Best Buy Third-Quarter Earnings Increase 22% to 45 Cents Per Diluted Share; Company Updates Range for Fiscal 2005 Diluted EPS to $2.80 to $2.90.
Third-Quarter Performance Summary
----------------------------------------------------------------------
(U.S. dollars in millions, except per share amounts)
----------------------------------------------------------------------
Nov. 27, 2004 Nov. 29, 2003(1)
Revenue $6,646 $6,032
----------------------------------------------------------------------
Comparable store sales % gain(2) 3.2% 8.6%
----------------------------------------------------------------------
Gross profit as % of revenue 24.5% 24.6%
----------------------------------------------------------------------
SG&A as % of revenue 21.0% 21.3%
----------------------------------------------------------------------
Operating income as % of revenue 3.5% 3.3%
----------------------------------------------------------------------
Diluted EPS $0.45 $0.37
----------------------------------------------------------------------
(1) Certain amounts have been reclassified to conform to the
current presentation. These reclassifications had no effect on
operating income, net earnings, financial position or cash flows.
(2) Comprised of revenue at stores 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. The
calculation of the comparable store sales percentage gain excludes
the impact of fluctuations in foreign currency exchange rates.
Best Buy Co., Inc. (NYSE NYSE See: New York Stock Exchange :BBY BBY Best Buy (stock symbol) BBY Before Battle of Yavin (Star Wars) BBY BeBeyond (Chinese online community) ), North America's leading retailer of consumer electronics, today reported net earnings of 45 cents per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, or $148 million, for the quarter ended Nov. 27, 2004, an increase of 22 percent compared with 37 cents per diluted share, or $122 million, for the quarter ended Nov. 29, 2003. "Our employees did an outstanding job of meeting customers' needs this quarter, and we believe that we gained market share as a result," said Brad Anderson Anderson, river, Canada Anderson, river, c.465 mi (750 km) long, rising in several lakes in N central Northwest Territories, Canada. It meanders north and west before receiving the Carnwath River and flowing north to Liverpool Bay, an arm of the Arctic , vice chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Best Buy. "I'm I'm Contraction of I am. Our Living Language Speakers of some scattered varieties of American English sometimes use I'm instead of I've or I have in present perfect constructions, as in proud to represent such a talented team of employees. Our ability to deliver double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. revenue and earnings increases in a more modest growth environment demonstrates how well we execute To run a program, which causes the computer to carry out its instructions. See executable code, instruction and EXE file. execute - execution the business." As reported on Dec. 2, third-quarter revenue increased 10 percent to $6.65 billion, compared with revenue of $6.03 billion for the third quarter of fiscal 2004. The revenue increase reflected the addition of 75 new stores in the past 12 months and a comparable store sales gain of 3.2 percent. The gross profit rate was 24.5 percent of revenue for the third quarter, a modest decline compared with the gross profit rate for the third quarter of the prior year, due to a slightly more promotional environment. Reward Zone, Best Buy's customer loyalty program launched in July July: see month. 2003, continued to contribute to the revenue growth for the quarter. Reward Zone reduced the gross profit rate by 0.6 percent of revenue for the third quarter, compared with a reduction of 0.3 percent of revenue for the prior year's quarter, reflecting increased membership. The company's selling, general and administrative expenses rate was 21.0 percent of revenue for the third quarter, compared with 21.3 percent of revenue for the prior year's third quarter. The improvement in the SG&A rate, compared with the prior year's period, was primarily driven by leverage associated with the revenue increase, efficiency initiatives implemented in the past year as well as lower impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. . These factors were partially offset by costs associated with launching 67 segmented stores as part of Best Buy's customer centricity Customer centricity refers to the orientation of a company to the needs and behaviours of its customers, rather than internal drivers (such as the quest for short term profit). initiative. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. improved to 3.5 percent of revenue for the third quarter, due to the expense rate improvement. The company reported net interest income of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $6 million for the third quarter, an improvement of $10 million compared with the same period one year ago, due primarily to higher yields on investments and the repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan of convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. in June June: see month. 2004. The cash position increased to $2.4 billion at the end of the third quarter, versus $1.8 billion at the end of the same quarter of fiscal 2004. The company's effective income tax rate for the third quarter declined to 38.1 percent, compared with 38.3 percent for the same period one year ago, due primarily to benefits associated with its international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. and higher levels of tax-exempt interest Tax-Exempt Interest Interest income that is exempt from federal income tax. Although it is not directly taxed, this income may still be required to determine other tax calculations such as social security benefits. .
