Best Buy 2007 Annual Report Download - page 66

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PART II
Our fiscal 2008 outlook assumes an improvement in our
operating income rate of approximately 0.3% of revenue,
compared with fiscal 2007. The improvement in our
operating income rate is expected to be driven by a
reduction in our SG&A rate of 0.6% to 0.7% of revenue as
we continue to improve efficiency and leverage revenue
growth. The improvement in our SG&A rate is expected is to
be partially offset by a decline in our gross profit rate of
0.3% to 0.4% of revenue, driven primarily by a lower-
margin revenue mix.
Consistent with management’s focus on long-term revenue
and earnings growth generation, we do not provide a specific
forecast for quarterly earnings per share. However, we
anticipate that our expected operating income rate
improvement and annual earnings growth will be realized in
the second half of the fiscal year. Our guidance assumes a
modest operating income rate decline and no material
improvement in net earnings for the first half of the fiscal
year. This outlook includes the impact of a continuation of
the change in revenue mix, a significant increase in new-store
openings, higher spending on our services business and call
centers, and reduced leverage on expenses in the first half of
the fiscal year, which seasonally has lower revenue than the
second half. We expect greater benefits in the second half of
the fiscal year from leveraging our operating model across
more stores and refining our store operating model to
improve employee productivity. Additionally, we expect gross
profit rate pressure due to the change in revenue mix to
moderate in the second half of the fiscal year, amid a more
rational promotional environment.
Capital expenditures in fiscal 2008 are expected to be
$800 million to $850 million, excluding expenditures
associated with acquiring Speakeasy and any additional
acquisitions. Of that total, we expect approximately $500
million will support our planned new-store openings and
various store enhancement projects, including the costs of
adding Magnolia Home Theater rooms to additional U.S.
Best Buy stores. Specifically, the capital expenditures are
expected to support the opening of approximately 90 new
U.S. Best Buy stores; up to five Pacific Sales stores; three to
five Canada Best Buy stores; seven to nine Future Shop
stores; 20 to 23 Five Star stores; and two to three China Best
Buy stores. We also anticipate opening test stores in Mexico
and Turkey within the next 12 to 18 months. In addition, we
anticipate relocating approximately eight U.S. Best Buy stores
and approximately two Future Shop stores, and we expect to
remodel and enhance certain existing stores.
Capital expenditures in fiscal 2008 also are expected to
include approximately $230 million in technology
investments intended, among other things, to improve our
supply chain and service delivery capabilities, as well as
increase our operating efficiencies.
During fiscal 2008, we plan to continue our quarterly cash
dividend program. We will continue to evaluate the amount
of our quarterly dividend based on our strong cash and
short-term investments position at the end of fiscal 2007,
and our cash flows generated during fiscal 2008.
We also expect to continue repurchasing our common stock
during fiscal 2008 pursuant to the $1.5 billion share
repurchase program authorized by our Board in June 2006.
There is no stated expiration date governing the period over
which we can make our share repurchases.
We intend to update our annual earnings guidance if we
are reasonably confident that annual results are expected to
change materially.
Subsequent Event
Effective May 1, 2007, we acquired Speakeasy for
$97 million in cash, including transaction costs, subject to
certain post-closing adjustments. In connection with this
transaction, we also repaid $6 million of Speakeasy’s debt.
We acquired Speakeasy to strengthen our technology
portfolio for small business customers, delivered through
Best Buy For Business. The acquisition will be accounted for
in the first quarter of fiscal 2008 using the purchase method
in accordance with SFAS No. 141, Business Combinations.
Accordingly, the net assets will be recorded at their
estimated fair values, and operating results will be included
in our financial statements from the date of acquisition. The
purchase price will be allocated on a preliminary basis
using information currently available. Goodwill is projected
to be approximately $75 million and is not expected to be
deductible for tax purposes. The allocation of the purchase
price to the assets and liabilities acquired will be finalized
no later than the first quarter of fiscal 2009, as we obtain
more information regarding asset valuations, liabilities
assumed and revisions of preliminary estimates of fair
values made at the date of acquisition.