Best Buy 2001 Annual Report Download - page 21

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Management’s Discussion and Analysis of
Results of Operations and Financial Condition
Best Buy Co., Inc.
22
Overview
Best Buy Co., Inc. (the Company) is the nation’s largest volume specialty retailer of name-brand consumer electronics, home office
equipment, entertainment software and appliances. During the fourth quarter of fiscal 2001, the Company acquired Musicland
Stores Corporation (Musicland) and Magnolia Hi-Fi, Inc. (Magnolia Hi-Fi). M usicland is primarily a mall-based retailer of pre-recorded
music and movies. M agnolia Hi-Fi is a retailer of top-of-the-line audio and video products. Both acquisitions were accounted for
using the purchase method. Under this method, the net assets and results of operations of those businesses are included in the
consolidated financial statements of the Company from their dates of acquisition. For additional information, refer to N ote 2 of the
N otes to Consolidated Financial Statements on page 4 4 and the “Musicland Acquisition” section of Management’s Discussion and
Analysis of Results of O perations and Financial Condition on page 31.
The Company’s fiscal year ended March 3, 2001, contained 53 weeks. Fiscal 2 000 and fiscal 199 9 contained 52 weeks.
Results of Operations
The Company generated record earnings for the fourth consecutive year. For fiscal 2001, net earnings were $395.8 million,
compared to $347.1 million in fiscal 2000 and $ 216.3 million in fiscal 1999. Earnings per share on a diluted basis increased
to $1.86 in fiscal 2001, compared with $1.63 per share in fiscal 2000 and $ 1.03 per share in fiscal 1999. The 14% increase
in fiscal 20 01 net earnings was the result of strong sales of new and expanded digital technology product offerings and gross
margin improvements. The earnings growth in fiscal 2001 also was driven by a 23% increase in revenues for the year, with new
Best Buy stores accounting for the majority of the increase. Despite an increasingly challenging economic environment in fiscal 2 0 01,
comparable store sales increased 4.9% on top of an 11.1% increase in fiscal 2000, and gross profit margin improved to 20.0%
of revenues from 19.2% of revenues for the same period one year ago. The Company’s financial performance in fiscal 2001 also
was impacted by expenses associated with the Company’s growth initiatives, including the national launch of BestBuy.com and the
significant start-up costs associated with opening 62 new Best Buy stores, including the entry into the N ew York market. The write-
off of $15 million of e-commerce investments reduced fiscal 2001 earnings by approximately 4 cents per share. Fiscal 2001 earnings
per share also were reduced by approximately 4 cents per share as a result of the costs associated with the acquisition and
integration of M usicland. M agnolia Hi-Fi’s financial results did not have a material impact on the Company’s net earnings.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
MD&A