Best Buy 2001 Annual Report Download - page 31

Best Buy Co., Inc.
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Pro forma interest expense reflects interest on the debt assumed as well as the lost interest income on the cash used to finance the
acquisition of Musicland shares. The pro forma effective tax rate of 39.1% compared to the reported tax rate of 38.3% principally
reflects the impact of non tax-deductible goodwill amortization.
The reported gross profit margin and SG&A ratios were both increased by 0.2% of sales as result of the inclusion of Musicland’s
results since the date of acquisition. The reported earnings per share of $1.86 were reduced by 4 cents per share from one month
of operation including initial integration costs and goodwill amortization.
Pro forma information regarding the M agnolia Hi-Fi acquisition is not presented as it would not have had a material impact on the
Company’s reported results or operating ratios.
Outlook for Fiscal 2002
The Company believes it will generate growth in net earnings in fiscal 2002. The net earnings improvement is expected to result
from the operating profits from fiscal 2002 new store openings, a full year’s contribution from stores opened in fiscal 2001 and
the continued benefits from the increase in sales of digital products. In addition, the operating losses from the Company’s e-commerce
business should decline in fiscal 2002 as sales volume increases and the business realizes the benefits of last year’s launch and
infrastructure improvements. The Company anticipates that inclusion of Musicland’s financial results — including integration expenses,
store transformation efforts and goodwill amortization — will negatively impact the first three quarters of fiscal 2002. Profits contributed
by M usicland in the highest volume fourth quarter are expected to offset the aggregate losses in the first three quarters of fiscal 2002.
Comparable store sales increases are expected to be in the low single digits for fiscal 2 002. However, during the first half of the
year comparable store sales are expected to decline modestly as consumers are likely to remain cautious. The Company’s fiscal 2002
sales are expected to range from $19.0 billion to $19.5 billion.
The Company believes Best Buy stores will realize a modest improvement in its gross profit margin in fiscal 2002 ; however, the
improvement is expected to be less than the fiscal 2001 improvement. The anticipated margin improvement assumes moderate
promotional activity and a more profitable sales mix resulting from an increase in digital products as a percentage of the Company’s
sales mix. In addition, a continuation of the shift to higher margin products in the home office category and the migration to digital
televisions should benefit the Company’s overall gross margin rate in fiscal 2002. The Company believes digital products sales will
be approximately 18% to 19% of the fourth quarter fiscal 2002 sales mix, compared with 15% in the fourth quarter of fiscal 2001.
Reduced product margins due to the commoditization of selected digital products, DVD in particular, is expected to partially offset the
gross profit margin improvements anticipated from the more profitable sales mix. In addition, the Company expects that Musicland will
positively impact the Company’s gross profit margin rate in fiscal 2002. Historically, M usicland stores have produced a higher gross
MD&A