARLY 60 NEW BEST BUY STORES INTO THE MARKET PLACE, AS YOU KNOW IS FRAUGHT WITH A TREMENDOUS AMOUNT OF ADDITIONAL EXPENSE AND TIME AND EFFORT BY A LOT OF PEOPLE. I MUST TELL YOU THAT UNDER THE DIRECTION AND LEADERSHIP, CERTAINLY OF OUR CFO, OUR SENIOR MANAGEMENT HAS STEPPED UP IN A VERY, VERY IMPORTANT WAY RECOGNIZING THAT THE RECESSION THAT IS AROUND US IS VERY REAL, AND WHILE SO FAR WE HAVE BEEN BLESSED WITH THE FACT THAT THE PRODUCT TECHNOLOGY CYCLE WE ARE RIDING HAS COME OVER THE TOP OF THE SOFTNESS IN THE CONSUMER SPENDING ENVIRONMENT, OUR SENIOR MANAGEMENT AND LEADER SHIP IS VERY COGNIZANT OF DOING MORE WITH LESS. INCREASING PRODUCTIVITY HAS, YOU KNOW, BEEN THE HEALING CRY, LITERALLY, SINCE, YOU KNOW ALL OF THIS ACTIVITY BEGAN. SO WE KNOW AND UNDERSTAND FULLY, YOU KNOW, HOW THE LEADERSHIP THAT WE SHOW WITHIN THE SPECIALTY RETAIL SEGMENT IS AN IMPORTANT EXAMPLE OF WHAT WE STAND FOR AS A COMPANY, AND BRAD AND I HAVE BEEN BASTIONS, EVER SINCE THIS ALL BEGAN, OF TRYING TO KEEP ALL OF THIS IN BALANCE. WE ARE CONFIDENT THAT THE LEADERSHIP THAT IS AT THIS TABLE THIS MORNING, AND IS IN THE FIELD, IS COGNIZANT AS EVER ABOUT THE IMPORTANCE OF MANAGING THAT COST LINE AT THE SAME TIME WE SHIFT THE MIX IN THE RATE TO MAXIMIZE OPERATING PROFIT. WE FEEL THAT, YOU KNOW, SOME OF THE BEST TIMES, CLEARLY FOR OUR COMPANY ARE AHEAD OF US. NOT ONLY AS WE FILL OUT, YOU KNOW THE COUNTRY WITH CLOSE TO 200 MORE BEST BUY STORES, OVER A SOMEWHAT MORE CONSTRAINED AND INSTALLED EXPENSE BASE, BUT AS MUSICLAND BEGINS TO RAMP IN THE SAME DIRECTION, AND, OF COURSE FUTURE SHOP BEGINS TO ADHERE AND TO INCLUDE SOME OF THE IMPORTANT STRUCTURAL CAPITAL THAT WE BRING TO THEM. WE FEEL PRETTY GOOD ABOUT THIS FROM TOP TO BOTTOM. WE SENSE THAT WHILE FROM QUARTER TO QUARTER SOME OF THESE ADJUSTMENTS IN MARGIN AND SG&A COULD VARY WE TRULY EXPECT TO MAKE GAINS IN BOTH AREAS GOING FORWARD. WE ARE PRETTY CONFIDENT WE ARE ON TRACK TO DO THAT.

THANK YOU. THAT'S HELPFUL. I HAVE ONE BRIEF FOLLOW-UP IF I NIGHT. I'M CURIOUS TO KNOW IF YOU ARE SEEING SIMILAR TRENDS THAT MANY OTHER RETAILERS ARE SEEING IN THE SENSE THAT THOSE THAT ARE OPENING NEW STORES IN THIS ENVIRONMENT ARE FINDING THE NEW STORES ARE PARTICULARLY HARD-HIT BY THE RECESSION? AND I WAS WONDERING IF YOU COULD COMMENT ON HOW YOUR NEW STORE PRODUCTIVITY IS DOING.

BILL, THIS IS DARREN JACKSON. I WOULD SAY THIS. WE ARE SEEING THAT THE PRODUCTIVITY AT NEW STORES IS A LITTLE BIT LOWER THAN HISTORICAL OPTION. I WOULD ALSO REMIND YOU WE ARE IN A PHASE OF OUR GROWTH CYCLE OR MATURITY CYCLE WHERE A MAJORITY OF OUR NEW STORES ARE NOW OPENING UP IN EXISTING MARKETS, OR SMALLER MARKETS. SO IN EXISTING MARKETS, IT'S HARDER TO ACHIEVE THE HIGHER LEVELS OF PRODUCTIVITY OUT OF THE BOX BECAUSE WE ARE STEALING SOME BUSINESS FROM OTHER STORES, WHICH CHALLENGES OUR COMP STORE GROWTH RATE. AND IN THE MARKET, WE ARE ALREADY PRETTY WELL PENETRATED. SO WE ARE GOING TO SEE SOME OF THAT IN OUR NUMBERS, AND I THINK I TALKED ABOUT IT A LITTLE EARLIER. IT'S HAVING SOME EFFECT ON SOME OF OUR EXPENSE RATE NUMBERS BECAUSE OF THAT LOWER PRODUCTIVITY. BUT HAVING SAID THAT, IT'S CLEARLY ADDING TO PROFITABILITY AT THE OVERALL ENTERPRISE. SECOND, IN THE SMALLER MARKETS, JUST BECAUSE OF THE DENSITY OF POPULATION, THEY HAVE A LOWER SALES PRODUCTIVITY TO BEGIN WITH. SO THEY ALSO HAVE A LOWER COST STRUCTURE IN TERMS OF WHAT WE INVEST, BUT INEVITABLY, THE RATES, PARTICULARLY IN THE EXPENSE RATES, TEND TO RISE IN THOSE MARKETS AS A RESULT OF THAT LOWER PRODUCTIVITY. BUT THEY ARE ADDING TO PROFITS. NOW, I WOULD TELL YOU WHAT THE GOOD NEWS IS, IS THAT IN THIS CURRENT ECONOMIC ENVIRONMENT, IF THEY ARE OPENING UP SLOW, WE ARE STILL SEEING THAT OVER A PERIOD OF TIME THAT THEY WILL ACHIEVE PRODUCTIVITY LEVELS CONSISTENT WITH OUR EXPECTATIONS OVER THE LONG TERM WHICH SHOULD BE A BENEFIT TO OUR COMP STORE SALES WHEN WE COME OUT OF THIS RECESSION AND WE START HEADING TOWARDS MORE NORMALIZED ECONOMIC TIMES.

