Company reports fiscal third-quarter EPS of $0.13; adjusted quarterly EPS was $0.35, excluding investment impairment charge
MINNEAPOLIS--(BUSINESS WIRE)--Dec. 16, 2008--Best Buy Co., Inc. (NYSE:BBY):
Third-Quarter Performance Summary
(U.S. dollars in millions, except per share amounts)
Three Months Ended
Nov. 29, 2008 Dec. 1, 2007
Revenue $11,500 $9,928
Comparable store sales % change1 (5.3%) 6.7%
Gross profit as % of revenue 24.9% 23.5%
SG&A as % of revenue 22.5% 20.0%
Operating income $274 $351
Operating income as % of revenue 2.4% 3.5%
Net earnings $52 $228
Diluted EPS $0.13 $0.53
Adjusted diluted EPS2 $0.35 $0.53
1 Comprised of revenue at stores, call centers and Web sites
operating for at least 14 full months, as well as remodeled and expanded
locations. Relocated stores are excluded from the comparable store sales
calculation until at least 14 full months after reopening. Acquired
stores are included in the comparable store sales calculation beginning
with the first full quarter following the first anniversary of the date
of the acquisition. The calculation of the comparable store sales
percentage change excludes the effect of fluctuations in foreign
currency exchange rates. The method of calculating comparable store
sales varies across the retail industry. As a result, Best Buy's method
of calculating comparable store sales may not be the same as other
retailers' methods.
2 Excludes the impact of a non-operating,
other-than-temporary impairment charge of $111 million ($93 million net
of tax, or $0.22 per diluted share) related to the company's 2.9-percent
investment in the common stock outstanding of The Carphone Warehouse
Group PLC.
Best Buy Co., Inc. (NYSE:BBY) today reported net earnings of $52
million, or $0.13 per diluted share, for its fiscal third quarter ended
on Nov. 29, 2008. These results were compared with net earnings of $228
million, or $0.53 per diluted share, for the prior-year fiscal third
quarter. The reduction in third-quarter earnings was due in large part
to a non-operating impairment charge of $111 million ($93 million net of
tax, or $0.22 per diluted share), related to a significant and sustained
decline in the market price of the company's nearly 3 percent stake in
the common shares outstanding of The Carphone Warehouse Group PLC (CPW).
Excluding the impairment charge, adjusted diluted earnings per share
were $0.35, a decrease of 34 percent compared to the previous year's
period. The negative impact of a comparable store sales decline and
expense deleverage was partially offset by revenue gains from new store
openings as well as an improvement in the gross profit rate. Analysts
surveyed by First Call on average expected third-quarter diluted
earnings per share of $0.25.
Company Plans For Challenging Environment, Reduces Fiscal 2010
Spending Plans
"The historic slowdown in the economy and its effect on our business
over the past 90 days have been the most challenging consumer
environment our company has ever faced," said Brad Anderson, vice
chairman and CEO of Best Buy. "We believe that there has been a dramatic
and potentially long-lasting change in consumer behavior as people
adjust to the new realities of the marketplace. We also believe that
customers will continue to reward those retailers who understand their
needs and desires, and offer relevant solutions at fair prices. Yet we
clearly recognize that these changes require us to make significant
adjustments to our present cost structure."
Best Buy announced that effective Dec. 15, 2008, nearly all of its
corporate employees are eligible for a voluntary separation package in
order to reduce its corporate expenses significantly. This package
provides an incentive for employees who choose to leave the company by
offering a significant increase in the company's base severance offer.
Vice Chairman and CEO Brad Anderson and his direct reports, who
recommended the package, are not eligible for the voluntary separation
plans. The company also stated that involuntary reductions in corporate
staff may be required, depending on the outcome of the voluntary program.
