What drove the growth in Best Buy's results in fiscal 2002?

Revenue growth came from roughly half from new Best Buy stores opened over the past two years, including 62 new stores in fiscal 2002, with the remainder from acquired businesses. Gross profit improved due to a more profitable sales mix, reduced markdowns and digital product growth. Entertainment software and consumer electronics led comparable store sales gains, while home office and appliances declined.

How did the acquisitions affect the company's financial position?

The company acquired Musicland and Magnolia Hi-Fi in the fourth quarter of fiscal 2001 and Future Shop in November 2001 for $377 million, or $368 million net of cash acquired. The Future Shop acquisition created the International segment and produced goodwill of approximately $406 million. Total goodwill rose to $773 million from $385 million.

What did management project for fiscal 2003?

Management projected diluted earnings per share of approximately $2.10 to $2.17, an 18% to 21% increase from $1.77. It expects revenues of $23.0 billion to $23.5 billion, comparable store sales growth of about 3% to 4%, and capital expenditures of about $1 billion. It also expects Musicland's operating income to fall to approximately break-even.

How did the company finance its growth and what is its debt position?

In fiscal 2002 the company completed two private offerings of convertible debentures with combined proceeds of $726 million net of offering expenses. Total debt was $820 million at year-end, up from $296 million. Credit ratings were BBB from Fitch, Baa3 from Moody's and BBB- from Standard & Poor's, with S&P's outlook marked negative.

BBY 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed May 30, 2002. Cited figures are marked; the original filing is the authoritative source.

Best Buy Co., Inc. filed its annual report on Form 10-K for the fiscal year ended March 2, 2002, describing itself as North America's No. 1 specialty retailer of consumer electronics, personal computers, entertainment software and appliances, with revenues of $19.6 billion^a for the year.

Net earnings rose 44% to a record $570 million^b, compared with $396 million in fiscal 2001, and diluted earnings per share increased to $1.77 from $1.24. Revenues grew 28%, driven by new Best Buy stores (62 opened in fiscal 2002), a full year of acquired businesses and the inclusion of Musicland and Future Shop. The Best Buy segment's comparable store sales rose 1.9%, while Musicland's comparable store sales declined 0.9%, and Future Shop's comparable store sales rose 17.4% before currency effects.

The company now operates three segments (Best Buy, Musicland and International) and ended the year with 1,910 stores. Cash and cash equivalents increased to $1.86 billion^c, and the company raised $726 million net from convertible debentures. Long-term debt-to-capitalization rose to 24% from 9%.

Management projects fiscal 2003 diluted earnings of approximately $2.10 to $2.17^d per share and revenues of $23.0 billion to $23.5 billion, and it expects capital expenditures of about $1 billion. Several of the filing's key discussions are incorporated by reference from the Annual Report (Exhibit 13.1).

02—Key points

Key Highlights

Revenues of $19.6 billion in fiscal 2002, up 28% from $15.3 billion in fiscal 2001.
Record net earnings of $570 million, up 44%; diluted EPS of $1.77 versus $1.24.
Gross profit rate improved to 22.6% of revenues from 20.0%, while SG&A rose to 17.8% of revenues from 16.0%.
Best Buy segment comparable store sales rose 1.9%; Future Shop comparable store sales rose 17.4% before currency effects; Musicland comparable store sales fell 0.9%.
Cash and cash equivalents rose to $1.9 billion; $726 million net raised from convertible debentures; long-term debt-to-capitalization increased to 24% from 9%.
Store base reached 1,910 at year-end, including 481 Best Buy stores, 1,321 Musicland stores and 95 Future Shop stores.
Fiscal 2003 guidance: diluted EPS of approximately $2.10 to $2.17 and revenues of $23.0 billion to $23.5 billion.

03—Questions

Frequently Asked Questions

What drove the growth in Best Buy's results in fiscal 2002?
Revenue growth came from roughly half from new Best Buy stores opened over the past two years, including 62 new stores in fiscal 2002, with the remainder from acquired businesses. Gross profit improved due to a more profitable sales mix, reduced markdowns and digital product growth. Entertainment software and consumer electronics led comparable store sales gains, while home office and appliances declined.
How did the acquisitions affect the company's financial position?
The company acquired Musicland and Magnolia Hi-Fi in the fourth quarter of fiscal 2001 and Future Shop in November 2001 for $377 million, or $368 million net of cash acquired. The Future Shop acquisition created the International segment and produced goodwill of approximately $406 million. Total goodwill rose to $773 million from $385 million.
What did management project for fiscal 2003?
Management projected diluted earnings per share of approximately $2.10 to $2.17, an 18% to 21% increase from $1.77. It expects revenues of $23.0 billion to $23.5 billion, comparable store sales growth of about 3% to 4%, and capital expenditures of about $1 billion. It also expects Musicland's operating income to fall to approximately break-even.
How did the company finance its growth and what is its debt position?
In fiscal 2002 the company completed two private offerings of convertible debentures with combined proceeds of $726 million net of offering expenses. Total debt was $820 million at year-end, up from $296 million. Credit ratings were BBB from Fitch, Baa3 from Moody's and BBB- from Standard & Poor's, with S&P's outlook marked negative.

04—Continue

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