Best Buy 2001 Annual Report Download - page 26

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Best Buy Co., Inc.
27
Components of Operating Income
The following table presents selected operating ratios as a percentage of revenues for each of the past three fiscal years.
2001 2000 1999
Gross profit 20.0% 19.2% 18.0%
Selling, general and administrative expenses 16.0% 14.8% 14.5%
O perating income 3.9 % 4.3% 3.5%
Gross profit for fiscal 2001 improved to 20.0% of revenues, compared with 19.2% in fiscal 2000. The current-year increase was driven
by improved product margins and a more profitable sales mix that resulted from increased sales of digital products and higher-end,
more fully featured products. The generally lower-margin home office category, which includes personal computers, declined in
Best Buy’s sales mix, while the generally higher-margin consumer electronics categories, which include most digital products, increased.
However, within the home office category, Best Buy benefited from a more profitable sales mix as consumers shifted from lower-
margin desktop computers to higher-margin configure-to-order and notebook computers. The Company also benefited from its
“Complete Solution” selling strategy that is designed to provide customers with higher-margin accessories and services supporting
their purchases. Improved inventory management contributed to the gross profit margin improvement as inventory turns for Best Buy
stores increased to 7.6 turns in fiscal 2001, compared with 7.2 turns in fiscal 2000. The increase in inventory turns resulted in
fewer markdowns, particularly during model transitions. The addition of Musicland’s financial results from its date of acquisition positively
impacted the Company’s gross profit by approximately 0.2% of revenues, due to its higher margin sales mix.
Gross profit improved to 19.2% of revenues in fiscal 2000 from 18.0% in fiscal 1999. The improvement resulted from higher
product margins, a more profitable sales mix due to higher sales of PSPs and accessories, and an enhanced inventory assortment.
Improved inventory turns and continued efforts to reduce inventory shrink also contributed to the gross profit margin improvement.
MD&A