Ladies and gentlemen, thank you for standing by. Welcome to the Best Buy's conference call for the third quarter of fiscal 2010. (Operator Instructions) I would now like to turn the conference over to Andrew Lacko, Senior Director of Investor Relations. Please go ahead.

Thank you, Alicia, and good morning, everyone. Thanks for joining us this morning for our fiscal 2010 third quarter earnings conference call. We have three speakers for you today. First, Brian Dunn, our CEO, will share with you his thoughts on the results we reported this morning and what we are seeing for the balance of the year. Second, Jim Muehlbauer, our EVP of Finance and CFO, will provide you with some additional color on our third quarter financial performance and provide you with an update on our fiscal 2010 guidance. Lastly, Bob Willett, our CEO of International, will provide you his thoughts as he prepares to retire at the end of the year. After our prepared remarks, we anticipate that there will be ample time for your questions. As usual, we have a broad management group here in the room with me today to answer your questions after we make our formal remarks. We would like to request that callers limit themselves to a single question so that we can include more people in our Q&A session. We’d also like to remind you that comments made by me or by others representing Best Buy may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management’s expectations. May I also remind you that as usual, the media are participating in this call in a listen-only mode. With that, I would like to turn the call over to Brian Dunn. Brian.

Thanks, Andrew, and thanks everyone for joining us on our third quarter earnings call. Allow me to take this opportunity to wish all of you a Merry Christmas and a Happy Holiday season. I'd like to cover a few topics with you today. First, I want to spend a couple of moments reflecting on our third quarter and Black Friday weekend. Second, I'd like to give you an update on our market share gains and why we are so pleased with those results. And lastly, I'll spend a few minutes discussing our expectations for the fourth quarter. After that, I'll turn it over to Jim to add some more color on our Q3 results and provide you with an update on our financial guidance. Now let's turn to the numbers. This morning we reported quarterly net earnings of $0.53 per diluted share, which was better than our expectations for the quarter. Our results were driven by a 4.6% comparable store sales gain in our domestic segment, solid expense management, and a strong effective promotional strategy over the important Black Friday shopping weekend. Because of these strong results and reinforced by the strong traffic and sales performance we are seeing, we announced this morning that we have increased our non-GAAP diluted EPS guidance for the year to a range of $3.00 to $3.15. The Black Friday weekend, which goes by in what feels like a heartbeat, is the culmination of months of planning and marks the beginning of the most critical part of the year. It's important financially, of course, but even more importantly it represents millions of customer interactions over the course of a 48-hour period. It's an incredible opportunity to serve long-time customers and win new ones and I am very pleased to tell you that our employees once…

Thanks, Brian and good morning, everyone. This morning I would like to provide you with an overview of the key items impacting our third quarter financial results and then provide an update on how we are thinking the balance of the year may play out. I will also discuss our fiscal 2010 guidance that we are very pleased to raise again this morning. As I have mentioned earlier, our third quarter net earnings of $0.53 per diluted share was ahead of our expectations. We are very pleased with our revenue and share trends in this difficult environment and are optimistic that the strength we see is sustainable for several reasons. First, we continue to see domestic volumes and traffic stabilize and improve. This give us confidence that the results we announced this morning are the result of something more than just easy year over year comparisons. Second, actions we have taken to focus spending on growth areas while lowering costs are providing benefits in both the domestic and international segments. Lastly, given our sales and operating income performance of this quarter, we believe we are finding a good balance between price and profit relative to the opportunities that exist in the current environment. Turning now to the third quarter results, revenue for the enterprise rose 5% to $12 billion. The revenue growth was a bit ahead of what we had assumed in our guidance and was the result of new stores and third quarter comparable store sales growth of 1.7%. Domestically, third quarter revenues increased approximately 9% from last year to $8.9 billion. The quarter saw a comparable store sales increase of 4.6%. We are encouraged to see strength in categories that are consistent with where Best Buy is going in the path to the connected world, such as computing…

Thanks, Jim. And now I get the pleasure to introduce Bob Willett, the leader of our information systems, supply chain, and international strategy. Bob is retiring from Best Buy at the end of this month and I've asked him to provide his view on our international business with a lens not only on this past quarter but also with an eye towards the future. Bob.

