Management Discussion & Analysis pg 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Our net earnings increase was primarily driven by an improved gross profit rate, new store growth, expense controls and the inclusion of operations from acquired businesses. Revenues compared with the last fiscal year’s reported results grew 28%. Approximately half of the increase in revenues was due to new Best Buy stores opened in the past two fiscal years, including 62 new stores opened in fiscal 2002. The remainder of the increase was due to the inclusion of revenues from acquired businesses. The 1.9% increase in comparable Best Buy store sales was offset by the inclusion of an extra week of operations in fiscal 2001, which increased fiscal 2001 revenues by approximately $280 million.

Our improved gross profit rate was due to increased sales of higher-margin digital products, improved supply chain management and more effective promotional strategies. In addition, the inclusion of Musicland’s higher-margin sales mix increased our gross profit rate by approximately 1.1% of revenues.

Our selling, general and administrative expenses (SG&A) rate was 17.8% of revenues, an increase of 1.8% of revenues over last fiscal year. The inclusion of Musicland’s higher expense structure increased our SG&A rate by approximately 1.4% of revenues. The remainder of the increase was primarily due to the impact of operating expenses increasing at a faster rate than comparable store sales, as well as increased performance-based compensation, higher depreciation expenses related to capital investments and increased charitable giving. The increase was partially offset by reduced outside consulting costs, improved productivity and comparison with prior fiscal year expenses, which included the launch of BestBuy.com™, our entry into the New York market and the write-off of certain e-commerce investments. 

Fiscal 2001 revenues were $15.3 billion, compared with $12.5 billion in fiscal 2000. The majority of the increase in revenues, compared with the prior fiscal year, was due to the addition of 62 Best Buy stores, a full year of operations at the 47 Best Buy stores opened in fiscal 2000 and a 4.9% comparable store sales increase at Best Buy stores. The remainder of the increase resulted from the inclusion of revenues generated by Musicland and Magnolia Hi-Fi from their dates of acquisition and the inclusion of a 53rd week that added approximately $280 million in revenues. The Best Buy comparable store sales increase reflected the strength of the digital product cycle and benefits from our enhanced operating model that included an improved merchandise assortment, higher in-stock positions and more consistent store execution.

Gross profit in fiscal 2001 increased to 20.0% of revenues, compared with 19.2% of revenues in fiscal 2000, mainly due to improved product margins and a more profitable sales mix that resulted from increased sales of digital products and higher-end, more fully featured products. In addition, the inclusion of Musicland’s higher margin sales mix increased our gross profit rate by approximately 0.2% of revenues.

Our SG&A rate increased to 16.0% of revenues in fiscal 2001, compared with 14.8% in fiscal 2000, primarily due to our increased investment in strategic initiatives and a more modest sales growth environment. In addition, the launch and operation of BestBuy.com, expenses related to our entry into the New York market and the write-off of certain e-commerce investments also impacted our SG&A rate in fiscal 2001.