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Management
Discussion & Analysis pg 1
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| Best
Buy revenues for fiscal 2002 increased 13% to $17.1 billion,
compared with $15.2 billion in fiscal 2001. 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 in fiscal 2002.
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. The
Best Buy comparable store sales increase was primarily the result
of sales gains in the entertainment software and consumer
electronics product categories, partially offset by sales declines
in the home office and appliances categories. The introduction of
new gaming platforms, increased availability of existing consoles
and strong sales of DVD movies led to double-digit comparable
store sales growth in the entertainment software category. The
growth in the entertainment software category was partially offset
by soft sales of prerecorded music resulting from the general
absence of new releases with strong consumer appeal, an increase
in the downloading of music via Internet sites and greater
consumer awareness of CD recording technology. Within the consumer
electronics category, digital products, including digital televisions, DVD hardware, digital cameras and digital camcorders, experienced the largest comparable store sales increases. Digital products comprised 17% of the sales mix in fiscal 2002, compared with 12% in the last fiscal year. Soft sales of desktop and configure-to-order computers as well as reduced prices for computer peripherals resulted in a comparable store sales decline in the home office product category. The decline was partially offset by increased sales of notebook computers and wireless communication devices. In the aggregate, sales of personal computers declined due to weaker consumer demand for desktop computers and challenging economic conditions. Appliance sales were soft primarily as a result of increased competition and a general slowdown in consumer demand throughout the industry. Overall, we believe our improved supply chain management and consistent store execution also contributed to increased revenues and market share gains. Gross profit in fiscal 2002 increased to 21.2% of revenues, up from 19.8% of revenues last fiscal year. Approximately half of the increase was due to a more profitable sales mix; the remainder of the increase was due to reduced markdowns resulting from improved supply chain management and more effective promotional strategies, as well as lower costs associated with consumer financing offers. Sales in the higher-margin consumer electronics and entertainment software product categories increased faster than sales in the home office category, which includes lower-margin personal computers. We continued to benefit from expansion in the digital product category, as margin rates on digital products typically are higher than on analog products. Inventory turns for Best Buy stores declined slightly to 7.5 times in fiscal 2002, compared with last fiscal year’s 7.6 times, due to a sales mix shift from faster-turning computers to consumer electronics, improved in-stock positions and modest comparable store sales growth. Lower costs associated with consumer financing offers resulted from reduced interest rates and more favorable terms related to a new private-label credit card agreement. Our SG&A
rate increased to 16.0% of revenues in fiscal 2002, compared with
15.8% in the prior fiscal year. The increase was primarily due to
expenses associated with less mature stores, the deleveraging
effect of modest comparable store sales growth, increased
performance-based compensation expense related to our 44% increase
in net earnings and increased depreciation expense resulting from
capital investments in new Best Buy stores and core financial and
operating systems. |
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