How did Best Buy's profitability change in fiscal 1999?

Net earnings were $224.4 million, or $1.07 per diluted share, compared with $94.5 million, or $.52, in fiscal 1998. Operating income rose to $364.5 million from $186.9 million, and the operating margin increased to 3.6% of sales from 2.2%. The improvement reflected a higher gross profit margin of 18.1%, partly offset by SG&A rising to 14.5% of sales from 13.7%.

What drove the sales growth?

Revenues increased 21% to $10.08 billion, principally due to a 13.5% increase in comparable store sales, the addition of 28 new stores and a full year of operations at 13 stores opened in fiscal 1998. Management attributed the comparable store gains to strong consumer spending, market share gains and improvements in the operating model, with growth in digital products such as DVD, digital phones and digital cameras.

How did the Company change its capital structure?

In the first quarter of fiscal 1999, substantially all of the convertible preferred securities were converted into about 20.4 million common shares, increasing shareholders' equity by over $220 million. In October 1998, the Company prepaid its $150 million 8-5/8% Senior Subordinated Notes at 102.5% of par. Long-term debt including current portion fell to $60.6 million from $225.3 million. The company also has a $220 million unsecured revolving credit facility, which had no borrowings in fiscal 1999.

What are the company's plans for fiscal 2000?

Best Buy expects to open approximately 45 stores, including entry into San Francisco, San Diego, Sacramento, northern Florida, upstate New York, and Richmond and Norfolk, Virginia, and to remodel or relocate about 20 stores. It plans to test four 30,000 square-foot small-market stores. Capital spending is expected to exceed $300 million, and SG&A is expected to increase as the Company invests in information systems, technical services and its E-commerce initiative. The company expects to reach 356 stores by fiscal 2000 year end.

Does Best Buy pay dividends, and what are the Year 2000 costs?

The Company has not historically paid cash dividends on its common stock and does not intend to do so. For Year 2000 readiness, the mainframe portion was over 95% complete at a total cost of approximately $9 million in outside professional fees, mostly incurred in fiscal 1999. The non-mainframe portion is expected to cost approximately $8 million, mostly in fiscal 2000.

BBY 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed May 27, 1999. Cited figures are marked; the original filing is the authoritative source.

Best Buy Co., Inc. (the Company) reported fiscal 1999 results for the year ended February 27, 1999, describing it as the nation's largest volume specialty retailer of name brand consumer electronics, home office equipment, entertainment software and appliances.

Revenues rose 21% to $10.08 billion^a from $8.36 billion, driven by a 13.5% comparable store sales increase, 28 new stores and a full year of operations at stores opened in fiscal 1998. Net earnings were $224.4 million, or $1.07 per diluted share, compared with $94.5 million, or $.52, in fiscal 1998. Operating income nearly doubled to $364.5 million, and the operating margin rose to 3.6% of sales from 2.2%, as the gross profit margin improved to 18.1% from 15.9%.

The balance sheet and liquidity also strengthened. Long-term debt including the current portion fell to $60.6 million^b from $225.3 million, after the conversion of $230 million in convertible preferred securities into common stock and the prepayment of the $150 million 8-5/8% Senior Subordinated Notes. Cash and cash equivalents rose to $785.8 million, and shareholders' equity reached $1.06 billion.

Inventory turns improved to 6.6x from 5.6x. Management expects SG&A to increase in fiscal 2000 to fund information systems, technical services and E-commerce, and plans to open approximately 45 stores and spend more than $300 million^c in capital expenditures that year. The Company also disclosed that it has not historically paid cash dividends and does not intend to do so.

Year 2000 remediation of mainframe systems was over 95% complete, with combined outside professional costs of approximately $9 million^d for that portion and about $8 million expected for the non-mainframe portion. The filing states that the Company's operations are not currently subject to material market risks for interest rates, foreign currency, or commodity prices.

02—Key points

Key Highlights

Revenues increased 21% to $10.08 billion in fiscal 1999, with comparable store sales up 13.5% and 28 new stores opened.
Net earnings rose to $224.4 million, or $1.07 per diluted share, from $94.5 million, or $.52, in fiscal 1998.
Operating income nearly doubled to $364.5 million; gross profit margin improved to 18.1% from 15.9%, and operating margin to 3.6% from 2.2%.
Inventory turns improved to 6.6x from 5.6x, and merchandise inventories were essentially flat at about $1.05 billion despite the new stores.
Long-term debt including current portion fell to $60.6 million from $225.3 million after preferred securities conversion and prepayment of $150 million Senior Subordinated Notes.
Cash and cash equivalents increased to $785.8 million, and shareholders' equity reached $1.06 billion.
Fiscal 2000 plans include about 45 new stores, roughly 20 remodels or relocations, and capital spending expected to exceed $300 million.

03—Questions

Frequently Asked Questions

How did Best Buy's profitability change in fiscal 1999?
Net earnings were $224.4 million, or $1.07 per diluted share, compared with $94.5 million, or $.52, in fiscal 1998. Operating income rose to $364.5 million from $186.9 million, and the operating margin increased to 3.6% of sales from 2.2%. The improvement reflected a higher gross profit margin of 18.1%, partly offset by SG&A rising to 14.5% of sales from 13.7%.
What drove the sales growth?
Revenues increased 21% to $10.08 billion, principally due to a 13.5% increase in comparable store sales, the addition of 28 new stores and a full year of operations at 13 stores opened in fiscal 1998. Management attributed the comparable store gains to strong consumer spending, market share gains and improvements in the operating model, with growth in digital products such as DVD, digital phones and digital cameras.
How did the Company change its capital structure?
In the first quarter of fiscal 1999, substantially all of the convertible preferred securities were converted into about 20.4 million common shares, increasing shareholders' equity by over $220 million. In October 1998, the Company prepaid its $150 million 8-5/8% Senior Subordinated Notes at 102.5% of par. Long-term debt including current portion fell to $60.6 million from $225.3 million. The company also has a $220 million unsecured revolving credit facility, which had no borrowings in fiscal 1999.
What are the company's plans for fiscal 2000?
Best Buy expects to open approximately 45 stores, including entry into San Francisco, San Diego, Sacramento, northern Florida, upstate New York, and Richmond and Norfolk, Virginia, and to remodel or relocate about 20 stores. It plans to test four 30,000 square-foot small-market stores. Capital spending is expected to exceed $300 million, and SG&A is expected to increase as the Company invests in information systems, technical services and its E-commerce initiative. The company expects to reach 356 stores by fiscal 2000 year end.
Does Best Buy pay dividends, and what are the Year 2000 costs?
The Company has not historically paid cash dividends on its common stock and does not intend to do so. For Year 2000 readiness, the mainframe portion was over 95% complete at a total cost of approximately $9 million in outside professional fees, mostly incurred in fiscal 1999. The non-mainframe portion is expected to cost approximately $8 million, mostly in fiscal 2000.

04—Continue

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