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Article by DailyStocks_admin    (07-29-08 07:18 AM)

The Daily Magic Formula Stock for 07/29/2008 is Best Buy Co. Inc. According to the Magic Formula Investing Web Site, the ebit yield is 14% and the EBIT ROIC is 50-75%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Description of Business

Unless the context otherwise requires, the use of the terms "Best Buy," "we," "us" and "our" in this Annual Report on Form 10-K refers to Best Buy Co., Inc. and its consolidated subsidiaries. Best Buy is a specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. We operate retail stores and Web sites under the brand names Best Buy (BestBuy.com, BestBuy.ca, BestBuy.com.cn, and BestBuyMobile.com), Five Star (Five-Star.cn), Future Shop (FutureShop.ca), Geek Squad (GeekSquad.com and GeekSquad.ca), Magnolia Audio Video (MagnoliaAV.com), Pacific Sales Kitchen and Bath Centers (PacificSales.com) and Speakeasy (Speakeasy.net). References to our Web site addresses do not constitute incorporation by reference of the information contained on the Web sites.

Our vision is to make life fun and easy for consumers. Our business strategy is to treat customers as unique individuals, meeting their needs with end-to-end solutions, and engaging and energizing our employees to serve them, while maximizing overall profitability. We believe we offer consumers meaningful advantages in store environment, product value, product selection, and a variety of in-store and in-home services related to the merchandise we offer, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability.

Information About Our Segments

During fiscal 2008, we operated two reportable segments: Domestic and International. The Domestic segment is comprised of all states, districts and territories of the United States and includes store, call center and online operations, including Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Pacific Sales Kitchen and Bath Centers ("Pacific Sales") and Speakeasy. U.S. Best Buy stores offer a wide variety of consumer electronics, home office products, entertainment software, appliances and related services. Best Buy Mobile offers a wide selection of mobile phones, accessories and related services. Geek Squad provides residential and commercial computer repair, support and installation services. Magnolia Audio Video stores offer high-end audio and video products and related services. Pacific Sales stores offer high-end home-improvement products including appliances, consumer electronics and related services. Speakeasy provides broadband, voice, data and information technology services. The International segment is comprised of all Canada store, call center and online operations, including Best Buy, Future Shop and Geek Squad, as well as all China store, call center and online operations, including Best Buy, Geek Squad and Jiangsu Five Star Appliance Co. ("Five Star"). Our International segment offers products and services similar to that of our U.S. Best Buy stores. However, Canada Best Buy stores do not carry appliances. Further, our China Best Buy store and Five Star stores do not carry entertainment software.

Financial information about our segments is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , and Note 9, Segment and Geographic Information , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Domestic Segment

We were incorporated in the state of Minnesota in 1966 as Sound of Music, Inc. We began as an audio components retailer and, with the introduction of the videocassette recorder in the early 1980s, expanded into video products. In 1983, we changed our name to Best Buy Co., Inc. and began using mass-merchandising techniques, which included offering a wider variety of products and operating stores under a "superstore" concept. In 1989, we dramatically changed our method of retailing by introducing a self-service, noncommissioned, discount-style store concept designed to give the customer more control over the purchasing process.

In fiscal 2000, we established our first online shopping site, BestBuy.com. Our "clicks-and-mortar" strategy is designed to empower consumers to research and purchase products seamlessly, either online or in our retail stores. Our online shopping sites offer expanded assortments in all of our principal revenue categories.

In fiscal 2001, we acquired Magnolia Hi-Fi, Inc. — a Seattle-based, high-end retailer of audio and video products and services — to access an upscale customer segment. During fiscal 2004, Magnolia Hi-Fi began doing business as Magnolia Audio Video.

In fiscal 2003, we acquired Geek Squad Inc. Geek Squad provides residential and commercial computer repair, support and installation services. We acquired Geek Squad to further our plans of providing technology support services to customers. Geek Squad service is available in all Best Buy stores, as well as in seven stand-alone stores in the U.S. Our goal is to build Geek Squad into one of the largest multi-national providers of residential and commercial computer repair and support and installation services.

In fiscal 2005, we opened our first Magnolia Home Theater store-within-a-store experience in a U.S. Best Buy store. We believe Magnolia Home Theater — with its high-end brands, home-like displays and specially trained employees — offers a unique solution for our customers. The Magnolia Home Theater store- within-a-store experience was in 346 U.S. Best Buy stores at the end of fiscal 2008.

