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Selected quarterly financial data is included in Item 8, the same period of the prior fiscal year, driven by the
Financial Statements and Supplementary Data, of this addition of 78 stores in the past 12 months, a
Annual Report on Form 10-K. comparable store sales gain of 2.8% and the favorable
effect of fluctuations in foreign currency exchange rates.
Fourth-Quarter Accounting and Tax Items • Our gross profit rate decreased by 0.7% of revenue for
During the fourth quarter of fiscal 2005, certain the fourth quarter of fiscal 2005 to 23.5% of revenue,
accounting and tax items affected our reported financial down from 24.2% of revenue for the fourth quarter of
results and the comparability of those results with other the prior fiscal year. The decline was due primarily to a
periods. These items included the correction of our less profitable revenue mix. In addition, the gross profit
accounting for leases, the establishment of a sales return rate for the fiscal fourth quarter was adversely affected
liability, the effect of various tax matters and the adoption by increased promotional activity compared with the
of EITF Issue No. 04-08. Refer to the ‘‘Results of
fourth quarter of fiscal 2004, as well as the impact of
Operations — Fiscal 2005 Accounting and Tax Items’’
section of this MD&A for additional information product model transitions which resulted in increased
concerning the nature and amount of the items. markdowns.
• Our SG&A rate for the fourth quarter of fiscal 2005
Fourth-Quarter Summary improved by 0.3% of revenue to 15.0% of revenue,
• Earnings from continuing operations increased 11% for down from 15.3% of revenue for the fourth quarter of
the fourth quarter of fiscal 2005 to $522 million, or fiscal 2004. The improvement was driven primarily by
$1.55 per diluted share, compared with $469 million, lower performance-based incentive compensation costs
or $1.40 per diluted share, for the fourth quarter of and a favorable settlement with a credit card company.
fiscal 2004. These factors were partially offset by a fourth-quarter
• Revenue increased 9% to $9.2 billion for the fourth charge to correct our accounting for leases.
quarter of fiscal 2005, compared with $8.4 billion for
Consolidated
The following table presents selected consolidated financial data ($ in millions, except per share amounts):
Three Months Ended
February 26, February 28,
(Unaudited) 2005 2004(1)
Revenue $9,227 $8,449
Comparable store sales % gain(2) 2.8% 9.7%
Gross profit as % of revenue 23.5% 24.2%
SG&A as % of revenue 15.0% 15.3%
Operating income $ 783 $ 759
Operating income as % of revenue 8.5% 9.0%
Earnings from continuing operations $ 522 $ 469
Gain on disposal of discontinued operations(3) 50 —
Net earnings $ 572 $ 469
Diluted earnings per share — continuing operations(4) $ 1.55 $ 1.40
Diluted earnings per share(3) $ 1.69 $ 1.40
Note: All periods presented reflect the classification of Musicland’s financial results as discontinued operations.
(1) Certain amounts have been reclassified to conform to the current presentation. These reclassifications had no effect on operating
income, net earnings, financial position or cash flows. During fiscal 2005, we reclassified from SG&A into cost of goods sold
certain expenses related to operating our distribution network, consisting primarily of handling and transportation costs related to
moving merchandise from our distribution centers to our stores. We believe that the revised presentation provides greater
consistency for investors by aligning the classification of our distribution costs with the practices of many other retailers.
(2) Comprised of revenue at stores and Web sites operating for at least 14 full months, as well as remodeled and expanded locations.
Relocated stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. The
calculation of the comparable store sales percentage gain excludes the impact of fluctuations in foreign currency exchange rates.
(3) The fourth quarter of fiscal 2005 includes a tax benefit of $50 million due to the favorable resolution of outstanding tax matters.
(4) Diluted earnings per share for the fourth quarter of fiscal 2004 have been restated to reflect the adoption of EITF Issue No. 04-08,
The Effect of Contingently Convertible Instruments on Diluted Earnings per Share.
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