01—Abstract
Summary
Summary of the 10-K filed April 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Best Buy Co., Inc. reported fiscal 2011 (year ended February 26, 2011) revenue of $50.27 billiona, up 1.2% from $49.69 billion in fiscal 2010, driven mainly by the net addition of 147 new stores and favorable foreign currency effects, partially offset by a 1.8% comparable store sales decline.
Operating income fell to $2.11 billionb from $2.24 billion, with operating margin declining to 4.2% of revenue from 4.5%, primarily due to $222 million of restructuring charges recorded in the fourth quarter tied to exiting the Turkey market, restructuring Best Buy branded stores in China, and efficiency actions in the Domestic segment. Net earnings attributable to Best Buy Co., Inc. were $1.28 billion, down from $1.32 billion, and diluted EPS was $3.08 versus $3.10 in fiscal 2010. The Domestic segment remained the larger contributor, with revenue of $37.19 billion and operating income of $2.03 billion, while the International segment generated $13.09 billion of revenue but only $83 million of operating income, including $171 million of restructuring charges.
Comparable store sales in the Domestic segment declined 3.0%, with weakness in entertainment and consumer electronics offset partly by gains in home office, driven by Best Buy Mobile. Cash flow from operations fell to $1.19 billionc from $2.21 billion, while capital expenditures rose to $744 million. The company repurchased 32.6 million shares for $1.2 billion and paid $237 million in dividends.
Liquidity remained solid, with cash and cash equivalents of $1.10 billiond at year-end and a $2.3 billion undrawn revolving credit facility. Subsequent to year-end, in March 2011, the company issued $1.0 billion of notes (3.75% due 2016 and 5.50% due 2021). The filing also discloses pending securities class action lawsuits related to fiscal 2011 earnings guidance, which management believes are without merit and cannot yet quantify.
02—Key points
Key Highlights
- Revenue rose 1.2% to $50.27 billion, supported by 147 net new stores and favorable foreign currency, offset by a 1.8% comparable store sales decline.
- Operating income declined to $2.11 billion (4.2% of revenue) from $2.24 billion (4.5%), reflecting $222 million in fourth-quarter restructuring charges.
- Gross profit rate improved to 25.1% of revenue from 24.5%, driven by higher-margin smartphone sales from Best Buy Mobile.
- International segment operating income fell to $83 million from $164 million, including $171 million of restructuring charges tied to the Turkey exit and China restructuring.
- Operating cash flow dropped to $1.19 billion from $2.21 billion, primarily due to working capital changes, while capex rose 21.0% to $744 million.
- Board-authorized share repurchases totaled $1.2 billion (32.6 million shares) in fiscal 2011, with $1.3 billion remaining under the June 2007 program.
- Subsequent to year-end, the company issued $1.0 billion of senior notes in March 2011 and faces securities class action lawsuits over fiscal 2011 earnings guidance.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Best Buy kept $0.03.
- Revenue$49.75B100.0%
- Cost of revenue−$37.21B74.8%
- Gross profit$12.54B25.2%
- Operating costs−$10.17B20.4%
- Operating income$2.37B4.8%
- Interest, other & tax−$1.10B2.2%
- Net income$1.28B2.6%
Where FY2011 revenue went
$49.75B- Cost of revenue: $37.20B, 75% of revenue
- SG&A: $10.03B, 20% of revenue
- Net income: $1.28B, 2.6% of revenue
- Interest, other & tax: $1.10B, 2.2% of revenue
Kept 2.6% as net incomeNet income $1.28B · 2.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed April 25, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $49.75B$49.24B | +1.0% |
| Cost of Revenue | $37.20B$37.20B | 0.0% |
| Gross Profit | $12.54B$12.04B | +4.1% |
| SG&A Expenses | $10.03B$9.62B | +4.2% |
| Operating Income | $2.37B$2.37B | +0.3% |
| Interest Expense | $86.00M$92.00M | −6.5% |
| Net Income | $1.28B$1.32B | −3.0% |
| EPS (Basic) | $3.14$3.16 | −0.6% |
| EPS (Diluted) | $3.08$3.10 | −0.6% |
| Shares Outstanding (Basic) | 406.10M416.80M | −2.6% |
| Shares Outstanding (Diluted) | 416.50M427.50M | −2.6% |
05—Questions
Frequently Asked Questions
Why did Best Buy's operating income decline in fiscal 2011?
Operating income fell to $2.11 billion from $2.24 billion, mainly because of $222 million in restructuring charges recorded in the fourth quarter. These related to exiting the Turkey market, restructuring Best Buy branded stores in China, and improving efficiencies in the Domestic segment. SG&A deleverage from lower comparable store sales also contributed.
How did the Domestic and International segments perform?
The Domestic segment generated $37.19 billion of revenue and $2.03 billion of operating income, with comparable store sales down 3.0%. The International segment generated $13.09 billion of revenue, up 5.7%, but operating income fell to $83 million from $164 million due to $171 million of restructuring charges.
What is the company's liquidity position?
Best Buy ended fiscal 2011 with $1.10 billion in cash and cash equivalents and had a $2.3 billion five-year unsecured revolving credit facility with no borrowings outstanding at February 26, 2011. The company stated its liquidity sources would be sufficient for fiscal 2012 plans. Its credit ratings were BBB+ (Fitch, negative outlook), Baa2 (Moody's, stable) and BBB- (S&P, stable) as of April 20, 2011.
What shareholder returns did Best Buy provide in fiscal 2011?
The company repurchased and retired 32.6 million shares at a cost of $1.2 billion and paid four quarterly dividends totaling $0.58 per share, or $237 million. The quarterly dividend was raised to $0.15 per share from $0.14 in the third quarter of fiscal 2011.
What legal risks did the filing disclose?
Best Buy disclosed a 2005 class action (Holloway) alleging discrimination against women and minorities in its stores, with proceedings stayed pending a Supreme Court decision in Dukes v. Wal-Mart. It also disclosed February and March 2011 securities class actions alleging misleading statements about fiscal 2011 earnings guidance. Management believes these claims are without merit and said it cannot provide a meaningful quantification of potential impact.
06—Continue