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Best Buy Reports Q4 Results
Mar 30, 2006
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Best Buy Co., Inc. reported earnings from continuing operations of U.S. $644 million, or $1.29 per diluted share, for its fiscal fourth quarter ended on Feb. 25, 2006. Earnings from continuing operations increased 24 percent from $521 million, or $1.04 per diluted share on an adjusted basis, for the prior-year fourth quarter. Earnings per diluted share from continuing operations grew 24 percent to $1.29, compared with $1.04 for the prior year's fourth quarter on an adjusted basis.

Total revenue increased 15 percent to $10.7 billion, fueled by new store openings and a comparable store sales gain of 7.3 percent. The company's domestic segment reported a comparable store sales gain of 7.4 percent, and its international segment posted a 6.4-percent comparable store sales gain. Gross profit dollars increased by 22 percent on higher revenue and a 150-basis-point improvement in the gross profit rate.

For the fiscal 2006 fourth quarter, Best Buy's revenue increased 15 percent to $10.7 billion, compared with revenue of $9.3 billion for the fourth quarter of fiscal 2005 on an adjusted basis. The revenue increase reflected the net addition of 103 new stores in the past 12 months and a comparable store sales gain of 7.3 percent. The comparable store sales gain was driven by an increase in the average transaction size, as the company's revenue mix continues to reflect the shift toward higher-ticket items. Segmented stores led the company with a comparable store sales gain nearly 200 basis points higher than the balance of the U.S. Best Buy stores in the fiscal quarter. Additionally, an improvement in labor productivity, compared to the fiscal third quarter, and solid execution offset slightly lower customer traffic year over year.

The gross profit rate for the fourth quarter was 25.0 percent of revenue, up from a gross profit rate of 23.5 percent of revenue for the prior-year fourth quarter on an adjusted basis. The rate increase was fueled by more cost-effective promotional strategies and growth in higher-margin services and accessories. Furthermore, progress in the company's supply chain transformation, improvements from price optimization, an increase in private-label product sales and better product transition management also added to the rate increase.

Best Buy's SG&A expense rate was 16.0 percent of revenue for the fourth quarter, compared with 15.3 percent of revenue for the prior year on an adjusted basis. The year-over-year increase in the SG&A rate was primarily due to a 70-basis-point increase in incentive compensation expense. The increase in incentive compensation expense was driven by the company's strong fiscal 2006 results, new field-driven programs and more plan participants, as well as a comparison with modest incentive costs in the prior year's fourth quarter. However, U.S. productivity gains, cost-reduction efforts and leverage from revenue growth more than offset higher operating costs from specialized labor and the expansion of the company's services business.

The company reported net interest income of $32 million, up from $15 million in the prior year's fourth quarter on an adjusted basis. The increase was driven by higher investment yields and higher average investment balances. Consistent with the seasonality of Best Buy's cash balances, net interest income was at its peak in the fiscal fourth quarter.

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