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Harris WeinsteinBrad WilhiteZach FrankHan NguyenTerri Messer
Business•Products and Services•Location and structure•Brands•The “Experience”
Business(continued)• Distribution System• Suppliers• Expansion plans
Competition• Other consumer electronic retailers• Mass merchants• Internet market• Home office stores
Environment• Discretionary/Luxury items• Changes in consumer preferences• Highly competitive industry• Seasonal
Income Statement• For the past four year’s sales at Best Buyhas increased roughly $4-$5 billion a year.• An increase in gr...
Income Statement• The past four have shown increase in the netearnings every year. But it has slowed in the lastcouple yea...
Income StatementINCOME STATEMENT 5-Feb 6-Feb 7-Feb 8-Feb------------------------------------------------- ----------------...
Ratios2006 2007 2008ROA 9.61 10.15 11.03ROE 21.69 22.21 31.382006 2007 2008ROA 7.83 7.35 6.49ROE -431.02 131.09 26.21Best ...
Current Assets• Best Buy has billions in their current assetcategory, the largest part being Inventory• Second largest cat...
Cash & Equivalents• Between 2005 and 2007 it was consistent withsteady growth until 2008• Best Buy ended fiscal 2008 with ...
Accelerated Share Repurchase• Decrease in cash and equivalents, shortterm investments and working capital andequivalents d...
Current AssetsSTATEMENT OF FINANCIAL POSITION 2005 2006 2007 2008------------------------------------------------- -------...
Working Capital & RatiosWorking Capital 2005 2006 2007 20081944 1929 2780 573Current Ratio 2005 2006 2007 20081.39 1.32 1....
HHGregg• HHGregg, Best Buy has a far larger currentassets category.• While HHGregg is only a regional competitor it isa co...
Inventory2005 2006 2007 2008Inventory 2851 3338 4028 4708% of Current Assets 41.3 41.8 44.36 64.12% of Total Assets 27.7 2...
HHGregg• HHGregg’s current assets are mainlyinventories as well, accounting for 78%and 82% in 2007 and 2008 respectively.•...
New Product Lines• Want to go in a “Green Direction” toincrease market share• To include electric motorcycles as a newaddi...
Music Store• Best Buys is attempting to increase theirmarket to include musicians by carryinginstruments• Also offering re...
Twelpforce• Using Twitter, customers can “tweet” forhelp and Best Buy will answer thoseconsumer questions• “No matter wher...
Analysis of Long Lived Assets• Property and Equipment has increased to26% in 2008 up from 22% in 2006 of totalAssets.Prope...
Analysis of Long Lived Assets• Goodwill has significantly increaseddomestically and internationally.• Best Buy has also ac...
Analysis of Investments• Short-term investments took a big hit inearly 2008.– Due to failure of auction-rate securities.20...
Analysis of Investments• Marketable Equity Securities rose from $4million in 2007 to $183 million in 2008.• Expansion into...
Liabilities• Increase leverage in debt to finance acquisitionsD/E: 2006 in 1.25 to 2.40 in 2009Long term debt ratio: 4% in...
RisksIn 2005, BusinessWeek warned Best Buy andCircuit City about Wal-Mart.Today, Circuit City is defunct and Wal-Mart isth...
Shareholder’s Equity• Best Buy began paying dividends in 2004.• Dividends increased by 30% in 2009 from2008, compared to 8...
Advantages• Employees• “An experience”• ConsumerPreference• New markets–Urban–YouthFestivities abounded including aguest a...
Disadvantages• Space• Change in Mgt.• Hurdles inforeign MarketEntryBest Buy Employees, Shanghai
First Hand Info“SmarTrends proprietaryalgorithms detected bearishprice action.”5.2% / 62 days“I applaud Best Buy’sManageme...
First Hand InfoTallahasseeGeneral Manager, Ryan Warshaw“We continue to gain market sharein Tallahassee. The people herelov...
RecommendationSTRONG HOLD
Replace the logo on the slideBrad makes fornew products. Greenmotorcycles
Charles Dunstone, CEO of Carphone Warehouse,left, and Brad Anderson, former CEO of Best Buy.
