Best Buy 2006 Annual Report Download - page 49

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35
PART II
International
The following table presents selected financial data forour International segment for each of the past three fiscal years
($ in millions):
InternationalSegment Performance Summary (unaudited) 2006 2005 2004
Revenue$ 3 ,468 $ 2 ,817 $ 2 ,323
Total revenue gain % 23%21 % 41%
Comparable stores sales % gain(1)2.8% 3.3 % 4.7%
Gross profit as % of revenue 22.9% 22.5% 22.2%
SG&Aas %of revenue21.3% 20.7% 20.6%
Operating income $ 56 $ 49 $37
Operating income as % of revenue 1.6% 1.7 % 1.6%
(1)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 excludedfrom 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 inforeign currency exchange rates.
For fiscal 2006, our International segment’s operating
income was $56 million, or 1.6% of revenue, compared
with $49 million,or 1.7% of revenue, for fiscal 2005. The
International segment’s $7 million increase in operating
income resulted primarily from revenue gains, including the
addition of new stores during fiscal 2006 and a 2.8%
comparable store sales increase.
Our International segment’s revenue for fiscal 2006
increased 23% to $3.5 billion for fiscal 2006, compared
with $2.8 billion for fiscal 2005. The addition of new stores
during the past two fiscal years accounted for over one-half
of the revenue increase for fiscal 2006; fluctuations in
foreign currency exchange rates accounted for
approximately one-third of the revenue increase; andthe
2.8% comparable store sales gain accounted for the
remainder ofthe revenue increase. We believe the
comparable store sales increase reflected market share
gains and was driven by increasedrevenue from flat-panel
televisions, andMP3 players and accessories.
Our International segment’s consumer electronics and
appliances groups posted an8.2% and 18.0% comparable
store sales gain for fiscal 2006, respectively. Our
International segment’s home-office and entertainment
software groups recorded a 0.2% and 7.6% comparable
store sales decline for fiscal 2006, respectively.
Our International segment’s gross profit rate for fiscal 2006
increased by 0.4% of revenue to 22.9% of revenue. The
increase was due primarily to improved product margins
and the favorable comparison with an early contract
termination penalty incurred in the prior fiscal year.
Our International segment’s SG&A rate for fiscal2006
increased by 0.6% of revenue to 21.3% of revenue. The
increase was due primarily to costs incurred as a result of
restructuring our International segment’s operations,
including severance costs associated with staff reductions,
as wellas incremental costs to roll out Canadian Best Buy
stores in Quebec. The change in our accounting for stock-
based compensation increased our fiscal 2006 SG&A rate
by approximately 0.1% of revenue compared with the prior
fiscal year.
During the fourth quarter of fiscal2006, wecompleted our
annual impairment testing of goodwill and the Future Shop
tradename. Basedonexpectations for the business andthe
prevailing retail environment, we determined that no
impairment existed. However,if future results are not
consistent with our assumptions and estimates, or if we ever
were todiscontinue the use of the Future Shoptradename
as a result of abandoning our dual-branding strategyin
Canada or otherwise, we may be exposed to an impairment
charge in the future.