In fiscal 2005, we also began converting U.S. Best Buy stores to our customer centricity operating model. Stores operating under the customer centricity model offer variations in product assortments, staffing, promotions and store design, and are focused on key customer segments. The segmented stores tailor their store merchandising, staffing, marketing and presentation to address specific customer groups. Originally, these customer groups included affluent professional males, young entertainment enthusiasts who appreciate a digital lifestyle, upscale suburban mothers, families who are practical technology adopters and small businesses.

In fiscal 2007, we completed the transition of all remaining U.S. Best Buy stores to the customer centricity operating model. Also in fiscal 2007, we evolved our customer centricity segmentation to address the needs of customer lifestyle groups, rather than specific customer groups. Our stores now focus on lifestyles such as affluent suburban families, trend-setting urban dwellers, and the closely knit families of Middle America.

In fiscal 2007, we acquired Pacific Sales. Pacific Sales specializes in the sale of high-end kitchen appliances, plumbing fixtures, home entertainment products and home furnishings, with a focus on builders and remodelers. We acquired Pacific Sales to enhance our ability to grow with an affluent customer base and premium brands using a proven and successful showroom format. Utilizing the existing store format, we expect to increase the number of stores in order to capitalize on the high-end segment of the U.S. appliance market.

In fiscal 2007, we developed the Best Buy Mobile concept through a management consulting agreement with The Carphone Warehouse Group PLC ("CPW") and test marketed five stand-alone stores located in New York. Best Buy Mobile seeks to satisfy the needs of all our customer lifestyle groups by providing a comprehensive assortment of mobile phones, accessories and related services offered by experienced sales personnel in 181 U.S. Best Buy stores, as well as nine stand-alone stores located in New York and North Carolina at the end of fiscal 2008. During the next 18 months, we plan to add the Best Buy Mobile store-within-a-store experience to the majority of U.S. Best Buy stores.

In fiscal 2008, we acquired Speakeasy. Speakeasy provides broadband, voice, data and information technology services. We believe our acquisition of Speakeasy will generate synergies by providing new technology solutions for our existing and future customers.

At March 1, 2008, we operated 923 U.S. Best Buy stores in 49 states, the District of Columbia and Puerto Rico that averaged approximately 39,700 retail square feet. Collectively, U.S. Best Buy stores totaled approximately 36.7 million retail square feet at the end of fiscal 2008, or about 76% of our total retail square footage. In fiscal 2008, our U.S. Best Buy stores generated average revenue of approximately $37.6 million per store.

At March 1, 2008, we operated 19 Pacific Sales stores in California that averaged approximately 34,000 retail square feet. Collectively, Pacific Sales stores totaled approximately 0.6 million retail square feet at the end of fiscal 2008, or about 1% of our total retail square footage. In fiscal 2008, our Pacific Sales stores generated average revenue of approximately $18.7 million per store.

At March 1, 2008, we operated 13 Magnolia Audio Video stores in California, Oregon and Washington that averaged approximately 11,600 retail square feet. Collectively, Magnolia Audio Video stores totaled approximately 0.2 million retail square feet at the end of fiscal 2008, or less than 1% of our total retail square footage. In fiscal 2008, our Magnolia Audio Video stores generated average revenue of approximately $7.2 million per store.

At March 1, 2008, we operated nine Best Buy Mobile stand-alone stores in New York and North Carolina that averaged approximately 1,400 retail square feet. Collectively, Best Buy Mobile stand-alone stores totaled approximately 13,000 retail square feet at the end of fiscal 2008, or less than 1% of our retail square footage.

At March 1, 2008, we operated seven Geek Squad stand-alone stores in California, Colorado, Georgia, Minnesota and Texas that averaged approximately 2,000 retail square feet. Collectively, Geek Squad stand-alone stores totaled approximately 14,000 retail square feet at the end of fiscal 2008, or less than 1% of our retail square footage.

International Segment

Our International segment was established in connection with our acquisition of Canada-based Future Shop Ltd. in fiscal 2002. The Future Shop acquisition provided us with an opportunity to increase revenue, gain market share and leverage our operational expertise in consumer electronics retailing. Since the acquisition, we have continued to build on Future Shop's position as the leading consumer electronics retailer in Canada.

During fiscal 2003, we launched our dual-branding strategy in Canada by introducing the Best Buy brand. The dual-branding strategy allows us to retain Future Shop's brand equity and attract more customers by offering a choice of store experiences. As we expand the presence of Best Buy stores in Canada, we expect to gain continued operating efficiencies by leveraging our capital investments, supply chain management, advertising, merchandising and administrative functions. Our goal is to reach differentiated customers with each brand by giving them the unique shopping experiences they desire. The primary differences between our two principal brands in Canada are:

In-store experience — The customer's interaction with store employees is different at each of the two brands. Future Shop stores have predominantly commissioned sales associates who take a more proactive role in assisting customers. Through their expertise and attentiveness, the sales associate drives the transaction. In contrast, Canada Best Buy store employees, like employees in U.S. Best Buy stores, are noncommissioned, and the stores offer more interactive displays and grab-and-go merchandising. This design allows customers to drive the transaction as they experience the products themselves, with store employees available to demonstrate and explain product features.

