Best Buy 2015 Annual Report Download - page 42

Table of Contents
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(1) In fiscal 2014, e-Readers were moved from the "Consumer Electronics" revenue category to "Computing and Mobile Phones" to reflect the continued
convergence of their features with tablets and other computing devices.
The following is a description of the notable comparable sales changes in our Domestic segment by revenue category:
• Consumer Electronics: The 5.6% comparable sales decline was primarily due to industry declines driven by device
convergence with smartphones and tablets, which has negatively impacted sales of digital imaging products,
particularly compact cameras and camcorders, MP3 devices and accessories, and GPS navigation products.
• Computing and Mobile Phones: The 4.7% comparable sales gain primarily resulted from growth in mobile phones
in the first three quarters of fiscal 2014 (12-month), which was partially due to successful promotions and an increased
sales mix into higher-priced smartphones. In addition, we experienced a comparable store sales gain in computing
driven by growth in the second half of fiscal 2014 (12-month) as a result of improved inventory availability.
• Entertainment: The 16.3% comparable sales decline was driven primarily by weak gaming sales in the first three
quarters as consumers awaited the launch of new platforms in the fourth quarter of fiscal 2014 (12-month), as well as
declines in movies and music as consumers continue to shift from physical media to digital consumption.
• Appliances: The 16.7% comparable sales gain was a result of strong performance throughout fiscal 2014 (12-month)
due to effective promotions, the addition of appliance specialists in select stores, the expansion of the small appliances
category and the positive impact of Pacific Kitchen & Home store-within-a-store concepts.
• Services: The 0.2% comparable sales gain was primarily due to growth in mobile phone repair services, offset by a
decline in warranty services due to the prior-year benefit from a periodic profit sharing payment that was earned based
on the long-term performance of our externally managed extended service plan portfolio that did not recur in fiscal
2014 (12-month).
Our Domestic segment experienced an increase in gross profit of $485 million, or 6.2%, in fiscal 2014 (12-month) compared to
fiscal 2013 (11-month), driven by the extra month of activity. Excluding the extra month, gross profit declined due to a decline
in the gross profit rate and lower revenue. The 0.3% of revenue decrease in the gross profit rate resulted primarily from a
greater investment in price competitiveness and increased product warranty-related costs associated with higher claims
frequency in mobile phones. These items were partially offset by LCD-related legal settlements, the realization of Renew Blue
cost reductions and other supply chain cost containment initiatives and the accelerated recognition of previously deferred
revenue associated with our prior credit card agreement.
Our Domestic segment's SG&A increased $278 million, or 4.1%, in fiscal 2014 (12-month) compared to fiscal 2013 (11-
month). Excluding the extra month of activity, SG&A decreased primarily from the realization of our Renew Blue cost
reduction initiatives, tighter expense management throughout the company and, to a lesser extent, the impact of store closures
in fiscal 2013 (11-month). These decreases were partially offset by Renew Blue investments, including optimization of our
retail floor space and the re-platforming of and functionality enhancements to bestbuy.com. These factors also contributed to
the 0.7% of revenue decline in the SG&A rate.
Our Domestic segment recorded $123 million of restructuring charges in fiscal 2014 (12-month), primarily related to employee
termination benefits as a result of Renew Blue cost reduction initiatives. These restructuring charges resulted in a decrease in
our operating income in fiscal 2014 (12-month) of 0.3% of revenue. In fiscal 2013 (11-month) our Domestic segment recorded
restructuring charges of $328 million, which included $1 million of inventory write-downs included in cost of goods sold. The
restructuring charges related to our Renew Blue and first quarter fiscal 2013 U.S. restructuring activities and consisted
primarily of facility closure costs, employee termination benefits and asset impairments. These restructuring charges resulted in
a decrease in our operating income in fiscal 2013 (11-month) of 1.0% of revenue. Refer to Note 4, Restructuring Charges, of
the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K for further information about our restructuring activities.
Our Domestic segment’s operating income increased $414 million, or 1.0% of revenue, in fiscal 2014 (12-month) compared to
fiscal 2013 (11-month). Excluding the extra month of activity, operating income increased primarily due to lower SG&A
expenses and a decrease in restructuring, partially offset by lower gross profit as described above.