Minneapolis - 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, which 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.
Comp-store sales edged up 1.2 percent at Best Buy and Magnolia Hi-Fi stores 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 Brad Anderson, CEO. '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.
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 and adjusted $22 million year-on-year. Comp-store sales rose 0.6 percent. 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 (see related story, page XXX). 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.
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. These results, combined with a decline in the gross profit rate and an increase in the SG&A rate on an as-adjusted basis, resulted in operating income of $19 million.
For the year, Musicland reported an 8 percent decrease in revenue, to $1.7 billion and a comp-store sales drop of 8.3 percent. The mall-based retailer of movies, music and video game products reported a fiscal-year 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. Earnings from continuing operations climbed to $622 million, up from an adjusted $564 million year over year.
In the first quarter of the current fiscal year, Best Buy expects a decline in comp-store sales in the low single digits. This compares with a 6.5 percent increase in the first quarter of the previous fiscal year. Musicland is expected to record a loss of about $25 million after tax in the first quarter.
For the current fiscal year, Best Buy anticipates comp-store sales gains in the low single digits, combined with a revenue increase of 11 percent to 13 percent. Growth expectations would produce about $23.5 billion in revenue from continuing operations.