Best Buy 2002 Annual Report Download - page 33

Best Buy Co., Inc. 31
in fiscal 2003 due to new store growth, comparable store
sales gains and the inclusion of a full year of Future Shop
revenues. In fiscal 2003, comparable store sales are
expected to increase by approximately 3% to 4%.
In fiscal 2003, our gross profit rate is expected to remain
essentially even with the fiscal 2002 rate based on
anticipated gross profit rate improvement at Best Buy
stores and International, offset by a planned gross profit
rate decline at Musicland. The anticipated gross profit rate
improvement at Best Buy stores and International is based
on a more profitable sales mix resulting from an increase
in sales of higher-margin digital products. However, the
rate of improvement is likely to be less than experienced in
the prior fiscal year, as these and other products become
more widely distributed through mass merchandisers and
discount chains. Musicland’s planned gross profit rate
decline in fiscal 2003 is due to the continued shift in the
sales mix from higher-margin sales of prerecorded music
to lower-margin sales of DVD movies and video gaming.
Our SG&A rate is expected to decrease modestly in fiscal
2003. The expected decrease is due to expense leverage,
primarily in the second half of our fiscal year, as a result
of the anticipated increase in comparable store sales and
the expanding store base. The SG&A rate decline resulting
from increased expense leverage will be partially offset by
higher depreciation expenses related to our increased levels
of capital spending in fiscal 2003 and higher medical
coverage costs for our employees.
We anticipate net interest income for fiscal 2003 of
approximately $6 million, consistent with fiscal 2002,
excluding the $8 million pre-tax charge from the early
retirement of debt incurred in the second quarter of
fiscal 2002.
Our effective tax rate is expected to decrease modestly in
fiscal 2003 as a result of the discontinued amortization of
nondeductible goodwill.
We expect fiscal 2003 capital expenditures to be
approximately $1 billion, exclusive of amounts expended
on property development that will be recovered through
the sale and lease back of the properties. The capital
spending will support the opening of approximately 60
Best Buy stores in the United States and six to eight in
Canada, 30 small-market Sam Goody stores, eight to
nine Future Shop stores and six Magnolia Hi-Fi stores.
About half of the new U.S. Best Buy stores are expected
to be 45,000-square-foot, Concept 5 store formats, and
the other half are expected to be 30,000-square-foot,
smaller market Concept 5 store formats. In addition, fiscal
2003 capital spending will support the continued
development of our information systems and infrastructure,
the continued construction of our new corporate
headquarters and the transformation and integration of
Musicland and Future Shop stores.
Beginning in the first quarter of fiscal 2003, we will report
two segments, Domestic and International. The Domestic
segment will be comprised of operations at Best Buy’s
U.S., Musicland and Magnolia Hi-Fi stores. The
International segment will be comprised of Best Buy’s
Canadian and Future Shop operations. The primary
reasons for this change are the significant similarities of their
respective products and markets, the leveraging of our
buying and distribution functions and the merging of many
of our operational functions into a shared services model
in the first quarter of fiscal 2003.