Best Buy Profit Rises

Summary

Best Buy’s cell phone business helped improve their net income by 60% in the second quarter of the year. CEO Brian Dunn, hopes for another successful quarter (one of four periods in a fiscal year) as the holiday season approaches. Dunn describes shoppers as “highly selective” in spending, but believes that more customers will shop at Best Buy, especially with their new line of products and the arrival of the holiday season. During the second quarter, the net income increased to $254 million (60 cents per share) as opposed to the $158 million (37 cents per share) produced during last year’s second quarter. The revenue increased by 3% to $11.3 billion. Best Buy expects the net income for the year to be $3.70 per share, as opposed to the $3.55 per share from last year. The revenue is expected to be $52 billion, a growth of 5%.

Connections

This article connects to the income statement mentioned on page 22. As described in the book, the income statement focuses on the net income of the business. In Best Buy’s case, the net income recorded on the income statement would be $254 million. The revenue amount, as stated in the article, is $11.3 billion. Keeping in mind that net income is defined as revenues minus expenses, the total expenses for this quarter can be calculated by simply manipulating that formula and subtracting the net income from the revenue. The total expenses would therefore be $11.046 billion. This article also connects to shares discussed in this chapter. During the second period, Best Buy has earned a net income of $254 million (60 cents per share). Their income statement also states that the $254 million is applicable to common shares. Using these two values, the total shares issued at the moment can be calculated, which turns out to be roughly 423 million shares.

Reflections

At first glance, Best Buy seems a little too optimistic with their goal of increasing their revenue to $52 billion. According to Best Buy’s income statement, the company earned around $10.7 billion during the first quarter. In half a fiscal year, the electronics retailer has earned $22 billion in revenue, less than half of the expected revenue for the full year ($52 billion). The sales during the holiday season however, will definitely make up for this shortcoming. During the second and third quarters of the previous year, Best Buy has earned revenue of roughly $28 billion, much more than the first half of this year’s fiscal period. Since Best Buy’s revenue during this year’s second period is 3% greater than last years, it is safe to assume that the revenue during the second half of this year will be at least the same amount as last year’s. Best Buy is also showing progress with their net income, increasing their dividends to 60 cents per share this second quarter compared to 37 cents per share during the previous second quarter. With this rapid growth in income, investors should certainly look into this company.

http://www.cbc.ca/money/story/2010/09/14/bestbuy-results.html?ref=rss

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