DAS: Mini Case Study "Coming together is a beginning. Keeping together is progress. Working together is success.” – Henry Ford

Davis Accounting Society 12/4/14 TONY, JENNY, ANDREW, LINDA,

CHRIS, KEN, DAVID, CURTIS.

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Team Members

Name Role

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Welcome Introduction

Welcome to DAS’s first Case Study. In this event, you will be utilizing your basic knowledge of business,

accounting, and analytical skills to find and present your solutions to the client. This event is designed to

mainly focus on teamwork, communication, public speaking, leadership, and working under time

constraint. It is not based purely on problem solving or figuring out all the possible solutions. In addition

to the presentation, we are looking at the group as a whole in terms of organization and teamwork. To

aid you in your process, we will be providing supplementary information to help you understand and

present the case. However, we do not expect you to utilize all the information that is given to you; use

at your own discretion.

Instruction

1. Each group will receive packets that includes introduction, Case, and supplementary documents.

2. The # on top of your packet will indicate the order your group will present in.

3. Each group must assign each member a role, there are total of 3 roles:

a. Supervisor: The facilitator of the group. There has to be at least one supervisor per group.

The supervisor(s) will oversee the group and its progress. Also be able to answer any

question in regards to the group dynamic and technicalities.

b. Presenter: Only presenters will speak during the three minutes presentation portion.

There has to be at least two presenters per group.

c. Analyst: The solution-finders. The analyst must be able to answer any technical questions

regarding the proposed solutions.

4. On the nametag, please write your name, and underneath, your role

5. Each group will have 40-45 minutes to prepare for their presentation.

6. After this time, each group will be led into a different room to give the presentation.

7. Each group has exactly three minutes to present (no more, no less), and two minutes for the

panel to ask questions. * You are allowed to have notes for your presentation.

8. The winning team will receive a prize.

Good luck!

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Case

Case: Your client Best Buy Co., Inc. (NYSE: BBY) is an American consumer electronics retail chain selling

products such as TVs, DVD players, MP3 players, digital cameras, video camcorders, and cell phones.

Headquartered in Richfield, Minnesota, United States, the company operates more than 1,150 chain

stores domestically and internationally.

Historically, your client Best Buy has relied on rapid opening of new stores in new geographical

locations to increase revenue growth above GDP growth rate. However, in the past couple years, Best

Buy has been severely underperforming relative

to their competitors. Evidence of their

underperformance can be seen in the attached

documents.

The senior management of Best Buy has just

retained your crack team of aspiring accountants

to review the problem. How can you help the

client improve overall performance and help

turn their business around? Build your case

around at least two core ideas.

**The following are excerpts from the 10K statement filed by Best Buy for the fiscal year ending 2013

(FY13). Use as much or as little of the information to guide your answers.

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Supplementary Documents:

Best Buy Stock Comparative Performance Graph

The graph below compares the cumulative total shareholder return on our common stock for the last

five fiscal years with the cumulative total return on the Standard & Poor's 500 Index ("S&P 500"), of

which we are a component, and the Standard & Poor's Retailing Group Industry Index ("S&P Retailing

Group"), of which we are also a component. The S&P Retailing Group is a capitalization-weighted

index of domestic equities traded on the NYSE and NASDAQ, and includes high-capitalization stocks

representing the retail sector of the S&P 500.

The graph assumes an investment of $100 at the close of trading on February 29, 2008, the last

trading day of fiscal 2008, in our common stock, the S&P 500 and the S&P Retailing Group.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Best Buy Co., Inc., the S&P 500 and the S&P Retailing Group

FY08 FY09 FY10 FY11 FY12 FY13

Best

Buy Co.,

Inc. $ 100.00 $ 68.03 $ 87.50 $ 78.79 $ 60.58 $ 41.72 S&P 500 100.00 56.68 87.07 106.72 112.19 125.59

S&P

Retailing

Group 100.00 66.21 113.65 142.39 166.07 201.11

*

Cumulative total return

assumes dividend

reinvestment.

