Financial Highlights of Best Buy

Financial Highlights of Best Buy

Introduction

Best Buy is a specialty retailer of consumer electronics, home office products and computers, entertainment software, appliances and related services. It is headquartered in Richfield, Minnesota. The company operates retail stores (brick and mortar) and web sites under a variety of brand names such as Geek Squad, Five Star, Best Buy, Pacific Sales, Future Shop, Magnolia Audio Video, The Phone House, Napster, The Carphone Warehouse, and Speakeasy.

As of fiscal 2011 (end February 2012), the company operated two reportable segments: Domestic and International. The Domestic segment, which accounts for about 74.0% of the company's consolidated sales of more than $50.2 billion, is comprised of the store, call center and online operations across the country operating under the aforementioned brand names (Best Buy, 2012). The segment is further broken down by products into consumer electronics, home office products, entertainment systems, appliances, services and other. It is only the revenue generated home office products, which includes the sales of computers and laptops that are accounted in the market share (Best Buy, 2012). Over the past decade, Best Buy has followed a strategy of growth through a series of mergers and acquisitions over the past decade. In 2009, it acquired Napster, Inc., a peer-to-peer network that provides digital download music offerings (Best Buy, 2012).

Recently, the retailer has announced that it plans to focus the company's profitable growth on new openings of 150 Best Buy Mobile stores (which retail mobile phones and tablet computers) in the coming fiscal year. On the other hand, the retailer only plans to open six to eight larger stores over the year, resulting in square-footage growth of less than 1% (Ibis World, 2012). This development marks a significant change in the firm's expansion strategy; in the last three years, Best Buy increased its square footage at an average annual rate of 5.0% through rapid openings of larger stores (Best Buy, 2012). Nonetheless, this change will allow the company to focus its sales on the most profitable products, while minimizing the cost of opening a full-scale store.

Financial Performance

Best Buy's domestic segment has exhibited strong growth over the past five years; revenue is expected to increase at an average annual rate of 3.3% to $39.3 billion in the five years to fiscal 2012. Best Buy was able to grow faster than the industry average because it consistently offers discounts on its computer products. As the economic recovery gains traction and consumers increase their spending on computers and electronics, a 3.2% increase in sales is anticipated in 2012 (Ibis World, 2012). In fiscal 2011, sales increased by 2.6%, primarily driven by improved consumer spending. Lingering effects of the recession did keep consumers' cautious throughout the year, causing comparable store sales to fall by 3.0% (Mergent Investor Edge, 2012).

Furthermore, the technological developments acted unfavorably on the company's sales; for example, the gaining popularity of mobile computing (e.g. Smartphone) led to lower overall sales mix of more expensive notebook ...