OKAY. THAT'S GREAT.

THANK YOU VERY MUCH. YOU BET. THANK YOU. NEXT QUESTION, PLEASE.

YES OUR NEXT QUESTION COMES FROM SHELLY HAILSLINE WITH BANC OF AMERICA SECURITIES.

GOOD MORNING. I HAVE THREE QUESTIONS. FIRST IF YOU COULD QUANTIFY THE VALUE OF THE INVENTORY ACQUIRED FROM FUTURE SHOP IN U.S. DOLLARS. AND THEN SECOND, YOU MENTIONED THE HIGH SINGLE-DIGIT NOVEMBER COMP WHICH WAS ACCELERATED FROM THE BEGINNING OF THE QUARTER. COULD YOU GIVE US THAT SAME COMP ADJUSTED FOR THE CALENDAR SHIFT. FINALLY IT LOOKS LIKE WITH THE SOMEWHAT LOWER GUIDANCE ON THE MUSICLAND BUSINESS YOU ARE EXPECTING BEST BUY STORES TO PERFORM A LITTLE BETTER THAN ORIGINALLY PLANNED. IF YOU COULD TALK ABOUT WHERE THAT UPSIDE COULD COME FROM. THANKS MUCH.

OKAY. DARREN DO YOU WANT TO ANSWER THAT?

YES, SHELLY, I'LL TAKE TWO OF THE QUESTIONS.

YES.

SO AS TO FUTURE SHOP IN CURRENT U.S. DOLLARS, IT WAS ABOUT $240 MILLION THAT WE ADDED TO OUR BALANCE SHEET THIS QUARTER RELATED TOFULLY INVENTORIES. IF WE CALENDAR JUST NOVEMBER FOR THE HIGHER QUALITY DAYS, IT'S GOING TO BE LOW SINGLE DIGIT COMP IN THE MONTH OF NOVEMBER.

AND THE THIRD QUESTION WAS BEST BUY APPEARS TO BE SHOWING SOME UPSIDE IN TERMS OF FROM FORECAST.

THE QUESTION WAS WHAT ON THE FOURTH QUARTER?

YES. IN TERMS OF THE MUSICLAND CONTRIBUTION NOW AT 14 TO 16 DOWN FROM MAYBE 20 TO 25 IMPLIES THAT THE BEST BUY STORES WOULD BE PERFORMING A LITTLE HIGHER THAN THE ORIGINAL GUIDANCE?

I THINK THAT'S WHERE -- MUSICLAND WAS NEVER SUPPOSED TO BE 20 TO 25 IN THE QUARTER.

WHY DON'T I CALIBRATE TIME SO SHELLY, NEARLY A YEAR AGO AT THIS TIME WHEN WE ACQUIRED MUSICLAND WE EXPECTED 7 TO 8 CENTS IN TERMS OF DELUSION IN THE FIRST THREE QUARTERS. 20 TO 25 IN THE FOURTH QUARTER. THE OVERALL GUIDING PRINCIPLE AROUND THAT WAS FOR THE YEAR WE WERE LOOKING FOR MUSICLAND TO EFFECTIVELY HAVE NO IMPACT ON THE OVERALL ENTERPRISE EARNINGS. WE ARE STILL ON TRACK FOR THAT. THAT'S THE GOOD NEWS. THE REALITY IS BETWEEN A YEAR AGO, ESSENTIALLY, I DON'T KNOW IF IT'S TO THE DAY, YOU KNOW, WE -- A LOT OF THINGS HAVE CHANGED. WE ARE FEELING GOOD ABOUT THE FACT THAT WE ARE STILL GOING TO DELIVER FLAT EARNINGS AT MUSICLAND FOR THE YEAR. SO WE TRIED TO GIVE RELEVANT GUIDANCE. THE LEVEL OF PRECISION HAS ONLY IMPROVED AS WE HAVE GOTTEN BETTER INFORMATION THROUGHOUT THE YEAR. SO IMPLIESIT WITHIN OUR OWN FORECAST HAVE BEEN MAKING -- DELIVERING A FLAT PERFORMANCE AT MUSICLAND. AS TO BEST BUY, I WOULD TELL YOU OVER TIME IN THE FOURTH QUARTER THEY HAVE NOTCHED UP A COUPLE PENNIES FROM WHERE THEY USED TO BE. IN PART BECAUSE WE ARE SEEING A LITTLE BETTER MARGIN PERFORMANCE THAN WE WOULD HAVE EXPECTED AT THIS POINT. SO THEY ARE HELPING OFFSET A LITTLE BIT OF THOSE VICTORIA L. VALINE, CSR FOLSOM, CALIFORNIA L95630INE(916) 985-6738 AGAINST -- FILINGER GAINS WE WOULD HAVE ORIGINALLY ANTICIPATED WAY BACK WHEN TO ALLOW US TO DELIVER OUR EARNINGS NUMBER FOR BOTH THE QUARTER AND THE YEAR.