"We view our employees as the primary strength of this organization,"
added Anderson. "However, based on the recent changes we've seen in
consumer behavior and the potential for worsening consumer spending, we
need to prepare our organization to operate in a wide range of potential
macro economic scenarios in the coming year. Additional prudent actions
will be taken to prepare the business, such as reducing our capital
spending by approximately 50 percent next year, including a substantial
reduction in new store openings in the United States, Canada and China.
We also are reducing legacy expenses in our model as quickly as we can
without affecting the customer's shopping experience. In the current
year, SG&A spending, excluding Best Buy Europe, is expected to grow
approximately 9 percent; in contrast, we are planning for SG&A dollars
next year to grow by no more than 2 percent over this year's levels. To
bring our cost structure to that level, our efforts have to include
savings in corporate staffing. We want to do it in such a way as to
minimize involuntary separations. We believe our broad, voluntary
program helps prepare us for the unpredictable year ahead while
reflecting our company values and respect for our people."
The costs and future savings associated with the anticipated reduction
in force during the fourth quarter and other potential actions to shed
costs have not yet been finalized and therefore are excluded from the
company's earnings guidance until more information is available.
Third-Quarter Highlights
While the company continues to prepare for the difficult period ahead,
it recognized several successes in the most recent quarter:
-
The company estimated that its domestic market share in the calendar
third quarter continued to grow, increasing by 1.7 percentage points
compared with the prior year's period, driven by strong execution by
employees. The market share gains included strong performance in
computing and televisions.
-
The company's domestic customer satisfaction scores continued to set
record highs. U.S. employee turnover also decreased on a year-over-year
basis, to 45 percent, as the company continued its focus on using
employee insights to drive local growth.
-
Best Buy expanded its service offerings by adding Geek Squad Black Tie
Protection service to all U.S. Best Buy stores during the quarter. Geek
Squad Black Tie Protection is a premium assurance offer that combines
the features of extended warranties with other benefits, such as
enhanced service levels and Reward Zone points for unused warranties.
The domestic segment generated a low single-digit comparable store sales
gain in its warranty category for the third quarter by offering this
premium service.
-
The international business brought the Best Buy Mobile
store-within-a-store concept to select Best Buy locations in Canada and
enhanced the wireless experience in select Future Shop stores.
- The company ended the quarter with a successful Black Friday and kickoff
to the holiday selling season, marked by a strong consumer response,
effective promotions and outstanding in-store execution. As a result of
weeks of preparation, both customers and employees provided positive
feedback on this shopping tradition.
"I am proud of the performance of our people in an environment marked by
unprecedented economic turmoil," said Brian Dunn, president and chief
operating officer of Best Buy. "We continued to gain market share,
improve gross profits, manage our costs and bring down our domestic
inventory levels despite volatile consumer demand. We have some tough
choices to make in response to the turbulent conditions our customers
are facing, but our recent revenue performance versus the industry
reinforces our commitment to our long-term strategy of helping people
unlock the promises of technology."
Third Quarter Brings Improved Gross Profit Rate
For the fiscal 2009 third quarter, Best Buy's revenue increased 16
percent to $11.5 billion, compared with revenue of $9.9 billion for the
third quarter of fiscal 2008. The revenue increase reflected the
inclusion of Best Buy Europe's revenue, which is reported on a two-month
lag, and gains from the net addition of 181 new stores in the past 12
months. These revenue gains were offset by a comparable store sales
decline of 5.3 percent and the unfavorable impact of foreign currency
fluctuations. Excluding Best Buy Europe, total fiscal third-quarter
revenue declined modestly versus the prior year period.
The comparable store sales decline for the third quarter was driven by a
decrease in customer traffic and an unfavorable calendar shift, as the
quarter had seven fewer post-Thanksgiving shopping days than the prior
year's period. By month, domestic comparable store sales declined by 2.4
percent, 7.8 percent and 8.7 percent for fiscal September, October and
November, respectively. The company estimates that November's comparable
store sales in the domestic segment were essentially flat after
adjusting for the calendar shift. Partially offsetting the decline in
traffic was an increase in the average ticket for the quarter as the
company's revenue mix continued to shift toward large-ticket items, such
as notebook computers and mobile phones.