Thanks, Brian. Good morning, everybody. As I look ahead to my retirement from Best Buy in just a few weeks, I'd also like to look back a few years to a time when our former CEO, Brad Anderson, asked me to develop a strategy for Best Buy's international expansion. The opportunity was clear -- Best Buy's growth ambitions had us looking beyond the U.S. But the challenges were great -- different languages and cultures. However, the core question was how do we best replicate our single and most important differentiation, our blue shirts. Would we be able to export our unique employee and customer experience? We knew it would not be a quick or easy next step for Best Buy but the research indicated a significant opportunity if properly executed. The painstaking research we undertook mapped out a customer-centric platform for growth for our international expansion. Today, some four years later, I am reminded of a quote from a very wise man, Sir Winston Churchill once said however beautiful the strategy, you should occasionally look at the results. So let me provide some thoughts on the results to date of Best Buy's international expansion and the outlook before handing off the baton to Brian's capable hands. First, some quick comments on the current quarter. As Jim mentioned, international delivered $23 million in operating profit this quarter, an improvement of $32 million over Q3 of last year. Although top line results continue to be challenging, we are very pleased with our return to profitability this quarter. Our diligent efforts around managing international expense helped us achieve that profitability while continuing to invest in our growth. Long-term, I believe the seeds we have planted around the world will bear fruit for our investors, customers and employees. Whilst a single quarter is no…

Thank you, Bob. I am so glad you are going to have that ringside seat. And I should also note where Bob referred to Great Britain as a service desert, we thought that that was a service dessert. However, I do want to add my personal congratulations to you, Bob, and my deep, profound thanks on behalf of the 168,000 men and women of Best Buy and our brands. I want to thank you for your energy, your creativity, your tenacity, and your commitment to making this enterprise a better place every single day, so thank you very much and congratulations on your well-earned retirement which I am sure will last a month. And finally, before we open it up to Q&A, I want to offer my sincere wish to everyone listening for a warm and wonderful holiday. Happy Hanukkah, Joyous Kwanza, Merry Christmas and a prosperous New Year. And with that, we are ready to take your questions.

(Operator Instructions) Your first question comes from the line of Gary Balter with Credit Suisse.

Thank you. First of all, Bob, congratulations on your successful career and enjoy the retirement. It was a pleasure working with you in the times we had together. And I also want to note that the stock was rising when you were speaking, so maybe you should keep on speaking.

Well then let's go right back to Bob.

A question on -- one question and than a follow-up -- you talked about the gross margin and expecting a lower gross margin and one of the things you mentioned is the vendor monies but the vendor monies you knew about, and you also mentioned the competitive environment isn’t really changed, so what's changing in the gross margin outlook? Is it all mix that is causing it?

It's principally mix, you're right. We've talked at the Q4 last year and during our last quarter call about the challenge of lapping the margin performance we saw in Q4 of last year. For context, our domestic business gross margins in Q4 of last year were up 40 basis points, so we knew that was going to provide a headwind. That's not new news but as my roadmap, where we finished Q3 and what we are seeing Q4 is, certainly it's going to be kind of a sequential phenomenon lapping those back year vendor monies. More importantly, as you called out, and we called out in the script, we are -- and we are very happy that we are going to drive more sales in the quarter than we originally anticipated and those sales are going to come in categories like computers and opening price point televisions that have been strong during Q4 and we anticipate being strong in the -- I'm sorry, in Q3 and we anticipate being strong in Q4 as well. So the margin dollars in the business in the quarter are higher than we anticipated. They are just coming in spaces that have lower overall rates.

You correctly called out that we are able to predict a number of those things, like vendor support last year. One of the positive surprises, although it shows up in margin rate pressure, is the continued sort of extraordinary growth in our computing space and our rapid, continued rapid growth in share in computing. So while it shows up as a margin rate issue, we are actually very pleased that customers continue to gravitate to Best Buy to make that connection with their computing, specifically around netbooks and notebooks.

And the follow-up is people -- fourth quarter is kind of accepted and it sounds like it is going to be a good fourth quarter. I think the bigger issue for investors at this point is the question of next year and the comparison when you don’t have the easy Circuit City compares and what -- how do we think about gross margin, how do we think about expense opportunities, how do we think about international? And I know you are not giving guidance at this point but how should we be thinking about some of those key items?

Gary, you're right -- we're not in a position that we are going to provide guidance but I think if you go back to the conversations we've had all year long, we saw an extraordinary opportunity going into this year to capitalize on the strengths of the Best Buy model, not only the products that we have across a wide spectrum of CE but also mirroring that to the services capabilities and really focusing that on the connected world. So we purposefully set out this year to grow our business profitably and gain market share, which was an extraordinary opportunity for us this year.

To reiterate Jim's point, we are not in a position to give you new guidance. But we announced today our 16th consecutive quarter of share gains. We have no intention of remediating those gains and we in fact have every intention of continuing to grow our business and our share.

