Best Buy Co. Inc.(BBY)

$47.46

Wednesday, April 11, 2007

Best Buy Co. Inc.

• Index Membership– NYSE

– S&P 500

– S&P Composite 1500 Index

• Sector– Services

• Industry– Electronic Stores

•Best Buy Co., Inc. is an innovative Fortune 100 growth company and North America No. 1 consumer electronics retailer and entertainment software which operates more than 1,100 stores in the U.S., Canada, and China.

•Based in Minneapolis, Minnesota

•Founded in 1966–128,000 Employees

–2,000 Stockholders

Best Buy Co. Inc.

Best Buy Operations• Operate retail stores and commercial

websites under the brand names:– Best Buy Stores

• Consumer Electronics

– Future Shop• Canadian Based Electronic Retail Store

– Magnolia Audio Video• High-end audio and video products and services

– Geek Squad• 24-Hour Computer support

Overall Store Development

• Best Buy (US): 771• Best Buy (Canada): 44• Future Shop (Canada): 119• Magnolia Audio Stores: 20• Pacific Sales Showroom: 14• Five Star Stores (China): 131

Best Buy Product Groups• Consumer Electronic

– Largest Product Group for 2006

– Video Products, Audio Products, and Services

• Home Office– Notebook , Desktop, and Services

• Entertainment Software– DVDs, Video Games, Software, and CDs

• Appliances– Refrigerators, microwaves, washers & dryers

Product Groups’ Performance

Acquisitions• 2001

– Magnolia Audio and Video – Future Shop Ltd.– Musicland Stores Corp.

• 2002– Geek Squad

• 2003– Echo Networks Inc.

Acquisitions (cont.)

• 2006– Assets of AV Audiovisions, Inc. – Howell & Associates– Jiangsu Five Star Appliance Co.– Pacific Sales Kitchen and Bath Centers, Inc.

• 2007– Speakeasy Inc.

Acquisitions

Competitors•Online Retail

–Amazon

•Regional Discount Store

•Wholesale Clubs–Sam’s Club, Costco

•Video Rental Stores–Blockbuster, Netflix

•Specialty Retail Store–Circuit City, Comp USA, Lowe’s

Best Buy Vs. Circuit City

BBY CC IndustryMarket Cap 23.24B 3.23B 612.14MQtrly Rev Growth 20.60% 0.60% 10.70%Revenue 35.93B 12.43B 2.03BP/E 17.29 N/A 33.32EPS 2.789 -0.069 0.02P/S 0.65 0.26 0.69

Financial Statistics

•Current Ratio: 1.44–Capable of paying off obligations

•Quick Ratio: 0.80–Suggests that Best Buy holds a lot of inventory; retail store

•Inventory Turnover: 7.89–Days in inventory: 46.26 days

•Total Debt/Equity: 0.105•Beta: 1.8

Financial Statistics (cont.)

•ROA: 9.82%–Management is using and selecting assets efficiently

•ROE: 24.04%–Suggests possible stock price increase

•TIE: 58.36–Likelihood of bankruptcy is low

•Profit Margin: 3.83%

Stock Performance

•FY 06 return on invested capital was 18.7%, above the Computer and Electronics Trail sub-industry (16.7%) and the Consumer Discretionary sector (5.3%)

–Superior gross margins–Reduction in the cost of new store openings–Improved sales productivity at new stores

Stock Performance

Recent Company News

• March 27, 2007: Best Buy Acquires Speakeasy Inc.

• April 4, 2007: Best Buy to offer Apple Computers in 200 stores

• April 5, 2007: Best Buy Announces Regular Quarterly Cash Dividend Raise

Risk Factors

•Competition–Numerous rivals & strong price competition

•Reliance–Reliance on suppliers

–Rely on 4th Quarter Earnings

•Economy–Sharp decline in economic climate resulting in declined consumer confidence

Best Buy Goals

• International Growth– Canada & China

• Build small business capabilities– Best Buy for Business– Training 900 Microsoft Employees

• Grow organically– Plan on establishing 90 new stores in North

America in 2007

Conclusion

•Buy•No. 1 specialty retailer of consumer electronics

–18% market share of the consumer electronics retailer market in US

•Potential growth through subsidiaries•High-quality Customer Service•Potential increase in sales