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Five-Year Financial Highlights

$ in millions, except per share amounts

11-Month 12-Month

Fiscal Year

2013(1)(2) 2012(1)(3) 2011(4) 2010(5) 2009(6)(7)

Consolidated Statements of Earnings Data

Revenue $ 45,085 $ 50,705 $ 49,747 $ 49,243 $ 44,737

Operating income (loss) (125) 1,085 2,374 2,368 2,014

Net earnings (loss) from continuing operations (421) 330 1,554 1,495 1,150

Gain (loss) from discontinued operations 1 (308) (188) (101) (117)

Net earnings (loss) including noncontrolling interests (420) 22 1,366 1,394 1,033

Net earnings (loss) attributable to Best Buy Co., Inc. (441) (1,231) 1,277 1,317 1,003

shareholders

Per Share Data

Net earnings (loss) from continuing operations $ (1.31) $ (2.89) $ 3.44 $ 3.29 $ 2.66

Net gain (loss) from discontinued operations 0.01 (0.47) (0.36) (0.19) (0.27)

Net earnings (loss) (1.30) (3.36) 3.08 3.10 2.39

Cash dividends declared and paid 0.66 0.62 0.58 0.56 0.54

Common stock price:

High 27.95 33.22 48.83 45.55 48.03

Low 11.20 21.79 30.90 23.97 16.42

Operating Statistics

Comparable store sales gain (decline)(8) (2.9)% (1.7)% (1.8)% 0.6% (1.3)%

Gross profit rate 23.6 % 24.8 %

25.2% 24.5% 24.4 %

Selling, general and administrative expenses rate 21.1 % 20.2 % 20.2 % 19.5% 19.7 %

Operating income (loss) rate (0.3)% 2.1 % 4.8 % 4.8% 4.5 %

Year-End Data

Current ratio(9) 1.1 1.2 1.2 1.2 1.0

Total assets $ 16,787 $ 16,005 $ 17,849 $ 18,302 $ 15,826

Debt, including current portion 2,296 2,208 1,709 1,802 1,963

Total equity(10) 3,715 4,366 7,292 6,964 5,156

Number of stores

Domestic 1,503 1,447 1,317 1,190 1,107

International 2,876 2,861 2,756 2,746 2,745

Total 4,379 4,308 4,073 3,936 3,852

Retail square footage (000s)

Domestic 42,232 43,785 43,660 42,480 40,924

International 15,049 15,852 13,848 13,295 13,000

Total 57,281 59,637 57,508 55,775 53,924

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Stores, Distribution Centers and Corporate Facilities

Domestic Segment

The following table summarizes the location of our Domestic segment stores at the end of fiscal 2013

(11-month):

U.S. U.S. Best Buy Pacific Sales Magnolia Best Buy Mobile Stand- Audio Stores Alone Stores Stores Video Stores Total 1,056 409 34 4

International Segment

Europe Canada China Mexico

The The Best

Buy

Carphone Phone Mobile Best

Buy

Warehouse House Future

Shop

Best

Buy

Stand-

Alone

Five

Star Best Buy Express

Total 872 1,517 140 72 49 211 14 1

Operations:

Domestic Segment

Our Domestic segment is managed by product and service categories and channels, with separate

leadership teams for each area. These teams are responsible for determining how their products and

services are marketed across our three primary channels - online, retail stores and call centers. In

addition to these teams, separate teams manage support capabilities (e.g., human resources and real

estate management) and channel operations. Retail store operations are divided into territories and

districts based on geography and store size. District managers monitor store operations and meet

regularly with store managers to discuss performance.

Corporate management generally controls advertising, merchandise purchasing and pricing, as well as

inventory policies across all of our channels. Our retail stores have developed procedures for inventory

management, transaction processing, customer relations, store administration, product sales and

services, staff training and merchandise display that are standardized within each store brand. All stores

within each store brand generally operate in the same manner under the standard procedures with a

degree of flexibility for store management to address certain local market characteristics.

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International Segment Located throughout eight European countries, The Carphone Warehouse and The Phone House stores

are significantly smaller than our Best Buy branded stores and employ sales associates that provide

independent advice on the network service plan and hardware best suited to each customer. Most phone

sales require in-store registration with the network operator facilitated by our employees, allowing the

customer to leave the store with a fully active phone and a service contract. Advertising, merchandise

purchasing and pricing, and inventory policies for these stores are controlled by corporate retail

management in each respective local market.