The gross profit rate for the fiscal third quarter was 24.9 percent of
revenue, compared with 23.5 percent of revenue for the prior-year
period. This improvement was driven by the inclusion of Best Buy Europe,
which predominantly features sales of higher-margin mobile phones. The
improvement was also fueled by higher gross profit rates in the domestic
business due to rate improvements in nearly all key product categories,
partially offset by an unfavorable mix shift to notebook computers,
which carry a lower gross profit rate. The company commented that the
promotional environment was largely similar to what the company expected
for the period.
Best Buy's selling, general and administrative (SG&A) expense rate
increased to 22.5 percent of revenue for the fiscal third quarter,
compared with 20.0 percent of revenue for the prior year's fiscal third
quarter. The inclusion of Best Buy Europe's higher-cost model for
selling mobile phones contributed to the increase. Deleverage of
expenses associated with the comparable store sales decline also
prompted the change. Partially offsetting those factors, SG&A expense
benefited from lower incentive compensation due to the company's
expected earnings performance. As planned, the company also actively
lowered spending in discretionary areas and met its expectations for
cost reductions in the period. Key areas of cost savings in the third
quarter were a reduction in the hiring of seasonal staff, as well as
reductions in advertising, discretionary store and corporate projects,
and consulting expenses.
The company reported investment expense of $3 million, compared with $32
million of investment income for the prior year's fiscal third quarter.
The expected reduction in investment income reflected the impact of
lower average cash and investment balances. Interest expense grew to $35
million, versus $23 million in the prior year's quarter, primarily
reflecting financing costs related to debt incurred in connection with
the purchase of Best Buy Europe.
Best Buy's effective tax rate increased to 54.6 percent for the third
quarter of fiscal 2009, compared with 35.6 percent for the third quarter
of the prior fiscal year, an increase of 19 percentage points. The
increase in the company's effective tax rate versus the prior year's
period was due primarily to the limited tax benefit from the investment
impairment charge. Excluding the impairment charge, the effective tax
rate for the fiscal third quarter was 36.5 percent.
The company's merchandise inventory increased 10 percent year over year,
to $8.2 billion. The increase primarily reflected the addition of
inventory from Best Buy Europe and new store openings in the U.S. and
other countries. Starting in September, the company began adjusting its
domestic inventory position as consumer spending abruptly softened.
Domestic inventory finished the third quarter essentially flat to last
year on a comparable store basis, which was a significant improvement
versus the end of the second quarter.
Market Conditions Drive Impairment Charge
In the second quarter of fiscal 2008, Best Buy purchased nearly 3
percent of the outstanding shares of CPW common stock, reflecting its
continued relationship with CPW. Due to the duration and significance of
the decline in the fair value of the investment, coupled with recent
turmoil in the global financial markets, the company cannot reasonably
predict the timeframe as to when the investment will return to its
original cost. This noncash impairment charge reflects the current (Nov.
29, 2008) market price for CPW's stock and does not reflect Best Buy's
own outlook on the intrinsic or strategic value of CPW's business, or
its long-term expectations for the Best Buy Europe venture.
Company Maintains Annual EPS Outlook, Excluding Investment Impairment
Charge
Jim Muehlbauer, Best Buy's executive vice president of finance and CFO,
said, "While the environment is clearly challenging, we are satisfied
with the reductions in discretionary spending we made in the quarter.
However, we realize that there is much more work to do to position our
business for the near-term challenges ahead. We will continue to
evaluate every aspect of our business to prepare for the range of
potential outcomes that we could see in fiscal 2010."
