Best Buy 2012 Annual Report Download - page 42

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42
Despite a modest decline in revenue, our Domestic segment experienced gross profit growth in fiscal 2011 of $350 million, or
3.9%, compared to fiscal 2010, due to rate improvements. The 1.0% of revenue increase in the gross profit rate was due to
favorable rate and mix impacts of 0.7% of revenue and 0.3% of revenue, respectively, and resulted primarily from the
following factors collectively:
• increased sales of higher-margin mobile phones as a result of the growth in Best Buy Mobile;
• a change in the form of vendor funding for fiscal 2011, shifting more dollars to gross profit than SG&A; and
• improved attachment of services, particularly in the mobile computing product category;
• partially offset by declining average selling prices of televisions.
Our Domestic segment's SG&A grew $393 million, or 5.7%, in fiscal 2011 compared to fiscal 2010. The increase in SG&A
was driven by the opening of new stores and an increase in the Best Buy Mobile profit share-based management fee, partially
offset by lower incentive compensation costs. The following factors collectively contributed to the Domestic segment's SG&A
rate increase of 1.1% of revenue:
• deleverage due to the comparable store sales decline;
• continued growth in Best Buy Mobile (including the profit share-based management fee we paid to Best Buy Europe,
which is offset in the International segment SG&A results and, therefore, has no net impact on our consolidated
operating income); and
• the change in the form of vendor funding as discussed above;
• partially offset by lower incentive compensation costs.
Our Domestic segment recorded $40 million of restructuring charge, including $9 million of inventory write-downs, in fiscal
2011, compared to $25 million recorded in fiscal 2010. The fiscal 2011 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 fiscal 2010 restructuring charges related primarily to updating our U.S. Best Buy
store operating model, which resulted in the elimination of certain positions for which we incurred employee termination costs.
The $49 million decrease in our Domestic segment's operating income for fiscal 2011 was due to a modest decline in revenue,
higher SG&A spending, and an increase in restructuring charges, partially offset by increased gross profit due to an
improvement in the gross profit rate. Our Domestic segment's operating income in fiscal 2011 included $40 million of
restructuring charges recorded in the fiscal fourth quarter, compared to $25 million of restructuring charges recorded in fiscal
2010.
International
The following table presents selected financial data for our International segment for each of the past three fiscal years ($ in
millions):
International Segment Performance Summary 2012(1) 2011 2010(3)
Revenue $ 13,090 $ 12,677 $ 12,105
Revenue gain % 3.3 % 4.7% 23.6 %
Comparable store sales % (decline) gain (2.1)% 2.3% (3.6)%
Gross profit $ 3,387 $ 3,227 $ 3,078
Gross profit as % of revenue 25.9 % 25.5% 25.4 %
SG&A $ 2,935 $ 2,800 $ 2,786
SG&A as % of revenue 22.4 % 22.1% 23.0 %
Restructuring charges $ 15 $ 107 $ 27
Operating (loss) income $ (770) $ 320 $ 265
Operating (loss) income as % of revenue (5.9)% 2.5% 2.2 %
(1) Included within our International segment's operating loss for fiscal 2012 is a $1.2 billion goodwill impairment charge. The goodwill impairment charge
resulted in a decrease in our operating income of 9.2% of revenue for the fiscal year.