Best Buy 2013 Annual Report Download - page 37

37
• Appliances: The 10.1% comparable store sales gain was due to the implementation of operational improvements,
including the addition of more Pacific Kitchen and Home store-within-a-store concepts, promotional effectiveness and
improved performance in small appliances.
• Services: The 0.8% comparable store sales gain was primarily due to the benefit from a periodic profit sharing
payment that was earned based on the long-term performance of the our externally managed extended service plan
portfolio, partially offset by a decrease in the sales of notebook computers, which contributed to fewer service
products sales opportunities.
Our Domestic segment experienced a decrease in gross profit of $394 million, or 4.8%, in fiscal 2013 (11-month) compared to
fiscal 2012 (11-month recast), driven by lower revenue and a decline in the gross profit rate. The 0.6% of revenue decrease in
the gross profit rate resulted primarily from the following factors:
• increased promotional activity, notably in computing, home theater, MP3 players and movies; and
• an increased mix of smartphones with higher average selling prices but a lower margin rate;
• partially offset by an improvement in sales mix due to decreased sales of computing and gaming products.
Our Domestic segment's SG&A grew $117 million, or 1.8%, in fiscal 2013 (11-month) compared to fiscal 2012 (11-month
recast). The increase in SG&A was driven by an increase in field incentive compensation and executive retention and transition
costs, costs related to the addition of 104 net new Best Buy Mobile stand-alone stores and the addition of the mindSHIFT
business, and increased investments in advertising and other costs to drive online sales. This increase was partially offset by the
elimination of the Best Buy Mobile profit share-based management fee and lower expenses as a result of large-format store
closures. The SG&A rate increased by 0.8% of revenue as a result of the deleveraging impact of the revenue decline, as well as
from the aforementioned factors.
Our Domestic segment recorded $328 million of restructuring charges in fiscal 2013 (11-month), 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. Our Domestic segment recorded restructuring charges of $38 million, including $19 million of inventory
write-downs included in cost of goods sold, in fiscal 2012 (11-month recast). The restructuring charges consisted of facility
closure costs and property and equipment impairments related to our fiscal 2012 restructuring activities, as well as inventory
write-downs and facility closure costs related primarily to our fiscal 2011 restructuring activities. Refer to Note 7,
Restructuring Charges, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and
Supplementary Data, of this Transition Report on Form 10-K for further information about the restructuring activities.
The $822 million decrease in our Domestic segment's operating income for fiscal 2013 (11-month) was principally the result of
a decrease in revenue as a result of large-format store closures and a comparable stores sales decline, as well as an increase in
restructuring charges.
Fiscal 2012 Results Compared With Fiscal 2011
For purposes of this section, fiscal 2012 represents the 12 months ended March 3, 2012 and fiscal 2011 represents the 12
months ended February 26, 2011.
In fiscal 2012, the results of our Domestic segment were impacted by both macroeconomic factors and also specific consumer
electronics industry challenges. The U.S. continued to face an unsteady recovery from the economic turbulence that began in
late 2008, which has led to a constrained, and thus more price and value conscious consumer. The changes in consumer
behaviors, coupled with product life-cycle declines in televisions, gaming and notebook computers, resulted in a comparable
store sales decline in fiscal 2012. We have, however, benefited from product innovation and strong consumer interest in
products such as tablets, e-Readers and mobile phones, which all experienced sales growth in fiscal 2012. In addition, our focus
on growing our market share in appliances led to sales growth throughout fiscal 2012.
In light of continued strong competition in the consumer electronics industry and greater price transparency for customers, we
increased our promotional activity, especially during the holiday season, to drive market share gains and customer traffic.
While we believe these actions were effective in driving our overall results, they also contributed to a gross profit rate decline.
Table of Contents