The company stated that results in the third quarter were modestly ahead
of its revised expectations based on stronger performance over the
Thanksgiving holiday weekend. While post-Thanksgiving revenue trends
have slowed further as expected, the company anticipates a December
comparable store sales decline within the company's previously announced
guidance. The company maintained its guidance range for fiscal 2009 of
earnings per diluted share of $2.30 to $2.90, excluding the investment
impairment charge. This guidance now assumes an annual comparable store
sales decline of 1 percent to 5 percent. Furthermore, the company
estimated an annual gross profit rate improvement of approximately 60
basis points, compared with fiscal 2008. Excluding Best Buy Europe, SG&A
spending for fiscal 2009 is expected to increase by approximately 9
percent versus the prior year. The retailer anticipates significant
deleverage in its SG&A rate caused by the addition of Best Buy Europe,
which carries a higher SG&A cost structure; a comparable store sales
decline; and ongoing costs related to investments made in the first half
of the fiscal year. Including the negative tax impact of the investment
impairment charge, the company now expects its effective income tax rate
for fiscal 2009 to be approximately 39.0 percent.
The investment impairment charge, as well as any costs associated with
reductions in staffing or other potential restructuring activities, is
excluded from the above earnings guidance.
Company's U.S. Business Gains Market Share in Most Revenue Categories
Domestic Performance Summary
(U.S. dollars in millions)
Three Months Ended Nine Months Ended
Nov. 29, 2008 Dec. 1, 2007 Nov. 29, 2008 Dec. 1, 2007
Revenue $8,196 $8,206 $23,782 $22,144
Comparable store sales (6.3%) 6.1% 0.5% 3.3%
% change
Gross profit as % of 24.4% 24.2% 24.6% 24.6%
revenue
SG&A as % of revenue 20.9% 20.2% 20.9% 20.3%
Operating income $283 $329 $875 $957
Operating income as % 3.5% 4.0% 3.7% 4.3%
of revenue
Best Buy's domestic segment--comprised of U.S. Best Buy, Best Buy Mobile,
U.S. Geek Squad, Magnolia Audio Video, Napster, Pacific Sales and
Speakeasy operations--reported fiscal third-quarter operating income of
$283 million, a decrease of $46 million, compared with the prior year's
fiscal third quarter. The company believes it gained market share in
most of its key product categories.
The domestic segment's fiscal third-quarter revenue totaled $8.2
billion, essentially flat with the prior year's third quarter. The net
addition of 137 new stores in the past 12 months was offset by a
comparable store sales decline of 6.3 percent. The comparable store
sales decline reflected a decrease in customer traffic, which was muted
in part by an increase in average ticket.
The decrease in the domestic segment's operating income rate reflected a
70-basis-point increase in the SG&A rate, which was partially offset by
a 20-basis-point improvement in the gross profit rate. The increase in
the SG&A rate was primarily driven by deleverage of expenses associated
with the comparable store sales decline, partially offset by lower
incentive compensation and advertising. The improvement in the gross
profit rate reflected more effective promotion management and a shift in
the revenue mix toward higher-margin mobile phones. Partially offsetting
these improvements was a continued shift in the revenue mix toward
notebook computers, which carry a lower gross profit rate.
Domestic Category Summary
Revenue Mix Summary Comparable Store Sales
Three Months Ended Three Months Ended
Revenue Category
Nov. 29, 2008 Dec. 1, 2007 Nov. 29, 2008 Dec. 1, 2007
Consumer Electronics 39% 42% (13.7%) 1.7%
Home Office 32% 27% 11.1% 8.0%
Entertainment Software 19% 20% (12.4%) 20.9%
Appliances 4% 5% (21.0%) (6.7%)
Services 6% 6% 1.3% 4.5%
Other <1% <1% n/a n/a
Total 100% 100% (6.3%) 6.1%
The domestic comparable store sales decline of 6.3 percent reflected
strong sales of notebook computers and mobile phones, which were more
than offset by decreased sales of digital cameras, projection and tube
televisions, major appliances, music and movies.