Products and services — Only Future Shop stores carry appliances. In addition, Geek Squad service is available in all Canada Best Buy stores, but is not available in Future Shop stores.

Store size — At the end of fiscal 2008, the average Future Shop store was approximately 26,600 retail square feet, compared with an average of approximately 33,200 retail square feet for Canada Best Buy stores. Canada Best Buy stores generally have wider aisles, as well as more square footage devoted to entertainment software.

In fiscal 2007, we acquired a 75% interest in Five Star, one of China's largest appliance and consumer electronics retailers. We made the investment in Five Star to further our international growth plans, to increase our knowledge of Chinese customers and to obtain an immediate retail presence in China. We have a contractual commitment to acquire the remaining 25% interest in Five Star within the next several years, subject to Chinese government approval.

In fiscal 2007, we opened our first China Best Buy store in Shanghai. We plan to open five to eight additional Best Buy stores in China during fiscal 2009.

In fiscal 2008, we expanded Geek Squad to the United Kingdom through our relationship with CPW.

At March 1, 2008, we operated 131 Future Shop stores throughout all of Canada's provinces and 51 Canada Best Buy stores in seven provinces: Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan. Collectively, our stores in Canada totaled approximately 5.2 million retail square feet at the end of fiscal 2008, or about 11% of our total retail square footage. In fiscal 2008, our Canada stores generated average revenue of approximately $30.9 million per store.

At March 1, 2008, we operated 160 Five Star stores in seven of China's 34 provinces and one China Best Buy store in Shanghai. Collectively, our stores in China totaled approximately 5.9 million retail square feet at the end of fiscal 2008, or about 12% of our total retail square footage. In fiscal 2008, our China retail stores generated average revenue of approximately $8.8 million per store.

As previously announced, we plan to open two to five Best Buy stores in Mexico in the second half of fiscal 2009 and project that we will open one or two Best Buy stores in Turkey in the early part of fiscal 2010.

We consolidate the financial results of our China operations on a two-month lag. Consistent with such consolidation, the financial and non-financial information presented in this filing relative to our China operations is also presented on a two-month lag.

Operations

Domestic Segment

U.S. Best Buy store operations are organized into eight territories. Each territory is divided into districts and is under the management of a retail field officer who oversees store performance through district managers. District managers monitor store operations and meet regularly with store managers to discuss merchandising, new product introductions, sales promotions, customer loyalty programs, employee satisfaction surveys and store operating performance. Advertising, merchandise purchasing and pricing, as well as inventory policies, are generally controlled centrally.

U.S. Best Buy stores are generally open 80 hours per week, seven days a week, with extended holiday hours. A typical store is staffed by one general manager and four managers. The average staff per store in fiscal 2008 was approximately 110 employees, including full-time, part-time and seasonal employees, and varied by store depending on sales volumes.

U.S. Best Buy stores use a standardized and detailed operating procedure called our Standard Operating Platform ("SOP"). The SOP includes procedures for inventory management, transaction processing, customer relations, store administration, product sales and services, and merchandise display. All stores are intended to operate in the same manner under the SOP.

Pacific Sales stores are typically managed by a store manager who also sells appliances. Pacific Sales stores are generally open 40 hours per week, five days a week. Depending on an individual store's volume and product offerings, store staffing includes approximately 10 noncommissioned sales personnel and approximately four sales support personnel. Corporate management for Pacific Sales stores generally controls advertising, merchandise purchasing and pricing, as well as inventory policies.

Magnolia Audio Video stores are typically managed by a store manager and an audio/video sales manager. Magnolia Audio Video stores are generally open 72 hours per week, seven days a week. Depending on an individual store's volume and product offerings, store staffing includes eight to 20 commissioned sales personnel and one to three hourly personnel. Corporate management for Magnolia Audio Video stores generally controls advertising, merchandise purchasing and pricing, as well as inventory policies.

International Segment

Canada store operations are organized to support two brands, each headed by a senior vice president. Each senior vice president has national management that closely monitors store operations and meets regularly with store managers to review management and staff training programs, customer feedback and requests, store operating performance and other matters. Meetings involving store management, product managers, and advertising, financial and administrative staff, as well as senior management, are held quarterly to review operating results and to establish future objectives.