BEST BUY RETAIL, REALLY OUR PERFORMANCE CONTINUES TO IMPROVE. A LOT OF THAT IS REALLY DRIVEN BY THE EXCELLENT EXECUTION AT THE STORE LEVEL. THE PEOPLE IN THE STORE ARE JUST DOING A SUPERB JOB OF TAKING CARE OF THE CUSTOMER, ALL OF THEIR BRAND TRACKING THAT WE SEE IN TERMS OF THE BRAND AND PREFERENCE AND SO FORTH CONTINUES TO ASEND. THE LOYALTY SCORES THAT WE TRACK AT THE STORE CONTINUE TO INCREASE. LIKE I MENTIONED ON THE CONFERENCE CALL HERE, WE CONTINUE TO IMPROVE IN TERMS OF OUR CAPABILITY IN TERMS OF SELLING SOLUTIONS IN SERVICES TO THE CUSTOMER BE IT ACCESSORIES, BE IT PERIPHERALS, BE IT PSPS, I THINK WE ARE ON TRACK TO SELL 1.6 MILLION IN MSN SIGNUPS THIS YEAR. OBVIOUSLY ALL OF THOSE ADD-ONS ARE BASKET ITEMS ARE VERY PROFITABLE SALES.

I WOULD LIKE TO ADD ALSO, SHELLY, ONE ADDITIONAL BENEFIT WE ARE RECEIVING THIS YEAR THAT THEY THINK HAS PLAYED A BIG, BIG PART IN OUR IMPROVED EARNINGS OVER ALL, HAS BEEN THE TREMENDOUS EFFECT AND IMPACT WE HAVE GOTTEN FROM OUR DOT-COM PEOPLE. THE QUALITY OF OUR SITE HAS CONTINUED TO EVOLVE IN SUCH A ROBUST FASHION, WHILE IT MAY HAVE NOT BEEN NOTICED FULLY IN THE PREPARED REMARKS, NEARLY 40% OF THE CUSTOMERS THAT COME TO A BEST BUY STORE TODAY ARE FLUED BY -- INFLUENCED BY WHAT IT IS THEY SHOULD BE PURCHASING FROM OUR DOT-COM VISITATION. THERE'S A TREMENDOUS AMOUNT OF TIME SPENT DETERMINING WHAT'S AVAILABLE AT WHAT PRICES ON WHAT TYPE OF TECHNOLOGY WHICH MAKES OUR SALESPERSON YELL'S WORK ON THE FLOOR SO MUCH MORE EFFICIENT BECAUSE THE CUSTOMER IS BETTER PREPARED WHEN THEY GET TO THE STORE. THEREFORE, THEY JUST SEEK TO VERIFY AND THEN UNDERSTAND. SO OUR ABILITY TO SELL HIGHER QUALITY, MORE FULLY FEATURED MERCHANDISE IS ENHANCED BECAUSE OF THE PREVIOUS EXPERIENCE. SO WHILE WE HAVE NO IDEA, YOU KNOW WHAT'S HAPPENING IN THE REST OF THE WORLD, WE KNOW THAT, YOU KNOW, THIS EXPERIENCE CONTINUES TO IMPROVE YEAR OVER YEAR. AND WE GIVE IT TREMENDOUS AMOUNT OF CREDIT FOR, THE QUALITY AND THE SHIFT IN CONSUMERS' PREFERENCE TO A HIGHER QUALITY, MORE FULLY FEATURED MERCHANDISE. AND THE IMPROVED EXECUTION AL REFERRED TO BY THE SALESPEOPLE ON THE FLOOR. WE HAVE A LOT OF THINGS CLICKING IN THE RIGHT DIRECTION. REMEMBER THAT THE REAL BENEFIT THAT WE WOULD EXPECT TO BRING, CERTAINLY TO OUR ENTIRE ENTERPRISE FOR ALL OF OUR SHAREHOLDERS AND EMPLOYEES, IS THE ABILITY TO SHARE, YOU KNOW, THIS IMPORTANT STRUCTURAL CAPITAL THAT WE ARE BUILDING AS AN ENTERPRISE ACROSS THE VAST REGIONS OF THESE NEW BRANDS THAT ARE IN PLACE. SO WE THINK FROM HERE ON IN IT'S PROSPECTS OF JUST GETTING BETTER AND STRONGER, THANKS TO THE MUTUAL CONTRIBUTIONS FROM SO MANY PEOPLE THAT HAVE PROVIDED US A BETTER WAY TO DO THINGS, YOU KNOW, IT'S CONTINUING TO PAY DIVIDENDS.

