Best Buy 2007 Annual Report Download - page 49

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34
also benefited from better product transition management
and a more stable promotional environment.
Our SG&A rate in fiscal 2006 increased by 1.3% of
revenue to 19.7% of revenue. The increase was due
primarily to increased performance-based incentive
compensation resulting from our strong financial
performance; a growing number of stores operating under
the higher-cost, customer-centric labor model; costs
associated with supporting our services business and the
absence of favorable settlements with two credit card
companies as recognized in fiscal 2005. These factors were
partially offset by expense leverage resulting from a higher
revenue base, as well as the absence of charges recognized
in fiscal 2005 to correct our accounting for leases and to
settle litigation. The change in our accounting for stock-
based compensation increased our fiscal 2006 SG&A rate
by approximately 0.4% of revenue compared with the prior
fiscal year.
Segment Performance
Domestic
The following table presents selected financial data for our Domestic segment for each of the past three fiscal years
($ in millions):
Domestic Segment Performance Summary (unaudited) 2007(1) 2006 2005
Revenue $31,031 $27,380 $24,616
Total revenue gain % 13% 11% 11%
Comparable store sales % gain(2) 4.1% 5.1% 4.4%
Gross profit as % of revenue 24.8% 25.3% 23.8%
SG&A as % of revenue 18.8% 19.5% 18.2%
Operating income $ 1,889 $ 1,588 $ 1,393
Operating income as % of revenue 6.1% 5.8% 5.7%
(1) Fiscal 2007 included 53 weeks. Fiscal 2006 and 2005 each included 52 weeks.
(2) Comprised of revenue at store and Web sites operating for at least 14 full months, as well as remodeled and expanded locations.
Relocated stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired
stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the
date of acquisition. All comparable store sales percentage calculations reflect an equal number of weeks. The method of calculating
comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may not be the
same as other retailers’ methods.
In fiscal 2007, our Domestic segment’s operating income
was $1.9 billion, or 6.1% of revenue, compared with $1.6
billion, or 5.8% of revenue, in fiscal 2006. The Domestic
segment’s operating income rate in fiscal 2007 benefited
from revenue gains, including the addition of 80 new Best
Buy stores during fiscal 2007 and a 4.1% comparable store
sales increase, and a decrease in the SG&A rate, partially
offset by a decrease in the gross profit rate.
Our Domestic segment’s revenue in fiscal 2007 increased
13% to $31.0 billion. The addition of new stores during the
past two fiscal years accounted for nearly one-half of the
revenue increase in fiscal 2007; a 4.1% comparable store
sales gain accounted for approximately three-tenths of the
revenue increase; the inclusion of an extra week of business
in fiscal 2007 accounted for over one-tenth of the revenue
increase; and the remainder of the revenue increase was
due primarily to the acquisition of Pacific Sales and income
related to our additional recognition of gift card breakage.
Our Domestic segment’s comparable store sales gain in
fiscal 2007 benefited from a higher average transaction
amount driven by the continued growth in higher-ticket
items, including flat-panel televisions and notebook
computers. Also contributing to the fiscal 2007 comparable
store sales gain was an increase in online purchases, as we
continued to add features and capabilities to our Web sites.
Revenue from our Domestic segment’s online operations
increased approximately 39% in fiscal 2007 and added to
the overall comparable store sales increase.
Our Domestic segment’s consumer electronics product
group posted an 8.7% comparable store sales gain in fiscal
2007, driven by sales of flat-panel televisions and MP3
players and accessories, partially offset by declines in tube
and projection televisions. Comparable store sales gains
from flat-panel television unit-volume growth and increased
screen size were somewhat muted by declines in average
selling prices.