Year-To-Date Performance Summary - Continuing Operations
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(U.S. dollars in millions, except per share amounts)
----------------------------------------------------------------------
Nov. 27, 2004(1) Nov. 29, 2003(1)
Revenue $18,206 $16,099
----------------------------------------------------------------------
Comparable store sales % gain(2) 5.1% 5.8%
----------------------------------------------------------------------
Gross profit as % of revenue 25.1% 25.1%
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SG&A as % of revenue 21.5% 21.7%
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Operating income as % of revenue 3.6% 3.4%
----------------------------------------------------------------------
Diluted EPS - continuing operations $1.24 $1.01
----------------------------------------------------------------------
Note: All periods presented exclude Musicland's financial results,
which are reported as discontinued operations.
(1) Certain amounts have been reclassified to conform to the
current presentation. These reclassifications had no effect on
operating income, net earnings, financial position or cash flows.
(2) Comprised of revenue at stores 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. The
calculation of the comparable store sales percentage gain excludes
the impact of fluctuations in foreign currency exchange rates.
For the first nine months of fiscal 2005, the company reported revenue of $18.21 billion, an increase of 13 percent, driven by the opening of new stores as well as a comparable store sales gain of 5.1 percent. The company's operating income rate improved to 3.6 percent of revenue, compared with 3.4 percent of revenue for the prior year's period, primarily due to expense leverage related to revenue growth as well as ongoing efficiency initiatives. The company reported earnings from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of $1.24 per diluted share for the first nine months, an increase of 23 percent compared with earnings from continuing operations of $1.01 per diluted share for the prior year's period. Best Buy's Segmented Stores Outperform Outperform An analyst recommendation meaning a stock is expected to do slightly better than the market return. Notes: Exact definitions vary by brokerage, but in general this rating is better than neutral and worse than buy or strong buy. Other Stores The company said that its 67 segmented stores, launched in early October October: see month. , outperformed other U.S. Best Buy stores in terms of the comparable store sales gain and the gross profit rate. The segmented stores collectively had a comparable store sales gain more than double that of other U.S. Best Buy stores, which in turn outperformed competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. . As expected, the segmented stores' gross profit rate collectively was higher than the rate of other U.S. Best Buy stores as well, due to a more profitable revenue mix. Finally, the expenses (which included launch costs) of the segmented stores were somewhat more modest than the company had expected, and the capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. of the stores were as anticipated. "This initiative has taken hold inside our organization, thanks to the dedication of the customer centricity team over the past two years. We believe that their work will gain momentum now that we have brought together into one team all of the areas of our organization that have been driving this important work," said Anderson, CEO, referring to the segment leaders, the marketing organization (which identifies customer segments), and the store experience and communications teams. "Our commitment to this initiative - and our excitement about the outcomes - has never been greater." During the third quarter, Best Buy completed an extensive process of training and preparing for the segmented stores to be converted to focus on the unmet un·met adj. Not satisfied or fulfilled: unmet demands. needs of specific customer segments. The conversion of this large group of stores was executed executed 1) adj. to have been completed. (Example: "it is an executed contract") 2) v. to have completed or fully performed. (Example: "he executed all the promises made in the contract") 3) v. seamlessly. This experience and the stores' holiday results are expected to assist the company in determining the rollout plans and pace for fiscal 2006 conversions, which are expected to be announced To be announced (TBA) A contract for the purchase or sale of an MBS to be delivered at an agreed-upon future date but does not include a specified pool number and number of pools or precise amount to be delivered. along with fourth-quarter earnings on March 30, 2005. "Our employees launched the segmented stores in the same quarter as they opened 43 new stores and reset three key departments in several hundred Best Buy stores. That was an amazing a·maze v. a·mazed, a·maz·ing, a·maz·es v.tr. 1. To affect with great wonder; astonish. See Synonyms at surprise. 