THANK YOU VERY MUCH AND CONGRATULATIONS ON THE QUARTER.

THANK YOU, SHELLY. NEXT QUESTION, PLEASE.

NEXT QUESTION COMES FROM DAN WHATEVER'S LINE FROM DEUTSCHE BANK.

GOOD MORNING. TO FOLLOW QUESTIONS ON MUSICLAND. YOU HAD INDICATED THAT YOU ARE SEEING SOME VERY STRONG SALES TRENDS IN DVDS AND GAME SOFTWARE AND HARDWARE. THE CONSUMER PICKUP WAS MODEST. I WAS CURIOUS WHY YOU THINK THE CE IS NOT PERFORMING AS WELL AS THE OTHER CATEGORIES?

WE HAVE TRIED A NUMBER OF DIFFERENT APPROACHES TO CONSUMER ELECTRONICS, STARTING WITH THE TWO TEST STORES WE HAD BACK IN FEBRUARY, MODIFIED THE ASORTMENT THAT WENT OUT TO THE STORES THIS SUMMER AND HAVE ADDED TO PRODUCTS SINCE THEN. AND AS A GENERAL RULE, THE PRODUCTS THAT HAVE BEEN THE MOST SUCCESSFUL HAVE BEEN LOWER THAN AVERAGE SELLING PRICE AND EASY TO CARRY. LARGER ITEMS SUCH AS SHELF SYSTEMS IT TURNS OUT TO BE A FAR MORE DIFFICULT SALE IN THE MALL THAN WE HAD ORIGINALLY ENVISIONED. SOME OF THE ITEMS THAT WE INTEND TO DRIVE ACTUALLY DID NOT MAKE THE CHRISTMAS HOLIDAYS, AND HOPE TO HAVE SOME ANNOUNCEMENTS LATER IN FOURTH QUARTER. BUT AS A GENERAL RULE THE ITEMS THAT HAVE DONE THE MOST SUCCESSFUL WOULD BE LIKE PERSONAL PORTABLE TYPE ITEMS. UNFORTUNATELY BECAUSE IT DID NOT GO AS BROADLY OR ACROSS AS MANY COULD THE GORIES WE EXPECTED THE OVERALL PERFORMANCE WAS LESS THAN WE WOULD HAVE EXPECTED TODAY.

I WOULD EXPECT THE DIFFICULTY IN SELLING THE LARGER ITEMS COULD HAVE A BIG EFFECT ON WHAT YOU CAN DO WITH YOUR TRANSFORMATION PLANS.

LET ME CHIP IN HERE IF I CAN. I'D LIKE TO MAKE A COMPARESON TO BEST BUY. YOU KNOW, WHEN WE TAKE ON NEW SUB CLASSES OF PRODUCT AND CONSUMERS ARE NOT ACUSTOMED TO SEEING THAT PRODUCT IN OUR STORES, THERE'S A CERTAIN LEVEL OF FAMILIARIZATION THAT TAKES PLACE. YOU WANT TO REMEMBER THAT SAM GOODE WAS PRETTY WELL ENTRENCHED IN THE SALE OF CDS OR MUSIC PRODUCT. NO EMPHASIS ON GAMING AND SMATTERING OF DVDS. SO THEY WERE REALLY A MUSIC STORE. THEIR CONTRIBUTION TO HARDWARE WAS EXTREMELY MINIMAL. 59 TO $89 IS PROBABLY WHERE IT ALL TOPPED OUT. IT WAS EXTREMELY SHALLOW IN THE ASORTMENT. WHEN WE WENT THROUGH THE REMERCHANDISING THE BIG AREAS OF EMPHASIS WAS TO SHIFT TO AN ALL TOGETHER NEW OFFERING OF VIDEO GAMING SOFTWARE AND HARDWARE, WHICH NO SURPRISE HAS BEEN HUGELY SUCCESSFUL. THEN THERE WAS THE TREMENDOUS STRENGTHENING OF HARDWARE PRODUCT UP TO AND INCLUDING $200 PRICE POINTS. WHEN CONSUMERS GIVEN BETWEEN 60 AND 90 DAYS TO SEE AND EXPERIENCE THIS KIND OF EXPANSION, IT'S REALLY KNEW TO THEM. AND IT'S NOT SOMETHING THEY ARE EXPECTING TO SEE IN OUR STORES. SO KEVIN AND THE TEAM ARE SPENDING A LOT OF TIME RIGHT NOW WORKING ON A BRANDING POSITION THAT WILL CLEARLY TAKE THE MINDSET OF THE GEN-Y CONSUMER PASSED WHERE THEY HAVE HISTORICALLY SEEN SAM GOODE IN THE PAST. AS FAMILIARIZATION WITH THIS PRODUCT OFFERING INCREASES, CONSUMERS WILL BE INCREASINGLY MORE UNDERSTANDING OF WHAT WE ARE DOING AND WHAT OUR OFFER IS. WE WOULD EXPECT THAT IT WILL BE AN EVOLVING STRENGTH FOR THE BUSINESS AS IT CONTINUES TO IMPROVE.

ONE OTHER QUESTION IF I COULD, DICK. YOU TALKED ABOUT THE AGGRESSIVE PRICING AT CIRCUIT IN CDS AND 32-INCH TELEVISION. IS THERE ANYTHING ELSE THAT THEY ARE DOING IN TERMS OF MERCHANDISING OR MARKETING THAT COULD HAVE AN EFFECT ON YOUR BEST BUY STORES?