Canada store operations are organized to support two principal store brands. Future Shop stores have

predominantly commissioned sales associates, whereas employees in Best Buy branded stores in

Canada, like employees in U.S. Best Buy stores, are noncommissioned. Each store brand has national

management that monitors store operations. All Canada stores use a standardized operating system that

includes procedures for inventory management, transaction processing, customer relations, store

administration, staff training and merchandise display. Advertising, merchandise purchasing and pricing,

and inventory policies are centrally controlled. Our Best Buy Mobile stores in Canada employ an

operating model similar to that used in our U.S. Best Buy Mobile stores.

Our Five Star stores primarily utilize vendor employees and full-time sales associates to sell our

products. Corporate retail management generally controls advertising, merchandise purchasing and

pricing, and inventory policies, although management for individual regions within our Five Star brand

may vary these operations to adapt to local customer needs.

Our stores in Mexico employ an operating model similar to that used in our U.S. Best Buy stores.

Products:

Domestic Segment:

The following table presents the Domestic segment's revenue mix percentages and comparable store

sales percentage changes by revenue category in fiscal 2013 (11-month) and 2012 (11-month recast):

Revenue

Mix

Summary Comparable Store

Sales Summary

11 Months

Ended 11 Months

Ended

February 2, 2013 January 28, 2012 February 2, 2013 January 28, 2012

Consumer Electronics 33% 36% (7.5)% (5.7)%

Computing and Mobile Phones 44% 40% 7.5% 6.4 %

Entertainment 10% 12% (21.4)% (16.0)%

Appliances 6% 5% 10.1% 10.6 %

Services 6% 6% 0.8% (0.1)%

Other 1% 1% n/a n/a

Total 100% 100% (1.7)% (1.6)%

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The following is a description of the notable comparable store sales changes in our Domestic segment

by revenue category:

Consumer Electronics: The 7.5% comparable store sales decline was primarily driven by a

decrease in the sales of digital imaging products, particularly compact cameras and

camcorders, partially due to convergence with smartphones. In addition, we experienced a

decrease in television revenue due primarily to a decrease in average selling price from an

increased sales mix of small and mid-sized televisions. These declines were partially offset by

the increased sales of e-Readers.

Computing and Mobile Phones: The 7.5% comparable store sales gain resulted primarily

from increased sales of mobile phones due to an increased mix of higher-priced smartphones

and new product launches, as well as increased sales of tablets driven by new product

launches, consumer demand and continued expansion of available platforms. The strong

performance from mobile phones and tablets was partially offset by a decline in sales of

notebook and desktop computers.

Entertainment: The 21.4% comparable stores sales decline was mainly the result of a decline

in gaming due to aging gaming platforms, fewer new software releases and the migration of

casual gamers to other platforms, such as tablets and smartphones.

● Appliances: The 10.1% comparable store sales gain was due to the implementation of

operational improvements, including the addition of more Pacific Kitchen and Home store-

within-a-store concepts, promotional effectiveness and improved performance in small

appliances. ● Services: The 0.8% comparable store sales gain was primarily due to the benefit from a periodic

profit sharing payment that was earned based on the long-term performance of the our externally

managed extended service plan portfolio, partially offset by a decrease in the sales of notebook

computers, which contributed to fewer service products sales opportunities.

Our Domestic segment experienced a decrease in gross profit of $394 million, or 4.8%, in fiscal 2013

(11-month) compared to fiscal 2012 (11-month recast), driven by lower revenue and a decline in the

gross profit rate.

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International Segment

The following table presents the International segment's revenue mix percentages and comparable

store sales percentage changes by revenue category in fiscal 2013 (11-month) and 2012 (11-

month recast):

Revenue Mix

Summary Comparable Store Sales

Summary

11 Months

Ended 11 Months

Ended

February 2, 2013 January 28,

2012 February 2, 2013 January 28, 2012

Consumer Electronics 18% 20% (16.5)% (7.0)%

Computing and Mobile Phones 61% 56% 0.1 % (0.3)% Entertainment 4% 5% (17.4)% (13.4)%

Appliances 10% 10% (15.1)% 2.9 % Services 7% 9% (6.9)% (1.3)%

Other <1% <1% n/a n/a

Total 100% 100% (6.9)% (2.5)%

The following is a description of the notable comparable store sales changes in our International

segment by revenue category:

• Consumer Electronics: The 16.5% comparable store sales decline was driven primarily by

decreases in the sales of televisions and digital imaging products, primarily in Canada, as a result

of industry softness and device convergence similar to that experienced within our Domestic

segment.

