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Overall Best Buy revenue in the fourth quarter, excluding revenue from discontinued operations, rose 11 percent, hitting $7 billion, up from $6.3 billion in the year-ago period. Revenue reflects the addition of 67 U.S. Best Buy stores in the past year and six new Magnolia Hi-Fi locations. Comp-store sales from continuing operations rose 1.2 percent.
Net earnings were $311 million in the fourth quarter, including $67 million in losses from discontinued operations, down from $350 million year-on-year. Year-ago earnings were $375 million, when 2002 results were adjusted to conform with new accounting procedures for vendor allowances, that are payments manufacturers make to retailers for better placement of product. Earnings from continuing operations were $378 million, compared with an adjusted $336 million in the year-ago three months.
Gross profit rate for the company was 25.1 percent in the fourth quarter, a decrease of 20 basis points from the previous year's three months. The reduction reflected a more promotional environment, but was modest due to consumer interest in higher-margin digital products. The Selling, General and Administrative (SG&A) rate was bettered by 40 basis points, to 16.3 percent.
Driven by sales of digital products, which continue to benefit from high consumer interest and low household penetration rates, fourth-quarter sales at domestic Best Buy stores climbed 10 percent, hitting $6.4 billion, compared with $5.8 billion in the year-ago period.
Domestic comp-store sales edged up 1.2 percent in the three months, ended March 1, as notebook computers, digital televisions, wireless devices, DVD movies and digital camcorders continued to outperform other product categories.
"The fourth quarter was difficult for many retailers, including Best Buy," said CEO Brad Anderson. "Yet, I am pleased that while we saw a competitive environment that was much more vigorous than the prior year, we navigated it successfully to gain market share without sacrificing profitability."
Operating income for Best Buy's domestic segment reached $591 million in the fourth quarter, compared with an adjusted $517 million the previous year. Gross profit rate remained steady, edging downward as a percent of revenue on an as-adjusted basis 10 basis points, to 25.1 percent in the three months. The SG&A rate improved 40 basis points, to 15.9 percent on an as-adjusted basis, due to leverage of advertising and distribution costs against a larger base of stores, among other factors.
In the 12 months, Best Buy's domestic segment's revenue climbed to $19.3 billion, up from $17.1 billion the previous year. Operating income for this period reached $1 billion compared with an adjusted $876 million year over year. Comp-store sales climbed 2.4 percent.
Best Buy's international segment, mainly Future Shop stores in Canada, boosted revenue 22 percent in the fourth quarter, reaching $578 million, compared with $473 million in the year-ago three months. The increase was due to strong sales of digital products, nearly offset by weak sales of desktop computers. Operating income slipped to $21 million, compared with an adjusted $22 million year-on-year. Comp-store sales were about flat. The retailer opened eight Best Buy stores in Canada in the past year.
All Best Buy reporting periods reflect the classification of Musicland's financial results as discontinued operations. The company is taking $418 million in charges in distancing itself from its ailing Musicland segment. Best Buy is looking to sell this business in the next 12 months. (See story on p. 1.)
Musicland generated fourth-quarter revenue of $585 million, a 15 percent drop from the prior-year's fourth quarter. This was driven by a 13.3 percent decline in comp-store sales and the closing of 128 stores during the fourth quarter. Operating income was $19 million.
For the year, Musicland reported an 8 percent decrease in revenue, to $1.7 billion, a comp-store sales drop of 8.3 percent and an operating loss of $72 million, before non-cash charges.
In the fiscal year, overall Best Buy revenue climbed 18 percent, reaching $20.9 billion. Growth was attributed to the new Best Buy stores, the inclusion of a full year of Future Shop and modest comp-store sales gains of 2.4 percent. Sales of digital televisions, digital cameras, DVD movies and video gaming offset declining sales of desktop computers, prerecorded music and appliances.
Net earnings for the 12 months reached $99 million, down from a reported $570 million. Adjusted earnings for the previous year were $564 million.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.