YEAH. I MEAN I THINK THIS WEEK IN PARTICULAR THEY ARE PROBABLY A LITTLE MORE AGGRESSIVE ON THE GAMING THAN THEY HAVE BEEN IN THE PAST. THEY WERE AGGRESSIVE THANKSGIVING WEEKEND IN TERMS OF THE MUSIC AND MOVIES AS WE WERE A YEAR AGO. FRANKLY, WE ELECTED TO FOLLOW, I GUESS A MORE TARGETED STRATEGY THIS YEAR FROM A PROMOTION STAND POINT, AND MET WITH GREAT SUCCESS ON THAT AND ENDED UP WITH SOME PRETTY SIGNIFICANT COMP INCREASES BOTH ON FRIDAY AND SATURDAY AND EVEN MORE IMPORTANTLY THE COMP GROSS MARGIN INCREASE WAS UP SUBSTANTIALLY OVER LAST YEAR WHEN WE GOT VERY, VERY AGGRESSIVE ON THE MUSIC. AND FRANKLY, YOU KNOW, DIDN'T GET A LOT OF ATTACHMENTS TO THE SALES THAT WE MADE BASICALLY NOTHING ON. SO I THINK THE STRATEGY WE ARE FOLLOWING FROM A PROMOTION STAND POINT IS THE APPROPRIATE STRATEGY. WE ARE MUCH MORE TARGETED IN TERMS OF THE PROMOTIONS THAT WE ARE PUTTING OUT THERE.

BESIDES CHANGES IN PRICING, YOU DON'T SEE ANYTHING ELSE THAT THEY ARE DOING THAT AFFECTS YOUR BUSINESS?

NO. NOT AT THIS POINT.

GREAT. THANKS A LOT.

THANK YOU. NEXT QUESTION, PLEASE.

YES NEXT QUESTION COMES FROM SARA GREG'S LINE WITH ROBERTSON STEVENS.

GOOD MORNING.

GOOD MORNING.

YOU HAVE BEEN REFERRING TO A RETAIL ENVIRONMENT THAT'S CHARACTERIZED BY RECESSION. NEXT YEAR ARE YOU PLANNING WITH AN EXPECTATION OF A CONTINUATION OF RECESSION IN HOW DOES THAT IMPACT YOUR INVENTORY, YOUR COMP OUTLOOK. IF YOU COULD PROVIDE US -- ))) I'LL TAKE THE FIRST ONE. THEN WE'LL -- I THINK WE'LL TALK ABOUT THAT IN MUCH MORE DETAIL ON JANUARY 9TH IN TERMS OF HOW WE SEE THE UPCOMING YEAR AND HOW OUR OVERALL PLANS ARE. I THINK DICK SORT OF ALEWDED TO EARLIER THAT OUR POSITION WILL BE INCLINED TO BE CONSERVATIVE. WE'LL GIVE YOU -- WE'LL FLESH THAT OUT A GREAT DEAL MORE ON JANUARY 9TH.

WITH RESPECT TO THE APPLIANCE INITIATIVE WE TOOK THE FIRST SIX TO 9 MONTHS DOING A LOT OF FACT-FINDING IN TERMS OF UNDERSTANDING, YOU KNOW THE PROCESS ALL THE WAY FROM THE FRONT END TO THE BACK END. IN ANALYZING WHAT ARE THE ISSUES IN TERMS OF THE APPLIANCE BUSINESS. AND WE ARE NOW IN THE PROCESS, I GUESS WHAT YOU COULD SAY VALUE TARGETING AND IDENTIFYING WHAT IS THE LOW HANGING FRUIT, WHAT'S THE COST OF GOING AFTER THAT LOW HANGING FRUIT AND WHAT'S THE BENEFIT OF THAT. IT'S EXPECTED THAT THOSE PLANS AND INITIATIVES WILL BE PUT INTO EFFECT STARTING AT THE BEGINNING OF NEXT FISCAL YEAR. AND THEN AT THE SAME TIME, WE ARE ALSO GOING TO BE WORKING ON SOME OF THE MORE LONGER TERM STRATEGIC TYPE THINGS. FOR EXAMPLE SUPPLY CHAIN MANAGEMENT THAT WILL PROBABLY TAKE SEVERAL YEARS TO GET IMPLEMENTED. SO I THINK ANY IMPACTS OUT OF THE APPLIANCE INITIATIVE, YOU WON'T SEE THOSE UNTIL NEXT YEAR.