The home office revenue category, which accounted for 32 percent of
fiscal third-quarter revenue, had an 11.1-percent comparable store sales
gain. A double-digit comparable store sales increase for notebook
computers fueled the growth as customers continued to respond to Best
Buy's industry-leading assortments and customer service. Mobile phones
and accessories experienced a triple-digit gain in comparable store
sales and a strong double-digit increase in wireless connections. The
mobile phone results were supported by the chain-wide expansion of Best
Buy Mobile, which offers an improved assortment and customer service
along with independent advice. These gains were partially offset by
expected comparable store sales declines in printers and desktop
computers.
The services revenue category accounted for 6 percent of third-quarter
revenue. On a comparable store sales basis, the services category
increased 1.3 percent. During the quarter, U.S. Best Buy stores unveiled
their Geek Squad Black Tie Protection offer, which combines the
compelling capabilities of the company's Geek Squad services with
product warranties in order to offer customers a premium level of
service.
The entertainment software revenue category, which comprised 19 percent
of third-quarter revenue, experienced a 12.4-percent decline in
comparable store sales. Double-digit declines in music and movies drove
this change. Video gaming comparable store sales declined by the
mid-single-digits on top of a strong double-digit increase in the prior
year's period.
Consumer electronics, which represented 39 percent of fiscal
third-quarter revenue, posted a 13.7-percent comparable store sales
decline, driven by double-digit declines in digital cameras, MP3 players
and GPS products. The U.S. business had a solid double-digit increase in
Blu-Ray DVD players. Comparable store sales of flat-panel televisions
experienced a low single-digit comparable store sales decline for the
quarter as unit volume increases were more than offset by declines in
the average selling prices. Projection and tube TVs declined on a
comparable store sales basis by the very strong double digits. Total
home theater comparable store sales declined by the high single digits.
The appliances revenue category, which totaled 4 percent of fiscal 2009
third-quarter revenue, showed a comparable store sales decline of 21.0
percent. This decrease was driven by a double-digit decline in
comparable store sales of major appliances amid a depressed housing
market, partially offset by an increase in average selling prices versus
the prior year.
International Segment Results Include Contribution From Best Buy
Europe
International Performance Summary
(U.S. dollars in millions)
Three Months Ended Nine Months Ended
Nov. 29, 2008 Dec. 1, 2007 Nov. 29, 2008 Dec. 1, 2007
Revenue $3,304 $1,722 $6,509 $4,461
Comparable store sales 0.3% 9.3% 1.2% 12.3%
% gain
Gross profit as % of 26.1% 20.6% 23.5% 20.6%
revenue
SG&A as % of revenue 26.4% 19.3% 23.3% 19.2%
Operating income/ $(9) $22 $15 $61
(loss)
Operating income/ (0.3%) 1.3% 0.2% 1.4%
(loss) % of revenue
The company's international segment--comprised of Best Buy, Best Buy
Mobile and Geek Squad operations in Canada and China, Five Star
operations in China, Future Shop operations in Canada, and The Carphone
Warehouse, The Phone House and Geek Squad operations in Europe--generated
a $9 million operating loss for the fiscal third quarter compared to
operating income of $22 million for the prior year's period. A low
single-digit comparable store sales decline in Canada; start-up expenses
in new countries; and continued investments in international
infrastructure led to the operating loss.
The international segment's fiscal third-quarter revenue rose 92 percent
to $3.3 billion. The revenue increase was driven by the inclusion of
Best Buy Europe, the net addition of 44 new stores in the past 12 months
and a comparable store sales gain of 0.3 percent. Partially offsetting
these results was the negative impact of foreign currency fluctuations.
China experienced a high single-digit increase in comparable store sales
as the country recovered from the May earthquake. Offsetting these
results was a modest comparable store sales decline in Canada as
customer traffic slowed in the period, similar to U.S. trends. Excluding
the addition of Best Buy Europe and the impact of a negative 10-percent
impact from foreign currency exchange rate fluctuations, international
revenue increased 5 percent in the third quarter primarily due to new
store openings.
