Best Buy 2007 Annual Report Download - page 51

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36
International
The following table presents selected financial data for our International segment for each of the past three fiscal years
($ in millions):
International Segment Performance Summary (unaudited) 2007(1) 2006 2005
Revenue $4,903 $3,468 $2,817
Total revenue gain % 41% 23% 21%
Comparable store sales % gain(2) 11.7% 2.8% 3.3%
Gross profit as % of revenue 21.6% 22.9% 22.5%
SG&A as % of revenue 19.4% 21.3% 20.7%
Operating income $ 110 $ 56 $ 49
Operating income as % of revenue 2.2% 1.6% 1.7%
(1) Fiscal 2007 included 53 weeks. Fiscal 2006 and 2005 each included 52 weeks.
(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. Acquired
stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the
date of acquisition. The calculation of the comparable store sales percentage gain excludes the effect of fluctuations in foreign
currency exchange rates. All comparable store sales percentage calculations reflect an equal number of weeks. The method of
calculating comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may
not be the same as other retailers’ methods.
In fiscal 2007, our International segment’s operating income
was $110 million, or 2.2% of revenue, compared with $56
million, or 1.6% of revenue, in fiscal 2006. The increase in
our International segment’s operating income resulted
primarily from revenue gains, including the acquisition of Five
Star and an 11.7% comparable store sales increase, and a
significant reduction in the SG&A rate. These factors were
partially offset by a decrease in the gross profit rate.
Our International segment’s revenue increased 41% to
$4.9 billion in fiscal 2007, compared with $3.5 billion in
fiscal 2006. The acquisition of Five Star accounted for
nearly four-tenths of the revenue increase in fiscal 2007;
the 11.7% comparable store sales gain accounted for
nearly three-tenths of the revenue increase; the addition of
new Best Buy and Future Shop stores during the past two
fiscal years accounted for over one-tenth of the revenue
increase; the favorable effect of fluctuations in foreign
currency exchange rates accounted for over one-tenth of
the revenue increase; and the inclusion of an extra week of
business in fiscal 2007 accounted for the remainder of the
revenue increase.
We believe the comparable store sales increase reflected
market share gains and was driven by increased sales of
flat-panel televisions, video gaming and notebook
computers, partially offset by declines in tube and
projection televisions. Our International segment reported
comparable store sales increases in fiscal 2007 in the
consumer electronics, home-office, entertainment software
and appliances product groups of 15.5%, 7.6%, 12.1%
and 8.1%, respectively. Revenue from our International
segment’s online operations increased approximately 19%
and added to the overall comparable store sales increase.
Our International segment’s gross profit rate in fiscal 2007
decreased by 1.3% of revenue to 21.6% of revenue. Our
China operations, which carry a significantly lower gross
profit rate than our Canada operations, reduced our
International segment’s gross profit rate by approximately
1.1% of revenue in fiscal 2007. The remainder of the
decrease in our International segment’s gross profit rate
was due primarily to increased financing costs, resulting
from increased borrowing rates and a shift toward longer-
term financing programs in conjunction with strong flat-
panel television sales.
Our International segment’s SG&A rate in fiscal 2007
decreased by 1.9% of revenue to 19.4% of revenue. Our
China operations, which carry a significantly lower SG&A rate
than our Canada operations, reduced our International
segment’s SG&A rate by approximately 0.7% of revenue in
fiscal 2007. The remainder of the decrease in our International
segment’s SG&A rate was due primarily to, in order of impact,
the leveraging effect of the 41% growth in revenue;
improvements in the labor model used in our Canada Best Buy
stores; reduced Canada headquarters payroll costs at the end
of fiscal 2006; and the leveraging effect of the 11.7%
comparable store sales gain on advertising expense as a
percentage of revenue. A performance-driven increase in
incentive-based compensation, expenses incurred related to
the closure of all six Canada Geek Squad stores in the second
quarter of fiscal 2007 and increased asset impairment charges
partially offset the decrease.