Best Buy 2005 Annual Report Download - page 45

from digital products reflected the continued consumer
Continuing Operations migration to and increased affordability of digital
Fiscal 2005 Results Compared With Fiscal 2004 products, while the increase in notebook computers was
driven primarily by consumers’ continued attraction to the
Earnings from continuing operations for fiscal 2005 were
portability of these products.
$934 million, or $2.79 per diluted share, a 17% increase
from $800 million, or $2.41 per diluted share, for fiscal Our gross profit rate for fiscal 2005 declined to 23.7% of
2004. The improvement was driven primarily by an revenue, a 0.2% of revenue decrease compared with
increase in revenue, including a comparable store sales 23.9% of revenue for fiscal 2004. The decrease was due
gain of 4.3%, and an improvement in our SG&A rate, primarily to a more promotional environment compared
and was partially offset by a decrease in our gross profit with the prior fiscal year, including a full year of impact
rate. In addition, earnings from continuing operations for from and increased membership in Reward Zone. Reward
fiscal 2005 benefited from net interest income of Zone contributed to the revenue gain for the fiscal year,
$1 million, compared with net interest expense of but reduced the fiscal 2005 gross profit rate by
$8 million for the prior fiscal year, and a lower effective approximately 0.5% of revenue, compared with a 0.3% of
income tax rate due to the resolution and clarification of revenue reduction in the gross profit rate for the prior
outstanding income tax matters. fiscal year. In addition, our gross profit rate was affected
by a higher level of promotional activity initiated to
Revenue for fiscal 2005 increased 12% to $27.4 billion,
increase revenue and stem customer traffic declines, a
compared with $24.5 billion for fiscal 2004. The increase
trend we believe was experienced throughout the
resulted from the addition of 61 U.S. Best Buy, 11
consumer electronics retail industry. The increase in
Canadian Best Buy and six Future Shop stores in the past
promotional activity was partially offset by the increase of
12 months; a full year of revenue from new stores added
services revenue in the revenue mix, as services carry a
in fiscal 2004; the 4.3% comparable store sales gain; and
higher gross profit rate, and benefits from our global
the favorable effect of fluctuations in foreign currency
sourcing initiative which enabled us to improve margins
exchange rates. The addition of new stores during the
through lower product costs.
past two fiscal years accounted for approximately three-
fifths of the revenue increase for fiscal 2005; the At the end of fiscal 2005, we had more than 4.7 million
comparable store sales gain accounted for nearly Reward Zone members, compared with more than
two-fifths of the revenue increase; and the favorable effect 2.5 million at the end of fiscal 2004. We continue to
of fluctuations in foreign currency exchange rates believe in the merits of Reward Zone as a vehicle for
accounted for the remainder of the revenue increase. building customer loyalty. Further, we believe the insights
gained from this program are important as we continue to
We believe our comparable store sales performance for
pursue our customer centricity initiative. Under the terms
fiscal 2005 reflected improved in-store execution,
of the program, members earn points for each qualifying
including our ability to increase the close rate and
purchase completed at U.S. Best Buy stores. After
average ticket, which more than offset customer traffic
accumulating the required point total, members are
declines in our stores. In addition, our fiscal 2005
awarded a certificate that may be redeemed on future
comparable store sales gain benefited from continued
purchases. Certificates awarded to Reward Zone members
demand for digital products and our effective advertising
expire 90 days after issuance. Beginning in
and promotional campaigns, including a full year of
October 2004, Reward Zone members were required to
Reward Zone, our customer loyalty program introduced in
spend $150 to earn a $5 certificate redeemable on future
the second quarter of fiscal 2004. Products having the
purchases. Previously, Reward Zone members earned a
largest impact on our fiscal 2005 comparable store sales
$5 certificate after spending $125.
gain included digital televisions, MP3 players, digital
cameras and accessories, notebook computers, DVDs and In accordance with EITF Issue No. 00-22, Accounting for
major appliances. We believe the increase in revenue ‘‘Points’’ and Certain Other Time-Based or Volume-Based
29