01—Abstract
Summary
Summary of the 10-K filed May 20, 1994. Cited figures are marked; the original filing is the authoritative source.
Best Buy Co., Inc. (BBY) reported fiscal 1994 results for the year ended February 26, 1994, in which revenues rose 86% to $3.007 billiona from $1.620 billion in fiscal 1993, and earnings increased 110% to $41.7 million before a cumulative effect adjustment.
Net earnings were $41.3 millionb, or $1.00 per share after the $425 thousand FAS 109 charge. Operating income as a percentage of sales rose to 2.6% from 2.2%, as the decline in selling, general and administrative expenses to 12.6% of sales more than offset a lower gross profit margin of 15.2%. Comparable store sales rose 27%, driven by a 69% comparable increase in computer sales.
Home office products grew to 35% of sales from 27%. The company operated 151 stores in 18 states at year end, opened 40 stores in fiscal 1994, and planned about 50 openings in fiscal 1995, including entries into Charlotte, Cleveland, Orlando, Washington, D.C., Los Angeles and Las Vegas. Fiscal 1995 capital expenditures were planned at $200 millionc, with about $130 million expected to be recovered through sale/leaseback or other long-term lease financing.
Balance sheet changes were significant: merchandise inventories rose to $637.95 milliond from $249.99 million, and long-term debt reached $210.8 million, including $150 million of 8-5/8% senior subordinated notes due 2000. The company has never paid cash dividends and does not intend to pay them in the foreseeable future.
The filing also describes Concept II, a self-service discount store format, and a private label credit card program with over 700,000 cardholders holding more than $1.5 billion in available credit. Management expects competition to keep pressure on margins, while expecting SG&A to continue declining as a percentage of sales.
02—Key points
Key Highlights
- Revenues rose 86% to $3.007 billion in fiscal 1994, up from $1.620 billion in fiscal 1993.
- Net earnings were $41.3 million, or $1.00 per share, after a $425 thousand cumulative effect charge from adopting FAS 109.
- Comparable store sales increased 27%, with computer sales up 69% on a comparable store basis.
- Operating income rose to 2.6% of sales from 2.2%, as SG&A fell to 12.6% of sales from 15.3%.
- Inventories rose to $637.95 million from $249.99 million, supported in part by trade payables and secured inventory financing.
- Total long-term debt was $210.8 million, including $150 million of 8-5/8% senior subordinated notes due 2000.
- The company plans about 50 new stores in fiscal 1995 and capital expenditures of $200 million.
03—Questions
Frequently Asked Questions
How fast did Best Buy grow in fiscal 1994?
Revenues increased 86% to $3.007 billion, and the filing notes that over the past two fiscal years revenues rose 223% and earnings rose 334%. The company opened 40 stores in fiscal 1994, ending the year with 151 stores in 18 states.
What drove the improvement in profitability?
Operating income rose to 2.6% of sales from 2.2%, as revenue growth and leverage of SG&A expenses, which fell to 12.6% of sales from 15.3%, more than offset a lower gross profit margin of 15.2% versus 17.5%. Management attributed the margin decline to promotional pricing in new markets, a shift to lower-margin computer products, and increased inventory shrink.
What are the company's main financing sources and debt obligations?
Growth was financed mainly through public equity offerings, including $85.5 million in net proceeds from a June 1993 offering, and $150 million of senior subordinated notes issued in October 1993 at 8-5/8%. Long-term debt, including the current portion, totaled $219.7 million. The company has a revolving credit facility of up to $125 million, and its inventory financing lines total approximately $175 million.
Does Best Buy pay dividends?
No. The filing states that the company has not historically paid cash dividends on its common stock and does not intend to pay any for the foreseeable future. Its bank line of credit and certain financing agreements also restrict dividend payments.
What is the outlook for fiscal 1995?
The company plans to open about 50 stores, including entries into Charlotte, Cleveland, Orlando, Washington, D.C., Los Angeles and Las Vegas, and to introduce its Concept III store format. Planned capital expenditures are $200 million, with about $130 million expected to be recovered through sale/leaseback or other long-term lease financing. Management expects competition to keep pressuring margins, though at a slower rate of decline, and expects SG&A to continue declining as a percentage of sales.
04—Continue