Best Buy Study
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Best Buy Study

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Market and financial analysis - Recommendation of Buy, Sell, Hold

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Transcript of "Best Buy Study"

  1. 1. Harris WeinsteinBrad WilhiteZach FrankHan NguyenTerri Messer
  2. 2. Business•Products and Services•Location and structure•Brands•The “Experience”
  3. 3. Business(continued)• Distribution System• Suppliers• Expansion plans
  4. 4. Competition• Other consumer electronic retailers• Mass merchants• Internet market• Home office stores
  5. 5. Environment• Discretionary/Luxury items• Changes in consumer preferences• Highly competitive industry• Seasonal
  6. 6. Income Statement• For the past four year’s sales at Best Buyhas increased roughly $4-$5 billion a year.• An increase in gross profit byapproximately a $1 billion dollars a year.
  7. 7. Income Statement• The past four have shown increase in the netearnings every year. But it has slowed in the lastcouple years• Net earnings are expected to decline in 2009,that is consistent with retail in this currenteconomic time. Further, net earnings outpacedexpectations in the 1stquarter by 2 cents a share.
  8. 8. Income StatementINCOME STATEMENT 5-Feb 6-Feb 7-Feb 8-Feb------------------------------------------------- -------------------- -------------------- -------------------- --------------------Sales (Net) 27,433.00 30,848.00 35,934.00 40,023.00Cost 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 10,131.002005 2006 2007 2008Net Income (Loss) 984 1,140.00 1,377.00 1,407.00In Millions
  9. 9. Ratios2006 2007 2008ROA 9.61 10.15 11.03ROE 21.69 22.21 31.382006 2007 2008ROA 7.83 7.35 6.49ROE -431.02 131.09 26.21Best BuyHHGregg
  10. 10. Current Assets• Best Buy has billions in their current assetcategory, the largest part being Inventory• Second largest category is Cash andEquivalents
  11. 11. Cash & Equivalents• Between 2005 and 2007 it was consistent withsteady growth until 2008• Best Buy ended fiscal 2008 with $1.5 billion ofcash and cash equivalents and short terminvestments, compared with $3.8 billion at theend of fiscal 2007• Working capital was $0.6 billion at the end offiscal 2008, down from $2.8 billion at the end offiscal 2007
  12. 12. Accelerated Share Repurchase• Decrease in cash and equivalents, shortterm investments and working capital andequivalents due to ASR program• Liquidation of a substantial portion ofinvestment portfolio to repay debt andfund ASR
  13. 13. Current AssetsSTATEMENT OF FINANCIAL POSITION 2005 2006 2007 2008------------------------------------------------- -------------------- -------------------- -------------------- --------------------ASSETSCash &Equivalents 3,506.00 3,910.00 4,175.00 1,438.00Receivables -Total (Net) 375 506 548 549Inventories -Total 2,851.00 3,338.00 4,028.00 4,708.00PrepaidExpenses 0 0 0 0Current Assets- Other 171 231 330 647-------------------- -------------------- -------------------- --------------------Current Assets- Total 6,903.00 7,985.00 9,081.00 7,342.00In Millions
  14. 14. Working Capital & RatiosWorking Capital 2005 2006 2007 20081944 1929 2780 573Current Ratio 2005 2006 2007 20081.39 1.32 1.44 1.08Quick Ratio 2005 2006 2007 20080.78 0.73 0.75 0.29In Millions
  15. 15. HHGregg• HHGregg, Best Buy has a far larger currentassets category.• While HHGregg is only a regional competitor it isa competitor taking up a good part of marketshare Best Buy could have.• HHGregg operates with current assets of $163million in 2008 compared to $6.9 billion of BestBuy
  16. 16. Inventory2005 2006 2007 2008Inventory 2851 3338 4028 4708% of Current Assets 41.3 41.8 44.36 64.12% of Total Assets 27.7 28.14 29.68 36.92006 2007 2008InventoryTurn Over9.97 9.76 9.16In Millions
  17. 17. HHGregg• HHGregg’s current assets are mainlyinventories as well, accounting for 78%and 82% in 2007 and 2008 respectively.• HHGregg experienced turnover of 9.98and 10.18 in 2007 and 2008 respectively
