This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Best Buy Co., Inc. (BBY: chart) on April 2, 2008.

Management:

President, Chief Operating Officer: Brian J. Dunn
Vice Chairman of the Board, Chief Executive Officer: Bradbury H. Anderson
Vice President, Investor Relations: Jennifer Driscoll
Executive Vice President, Retail Channel Management: Shari L. Ballard
Chief Executive Officer Best Buy International: Robert A. Willett
Senior Vice President and Interim Chief Financial Officer: James L. Muehlbauer
Executive Vice President, Customer Operating Groups: Mike Vitelli
Senior Vice President, Consumer and Brand Marketing: Barry Judge
Investor Relations: Carla Haugen

Key Investors Issues

- EPS were $1.71 a share compared to $1.55 a share last year.
- Profit was $737 million compared to $763 million in the year-earlier period.
- Revenue was up 4% to $13.42 billion.

Fourth Quarter Highlights

Net earnings were $737 million, or $1.71 per share.

- The consumer electronics retailer’s earnings per share increased 10%, compared with $1.55 per share, or $763 million, for the prior year’s fiscal fourth quarter, which had one extra week. The company estimates that its year-over-year EPS growth was 14% after adjusting for the extra week in the prior year’s period. The EPS growth was largely driven by the year-over-year reduction in the average number of shares outstanding plus a modest gain in operating income.

- The company noted that the quarter’s operating results were in line with its mid-February guidance update, when, after a solid holiday shopping season, Best Buy reduced its expectations for fiscal 2008 earnings due to a slowdown in customer traffic. The EPS was higher than the updated annual guidance range of $3.05 to $3.10 due primarily to a lower-than-expected effective income tax rate.

Revenue increased 4% to $13.4 billion, compared with revenue of $12.9 billion for the fourth quarter of fiscal 2007.

The revenue increase reflected the net addition of 137 new stores in the past 12 months, which was partially offset by the loss of an extra week in the fiscal 2008 fourth quarter. Excluding the impact of the lost week, revenue grew 9%. The comparable store sales decline of 0.2% reflected a decline in the domestic segment, coupled with growth in the smaller international segment. The decrease in the domestic segment was driven by lower traffic, which was partially offset by an increase in the average selling price as the company’s revenue mix continued to reflect a shift toward higher-ticket items, such as video gaming consoles, notebook computers, flat-panel TVs and GPS devices. The online channel continued to deliver solid performance with low-double-digit revenue growth.

The gross profit rate declined by 40 basis points, year-over-year, to 23.7% of revenue.

Excluding the 15 basis points of benefit in the prior year due to gift card breakage (gift cards issued but not expected to be redeemed), the company had a 25-basis-point decline in the gross profit rate. The benefits of more efficient promotional costs were more than offset by higher revenue growth from lower-margin parts of the business, such as notebook computers, gaming consoles and international stores.

- Best Buy’s SG&A expense rate improved by 10 basis points, year-over-year, to 15.2% of revenue. Expense rate improvements in the domestic segment were partially offset by investments to support and to grow the international segment. Although negatively impacted by the soft revenue growth environment, the domestic segment’s SG&A expense rate improved due to lower incentive compensation and changes in its store labor model.
- The company reported investment and other income of $31 million, compared with $71 million in the prior year’s fourth quarter. Excluding the $20 million gain from the sale of its investment in Golf Galaxy in the prior year’s period, investment and other income decreased by $20 million, year-over-year. The change reflected lower average cash and investment balances, due to the company’s share repurchase activity.
- The company’s effective income tax rate was 36.8%, versus 36.2% for the prior year’s period. The increase in the effective income tax rate was primarily due to lower tax-exempt interest income.

At March 1, 2008, Best Buy held $417 million (par value) of investments in auction-rate securities, the vast majority of which are AAA/Aaa-rated and collateralized by student loans guaranteed 95% to 100 % by the U.S. government.

- In mid-February 2008, market auctions, including substantially all of the company’s auction-rate securities portfolio, began to fail due to insufficient buyers. As a result of the persistent failed auctions, and the uncertainty of when these investments could be successfully liquidated at par, the company reclassified all of its investments in auction-rate securities to non-current assets within equity and other investments in its unaudited condensed consolidated balance sheet at March 1, 2008.
- Excluding investments in auction-rate securities, the company had $1.4 billion in cash and cash equivalents and $2.4 billion available under its unsecured revolving credit agreement at March 1, 2008.

Best Buy’s domestic segment—comprised of U.S. Best Buy, Best Buy Mobile, U.S. Geek Squad, Magnolia Audio Video, Pacific Sales and Speakeasy operations—reported fourth-quarter operating income of $1,042 million, a decrease of $5 million, as compared with the prior year’s 14-week period.

- The 10-basis-point operating income rate decline reflected a mix-driven decline in the gross profit rate, which was nearly offset by an SG&A rate improvement. Lower incentive compensation and the benefit of previous changes to the store labor model helped generate 20 basis points of SG&A leverage in an environment of lower revenue growth.
- Domestic revenue increased 1%, driven by the net addition of 98 new stores. The revenue from new stores was partially offset by the loss of a week versus the prior year’s quarter and a comparable store sales decline of 0.9%. Pacific Sales, a retailer of high-end home improvement products, contributed revenue of $78 million, an increase of 1.5% over the prior year’s fiscal fourth quarter, driven by five store openings in the past 12 months.

- Best Buy finished the fiscal fourth quarter with an enhanced mobile phone experience, branded Best Buy Mobile, in 181 U.S. Best Buy locations and at nine stand-alone locations. The company has stated that it intends to remodel the majority of its U.S. Best Buy stores within the next 18 months to add the Best Buy Mobile experience, which includes three national carriers, more than 80 handsets and improved services. The decision to expand was based on early positive results and the company’s expectation for market share gains within the mobile business in the United States. The company has plans to continue testing the stand-alone model and to evaluate future store opening plans.

The company’s international segment—comprised of Best Buy and Geek Squad operations in Canada and China, Five Star operations in China and Future Shop operations in Canada—generated operating income of $101 million, compared with operating income of $89 million in the prior year’s period.