Thank you very much.

Your next question comes from the line of Jack Murphy with William Blair.

Thanks. I wonder if we could get back to international, to specifically on the quarter. And if you could maybe give us a little more color on the specific sources of sales weakness -- what are some of the specific plans you have for potentially turning that around, particularly in Canada, understanding there's a macro drag there. And also, as you look forward with Bob having retired, could you talk a little bit about the risk of management distraction or how much top management time you really need to be spending outside of the U.S.? Thanks.

I'll start with that and then I'll turn it over to Bob and perhaps Sean can give some color commentary there. As Bob came to me and discussed his retirement, we would certainly not be -- we wouldn’t be letting Bob walk out the door if we didn’t have every confidence that we had a tremendously strong international team that has worked with Bob and in support of our individual countries around the globe, so my confidence is extraordinarily high but we are going to be able to continue to manage that business in such a fashion that it does not create a distraction or take our eye off the largest piece of our business, which is the domestic [mall]. And as far as Canada, I just mentioned we have folks up there that are working very hard in a tough environment that don’t have the benefit of a competitor going out, who have really done a very nice job holding their share in a very, very challenging environment. Our share gains are circa 35 -- our share, excuse me, Canada continues to run just north of 35% which is a very extraordinary share to hold and hold over a sustained period of time. And I think our team there is actually navigating a very difficult environment very well. Bob or Sean, would you add any further context to that?

Just to give you a quick round-up, as Brian said, just to reinforce his point, we've got some very strong leadership around the place. Yes, there are still some gaps to fill but we've got some very strong leadership and to Brian's point, I wouldn’t be doing this if we didn’t have good leadership in place and that you just have to trust us and you will see in the results. In terms of Canada, as Brian said the business is holding its share. And you've got to remember there's distinct differences between the two brands in Canada but we are holding our share. But the market up there is definitely following the U.S. -- the overall economy as we heard yesterday from one of the eminent global economists from Deloitte's, the economy up there very much follows the U.S. It is slowly starting to recover but we think it's going to be probably a year behind the U.S. We are doing all sorts to grow our margin and share of wallet but -- and I'm comfortable that we've got some good plans in place to do that. In terms of China, we changed out the leadership there and we are seeing some really good growth there, which you are going to hear about in the next quarter, as you know. China has 60 days lag time behind these results so you will hear about Golden Week as the next quarter unfolds. We've had some changes there. We have some more changes to add there as well but we are pleased with Five Star, with Best Buy, we've still got some work to do in terms of the correct model but that work is coming on and I am pleased to say again that we started to see things improve.…

Great. Can I just make one quick follow-up on just the international gross margin, if Jim could maybe give us a sense of how much has contributed from the individual geographies, at least directionally? Is China still most of the drag?

The structural model in China obviously operates at a much lower gross margin rate. It also operates at a much lower SG&A rate overall, so from a percentage standpoint, the drag is coming from China. The propensity of the dollars of course is both in Europe and in Canada.

Thanks.

Your next question comes from the line of Scot Ciccarelli with RBC Capital Markets.

I guess when you guys -- it looks like you are raising your fourth quarter enterprise comp projection to the mid to even upper single digit range, which is obviously a meaningful acceleration. But to clarify, is all that difference at least relative to prior expectations coming from computing and small flat panel TVs? Or is it broader than that? Because this really goes back to the gross margin issue and I think people just want to get their arms around exactly what -- how many different changes we are looking at in terms of the complexion of the sales mix here.

It's principally driven by the higher incremental sales expected in those categories. We have seen stronger growth in the categories overall but I'd say the principal drivers are the ones we called out in the release.

Okay. And just to clarify, the November 8.5% comp, is that against the calendar adjusted figures? Because I remember there were some calendar -- some funky things with the calendar last year. Thanks, Jim.

Great memory, Scot. For context, last year I recall a reported comp in November was I think roughly negative 8% for the domestic business. This year, our reported comp as Brian mentioned is 8.4. Last year's number was deceiving because it was based on a period two years ago where we had an extra week in November. So as I look at the real comp last year, I think we quoted that it was probably more in the range of roughly flat in the month of November for our domestic business. So to simplify, on an adjusted basis, last year's comp was about flat; this year's plus 8 in November.

All right, so that's the comparison -- okay, great, thanks, guys.

Your next question comes from the line of Colin McGranahan with Bernstein.

