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Best Buy Annual Report, Year Ended Feb 25, 2006

Filing Date
Filed May 10, 2006
Period End
February 25, 2006
Security
BBY
In the record · 2016–202610-K1110-Q328-K109

BBY filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 109 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Jun ’16Jun ’16
  2. Leadership change8-K · Apr ’19Apr ’19
  3. Material agreement8-K · May ’21May ’21
  4. Leadership change8-K · Sep ’25Sep ’25

01—Abstract

Summary

Summary of the 10-K filed May 10, 2006. Cited figures are marked; the original filing is the authoritative source.

Best Buy Co., Inc. (Richfield, Minnesota) reported fiscal 2006 (year ended February 25, 2006) revenue of $30.85 billiona, up 12% from $27.43 billion in fiscal 2005, driven by the net addition of 103 stores, a 4.9% comparable store sales gain, and favorable foreign currency effects.

Earnings from continuing operations rose 22% to $1.14 billionb, or $2.27 per diluted share, versus $934 million, or $1.86 per diluted share. The gross profit rate rose 1.3 points to 25.0% of revenue, while the SG&A rate rose 1.3 points to 19.7%, reflecting higher performance-based incentive pay, customer-centric store labor costs, and services infrastructure. Net earnings also absorbed $132 million of stock-based compensation expense under the early adoption of SFAS 123(R), and benefited from $43 million of gift card breakage income.

The company ended the year with $3.7 billionc in cash and short-term investments, and returned $923 million to shareholders through buybacks ($772 million) and dividends ($151 million). Management's primary strategy is customer centricity: 300 U.S. Best Buy stores (40% of the total) now run the segmented model, with plans to convert the rest in fiscal 2007. For fiscal 2007, management guides to revenue of $34.0 billion to $35.0 billion, a 10% to 13% increase, and diluted EPS of $2.65 to $2.80, with nearly 90 new stores and a 53-week year.

The company also agreed to acquire Pacific Sales Kitchen and Bath Centers, Inc. effective March 7, 2006, for $411 milliond. Risks flagged in the filing include a pending class action alleging discrimination in employment practices, reliance on a few major suppliers (five suppliers represent roughly one-third of merchandise purchased), and concentration of earnings in the fourth quarter, which generates more than one-half of net earnings. The $400 million convertible subordinated debentures due 2022 became convertible at holders' option after the stock price exceeded the trigger for more than 20 days, with a conversion price of $46.00 per share.

02—Key points

Key Highlights

  1. Revenue rose 12% to $30.85 billion in fiscal 2006, driven by 103 net new stores, a 4.9% comparable store sales gain, and favorable currency effects.
  2. Earnings from continuing operations increased 22% to $1.14 billion, or $2.27 per diluted share, compared with $1.86 per diluted share in fiscal 2005.
  3. Gross profit rate increased 1.3 points to 25.0% of revenue; SG&A rate increased 1.3 points to 19.7% of revenue.
  4. Cash and short-term investments totaled $3.7 billion at fiscal year-end; $923 million was returned to shareholders through buybacks and dividends.
  5. Fiscal 2007 guidance: revenue of $34.0 billion to $35.0 billion and diluted EPS of $2.65 to $2.80, including a 53-week year.
  6. Customer centricity drives strategy: 300 segmented U.S. stores (40% of U.S. Best Buy stores), with plans to convert all remaining stores in fiscal 2007.
  7. Agreed to acquire Pacific Sales Kitchen and Bath Centers, Inc. for $411 million, effective March 7, 2006.

03—Questions

Frequently Asked Questions

  1. How did Best Buy perform financially in fiscal 2006?

    Revenue grew 12% to $30.85 billion from $27.43 billion. Earnings from continuing operations rose to $1.14 billion, or $2.27 per diluted share, from $934 million, or $1.86 per diluted share. The increase reflected revenue growth, including a 4.9% comparable store sales gain, and a higher gross profit rate, partly offset by a higher SG&A rate.

  2. What is management's outlook for fiscal 2007?

    Management projects net earnings of $2.65 to $2.80 per diluted share and revenue of $34.0 billion to $35.0 billion, a 10% to 13% increase. The forecast assumes a 3% to 5% comparable store sales increase, nearly 90 new stores, and a 53-week fiscal year. Capital expenditures are expected to be $675 million to $725 million.

  3. How much cash did Best Buy return to shareholders and what remains on its buyback authorization?

    During fiscal 2006 Best Buy returned a total of $923 million through share repurchases and dividend payments. It repurchased 18.3 million shares at a cost of $772 million and paid dividends of $151 million, or $0.31 per share. At the end of fiscal 2006, $790 million remained available under the $1.5 billion repurchase program.

  4. What are the key risks highlighted in the filing?

    The filing cites dependence on a small number of major suppliers, with the 20 largest suppliers accounting for about three-fifths of merchandise purchased and five suppliers about one-third. It also notes that roughly one-third of revenue and more than one-half of net earnings come in the fourth quarter, and that a purported class action alleging employment discrimination was filed in December 2005. Other risks include competition, reliance on management information systems and Accenture, and integration of acquisitions.

  5. What happened with the convertible debentures?

    The $402 million convertible subordinated debentures due 2022 carry an initial 2.25% interest rate and a conversion price of $46.00 per share. Because the closing stock price exceeded the trigger for more than 20 of 30 trading days after March 31, 2006, holders gained the option to convert. As of May 9, 2006, no debentures had been converted. Holders may require repurchase on January 15, 2007.

04—Continue

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