ALSO, I THINK IT'S PRUDENT FOR YOU TO KNOW THAT WE ARE THINKING ABOUT THIS BUSINESS IN A LITERALLY UNABAITED FASHION. WE ANNOUNCED CLOSE TO 60 NEW STORES FOR NEXT YEAR. WE FULLY INTEND TO ACT ON THAT ENTIRE INITIATIVE. OUR STRATEGY IS TO GROW ALL THREE OF OUR BRANDS, BUT CLEARLY WE WANT TO GROW THEM FROM A POSITION OF KNOWLEDGE AND STRENGTH ABOUT THEIR FINANCIAL PERFORMANCE. WE WANT TO CONTINUE TO BENEFIT FROM THE LEVERAGE THAT WE THINK WE CAN CREATE, CERTAINLY BY ADDING NEW STORES INTO THESE, BY AND LARGE, EVEN EXISTING MARKETS. CERTAINLY NEW YORK WOULD BE A LEADING EXAMPLE OF WHERE MORE NEW STORES CAN ONLY HELP US. UNDERNEATH THIS ADVERTISING UMBRELLA. WE CAN LEVERAGE OFF THE HIGH QUALITY DISTRIBUTION AND SERVICE INFRASTRUCTURE THAT WAS BUILT TO SUPPORT THE NEW BUSINESS MODEL. THE MUSICLAND STRATEGY CLEARLY IS KEEPING PACE WITH PERFORMANCE AS THESE TESTIMONY'S INVOLVE. THE OUTCOME WE ARE NOT GOING TO BE RACING TO PUT A BUNCH OF TRANSFORMED STORES INTO PLACE THAT WE ARE NOT CONFIDENT WILL CREATE THE KIND OF ECONOMIC OUTPUTT WE ARE LOOKING FOR. SO THERE WILL BE A BLEND, CLEARLY OF VERY CAUTIOUS, CAREFUL LOOKS AT THE TESTS THAT WE ARE RUNNING IN THE VARIOUS STRATEGIES. AT THE SAME TOKEN WE WILL BE CONTINUING TO RAMP UP MEANINGFUL EXPANSION ON THOSE WHERE WE KNOW WE ARE GETTING REAL PAY BACK AND WHERE THE COMPANY CAN GAIN LEVERAGE FROM ITS SCOPE AND SCALE. AS BRAD POINTED OUT WE WILL BE TALKING MORE IN JANUARY ABOUT HOW WE VIEW NEXT YEAR. HOW WE THINK CLEARLY OUR GROWTH PLANS, YOU KNOW, SHOULD CONTINUE TO WORK TO SERVE OUR SHAREHOLDERS' EXPECTATIONS OF OUR NEWLY RESTRUCTURED ENTERPRISE.

GREAT. THANK YOU.

NEXT QUESTION, PLEASE.

NEXT QUESTION COMES FROM DARREN KENNEDY'S LINE WITH GOLDEN SACKS. PLEASE GO AHEAD.

HI THERE IT'S MAT FASSLER AND DARREN KENNEDY FROM GOLDEN SACKS. A COUPLE OF QUESTIONS IF WE MAY. FIRST OF ALL CAN YOU TALK ABOUT THE IMPACT THAT LOWER COST OF CAPITAL IN TERMS OF LOWER INTEREST IN TERMS OF MAKING ZERO PERCENT FINANCING MORE AFFORDABLE FOR YOU?

DARREN?

YES. MATT IT WAS HELPFUL. JUST BY WAY OF BACKGROUND. WE OUTSOURCED CREDIT AND WE PARTNER WITH HOUSEHOLD FINANCE TO DO THAT. AS INTEREST RATES MOVED DOWN, IN OUR PARTNERSHIP, IT BECOMES MORE AFFORDABLE FOR US TO OFFER ZERO PERCENT FINANCING TO OUR CUSTOMERS SO ECONOMICALLY IT IS HELPFUL. I DON'T HAVE A QUANTIFICATION OF WHAT IT MEANT IN THE QUARTER, BUT I WOULD SUGGEST TO YOU THE WAY THAT WE THINK ABOUT IT AND THE WAY WE APPLY IT IS THAT OUR MERCHANTS THINK ABOUT PRE-FINANCING LIKE A MARKDOWN. THEY BUILD IT INTO THEIR PLANS FOR PRODUCT TO SEE IF THEY GET TO AN ULTIMATE GROSS MARGIN THAT'S ACCEPTABLE. IF IT'S GOTTEN CHEAPER AND THEY THINK THEY CAN MOVE PRODUCT MORE EFFECTIVELY FOR CUSTOMERS THAT IS A MARKDOWN PRE-FINANCING THEY WILL TAKE TO DRIVE MORE PROFITS. I'M CERTAIN IN THIS ENVIRONMENT WHERE THEY HAVE SEEN IT TO BE MORE EFFECTIVE WERE USING IT MORE EFFECTIVELY.

