Best Buy 2005 Annual Report Download - page 46

Sales Incentive Offers, and Offers for Free Products or Fiscal 2004 Results Compared With Fiscal 2003
Services to Be Delivered in the Future, the value of points Earnings from continuing operations for fiscal 2004
earned by Reward Zone members is recorded as a increased 29% to $800 million, or $2.41 per diluted
liability and a reduction of revenue. The value of points share, compared with $622 million, or $1.90 per diluted
earned by our loyalty program members is included as a share, for fiscal 2003. The improvement was driven
liability and a reduction of revenue at the time the points primarily by an increase in revenue, including a
are earned based on the percentage of points that are comparable store sales gain of 7.1%, and improvements
projected to be redeemed based on historical experience. in both our gross profit rate and our SG&A rate.
During fiscal 2005, we reclassified from SG&A into cost Fiscal 2004 revenue increased 17% to $24.5 billion,
of goods sold certain expenses related to operating our compared with fiscal 2003 revenue of $20.9 billion. The
distribution network, consisting primarily of handling and increase resulted from the addition of 60 U.S. Best Buy,
transportation costs related to moving merchandise from 11 Canadian Best Buy, four Future Shop and three
our distribution centers to our stores. We believe that the Magnolia Audio Video stores during fiscal 2004; a full
revised presentation provides greater consistency for year of revenue from new stores opened in fiscal 2003;
investors by aligning the classification of our distribution and the 7.1% comparable store sales gain. For fiscal
costs with the practices of many other retailers and is 2004, the addition of new stores accounted for
consistent with current accounting guidance. However, approximately half of the revenue increase; the
because retailers do not uniformly record costs of comparable store sales gain accounted for approximately
operating their supply chain between cost of goods sold two-fifths of the revenue increase; and the favorable effect
and SG&A, our gross profit rate and SG&A rate may not of fluctuations in foreign currency exchange rates
be comparable to certain other retailers. For additional accounted for the remainder of the revenue increase.
information regarding costs classified in cost of goods
sold and SG&A, refer to Note 1, Summary of Significant Our gross profit rate for fiscal 2004 improved by 0.3% of
Accounting Policies, of the Notes to Consolidated revenue to 23.9% of revenue, versus 23.6% of revenue for
Financial Statements, included in Item 8, Financial fiscal 2003. The improvement was due primarily to gross
Statements and Supplementary Data, of this Annual profit rate improvements within our product groups and a
Report on Form 10-K. Prior years’ financial statements more effective use of promotions in the Domestic segment
have been reclassified to conform to the current compared with fiscal 2003. These factors were partially
presentation. offset by the impact of Reward Zone. We also
experienced a more promotional environment in the
Our SG&A rate for fiscal 2005 declined by 0.2% of International segment compared with fiscal 2003.
revenue to 18.4% of revenue, down from 18.6% of
revenue for the prior fiscal year. The improvement was Our SG&A rate for fiscal 2004 decreased by 0.2% of
due primarily to reduced performance-based incentive revenue to 18.6% of revenue, compared with 18.8% of
compensation, expense leverage from the comparable revenue for fiscal 2003. The decrease was due primarily
store sales gain and the addition of new stores, and the to expense leverage from the comparable store sales gain
realization of cost savings from our efficient enterprise and the addition of new stores, as well as the realization
initiative. Our fiscal 2005 SG&A rate also benefited from of cost savings from our efficient enterprise initiative. Our
favorable settlements with two credit card companies. fiscal 2004 SG&A rate also benefited from a one-time
These factors were partially offset by additional expenses gain of approximately $5 million, pre-tax, associated with
associated with our customer centricity initiative, and the sale of equity securities received in connection with a
charges to correct our accounting for leases and for the vendor co-marketing agreement. In addition, our fiscal
settlement of litigation which, collectively, increased our 2004 SG&A rate benefited from the absence of certain
SG&A rate for fiscal 2005 by approximately 0.2% of costs incurred during fiscal 2003, including lease
revenue. termination and asset impairment charges associated with
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