Best Buy Study
- 1. Harris Weinstein Brad Wilhite Zach Frank Han Nguyen Terri Messer
- 2. Business •Products and Services •Location and structure •Brands •The “Experience”
- 3. Business (continued) • Distribution System • Suppliers • Expansion plans
- 4. Competition • Other consumer electronic retailers • Mass merchants • Internet market • Home office stores
- 5. Environment • Discretionary/Luxury items • Changes in consumer preferences • Highly competitive industry • Seasonal
- 6. Income Statement • For the past four year’s sales at Best Buy has increased roughly $4-$5 billion a year. • An increase in gross profit by approximately a $1 billion dollars a year.
- 7. Income Statement • The past four have shown increase in the net earnings every year. But it has slowed in the last couple years • Net earnings are expected to decline in 2009, that is consistent with retail in this current economic time. Further, net earnings outpaced expectations in the 1st quarter by 2 cents a share.
- 8. Income Statement INCOME STATEMENT 5-Feb 6-Feb 7-Feb 8-Feb -------------------------------- ----------------- -------------------- -------------------- -------------------- -------------------- Sales (Net) 27,433.00 30,848.00 35,934.00 40,023.00 Cost of Goods Sold 20,479.00 22,663.00 26,652.00 29,892.00 -------------------- -------------------- -------------------- -------------------- Gross Profit 6,954.00 8,185.00 9,282.00 10,131.00 2005 2006 2007 2008 Net Income (Loss) 984 1,140.00 1,377.00 1,407.00 In Millions
- 9. Ratios 2006 2007 2008 ROA 9.61 10.15 11.03 ROE 21.69 22.21 31.38 2006 2007 2008 ROA 7.83 7.35 6.49 ROE -431.02 131.09 26.21 Best Buy HHGregg
- 10. Current Assets • Best Buy has billions in their current asset category, the largest part being Inventory • Second largest category is Cash and Equivalents
- 11. Cash & Equivalents • Between 2005 and 2007 it was consistent with steady growth until 2008 • Best Buy ended fiscal 2008 with $1.5 billion of cash and cash equivalents and short term investments, compared with $3.8 billion at the end of fiscal 2007 • Working capital was $0.6 billion at the end of fiscal 2008, down from $2.8 billion at the end of fiscal 2007
- 12. Accelerated Share Repurchase • Decrease in cash and equivalents, short term investments and working capital and equivalents due to ASR program • Liquidation of a substantial portion of investment portfolio to repay debt and fund ASR
- 13. Current Assets STATEMENT OF FINANCIAL POSITION 2005 2006 2007 2008 ------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ASSETS Cash & Equivalents 3,506.00 3,910.00 4,175.00 1,438.00 Receivables - Total (Net) 375 506 548 549 Inventories - Total 2,851.00 3,338.00 4,028.00 4,708.00 Prepaid Expenses 0 0 0 0 Current Assets - Other 171 231 330 647 -------------------- -------------------- -------------------- -------------------- Current Assets - Total 6,903.00 7,985.00 9,081.00 7,342.00 In Millions
- 14. Working Capital & Ratios Working Capital 2005 2006 2007 2008 1944 1929 2780 573 Current Ratio 2005 2006 2007 2008 1.39 1.32 1.44 1.08 Quick Ratio 2005 2006 2007 2008 0.78 0.73 0.75 0.29 In Millions
- 15. HHGregg • HHGregg, Best Buy has a far larger current assets category. • While HHGregg is only a regional competitor it is a competitor taking up a good part of market share Best Buy could have. • HHGregg operates with current assets of $163 million in 2008 compared to $6.9 billion of Best Buy
- 16. Inventory 2005 2006 2007 2008 Inventory 2851 3338 4028 4708 % of Current Assets 41.3 41.8 44.36 64.12 % of Total Assets 27.7 28.14 29.68 36.9 2006 2007 2008 Inventory Turn Over 9.97 9.76 9.16 In Millions
- 17. HHGregg • HHGregg’s current assets are mainly inventories as well, accounting for 78% and 82% in 2007 and 2008 respectively. • HHGregg experienced turnover of 9.98 and 10.18 in 2007 and 2008 respectively