The decrease in the international segment's operating income rate
reflected a 710-basis-point increase in the SG&A rate, which was
partially offset by a 550-basis-point increase in the gross profit rate.
The increase in the SG&A rate was primarily driven by the inclusion of
Best Buy Europe, which has a normally higher SG&A rate; China
inflationary pressures and Canada deleverage; new country start-up
expenses; and investments in international infrastructure and support.
The improvement in the gross profit rate reflected the higher margins of
Best Buy Europe's mobile phone business combined with more effective
promotion management in China and stabilization of the gross profit rate
in Canada.
Third-quarter revenue for Best Buy Europe, which is reported on a
two-month lag, reflected the company's strategy of aggressively growing
market share through strong connections growth and the exclusive
offering of the iPhone 3G in the United Kingdom. The European business'
gross profit rate was below expectations due to market share
investments, a more promotional environment and a shift in the revenue
mix to lower-margin products. In addition, its operating results were
impacted by higher-than-anticipated subscriber acquisition costs in the
company's mobile telecom business in Germany. As a result of these
factors, operating income for Best Buy Europe was lower than projected.
"While our international operations were not immune to the global
economic slowdown, we were pleased to grow revenue, comparable store
sales and margins in China," said Bob Willett, CEO-International and
chief information officer for Best Buy. "As in the U.S., our Canadian
business continues to face a challenging economic environment, including
significant devaluation of the Canadian currency. While results were
softer than expected in Canada, we were able to stabilize our gross
profit rate and offset some of the top-line impact with controlled
spending. This quarter also included the results of Best Buy Europe for
the first time. We are pleased with the new 'connected world' store
formats in London, where we are experimenting with a wider range of
computing and gaming products. We also are working closely together on
preparations for our first Best Buy stores in the United Kingdom next
summer."
International Category Summary
Revenue Mix Summary Comparable Store Sales
Three Months Ended Three Months Ended
Revenue Category
Nov. 29, 2008 Dec. 1, 2007 Nov. 29, 2008 Dec. 1, 2007
Consumer Electronics 18% 37% (0.3%) 6.6%
Home Office 54% 31% (1.4%) 1.0%
Entertainment Software 6% 14% (2.7%) 40.0%
Appliances 8% 13% 7.4% 11.3%
Services 14% 5% 3.0% 11.9%
Other <1% <1% n/a n/a
Total 100% 100% 0.3% 9.3%
Nine-Month Results Show Significant Revenue Growth
For the nine-months ended Nov. 29, 2008, Best Buy's revenue increased 14
percent to $30.3 billion, compared with revenue of $26.6 billion for the
prior-year period. The revenue increase reflected the inclusion of Best
Buy Europe beginning with the third quarter, the net addition of 181 new
stores in the past 12 months and a comparable store sales increase of
0.6 percent.
The year-to-date gross profit rate was 24.3 percent of revenue, compared
with 23.9 percent of revenue for the prior-year period. This improvement
was driven by the inclusion of Best Buy Europe, which predominantly
features sales of higher-margin mobile phones, as well as a shift in the
company's domestic revenue mix toward mobile phones as well as more
effective management of promotions.
Best Buy's SG&A rate increased to 21.4 percent of revenue for the nine
months ended Nov. 29, 2008, compared with 20.1 percent of revenue for
the prior-year period. Planned investments in store projects, customer
facing labor and international capabilities combined with the inclusion
of Best Buy Europe led to this increase. In addition, the company
experienced a deleverage of expenses due to lower comparable store sales
gains.
The company's net earnings for the first nine months of fiscal 2009
totaled $433 million, including the investment impairment charge for the
company's investment in CPW common stock as previously described.
Earnings per diluted share year-to-date were $1.04, compared with $1.47
for the prior year's period. Excluding the impairment, year-to-date net
earnings were $526 million, or $1.26 per share.