2. Obsolete To bewilder; perplex. v.intr. amount of change," Anderson added. "We believe that our employees continued to strengthen our reputation as a retailer that excels at rolling out new store concepts." Best Buy Repurchases $24 Million in Stock Best Buy during the third quarter repurchased 399,527 shares of its common stock at an average price of $59.67 per share. At the end of the third quarter of fiscal 2005, the company had approximately $408 million remaining under the $500 million authorization The right or permission to use a system resource; the process of granting access. See access control. for share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. approved by the board of directors in June 2004. During the quarter, the company paid a quarterly dividend of 11 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. , a 10-percent increase compared with the dividend paid in the second quarter. Company Expects Diluted EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. of $1.56 to $1.66 for Q4, and $2.80 to $2.90 for Fiscal Year For the fourth quarter of fiscal 2005, which ends on Feb. 26, 2005, Best Buy said it anticipates earnings in the range of $1.56 to $1.66 per diluted share, an average increase of approximately 13 percent from the comparable prior-year period. For the fourth quarter of fiscal 2004, the company had earnings of $1.42 per diluted share. Currently, the mean analyst earnings estimate for the fiscal fourth quarter is $1.62 per diluted share. Best Buy also updated its earnings guidance for fiscal 2005. The company said it continues to expect revenue for fiscal 2005 of approximately $27.5 billion, an increase of 12 percent. Best Buy reported that it anticipates earnings from continuing operations increasing 15 percent to 19 percent for fiscal 2005, to a range of $2.80 to $2.90 per diluted share, including the second-quarter charge of 7 cents per share related to litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and asset impairments. This fiscal 2005 guidance assumes the opening of a total of approximately 77 new stores, a gain in comparable store sales of 4 percent to 5 percent for the fiscal year, and a modest improvement in the operating income rate for the fiscal year driven primarily by a lower SG&A rate. The mean of analyst earnings estimates for the fiscal year is $2.94 per diluted share, excluding the second-quarter charge of 7 cents per share related to litigation and asset impairments. "Month-to-date revenue is on track with our expectations," stated Darren Jackson Darren Jackson (born 25 July 1966 in Edinburgh) is a former Scottish professional footballer. Career Jackson played for Meadowbank Thistle, Newcastle United, Dundee United, Hibernian, Celtic, Coventry City, Hearts, Livingston, St. Johnstone and Clydebank. , executive vice president and CFO See Chief Financial Officer. . "Of course, we believe that our highest volumes are still ahead of us, and consumers seem to shop later every year. We currently expect a comparable store sales gain of 3 percent to 5 percent for both fiscal December December: see month. and the fourth quarter. Our revenue guidance reflects the calendar shift, including the benefit of two extra shopping days before Christmas Christmas [Christ's Mass], in the Christian calendar, feast of the nativity of Jesus, celebrated in Roman Catholic and Protestant Churches on Dec. 25. In liturgical importance it ranks after Easter, Pentecost, and Epiphany (Jan. 6). ; our improved ability to serve customers in our stores; and the continued strength we see in digital televisions, MP3 players A digital music player that supports the MP3 format, which was the audio format that started a revolution in online music downloads and distribution. All portable music players, the iPod being the most popular, support MP3 along with one or more other audio formats. , digital cameras, notebooks and appliances, among other areas. We anticipate that our existing customer centricity stores and the opening of approximately 10 stores in the fourth quarter also will support our top-line growth." Turning to profit drivers, he said, "We plan to maintain our market share and drive bottom-line bot·tom-line adj. 1. Concerned exclusively with costs and profits: bottom-line issues. 2. Ruthlessly realistic; pragmatic: a bottom-line political strategy. profits in the fourth quarter, which is shaping up to be more promotional than last year. Offsetting that trend, we are a leaner lean 1 v. leaned, lean·ing, leans v.intr. 1. To bend or slant away from the vertical. 2. organization than we were last year, and we continue to look for modest operating income expansion opportunities, primarily driven by efficiency initiatives." Best Buy is scheduled to conduct an earnings conference call at 10 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy on Dec. 15, 2004. 