Canada stores are generally open 60 to 75 hours per week, seven days a week. An average Future Shop store is staffed by a general manager, an operations manager, one to four department managers and 50 to 150 sales associates, including full-time and part-time sales associates. An average Canada Best Buy store is staffed with a general manager; assistant managers for operations, merchandising, inventory, sales and services; and 80 to 110 sales associates, including full-time and part-time sales associates. The number of sales associates is dependent upon store size and sales volume.

Canada stores use a standardized operating system. The operating system includes procedures for inventory management, transaction processing, customer relations, store administration, staff training and performance appraisals, as well as merchandise display. Advertising, merchandise purchasing and pricing, and inventory policies are centrally controlled.

Five Star stores are generally open 77 to 84 hours per week, seven days a week. A typical Five Star store is staffed by a general manager; six to 10 department managers; 27 to 100 full-time sales associates; and 50 to 200 vendor employees who sell products. Corporate management at Five Star centrally controls advertising, merchandise purchasing and pricing and inventory policies for major brand products, while management for individual regions control these operations for local brands. Meetings involving store management and corporate management are held on a regular basis to review operating results and establish future objectives.

Our China Best Buy store employs an operating model similar to our U.S. Best Buy and Canada Best Buy stores. Our China Best Buy store is staffed with a general manager; assistant managers for operations, merchandising, inventory and sales; and approximately 260 sales associates, including full-time and part-time sales associates. Advertising, merchandise purchasing and pricing, and inventory policies for our China Best Buy store are centrally controlled by corporate management. Meetings involving store management and corporate management are held on a regular basis to review operating results and to establish future objectives.

Merchandise

Domestic Segment

U.S. Best Buy stores have offerings in six revenue categories: consumer electronics, home office, entertainment software, appliances, services and other. Consumer electronics consists of video and audio products. Video products include televisions, digital cameras and accessories, digital camcorders and accessories and DVD players. Audio products include MP3 players and accessories, navigation products, home theater audio systems and components, and mobile electronics including car stereo and satellite radio products. The home office revenue category includes notebook and desktop computers, monitors, mobile phones, hard drives, networking and accessories. The entertainment software revenue category includes video gaming hardware and software, DVD movies, CDs and computer software. The appliances revenue category includes major appliances as well as small electrics. The services revenue category consists primarily of commissions from the sale of extended service contracts; revenue from computer-related services; product repair revenue; and delivery and installation revenue derived from home theater, mobile audio and appliances. The other revenue category includes non-core offerings such as snacks and beverages.

Pacific Sales stores have offerings in three revenue categories: appliances including plumbing, consumer electronics and services. Appliances consists of major appliances evenly split between high end and mass premium brands. Plumbing consists of kitchen and bath fixtures which include faucets, sinks, toilets and bath tubs. Consumer electronics consists of video and audio products, including televisions and home theater systems. The services revenue category consists primarily of repair services.

Magnolia Audio Video stores have offerings in three revenue categories: consumer electronics, home office and services. Consumer electronics consists of video and audio products. Video products include televisions, DVD players and accessories. Audio products include home theater audio systems and components, mobile electronics and accessories. The home office revenue category consists primarily of home theater furniture. The services revenue category consists primarily of home theater system installation and repair services as well as commissions from the sale of extended service contracts.

International Segment

Canada Best Buy and Future Shop stores have offerings in five revenue categories: consumer electronics, home office, entertainment software, services, other and, for Future Shop only, a sixth revenue category, appliances. Consumer electronics consists of video and audio products. Video products include televisions, digital cameras and accessories, DVD players, digital camcorders and accessories. Audio products include MP3 players, home theater audio systems and components, navigation products, mobile electronics and accessories. The home office revenue category includes desktop and notebook computers and their respective accessories, monitors, hard drives, printers and mobile phones. The entertainment software revenue category includes video game hardware and software, DVDs, CDs and computer software. The appliances revenue category includes major appliances as well as small electrics. The services revenue category includes commissions from the sale of extended service contracts, repair, delivery, computer services and home theater installation. The other revenue category includes non-core offerings.

Although Canada Best Buy and Future Shop stores offer similar revenue categories (except for appliances), there are differences in product brands and depth of selection within revenue categories. On average, approximately 35% of the product assortment (excluding entertainment software) overlaps between the two store brands.

China Best Buy and Five Star stores have offerings in four revenue categories: appliances, consumer electronics, home office and services. Our China stores do not carry entertainment software. Appliances includes major appliances, air conditioners, small electrics and housewares. The consumer electronics revenue category consists of video and audio products, including televisions, digital cameras, MP3 players and accessories. The home office revenue category includes desktop and notebook computers, mobile phones, traditional telephones and accessories. The services revenue category includes computer support services.

