Best Buy 2012 Annual Report Download - page 40

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40
• Computing and Mobile Phones: The 6.0% comparable store sales gain resulted primarily from increased sales of
tablets, as consumer demand remained strong, and mobile phones due to new product launches in the second half of
the year. The strong performance from tablets and mobile phones was partially offset by a decline in sales of notebook
computers.
• Entertainment: The 16.3% comparable stores sales decline was mainly the result of a decline in gaming due to
overall industry softness, particularly in the fourth quarter. In addition, we continued to experience declines in the
sales of movies and music.
• Appliances: The 10.6% comparable store sales gain was primarily due to increased sales resulting from effective
promotional activity.
• Services: The 0.6% comparable store sales decline was primarily due to a decrease in computer services as a result of
a shift in focus from one-time repair services to ongoing technical support service contracts, partially offset by
increases in the sales of repair services (primarily related to mobile phones) and warranties.
Our Domestic segment experienced a decrease in gross profit of $128 million, or 1.4%, in fiscal 2012 compared to fiscal 2011,
due to a decline in the gross profit rate. The 0.7% of revenue decrease in the gross profit rate resulted primarily from the
following factors:
• increased promotional activity, notably in televisions, movies and gaming;
• an increased sales mix of promotional items;
• a shift from one-time computer repair services to ongoing support contracts; and
• an increased sales mix of lower-margin mobile computing products;
• partially offset by increased sales of higher-margin service products for mobile phones.
Our Domestic segment's SG&A grew $78 million, or 1.1%, in fiscal 2012 compared to fiscal 2011. The increase in SG&A was
driven by an extra week of operations in fiscal 2012, which had 53 weeks compared to 52 weeks in fiscal 2011. Excluding the
impact of the extra week, our Domestic segment's SG&A declined, as increased costs driven by the opening of new stores and
increased advertising were more than offset by decreases in compensation costs, a decrease in the Best Buy Mobile profit
share-based management fee due to strategic changes at Best Buy Europe and reduced spending on third-party services. The
Domestic segment's SG&A rate remained relatively flat in fiscal 2012 compared to fiscal 2011. For further information on the
strategic changes at Best Buy Europe, see Additional Consolidated Results, below.
Our Domestic segment recorded $43 million of restructuring charges in fiscal 2012, which included $19 million of inventory
write-downs included in cost of goods sold. The restructuring charges consisted of property and equipment impairments related
to changes in our mobile broadband offerings, as well as inventory write-downs and facility closure costs related primarily to
activities we undertook to improve supply chain and operational efficiencies in our Domestic segment. These restructuring
charges resulted in a decrease in our operating income in fiscal 2012 of 0.1% of revenue. Our Domestic segment recorded
restructuring charges of $40 million, including $9 million of inventory write-downs included in cost of goods sold, in fiscal
2011. The restructuring charges resulted from activities to improve supply chain and operational efficiencies and included
charges for employee termination benefits, property and equipment impairments and inventory write-downs.
The $199 million decrease in our Domestic segment's operating income for fiscal 2012 was principally the result of a decrease
in gross profit due to a decline in the gross profit rate and higher SG&A spending, partially offset by an increase in revenue.
Fiscal 2011 Results Compared With Fiscal 2010
Our Domestic segment's gross profit improved in fiscal 2011, as compared to fiscal 2010, with a continued rate improvement
partially offset by a revenue decline. These factors, combined with an increase in SG&A and restructuring charges, led to a
modest decline in operating income.
We believe the revenue decline resulted primarily from a combination of weakness in several key consumer electronics
industry product categories and a decline in our estimated domestic market share. Consumers continue to be highly selective
and cautious about how and when they make consumer electronics purchases. As a specialty retailer in the consumer
electronics industry, the adoption of new technologies and the timing of product life-cycles continue to play an important role
in revenue trends. For example, the demand for new television technologies did not materialize as the industry anticipated.
Similarly, we saw a shift in consumer demand within mobile computing, as increased sales of tablets resulted in a lower overall
sales mix of notebook computers throughout fiscal 2011.