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 for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and Cautionary Statements: This news release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning. These statements involve a number of risks and uncertainties and are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: general economic conditions, acquisitions and development of new businesses, product availability, sales volumes, profit margins, weather, foreign currency fluctuation Fluctuation A price or interest rate change. , availability of suitable real estate locations, our ability to react to a disaster recovery situation, and the impact of labor markets labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience and new product introductions on our overall profitability. A further list and description of these risks, uncertainties and other matters can be found in the company's Current Report on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. filed with the Securities and Exchange Commission on March 18, 2004, and in our other periodic reports filed from time to time with the SEC. Best Buy cautions that the foregoing list of important factors is not complete and assumes no obligation to update any forward-looking statements that it may make. About Best Buy Co., Inc. Best Buy Co., Inc. (NYSE:BBY) is an innovative Fortune 100 growth company that continually con·tin·u·al adj. 1. Recurring regularly or frequently: the continual need to pay the mortgage. 2. strives to create superior customer experiences. Through more than 820 retail stores across the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , our employees connect customers with technology and entertainment products and services that make life easier and more fun. We sell consumer electronics, home-office products, entertainment software, appliances and related services. A Minneapolis-based company, our operations include: Best Buy (BestBuy.com and BestBuyCanada.ca), Future Shop (FutureShop.ca), Geek Squad The Geek Squad is a subsidiary of the Best Buy Company and is based in Richfield, Minnesota [1]. Originally founded in 1994 by Robert Stephens, it offers various computer-related services and accessories for residential and commercial clients. (GeekSquad.com) and Magnolia Audio Video Magnolia Audio Video is a specialty consumer electronics retailer in the United States. It currently operates 13 standalone stores throughout Washington, Oregon, and California. (Magnoliaav.com). We support our communities through employee volunteerism vol·un·teer·ism n. Use of or reliance on volunteers, especially to perform social or educational work in communities. volunteerism and grants from The Best Buy Children's Foundation. - Segment Performance Summaries and Financial Statements Follow -
Domestic Third-Quarter Performance Summary(1)
(U.S. dollars in millions)
----------------------------------------------------------------------
Nov. 27, 2004 Nov. 29, 2003
----------------------------------------------------------------------
Revenue $5,918 $5,430
----------------------------------------------------------------------
Comparable store sales % gain(2) 3.0% 9.0%
----------------------------------------------------------------------
Gross profit as % of revenue 24.7% 24.9%
----------------------------------------------------------------------
SG&A as % of revenue 20.9% 21.2%
----------------------------------------------------------------------
Operating income $228 $202
----------------------------------------------------------------------
Operating income as % of revenue 3.9% 3.7%
----------------------------------------------------------------------
(1) The domestic segment is comprised of U.S. Best Buy and
Magnolia Audio Video operations.
(2 )Comprised of revenue at stores 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.
International Third-Quarter Performance Summary(1)
(U.S. dollars in millions)
----------------------------------------------------------------------
Nov. 27, 2004(2) Nov. 29, 2003(2)
----------------------------------------------------------------------
Revenue $728 $602
----------------------------------------------------------------------
Comparable store sales % gain(3) 5.0% 4.0%
----------------------------------------------------------------------
Gross profit as % of revenue 23.0% 22.4%
----------------------------------------------------------------------
SG&A as % of revenue 22.3% 22.4%
----------------------------------------------------------------------
Operating income $5 $--
----------------------------------------------------------------------
Operating income as % of revenue 0.7% 0.0%
----------------------------------------------------------------------
(1 )The international segment is comprised of Future Shop and Best
Buy operations in Canada.