- 18. New Product Lines • Want to go in a “Green Direction” to increase market share • To include electric motorcycles as a new addition to their increasing product lines • Other products set to be sold include: electric-powered scooters, bicycles and Segways
- 19. Music Store • Best Buys is attempting to increase their market to include musicians by carrying instruments • Also offering repair services and lessons to coincide with the newly added product line
- 20. Twelpforce • Using Twitter, customers can “tweet” for help and Best Buy will answer those consumer questions • “No matter where you bought it, no matter where you are and even if you haven't bought it yet”
- 21. Analysis of Long Lived Assets • Property and Equipment has increased to 26% in 2008 up from 22% in 2006 of total Assets. Property and Equipment 2008 2007 2006 2005 Land and buildings 732 705 Leasehold improvements 1,752 1,540 Fixtures and equipment 3,057 2,627 Property under capital lease 67 32 Less accumulated depreciation 2,302 1,966 2,124 1,728 Net property and equipment 3,306 2,938 2,712 2,464
- 22. Analysis of Long Lived Assets • Goodwill has significantly increased domestically and internationally. • Best Buy has also acquired Trade Names. 2008 2007 2006 2005 Domestic Goodwill 450 375 6 3 International Goodwill 638 544 551 510 Total Goodwill 1,088 919 557 513 Domestic Trade Names 23 17 _ _ International Trade Names 74 64 44 40 Trade names 97 81 44 40
- 23. Analysis of Investments • Short-term investments took a big hit in early 2008. – Due to failure of auction-rate securities. 2008 2007 Short-term investments 64 2,588 Long-term investments 417 318 Total 481 2,906 Auction-rate securities 417 2,377 Municipal debt securities — 506 Commercial paper 64 — Variable-rate demand notes and asset-backed securities — 23 Total 481 2,906
- 24. Analysis of Investments • Marketable Equity Securities rose from $4 million in 2007 to $183 million in 2008. • Expansion into Europe (Carphone Warehouse Group or CPW.L) – 5 new stores in spring of 2010 – 100 stores by 2013 • Further Plans of expansion into Turkish market
- 25. Liabilities • Increase leverage in debt to finance acquisitions D/E: 2006 in 1.25 to 2.40 in 2009 Long term debt ratio: 4% in 2006 to 17% in 2009 Debt-to-capitalization increased from 15% in 2008 to 30% in 2009. No issues with payables (accounts and interest) 0 0.5 1 1.5 2 2.5 3 2005 2006 2007 2008 2009 Debt/Equity Current Debt/Total Assets Long Term Debt/Total Assets
- 26. Risks In 2005, BusinessWeek warned Best Buy and Circuit City about Wal-Mart. Today, Circuit City is defunct and Wal-Mart is the prefer retailer for those that make $50,000 or less.
- 27. Shareholder’s Equity • Best Buy began paying dividends in 2004. • Dividends increased by 30% in 2009 from 2008, compared to 8% in prior fiscal year. • Hhgregg does not have dividends payment.
- 28. Advantages • Employees • “An experience” • Consumer Preference • New markets –Urban –Youth Festivities abounded including a guest appearance by legendary basketball star Magic Johnson when Best Buy formally opened its doors to the Compton community.
- 29. Disadvantages • Space • Change in Mgt. • Hurdles in foreign Market Entry Best Buy Employees, Shanghai
- 30. First Hand Info “SmarTrend's proprietary algorithms detected bearish price action.” 5.2% / 62 days “I applaud Best Buy’s Management for their guidance and resilience. Best Buy’s stock does not have a lot of volatility.” Chip Brian, CEO
- 31. First Hand Info Tallahassee General Manager, Ryan Warshaw “We continue to gain market share in Tallahassee. The people here love Best Buy “
- 33. Replace the logo on the slide Brad makes for new products. Green motorcycles
- 35. Charles Dunstone, CEO of Carphone Warehouse, left, and Brad Anderson, former CEO of Best Buy.