Group 5

1
BEST BUY

• Group 5
• Brian Hui
• James Trisna
• Chia C. Li
• George H. Loh
• Eva Shen

2
Our Brands Make Life Fun and Easy

• -Is an Innovative Fortune 100 growth company
• -More than 820 stores across United States and
  Canada
• -More than 100,000 employees
• -Sell consumer electronics, home office products,
  entertainment software, appliances, and related
  services through Future Shop, Magnolia, and Best
  Buy.
• -The Best Buy Childrens Foundation

3
Timeline

• -In 1966, Richard Schultz and a business partner
  opened the Sound of Music store in St. Paul,
  Minnesota.
• -First issued stock in 1969.
• -Headquarters moved to Bloomington, Minnesota
• -In 1983, company changes its name to Best Buy
  Co., Inc.
• -In 1987, Best Buy debuts on the NYSE as BBY
• -In 2000, Bestbuy.com
• -Acquires Magnolia Audio and Video.
• -In 2001, acquires Future Shop and opens Best Buy
  Canada.
• -2004, Forbes names Best Buy Company of the Year

4
Our Goal

• To Transform into a talent-powered,
  customer-driven enterprise focused on enhancing
  our customers enjoyment of technology

5
Fiscal 2005 Goals

• To increase revenue by 11 to 13 percent by
  opening 70 new stores.
• To increase diluted earnings per share by 15 to
  20 percent.
• To upgrade and renovate existing stores to a more
  competitive level.
• To increase customer service.

6
Executive Officers

• Richard Schulze
  

Bradbury Anderson

• Age 63
• Salary 1.01M
• Yrs. With company 38 yrs.
• Founder of Best Buy and former C.E.O. and
  currently resides on the Board of Directors.
• Owns 14.31 of the shares outstanding

• Age 54
• Salary 3.18M
• Yrs. With company 31 yrs.
• Director since August 1986.
• Currently the Vice Chairman and Chief Executive
  Officer.

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Business Segments Domestic vs. International

• Best Buy Domestic revenue increased 15 since
  fiscal 2003.
• Slightly more than half of the revenue
  increase for fiscal 2004 was
• due to new stores added in the past two
  years.
• Best Buy International revenue increased 41
  since fiscal 2003.
• The effect of changes in foreign currency
  exchange rates accounted
• for approximately half of the revenue
  increase for the fiscal year.

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Domestic Segment
U.S. Best Buy (608 Stores) U.S. Best Buy stores
offer merchandise in four product categories
consumer electronics, home office, entertainment
software and appliances.
Magnolia Audio Video (22 Stores) Magnolia Audio
Video was founded 50 years ago and became a part
of the Best Buy company in 2000. It has been
named Retailer of the Year by Audio Video
International for 22 consecutive years.
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International Segment

• Best Buy Canada (19 Stores)
• Best Buy in Canada is a subsidiary of Best Buy
  Co., Inc. It specializes in electronics,
  computers, and entertainment software in Alberta,
  Manitoba, and Ontario.

Future Shop (108 Stores) Future Shop has over
100 stores across Canada and grows continuously
in retailing and e-retailing of electronics. It
employs more than 8,500 associates in its stores
as they offer a wide line of products such as
televisions, computers, appliances, entertainment
software, and audio.
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Industry Pie Chart
TTM Sales Best Buy Co., Inc. 23,681.000 Conns
Inc. 548.392 Game Stop Corp. 1,759.447 Tweeter
Home Entertainment Group Inc. 789.433
TTM Sales Circuit City Stores,
Inc. 10,154.004 Electronics Boutique Holdings
Corp. 1,851.935 Radio Shack Corporation 4,841.200
Ultimate Electronics, Inc. 705.708
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MARKET CAPITALIZATION
12
Financial Ratio Analysis

• Growth Rates () Company
  Industry SP 500
• Sales (MRQ) vs Qtr. 1 Yr. Ago 10.18
  10.34 16.82
• Sales (TTM) vs TTM 1 Yr. Ago 14.03
  11.72 15.49
• Sales 5 Yr. Growth Rate 19.52
  14.68 9.66
• EPS (MRQ) vs Qtr. 1 Yr. Ago 20.87
  16.97 22.14
• EPS (TTM) vs TTM 1 Yr. Ago 30.76
  27.84 27.64
• EPS 5 Yr. Growth Rate 28.77
  23.63 13.44
• Capital Spending 26.84
  21.54 -18.55
• 5 Yr. Growth Rate

Best Buys overall growth rate GOOD
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Financial Ratio Analysis

• Price Ratios () Company Industry
  SP 500
• P/E Ratio (TTM) 32.43 29.35 22.08
• P/E High Last 5 Yrs. NA
  47.80 41.96
• P/E Low Last 5 Yrs. NA
  13.27 15.71
• Price to Sales (TTM) 0.72
  0.71 3.05
• Price to Book (MRQ) 4.28
  4.17 4.04
• Price to Cash Flow (TTM) 18.16
  15.68 16.54