Store Counts and Shareholder Return Information
During the third quarter of fiscal 2009, the company opened 37 U.S. Best
Buy stores, including three of its 45,000-square-foot stores, 32 of its
30,000-square-foot stores, and two of its 20,000-square-foot stores. The
company also opened seven Pacific Sales showrooms and 18 Best Buy Mobile
stand-alone stores. At the end of the third quarter, the domestic
segment included 1,010 Best Buy stores, 39 Best Buy Mobile stand-alone
stores, seven Geek Squad stand-alone stores, 13 Magnolia Audio Video
stores and 29 Pacific Sales showrooms.
In the international segment, for the trailing 12 months, the company
acquired 2,415 The Carphone Warehouse and The Phone House stores, opened
79 new stores and closed 35 stores. The international segment at the end
of the third quarter included 2,430 The Carphone Warehouse and The Phone
House stores in Europe, 161 Five Star stores and two Best Buy stores in
China, as well as 138 Future Shop stores, 57 Best Buy stores and three
Best Buy Mobile stand-alone stores in Canada. More details regarding
historical store counts and square footage are available on the
company's Web site under "For Our Investors."
On Oct. 28, 2008, the company paid a dividend of 14 cents per share, or
$58 million in the aggregate, which was an eight-percent increase
compared with the dividend per share paid in the prior year's fiscal
third quarter. The company did not make any share repurchases of common
stock during the quarter pursuant to its existing share repurchase
program authorization.
The company's balance sheet remained solid throughout the quarter. Best
Buy finished the quarter with $1.7 billion in outstandings under its
$2.4 billion domestic line of credit and had cash and short-term
investments of $594 million. The company also stated that the month of
November historically reflects its peak seasonal working capital needs.
Best Buy is scheduled to conduct an earnings conference call at 10 a.m.
Eastern Time (9 a.m. Central Time) on Dec. 16, 2008. The call is
expected to be available on its Web site both live and after the call at www.BestBuy.com.
The public may access the call by clicking on "For Our Investors."
Forward-Looking and Cautionary Statements:
This news release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 as contained in
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that reflect management's current views
and estimates regarding future market conditions, company performance
and financial results, business prospects, new strategies, the
competitive environment and other events. You can identify these
statements by the fact that they use words such as "anticipate,"
"believe," "estimate," "expect," "intend," "project," "plan," "outlook,"
and other words and terms of similar meaning. These statements involve a
number of risks and uncertainties that could cause actual results to
differ materially from the potential results discussed in the
forward-looking statements. Among the factors that could cause actual
results and outcomes to differ materially from those contained in such
forward-looking statements include the following: general economic
conditions, acquisitions and development of new businesses,
divestitures, product availability, sales volumes, pricing actions and
promotional activities of competitors, profit margins, weather, changes
in law or regulations, foreign currency fluctuation, availability of
suitable real estate locations, the company's ability to react to a
disaster recovery situation, the impact of labor markets and new product
introductions on overall profitability, failure to achieve anticipated
benefits of announced transactions and integration challenges relating
to new ventures. A further list and description of these risks,
uncertainties and other matters can be found in the company's annual
report and other reports filed from time to time with the Securities and
Exchange Commission, including, but not limited to, Best Buy's Annual
Report on Form 10-K filed with the SEC on April 30, 2008. Best Buy
cautions that the foregoing list of important factors is not complete
and assumes no obligation to update any forward-looking statement that
it may make.
About Best Buy Co., Inc.
With operations in the United States, Canada, Europe, China and Mexico.
Best Buy is a multinational retailer of technology and entertainment
products and services with a commitment to growth and innovation. The
Best Buy family of brands and partnerships collectively generates more
than $40 billion annual revenue and includes brands such as Best Buy,
Audiovisions, The Carphone Warehouse, Future Shop, Geek Squad, Jiangsu
Five Star, Magnolia Audio Video, Napster, Pacific Sales Kitchen, Bath
and Electronic Centers, The Phone House and Speakeasy. Approximately
165,000 employees apply their talents to help bring the benefits of
these brands to life for customers through retail locations, multiple
call centers and Web sites, in-home solutions, product delivery
and activities in our communities. Community partnership is central to
the way we do business at Best Buy. In fiscal 2008, we donated a
combined $31.8 million to improve the vitality of the communities where
our employees and customers live and work. For more information about
Best Buy, visit www.bestbuy.com.