GREAT. ThE SECOND QUESTION IF I MAY. YOU ALEWDED TO YOUR STRATEGY LAST NOVEMBER OF PROMOTING AGGRESSIVELY. ONE OF THE OUTCOMES OF THAT WAS A TOUGH SALES COMPARESON IN NOVEMBER. CAN YOU CHARACTERIZE THE KIND OF SALES COMPARESON THAT YOU FACE IN DECEMBER, WHICH I WOULD IMAGINE IS SOMEWHAT EASIER FOR YOU AND HOW YOU ARE FACTORING THAT INTO THE SALES -- ))) YES. WELL, REMEMBER LAST -- THE FOURTH QUARTER LAST YEAR COMPS WERE UP ONE-AGRICULTURETH. IF MEMORY SERVES I THINK IT WAS THREE IN THE MONTH OF DECEMBER. THE COMPARESONS AREN'T AT CHALLENGING. WE DIDN'T GIVE OUT THE MARGINS FOR DECEMBER BUT FOR THE FOURTH QUARTER IN GENERAL LAST YEAR WE WERE UP ABOUT 100 BASIS POINTS. SO ESSENTIALLY IN THE FOURTH QUARTER AND IN THE DECEMBER TIME PERIOD, YOU CAN, GIVEN WHAT THAT MEANS TO THE QUARTER, WE DIDN'T BUY THE BUSINESS. I THINK WE WERE MORE THOUGHTFUL IN TERMS OF HOW WE TARGETED PROMOTIONS IN DECEMBER AND FOR THE FOURTH QUARTER. SO WE ARE NOT UP AGAINST AS CHALLENGING NUMBERS. THE ONE CHALLENGE WE WILL HAVE WHEN WE REPORT THE NUMBERS, MATT JUST SO WE DON'T CONFUSE PEOPLE. WE HAVE A TWO-DIMENSIONAL CALENDAR SHIFT GOING ON THIS YEAR. ONE HAS TO DO WITH THE 53RD WEEK COMING OUT. THE SECOND IS THE MOVEMENT OF MORE QUALITY DAYS INTO THE THIRD QUARTER FROM THE FOURTH QUARTER. SO OUR ZERO TO TWO GUIDANCE CALENDAR ADJUSTED IS REALLY TWO TO FOUR. THAT WE'VE SUGGESTED IS OUR FORECAST FOR THE FOURTH QUARTER.

GOTCHA. ONE FINAL QUESTION. KIND OF CAPITALIZING ON THAT POINT THAT YOU MADE. TO THE EXTENT WE ARE GOING TO REALLY TRY TO FINE TUNE OUR ANALYSIS OF YOUR INVENTORIES HOW DID THE CALENDAR SHIFT WITH THE QUARTER ENDING A WEEK LATER IN THE SELLING SEASON IMPACT YOUR INVENTORY POSITIONS? WOULD YOUR INVENTORIES HAVE BEEN HIGHER OR LOWER AT THE END OF THE FISCAL QUARTER BECAUSE OF WHERE THE QUARTER FELL IN PROGRESSION TO CHRISTMAS?

A LITTLE LOWER BECAUSE OBVIOUSLY WE HAD MORE POST THANKSGIVING DAYS THIS QUARTER THAN LAST QUARTER CHEWING INTO THOSE INVENTORY LEVELS. THE WAY I WOULD LOOK AT IT BOTH THE COMP STORE SALES NUMBER AND THE COMP STORE INVENTORY NUMBER WHICH IS MY NEWS TWO ARE BOTH GOING IN THE RIGHT DIRECTION IF YOU THINK ABOUT OUR POSITION FOR THE FOURTH QUARTER. SO OUR COMPS WERE ONE, SIX. SO I THINK GOING INTO THE FOURTH QUARTER WE FEEL PRETTY GOOD ABOUT OUR INVENTORY POSITION. IF YOU LOOK AT OUR TRAILING 12-MONTH TURNS WE WERE 7-3 THIS YEAR VERSUS 7-3 LAST YEAR. I THINK AS WE TALKED ABOUT IN THE LAST CONFERENCE CALL IN PART WE ARE NOT SEEING THE IMPROVEMENTS YEAR OVER YEAR BECAUSE WHEN THE PC CATEGORY DECLINES WHICH IS A BUSINESS THAT TURNS, YOU KNOW, 15-PLUS TIMES AND WE ARE TRYING TO DO A BETTER JOB AN INSTOCKS AND VERY KEY CATEGORIES OF BUSINESS, WHICH I THINK ALL OF OUR SCORES ARE TELLING US WE ARE DOING A LITTLE BETTER JOB THIS YEAR, WE FEEL GOOD THAT THE TRAILING TURNS BEING FLAT IS REALLY AN IMPROVEMENT AS WE TURN THE CORNER ON THE FOURTH QUARTER.

GOTCHA. THANK YOU VERY MUCH. IT WAS TERRIFIC. )) THANKS, MATT. NEXT QUESTION, PLEASE.

WE REACHED NEAR THE END OF OUR A LOTTED TIME FOR QUESTIONS. WE DO HAVE TIME FOR ONE FURTHER QUESTION.

HI, HOW ARE YOU? I HAD A QUESTION ABOUT THE WIRELESS SALES AND A LITTLE MORE COLOR ON WIRELESS AND WHERE DO YOU SEE IT GOING IN THE FUTURE?

ALAN, DO YOU WANT TO ADDRESS THAT DIRECTLY? OBVIOUSLY IT'S BEEN A STRONG CATEGORY FOR US ALL YEAR LONG. IF WE HAVE BEEN RIDING A CREST OF THE ENTIRE WIRELESS BUSINESS, YOU KNOW THE PAGING BUSINESS, ENTIRE SHIFT TO MORE DIGITAL AND MORE HIGHLY INTEGRATED WIRELESS PRODUCTS. SO MAYBE YOU CAN PUT SOME COLOR ON IT DARREN.

SO WIRELESS FOR US HAS BEEN A STRENGTH ALL YEAR. AGAIN IN THE THIRD QUARTER IT WAS A STRENGTH TO THE BUSINESS. IT WAS UP DOUBLE DIGIT COMPS. THAT WASN'T A SURPRISE TO US BECAUSE IF WE TAKE YOU BACK A YEAR AGO, ONE OF THE INVESTMENTS WE MADE WAS TO MOVE WIRELESS PRODUCTS FROM THE BACK OF THE STORE TO THE FRONT OF THE STORE. WE EXPECTED TO GET A PAYBACK ON THAT MOVE. WE ARE SEEING A PAYBACK ON THAT MOVE. DESPITE WHAT'S GOING ON IN THE GREATER BUSINESS DOUBLE DIGIT COMPS IN THE THIRD QUARTER IN THE WIRELESS BUSINESS CLEARLY WAS PART OF THE WIN IN OUR NUMBERS.