(2) Certain amounts have been reclassified to conform to the
current presentation. These reclassifications had no effect on
operating income, net earnings, financial position or cash flows.
(3 ) Comprised of revenue at stores and Web sites operating for at
least 14 full months, as well as remodeled and expanded locations.
Relocated stores are excluded from the comparable store sales
calculation until at least 14 full months after reopening. The
calculation of the comparable store sales percentage gain excludes
the effect of fluctuations in foreign currency exchange rates.
- Financial Statements Follow -
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
($ in millions, except per share amounts)
(Unaudited)
Three Months
Ended Nine Months Ended
----------------- -----------------
Nov. 27, Nov. 29, Nov. 27, Nov. 29,
2004 2003(1) 2004(1) 2003(1)
-------- -------- -------- --------
Revenue $6,646 $6,032 $18,206 $16,099
Cost of goods sold 5,015 4,546 13,634 12,059
-------- -------- -------- --------
Gross profit 1,631 1,486 4,572 4,040
Gross profit % 24.5% 24.6% 25.1% 25.1%
Selling, general and
administrative expenses 1,398 1,284 3,913 3,495
SG&A % 21.0% 21.3% 21.5% 21.7%
-------- -------- -------- --------
Operating income 233 202 659 545
Net interest income (expense) 6 (4) 7 (9)
-------- -------- -------- --------
Earnings from continuing
operations before income tax
expense 239 198 666 536
Income tax expense 91 76 254 205
Effective tax rate 38.1% 38.3% 38.1% 38.3%
-------- -------- -------- --------
Earnings from continuing
operations 148 122 412 331
Loss from discontinued operations,
net of income tax benefit of $18 -- -- -- (29)
Loss on disposal of discontinued
operations, net of income tax
expense of $0 -- -- -- (66)
-------- -------- -------- --------
Net earnings $148 $122 $412 $236
======== ======== ======== ========
Basic earnings (loss) per share:
Continuing operations $0.45 $0.38 $1.27 $1.02
Discontinued operations -- -- -- (0.09)
Loss on disposal of discontinued
operations -- -- -- (0.20)
-------- -------- -------- --------
Basic earnings per share $0.45 $0.38 $1.27 $0.73
======== ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations $0.45 $0.37 $1.24 $1.01
Discontinued operations -- -- -- (0.09)
Loss on disposal of discontinued
operations -- -- -- (0.20)
-------- -------- -------- --------
Diluted earnings per share $0.45 $0.37 $1.24 $0.72
======== ======== ======== ========
Dividends declared per common
share $0.11 $0.30 $0.31 $0.30
Basic weighted average common
shares outstanding (in millions) 326.0 324.2 325.2 323.0
Diluted weighted average common
shares outstanding (in millions) 331.9 330.5 331.2 327.8
(1)Certain amounts have been reclassified to conform to the
current presentation. These reclassifications had no effect on
operating income, net earnings, financial position or cash flows.
- Balance Sheets Follow -
BEST BUY CO., INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions)
(Unaudited)
(Subject to Reclassification)
Nov. 27, Nov. 29,
2004 2003
---------- ----------
ASSETS
Current assets
Cash & cash equivalents $2,435 $1,827
Short-term investments 78 --
Receivables 742 678
Merchandise inventories 4,826 4,428
Other current assets 251 211
---------- ----------
Total current assets 8,332 7,144
Net property & equipment 2,319 2,261
Goodwill, net 540 489
Intangible asset 42 38
Long-term investments 141 --
Other assets 248 151
---------- ----------
TOTAL ASSETS $11,622 $10,083
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $5,150 $4,501
Accrued liabilities 1,734 1,439
Current portion of long-term debt 8 14
---------- ----------
Total current liabilities 6,892 5,954
Long-term liabilities 292 276
Long-term debt 478 836
Shareholders' equity 3,960 3,017
---------- ----------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $11,622 $10,083
========== ==========
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