I just wanted to come back to gross margin. First in the fourth quarter, Jim, can you give us any sense of the breakdown between that 80 and 100 basis point pressure between rate, mix, the impact of anniversarying the vendor incentives? Just a little bit more color because obviously it's a bigger number than I think we would have expected. And then, longer term thinking about again, not looking for guidance but just thinking about how the business is growing and what you are seeing in product categories -- it seems likely that you will continue to face some gross margin mix pressure. I'm wondering what you can do from an enterprise perspective as an offset as we start to think about putting the model together for next year. How quickly can the connected products grow? What have you seen with the remodels that might be giving you some hope there? Just in terms of the persistent mix headwinds and potential offsets to that.

So why don’t I take the front-end piece around what we expect to see sequentially in the margins from Q3 to Q4 and then I'll turn it over to Shari and Mike maybe can talk about how the model is evolving into next year. So as I look sequentially from Q3 to Q4, where I see that margin change coming from is primarily in mix. And if I just look from a run-rate standpoint, if we're down 30 basis points domestically in Q3 and we are going to be down 80 to 100 in Q4, I'd put 75% of that change in the volume camp around higher sales of notebooks and entry price point TVs, Q3 versus Q4. I'd put the balance of the 25% in anniversarying the unique buying opportunities we had last year.

Okay, that's helpful. Thank you.

And looking at the categories and how they are moving and how that impacts us as we go forward, very consciously as we went into this year, we made a decision that when we historically had looked at managing our mix at different price points in computing and television, that we were aggressively going to go out and try to sell units at all of the price bands. And we've been enormously successful at that. The increases in units in both of those two categories year over year has been growing by quarter, growth in each of the unit bases. We look at that as a tremendous opportunity for us to increase our ability to actually connect those units now that we've got those tens of millions in each category. We are getting improvements there now. We are doing some tests in areas in television where we are connecting people to digital cable and digital satellite and those rates are increasing, so the probability of us having more connected TVs next year than this year is something we are confident in. A majority of TVs at the high-end next year are going to have Internet connection capability, so the ability for us to bring broadband out of the computer department and into the home department is a unique opportunity for us and to help consumers be able to get their Internet connection to their television, which is usually not a thought most people have today. And the millions of computers that we are selling, we believe there's an enormous opportunity for us to bring mobile broadband to those computers as people want to surf and connect away from their desk and away from their home office and even away from their couch. But literally as they are moving around the city and the country. We think those two opportunities are what lie ahead of us next year in those areas, in addition to the increasing business that we see continuing to grow in smartphones, which is the third screen of that triangle.

Okay, and then just a final follow-up on that -- is rate within the home office category, even within the PC category, is rate improving or degradating?

Yeah, all year long, Colin, it's actually been improving. I think the teams have done a good job overall of bundling those services along with those units. As Mike mentioned, we are mixing into some lower price point units in that space but in the home office category, which includes certainly mobile phones and the notebook and computing business, we've seen improvements in rates in total.

Okay, thank you. Good luck.

Your next question comes from the line of Chris Horvers with JPMorgan.

A quick follow-up on the TVs -- can you remind us when you got in stock in the smaller screen sizes or just overall availability, was that first quarter this past year? And then curious your thoughts on pull forward of demand -- you have Windows 7 October 23rd, clearly very successful. We've heard that from a number of retailers. You had Call of Duty on November 10th. You had a fantastic Black Friday, Circuit's not around, so I'm just curious if people were in the stores earlier in the quarter than they would normally be, is that something that you thought about in your outlook?

On the television side, last year we weren’t getting back into good inventory positions until the middle of our first quarter last year. We went through, because of our aggressive adjustments to the economy, we went through a really tough January, February, and even early March and April. And it took us that long to the point that we felt comfortable again. So the -- having that inventory now in January, February, and March is going to put that pressure that we described in the first -- the fourth quarter this year and in TV alone, just a little bit in the first quarter of next year. But we are planning for that. And your point about the quarter and the way it is shaking out, not only is it happening because of the way the vendors are introducing product at different points so that it all doesn’t crush onto one or two weeks, we've actually planned our promotions that way as well in trying to take the Black Friday from a couple of days into a week and then actually into a month long process beginning at the earlier part of the month with some of our rewards on silver events, and then staging that throughout the entire month of the year and then moving that into December as well. So you are right in that we are trying to make it a longer period of time rather than just a week here and a week there. Does that answer your question?

Yeah, I mean -- is there anything then -- I mean, the gift card sales are extremely encouraging. Is there anything then that, you know, the gaming, that maybe the gaming might be a little weaker than in the fourth quarter or something on the PC side where you have people waiting, you had the surge in demand and maybe that slows into December, January, February?