I SEE. AND WHAT DO YOU SEE IT GOING IN THE FUTURE? JUST WONDERING?

DO YOU SEE IT PERFORMING AS WELL AS IT'S DONE SO FAR? DO YOU SEE IT SLOWING DOWN A BIT? BECAUSE THAT'S WHAT SORT OF -- ))) I THINK IN TERMS OF COMMENTS RELATIVE TO NEXT YEAR, WE PROBABLY WANT TO WAIT UNTIL WE DO OUR JANUARY CONFERENCE CALL WHERE WE'LL INDICATE IN MACRO WHERE WE SEE THE BUSINESS GOING AS WELL AS SOME OF THE MAJOR CATEGORIES.

CERTAINLY WE ARE NOT SEEING ANY SHIFT IN THE TREND OF THAT BUSINESS IN THE QUARTER. CLEARLY THIS YEAR WILL MANIFEST ITSELF WE ARE CONFIDENT THAT IT'S FULL-SPEED AHEAD CERTAINLY WITH THAT ENTIRE SEGMENT OF OUR BUSINESS. WE CAN PROVIDE A LITTLE BIT MORE COLOR AS AL POINTED OUT HERE WHEN WE GET TO JANUARY AND WE TALK MORE ABOUT HOW WE ARE SEEING THINGS FROM THE CONSUMER ELECTRONICS SHOW THE REST OF THE VENDOR RELATIONS. WE GET SOME FEEDBACK FROM OUR CANADIAN PEOPLE, YOU KNOW THAT ARE TALKING ABOUT HOW THEIR CONSUMERS ARE REACTING TO THE PRODUCT OFFERS THEY ARE PRESENTLY BEING MADE. WE GO TO THAT STRONGER SENSE FROM MUSICLAND AS TO WHICH OF THE SUB CLASSES OF PRODUCT THEY PERCEIVE WILL BE STRONGER THAN OTHERS. SO I THINK AT LEAST TAKE STOCK IN THE FACT THAT, YOU KNOW, THE ENTIRE BUSINESS CONTINUES LIKE MANY OTHERS TO FEEL REALLY GOOD.

THANK YOU VERY MUCH.

THANK YOU. AND THAT'S OUR LAST QUESTION FOR THE MORNING. WE OBVIOUSLY WOULD LIKE TO THANK EVERYONE WHO PARTICIPATED ON THIS MORNING'S CONFERENCE CALL. IT WAS TRULY A GREAT QUARTER. WE APPRECIATE THE RECOGNITION, THE STANDING, AND THE SUPPORT FROM OUR INVESTORS AND THE ENTIRE INVESTMENT COMMUNITY IN THESE CERTAINLY DIFFICULT TIMES. ALL OF YOU HAVE HEARD US TALK ABOUT BEST BUY AND TOP CORTEL PERFORMANCE. WE ARE ALL INTENT IN SHOWING THE WAY AND DEMONSTRATING OUR LEADERSHIP AROUND THAT OBJECTIVE. WE ARE ALL CHARGED AND WE ARE ALL ENTHUSEAFTERIC ABOUT WHAT WE THINK WE CAN DO AND WHAT THE UNDERTAKINGS WILL MEAN AS WE CONTINUE TO FORGE FORWARD. AND I, ALONG WITH THE ENTIRE LEADERSHIP TEAM AND ALL THE EMPLOYEES OF ALL OF OUR COMPANIES CERTAINLY HOPE THAT YOU AND ALL OF YOUR FAMILIES ENJOY THIS HOLIDAY SEASON TO THE FULLEST. AND THAT YOU ALL HAVE A TRULY HAPPY, HEALTHY, AND MEANINGFUL NEW YEAR. THANK YOU EVERYONE.

THANKS, DICK AND THANKS EVERYONE FOR PARTICIPATING IN THE CALL. THE CALL WILL BE AVAILABLE FOR REPLAY BY DIALING 320-23653844. AND ENTER THE ACCESS CODE OF FIVE SEVEN ONE THREE ONE SEVEN OR YOU CAN HEAR THE REPLAY ON THE WEB AT WWW.BESTBUY.COM CLICK ON INVESTOR RELATIONS AND RECENT. LATER WE WILL POSTING ON YOUR WEBSITE FUTURE SHOP. THAT WILL BE UNDER THE FINANCIALS CATEGORY IN THE INVESTOR RELATIONS SECTION. IF YOU ARE ON OUR BLAST FACTOR E-MAIL DISTRIBUTION LIST YOU WILL RECEIVE THAT DIRECTLY. IF YOU HAVE ADDITIONAL QUESTIONS CALL ME, JENNIFER DRISCOLL. THAT CONCLUDES OUR CALL.

THANK YOU. LADIES AND GENTLEMEN, THANKS FOR YOUR PARTICIPATION AND FOR USING AT&T'S EXECUTIVE TELECONFERENCE. YOU MAY NOW DISCONNECT.