Best Buy reported earnings from continuing operations of $522 million, or $1.55 per diluted share, for the quarter ended Feb. 26, 2005.
This is an increase of 11% compared with $469 million, or $1.40 per diluted share, for the quarter ended Feb. 28, 2004. These results compare with a median analyst consensus yesterday of $1.55 per diluted share, which the company believes excluded the net $0.04 per share of dilution resulting from the impact of a lease accounting adjustment, a sales return liability adjustment, its adoption of EITF Issue No. 04-08, as well as the decrease in the company’s effective tax rate due to various state and federal tax matters, as previously reported.
“We had our strongest revenue gains of the quarter in February, which allowed us to post quarterly same-store sales stronger than the trend we saw in December,” said Brad Anderson, vice chairman and CEO of Best Buy. “We are proud of another year of double-digit growth in our bottom line, particularly as we invest in the transformation of our company. We believe so deeply in this transformation that we are going to accelerate it in fiscal 2006. We are planning for all of our U.S. Best Buy stores to convert to our customer-centric operating model within three years.”
As reported on March 3, fourth-quarter revenue increased 9% to $9.2 billion, compared with revenue of $8.4 billion for the fourth quarter of fiscal 2004. The revenue increase reflected the addition of 78 new stores in the past 12 months and a comparable store sales gain of 2.8 percent.
The gross profit rate for the fourth quarter was 23.5 percent of revenue, down from a gross profit rate of 24.2 percent of revenue for the fourth quarter of the prior year. The revenue mix unfavorably affected the gross profit rate, as strong growth in lower-margin products such as MP3 players, DVD movies and notebook computers placed pressure on the rate on a year-over-year basis. Seasonal promotional activity, as well as the impact of product model transitions, also contributed to the rate decline, which was partially offset by improvements associated with significant growth in the company’s higher-margin computer services business and increases in global sourcing volumes. As reported yesterday, in the fourth quarter certain costs associated with operating the company’s distribution network were reclassified into cost of goods sold from SG&A; prior periods were restated to conform to the current-year presentation.
The company’s selling, general and administrative expenses rate improved to 15.0% of revenue for the fourth quarter, compared with 15.3% of revenue for the prior year’s fourth quarter. This improvement occurred despite the adjustment in accounting for leases, which increased the SG&A rate for the fourth quarter by approximately 20 basis points, compared with the prior year. The overall improvement in the SG&A rate was primarily driven by lower incentive compensation costs and a favorable settlement with a credit card company. Operating income declined to 8.5 percent of revenue for the fourth quarter, compared with 9.0 percent of revenue for the prior year’s period, primarily due to the change in the gross profit rate.
The company reported net interest expense of $6 million for the fourth quarter of fiscal 2005, which includes $21 million of interest expense related to the lease accounting adjustment. Excluding the lease accounting adjustment, net interest expense improved by $14 million from the same period one year ago, due to higher yields on investments and higher average investment balances. The cash and short-term investments position increased to $3.3 billion at the end of the fourth quarter, versus $2.6 billion at the end of the fourth quarter of fiscal 2004.
For fiscal 2005, the company reported revenue of $27.4 billion, an increase of 12%, driven by the opening of new stores as well as a comparable store sales gain of 4.3%. The company’s operating income rate for fiscal 2005 was consistent with the prior year, at 5.3% of revenue, despite a reduction in the gross profit rate and investments in the company’s customer centricity initiative. The company reported fiscal 2005 earnings from continuing operations of $934 million, or $2.79 per diluted share, an increase of 17 percent compared with earnings from continuing operations of $800 million, or $2.41 per diluted share, for the prior year.
Reflecting various state and federal tax matters, the company’s effective income tax rate for fiscal 2005 for continuing operations declined to 35.3%, compared with 38.3 percent for the same period one year ago. As previously reported, the company estimated that its normalized effective income tax rate for fiscal 2005 for continuing operations would be 36.4%.
The company’s fiscal 2005 net earnings, including a $50 million tax benefit related to its former Musicland subsidiary, totaled almost $1 billion.
murdok | Breaking eBusiness News
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