Best Buy 2001 Annual Report Download - page 32

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Best Buy Co., Inc.
33
profit margin than Best Buy stores due to product mix and pricing differences. This gap is expected to narrow slightly in fiscal 2002
due to a broader product assortment as new consumer electronics are introduced into the Musicland stores.
The SG&A ratio is expected to increase in fiscal 2002 due, in part, to the inclusion of a full year of M usicland’s higher operating
cost structure. In addition, the increased depreciation resulting from the investments in initiatives supporting the Company’s growth
strategies and goodwill amortization resulting from the acquisitions of M usicland and Magnolia Hi-Fi will impact the fiscal 2002
SG&A ratio. Recently proposed accounting rule changes could eliminate the requirement to amortize goodwill by the second half
of the year. The flat or slightly negative comparable store sales in the first half of fiscal 20 02 are expected to result in lower expense
leverage and an increase in the SG&A ratio. The Company anticipates gaining expense leverage in the second half of the fiscal
year as new stores open and comparable store sales increase.
N et interest income is expected to decrease in fiscal 2002 as a result of the cash used to purchase M usicland and M agnolia Hi-Fi
and the assumption of Musicland’s debt as well as lower yields on invested cash.
The Company’s effective tax rate is expected to increase in fiscal 2002 because of the nondeductibility of goodwill that resulted
from the acquisition of Musicland.
Capital expenditures in fiscal 2002 are expected to range from $700 million to $750 million, exclusive of amounts expended on
property development that will be recovered through sale leasebacks. The capital spending will support the opening of approximately
60 new Best Buy stores, the continued development of the Company’s systems, the expansion of corporate facilities and the
Company’s strategic initiatives, including the M usicland integration and store transformation strategy. Small-market stores are expected
to comprise about one-third of the new Best Buy stores scheduled to open in fiscal 2002. Most new stores will incorporate the features
of Best Buy’s new Concept 5 store format. This new format, while retaining the 45,000-square-foot size, features customer-centric
layouts, better adjacencies of products and accessories, faster checkout and improved merchandising. Existing stores will not be
remodeled with the new concept in fiscal 2002.
Management currently believes that funds from the expected results of operations and available cash and cash equivalents will be
sufficient to finance anticipated expansion plans and strategic initiatives for the next year. In addition, the Company’s revolving
credit facility is available for additional working capital needs or investment opportunities. Management also intends to consider
long-term financing to support development of the Company’s new corporate headquarters facility.
MD&A