• Computing and Mobile Phones: The 0.1% comparable store sales gain was caused primarily

from an increase in sales of mobile phones in Europe and Canada, as well as increased tablet

sales in Canada. These gains were almost fully offset by a decline in sales of notebooks and

desktop computers.

• Entertainment: The 17.4% comparable store sales decline was primarily from decreases in

gaming in Canada as a result of factors similar to those experienced in our Domestic segment.

• Appliances: The 15.1% comparable store sales decline was primarily due to a decrease in sales

of appliances in our Five Star operations due to a slowdown in the housing market and the end

of certain government stimulus programs in China in December 2011.

• Services: The 6.9% comparable store sales decline was primarily due to a decrease in services

in Canada and Europe.

Our International segment experienced a gross profit decline of $309 million, or 9.9%, in fiscal 2013

(11-month), driven primarily by revenue declines in Canada and China and a gross profit rate decline in

Europe.

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Business Strategy and Core Philosophies

In November 2012, we announced our priorities to strengthen our operating and financial performance.

As part of this announcement, we provided a diagnosis of our strengths and weaknesses and two main

areas of focus: (1) stabilizing and improving our comparable store sales, and (2) increasing profitability

across both of our segments. In addition, we unveiled our Renew Blue strategy with the goal of making

Best Buy the preferred authority and destination for technology products and services. The pillars

supporting our Renew Blue strategy are as follows:

• Reinvigorate and rejuvenate the customer experience

• Attract and inspire leaders and employees

• Work with vendor partners to innovate and drive value

• Increase return on invested capital

• Continue our leadership role in positively impacting our world

Fiscal 2013 (11-month) Summary

• Fiscal 2013 (11-month) included a net loss from continuing operations of $443 million, compared

to a net loss of $1.3 billion in fiscal 2012 (11-month recast). The net loss in fiscal 2013 (11-month)

includes the impacts of $822 million of goodwill impairments and $451 million of restructuring

charges, while fiscal 2012 (11-month recast) includes the impacts of a $1.2 billion goodwill

impairment and $53 million of restructuring charges. Loss per diluted share from continuing

operations was $1.31 in fiscal 2013 (11-month), compared to loss per diluted share of $3.38 in

fiscal 2012 (11-month recast).

• Revenue was $45.1 billion in fiscal 2013 (11-month). The decrease from fiscal 2012 (11-month

recast) was driven primarily by a comparable store sales decline of 2.9% and the closure of 47

large-format stores in our Domestic segment.

• Our gross profit rate decreased by 1.0% of revenue to 23.6% of revenue. The decrease was

primarily due to increased revenue from the wholesale channel in Europe and increased

promotional activity in the International segment and the Domestic segment.

• We recorded $451 million of restructuring charges related to several restructuring actions we

undertook in fiscal 2013 (11-month), including our Renew Blue cost reduction initiatives, Europe

store transformation and U.S. large-format store closures and other operational changes.

• We generated $1.5 billion in operating cash flow in fiscal 2013 (11-month) with $1.8 billion of cash

and cash equivalents, compared to $1.2 billion at the end of fiscal 2012. Capital expenditures

remained relatively consistent with prior years at $705 million in fiscal 2013 (11-month).

• During fiscal 2013 (11-month), we made four dividend payments totaling $0.66 per share, or $224

million in the aggregate.

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Reference

BBY-2013-10KT.(n.d.).Retrieved October 1, 2014, from

http://www.sec.gov/Archives/edgar/data/764478/000076447813000014/bby-2013x10kt.htm

BBY-2014-10K. (n.d.). Retrieved October 1, 2014, from

https://www.sec.gov/Archives/edgar/data/764478/000076447814000011/bby-2014x10k.htm

Best Buy to Even Out Performance Across Individual Stores. (n.d.). Retrieved October 1, 2014,

from http://www.consultingcase101.com/best-buy-to-even-out-performance-across-individual-

stores/