Best Buy 2005 Annual Report Download - page 50

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The International segment generated operating income of The SG&A rate for the International segment increased to
$49 million, or 1.7% of revenue, for fiscal 2005, an 20.7% of revenue for fiscal 2005, compared with 20.6%
increase of 34% compared with $37 million, or 1.6% of of revenue for fiscal 2004. The increase was due
revenue, for the prior fiscal year. The improvement was primarily to the absence of favorable settlements realized
due primarily to revenue gains, including a 3.3% in the prior fiscal year related to previously established
comparable store sales increase for the fiscal year, and legal and location closing liabilities. The fiscal 2004
an improved gross profit rate, and was partially offset favorable settlements did not have a significant effect on
by an increase in the SG&A rate. fiscal 2004 consolidated earnings from continuing
The International segment reported revenue of $2.8 billion operations. In addition, our fiscal 2005 SG&A rate was
for fiscal 2005, an increase of 21% compared with affected by a charge to correct our accounting for leases.
$2.3 billion for the prior fiscal year. New-store additions These factors were partially offset by expense leverage
in the past two fiscal years accounted for approximately resulting from new-store openings and the comparable
half of the revenue increase for the fiscal year. The store sales gain, as well as a reduction in advertising
favorable effect of fluctuations in foreign currency expense as a percentage of revenue.
exchange rates accounted for approximately one-third of During the fourth quarter of fiscal 2005, we completed
the revenue increase, and the 3.3% comparable store our annual impairment testing of goodwill and the Future
sales gain accounted for the remainder of the revenue Shop tradename. Based on expectations for the business
increase. The comparable store sales increase reflected and the prevailing retail environment, we determined that
market share gains and was driven by increased revenue no impairment existed. However, if future results are not
from MP3 players, notebook computers, digital televisions consistent with our assumptions and estimates, or if we
and digital cameras.
ever were to discontinue the use of the Future Shop
The International segment’s gross profit rate was 22.5% of tradename as a result of abandoning our dual-branding
revenue for fiscal 2005, an increase from 22.2% of strategy in Canada or otherwise, we may be exposed to
revenue for the prior fiscal year. The increase was due an impairment charge in the future.
primarily to gross profit rate improvements resulting from
increased vendor allowances and reduced markdowns,
and was partially offset by an early contract termination
penalty paid to a third-party product warranty insurance
provider.
The following table reconciles International stores open at the beginning and end of fiscal 2005:
Total Total
Stores at Stores at
End of Stores Stores End of
Fiscal 2004 Opened Closed Fiscal 2005
Future Shop 108 6 — 114
Canadian Best Buy 19 11 — 30
Total 127 17 — 144
Note: During fiscal 2005, we relocated four Future Shop stores. No Canadian Best Buy stores were relocated or remodeled during fiscal
2005. At the end of fiscal 2005, we operated 114 Future Shop stores throughout all Canadian provinces and 30 Canadian Best Buy
stores in Ontario, Alberta, British Columbia, Manitoba and Saskatchewan.
34