  18. 18. New Product Lines• Want to go in a “Green Direction” toincrease market share• To include electric motorcycles as a newaddition to their increasing product lines• Other products set to be sold include:electric-powered scooters, bicycles andSegways
  19. 19. Music Store• Best Buys is attempting to increase theirmarket to include musicians by carryinginstruments• Also offering repair services and lessonsto coincide with the newly added productline
  20. 20. Twelpforce• Using Twitter, customers can “tweet” forhelp and Best Buy will answer thoseconsumer questions• “No matter where you bought it, no matterwhere you are and even if you haventbought it yet”
  21. 21. Analysis of Long Lived Assets• Property and Equipment has increased to26% in 2008 up from 22% in 2006 of totalAssets.Property and Equipment 2008 2007 2006 2005Land and buildings 732 705Leasehold improvements 1,752 1,540Fixtures and equipment 3,057 2,627Property under capital lease 67 32Less accumulated depreciation 2,302 1,966 2,124 1,728Net property and equipment 3,306 2,938 2,712 2,464
  22. 22. Analysis of Long Lived Assets• Goodwill has significantly increaseddomestically and internationally.• Best Buy has also acquired TradeNames.2008 2007 2006 2005Domestic Goodwill 450 375 6 3International Goodwill 638 544 551 510Total Goodwill 1,088 919 557 513Domestic Trade Names 23 17 _ _International Trade Names 74 64 44 40Trade names 97 81 44 40
  23. 23. Analysis of Investments• Short-term investments took a big hit inearly 2008.– Due to failure of auction-rate securities.2008 2007Short-term investments 64 2,588Long-term investments 417 318Total 481 2,906Auction-rate securities 417 2,377Municipal debt securities — 506Commercial paper 64 —Variable-rate demand notes and asset-backed securities — 23Total 481 2,906
  24. 24. Analysis of Investments• Marketable Equity Securities rose from $4million in 2007 to $183 million in 2008.• Expansion into Europe (CarphoneWarehouse Group or CPW.L)– 5 new stores in spring of 2010– 100 stores by 2013• Further Plans of expansion into Turkishmarket
  25. 25. Liabilities• Increase leverage in debt to finance acquisitionsD/E: 2006 in 1.25 to 2.40 in 2009Long term debt ratio: 4% in 2006 to 17% in 2009Debt-to-capitalization increased from 15% in 2008 to30% in 2009.No issues with payables (accounts and interest)00.511.522.532005 2006 2007 2008 2009Debt/Equity Current Debt/Total Assets Long Term Debt/Total Assets
  26. 26. RisksIn 2005, BusinessWeek warned Best Buy andCircuit City about Wal-Mart.Today, Circuit City is defunct and Wal-Mart isthe prefer retailer for those that make $50,000or less.
  27. 27. Shareholder’s Equity• Best Buy began paying dividends in 2004.• Dividends increased by 30% in 2009 from2008, compared to 8% in prior fiscal year.• Hhgregg does not have dividendspayment.
  28. 28. Advantages• Employees• “An experience”• ConsumerPreference• New markets–Urban–YouthFestivities abounded including aguest appearance by legendarybasketball star Magic Johnsonwhen Best Buy formally opened itsdoors to the Compton community.
  29. 29. Disadvantages• Space• Change in Mgt.• Hurdles inforeign MarketEntryBest Buy Employees, Shanghai
  30. 30. First Hand Info“SmarTrends proprietaryalgorithms detected bearishprice action.”5.2% / 62 days“I applaud Best Buy’sManagement for theirguidance and resilience.Best Buy’s stock does nothave a lot of volatility.”Chip Brian, CEO
  31. 31. First Hand InfoTallahasseeGeneral Manager, Ryan Warshaw“We continue to gain market sharein Tallahassee. The people herelove Best Buy “
  32. 32. RecommendationSTRONG HOLD
  33. 33. Replace the logo on the slideBrad makes fornew products. Greenmotorcycles
  34. 34. Charles Dunstone, CEO of Carphone Warehouse,left, and Brad Anderson, former CEO of Best Buy.
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