BEST BUY CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
($ in millions, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
Nov. 29, Dec. 1, Nov. 29, Dec. 1,
2008 2007 2008 2007
Revenue $ 11,500 $ 9,928 $ 30,291 $ 26,605
Cost of goods sold 8,639 7,591 22,916 20,237
Gross profit 2,861 2,337 7,375 6,368
Gross profit % 24.9% 23.5% 24.3% 23.9%
Selling, general and administrative 2,587 1,986 6,485 5,350
expenses
SG&A % 22.5% 20.0% 21.4% 20.1%
Operating income 274 351 890 1,018
Other (expense) income
(3) 32 27 98
Investment income and other
Investment impairment (111) --- (111) ---
Interest expense (35) (23) (69) (53)
Earnings before income tax expense,
minority interests and equity in 125 360 737 1,063
earnings (loss) of affiliates
Income tax expense 68 129 296 386
Effective tax rate 54.6% 35.6% 40.2% 36.3%
Minority interests (11) (1) (13) (4)
Equity in earnings (loss) of affiliates 6 (2) 5 (3)
Net earnings $ 52 $ 228 $ 433 $ 670
Earnings per share
Basic $ 0.13 $ 0.55 $ 1.05 $ 1.50
Diluted(1) $ 0.13 $ 0.53 $ 1.04 $ 1.47
Dividends declared per common share $ 0.14 $ 0.13 $ 0.40 $ 0.33
Weighted average common shares
outstanding (in millions)
Basic 412.9 418.7 412.1 447.2
Diluted(1) 422.6 430.8 422.7 459.5
The calculation of diluted earnings per share assumes the conversion of our
convertible debentures due in 2022 into 8.8 million shares of common stock
(1) and adds back the related after-tax interest expense of $1.5 for both the
three months ended Nov. 29, 2008, and Dec. 1, 2007, respectively, and $4.4
for both the nine months ended Nov. 29, 2008, and Dec. 1, 2007,
respectively.
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(Unaudited)
Nov. 29, Dec. 1,
2008 2007
ASSETS
Current assets
Cash and cash equivalents $ 569 $ 1,319
Short-term investments 25 295
Receivables 2,638 739
Merchandise inventories 8,207 7,451
Other current assets 879 673
Total current assets 12,318 10,477
Net property & equipment 4,268 3,260
Goodwill 2,414 1,086
Tradenames 182 96
Equity and other investments 435 230
Other assets 1,030 325
TOTAL ASSETS $ 20,647 $ 15,474
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 8,219 $ 7,597
Accrued liabilities 2,775 2,293
Short-term debt 2,107 326
Current portion of long-term debt 48 20
Total current liabilities 13,149 10,236
Long-term liabilities 1,093 811
Long-term debt 1,125 642
Minority interests 720 39
Shareholders' equity 4,560 3,746
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 20,647 $ 15,474
CONTACT: Best Buy Co., Inc.
Media Contacts:
Susan Busch, 612-291-6114
Director of Corporate PR
susan.busch@bestbuy.com
or
Kelly Groehler, 612-291-6115
Senior Manager of Corporate PR
kelly.groehler@bestbuy.com
or
Investor Contacts:
Jennifer Driscoll, 612-291-6110
Vice President of Investor Relations
jennifer.driscoll@bestbuy.com
or
Andrew Lacko, 612-291-6992
Senior Director of Investor Relations
andrew.lacko@bestbuy.com
or
Wade Bronson, 612-291-5693
Director of Investor Relations
wade.bronson@bestbuy.com
Source: Best Buy Co., Inc.
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