Best Buys overall price ratios FAIR
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Financial Ratio Analysis

• Profit Margins () Company
  Industry SP 500
• Gross Margin (TTM) 25.17 29.63 46.45
• Gross Margin 5 Yr. Avg. 22.10
  27.36 45.41
• Pre-Tax Margin (TTM) 3.59 4.73
  18.15
• Pre-Tax Margin 5 Yr. Ave. 4.83
  5.14 17.06
• Net Profit Margin (TTM) 2.22 2.94
  14.11
• Net Profit Margin 5 Yr. Avg. 2.97
  3.14 11.37

Best Buys overall profit margins WEAK
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Financial Ratio Analysis

• Investment Returns () Company
  Industry SP 500
• Return On Assets (TTM) 9.17
  8.89 7.41
• Return On Assets -5 Yr. Avg. 9.50
  8.61 6.67
• Return On Investment (TTM) 19.46
  17.19 11.19
• Return On Investment 5 Yr. Avg. 19.98
  16.97 10.54
• Return On Equity (TTM) 23.33 21.88
  19.33
• Return On Equity 5 Yr. Avg. 25.43
  24.01 18.76

Best Buys overall investment returns VERY GOOD
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Financial Ratio Analysis

• Financial Condition () Company
  Industry SP 500
• Quick Ratio (MRQ) 0.47 0.49
  1.19
• Current Ratio (MRQ) 1.21 1.41
  1.71
• LT Debt to Equity (MRQ) 0.12
  0.22 0.52
• Total Debt to Equity (MRQ) 0.12
  0.26 0.76
• Interest Coverage (TTM) 35.13
  30.57 12.63

Best Buys overall financial condition GOOD
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Financial Ratio Analysis

• Management Efficiency () Company
  Industry SP 500
• Revenue/Employee (TTM) 236,810
  230,243 714,102
• Net Income/Employee (TTM) 5,260
  6,168 96,111
• Receivable Turnover (TTM) 52.92
  47.21 10.15
• Inventory Turnover (TTM) 5.32
  4.69 12.18
• Asset Turnover (TTM) 2.53 2.46
  0.93

Best Buys overall management efficiency VERY
GOOD
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Holding Period Return

• 2005 2004 2003 2002
• Earnings growth est. 0.2740
• Dividend 0.80 0.40 0 0
• Price 66.95 53.25 29.07 67.40
• HPR 0.2723 0.8455 -0.5687
• (expected)

Holding period of return for 2004 increased so
much because the growth rate from 2003 to 2004
stock price increased tremendously.
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Free Cash Flow and Cost of Equity
2005 2004 2003 2002 NI
705 99 570 () Depreciation
385 310 242 (-) Capital
Expenditures 541 656 556 (-)
Change in Working Cap 27 290
667 () Change in L-T Debt -346 20
627 FCFE 224.224 176 -517
216 (mil) (mil)
(mil) (mil)
Estimated Growth Rate 27.4 Shares 328
Mil Current Price 51.29
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Discounted Cash Flow Model
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MARKET EFFICIENCY
COMPANY SPECIFIC EFFECTS
NON-COMPANY SPECIFIC EFFECTS
Maytag Reports Fourth-Quarter Loss of 14.1
Million on Charges, Lower Hoover Sales and
Margins
Unocal deal underscores changes at Chevron
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Risk Analysis
2005 2004 2003
2002 2001 Rf 0.0219 0.0119
0.0102 0.0163 0.0386 Rm-Rf 0.019
0.1182 0.3206 -0.226 -0.1497 Beta
2.1528 2.1495 2.2766 2.2602
2.2276 Ke(CAPM) 0.0628 0.2660 0.7401
-0.4947 -0.2949
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Weighted Average Cost of Capital (WACC)
2004 2003 2002 We
Equity/(EquityDebtPreferred Stock) 0.3955
0.3563 0.3418 Wd Debt/(EquityDebtPreferred
Stock) 0.6045 0.6437 0.6582 Ke 0.287
0 0.2900 0.3000 Kd 0.0298
0.0293 0.0285
WACC 0.1246 0.1149 0.1141
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M M Proposition graph
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Strengths Weaknesses
STRENGTHS Financial Ratios -Total
Debt/Equity -EPS -ROI ROE -Receivable
Asset Turnover Industry Leader in -Market
Capitalization -Total Sales Revenue
WEAKNESSES Financial Ratios -Gross, Pre-tax,
Net Profit Margins High Beta (2.15) Lack of
financial expertise
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SHARE PRICE
Benchmarked Against SP 500
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Analyst Opinion
Overall recommendation BUY
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Group Recommendation

• Our recommendation BUY
• Based on the following
• Positive Expected HPR
• It is Under priced Ke(DCF Model) Ke(CAPM)
• 0.2872 0.0628
• Strengths Weaknesses
• Analysts Opinions
• Current Out Performance of SP500

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• THE END