I think from a PC perspective, I think we actually saw that prior to the Windows 7 release more so than we did after where we saw the demand really slow up as customers were waiting for the Windows 7 release. So I think that it probably contemplated prior to November rather than something that was a pull-forward from December.

Okay, I understand. And then a question for Brian -- clearly there's always a lot of innovation. It's really very important as you -- given the sector that you operate in, how should we think about your initial thoughts on spending next year? You are starting to anniversary the big cost cuts. Is -- innovation is always necessary. Is it something that you've held back on and the positive comps encourage you to maybe be a little looser with opportunities?

We are certainly not going to hold back on innovation but it's always -- it's a portfolio, it's a balancing act. You are going to see us maintain the discipline that you have seen from us over the last years around capital and capital allocation and the return we are looking for from our capital but you are also going to see us invest in innovation where we think it can be meaningful for the customer and where our employees lead us to. So I would not interpret our approach -- look for us to be efficient and effective and you should look for us to continue to innovate around the customer and his or her needs.

Thank you.

Your next question comes from the line of Anthony Chukumba with FTN Equity Capital Markets.

I don’t want to beat a dead horse on this gross margin question but I just have a question related to the entry level flat panel TVs. I mean, when I've been in your stores it seems with the entry level TVs, a lot more of it is your own [Dynex] and Insignia brands and so I would have thought that those would maybe have sort of comparable or maybe even higher gross margins than larger TVs by some of the national brands, say like a Sony or a Samsung. So am I sort of thinking about this the right way or is it just a case that they don’t have higher gross margins, even though they are private labels post national brands?

They have higher margins than comparable products that we would buy from third parties -- from other vendors. So if we were buying the same product, meaning its specs and its size, in the same price band from a vendor of any name, the margins are higher. But an entry level Insignia TV is going to have a different price point than a high-end LED TV from Samsung.

Okay, no, I understand the price point but it's actually going to --

The margin rate, the margin rate.

Okay, got it. That makes a lot of sense. Thank you.

Your next question comes from the line of Brad Thomas with Keybanc Capital Markets.

I just wanted to follow-up on that television category as well. I know you talked about this a little bit earlier but could you just talk a little bit more depth about what you are seeing in terms of the average selling price and unit sales, as well as some of the traction from newer products like the LED TVs? And as we think out to 2010, how should we think about the benefits that you see from some new products such as 3D?

Thank you. We are thrilled again with the unit increases we are seeing in television. Part of that is offset -- as Jim said earlier, we had low double-digit comps in television. We had mid-double-digit comps in units. That's offset by about a 17% decrease in average selling price. What we also look at is dollars per inch, which is when you look at all the different machinations of that, that's down about 22% versus last year. It was running about minus 17, so the price per inch was accelerating the decline as the largest screen sizes started to come down, made them more affordable. That's why we believe our units are growing. So we are pleased with that and we actually see our average screen size and our ASP going up and both of those are higher than the industry averages based upon the assortment that we have and the way that our overall personnel plus Geek can make buying a large TV a much simpler and more pleasant and fulfilled experience. As we go into next year, I think you are 100% right -- what we are seeing is each year, the industry strives to bring something new that brings some excitement and some profitability into the category. A few years ago, it was flat panel TV and plasma. Then it turned into okay, we are going to have full HD and everything was 1080p. This year it's LED and faster refresh rates. Next year, as you mentioned, it's going to be 3D -- that's going to be a significant increase. I'm hoping James Cameron's movie when it opens Friday is an outstanding success and hundreds of millions of people see it. I think there are continuing things that we have seen on the horizon that continue to make the home theatre experience exciting and an opportunity for us.

And while it's still early, do you have a sense for how many 3D TVs you end up having on your shelves in early or late next year?

We don’t have a specific number yet. We are still in those discussions. Every manufacturer has got something exciting and we will be finalizing our assortments in the next couple of months.

Great. Thanks so much.

And I think that concludes the questions. Thank you, everyone, for participating in today's third quarter earnings conference call. As a reminder, a replay will be available in the United States by dialling 1-800-406-7325 or 303-590-3030 internationally. The personal identification number is 4188285. The replay will be available today through next Tuesday, December 22nd. You can also hear a replay on our website under For Our Investors. If you have any additional questions, please contact Wade Bronson at 612-291-5693, or myself, Andrew Lacko, at 612-291-6992, and reporters should contact Sue Bush at 612-291-6114. Thanks, everyone again for joining us and have a happy holidays, and that concludes our call.