Distribution

Domestic Segment

Generally, U.S. Best Buy stores' merchandise, except for major appliances and large-screen televisions, is shipped directly from manufacturers to our distribution centers located in California, Georgia, Indiana, Minnesota, New York, Ohio, Oklahoma and Virginia. Major appliances and large-screen televisions are shipped to satellite warehouses in each major market. U.S. Best Buy stores are dependent upon the distribution centers for inventory storage and shipment of most merchandise. However, in order to meet release dates for selected products and to improve inventory management, certain merchandise is shipped directly to our stores from manufacturers and distributors. All inventory is bar-coded and scanned to ensure accurate tracking. In addition, a computerized inventory replenishment program is used to manage inventory levels at each store. On average, U.S. Best Buy stores receive product shipments two or three times per week, with additional shipments during periods of high sales volume. Contract carriers ship merchandise from the distribution centers to stores. Generally, online merchandise sales are either picked up at U.S. Best Buy stores or fulfilled directly to customers through our distribution centers.

We receive and warehouse Pacific Sales stores' merchandise at a distribution center in California. All inventory is bar-coded or marked with vendor serial numbers to ensure accurate tracking. In addition, a computerized inventory replenishment program is used to manage inventory levels at each store. Most merchandise is fulfilled directly to customers through our distribution center.

We receive and warehouse Magnolia Audio Video stores' merchandise at either Magnolia Audio Video distribution centers in Washington and California or the U.S. Best Buy distribution center in California. All inventory is bar-coded and scanned to ensure accurate tracking. Merchandise is delivered to stores an average of three times per week pursuant to an in-house distribution system.

International Segment

Our Canada stores' merchandise is shipped directly from our suppliers to our distribution centers in British Columbia and Ontario. Our Canada stores are dependent upon the distribution centers for inventory storage and shipment of most merchandise. However, in order to meet release dates for selected products and to improve inventory management, certain merchandise is shipped directly to our stores from manufacturers and distributors. All inventory is bar-coded and scanned to ensure accurate tracking. In addition, a computerized inventory replenishment program is used to manage inventory levels at each store. Our Canada stores typically receive product shipments twice per week, with additional shipments during periods of high sales volume. Contract carriers ship merchandise from the distribution centers to stores.

We receive our Five Star stores' merchandise at more than 50 distribution centers and warehouses located throughout the Five Star retail chain, the largest of which is located in Nanjing, Jiangsu province. Our Five Star stores are dependent upon the distribution centers for inventory storage and shipment of most merchandise. Most merchandise is fulfilled directly to customers through our distribution centers and warehouses.

Our China Best Buy store's merchandise is shipped directly from our suppliers to our distribution center in Shanghai. Our China Best Buy store is dependent upon the distribution center for inventory storage and shipment of most merchandise. However, in order to meet release dates for selected products and to improve inventory management, certain merchandise is shipped directly to our store from manufacturers and distributors. In certain circumstances, merchandise is shipped directly to our customers from manufacturers and distributors. Our China Best Buy store typically receives product shipments three to four times per week, with additional shipments during periods of high sales volume.

CEO BACKGROUND

Bradbury H. Anderson, 58, has been a director since August 1986 and is our Vice Chairman and Chief Executive Officer. He assumed the responsibility of Chief Executive Officer in June 2002, having previously served as President and Chief Operating Officer since April 1991. He has been employed in various capacities with us since 1973. In addition, he serves on the board of General Mills, Inc., as well as on the boards of the Retail Industry Leaders Association, the American Film Institute, Minnesota Early Learning Foundation, Best Buy Children's Foundation, Minnesota Public Radio and Waldorf College.

Kathy J. Higgins Victor, 51, has been a director since November 1999. Since 1994, she has been president of Centera Corporation, an executive development and leadership coaching firm she founded which is located in Minneapolis, Minnesota. From 1991 to 1994, she was the senior vice president of human resources at Northwest Airlines, Inc., and prior to that held senior executive positions at The Pillsbury Company and Burger King Corporation. She is on the board of the University of St. Thomas.

Allen U. Lenzmeier, 64, has been a director since February 2001 and is our Vice Chairman, serving on a part-time basis to support our international expansion. Prior to his promotion to Vice Chairman in 2004, he served in various capacities since joining us in 1984, including as President and Chief Operating Officer from 2002 to 2004, and as President of Best Buy Retail Stores from 2001 to 2002. He serves on the board of UTStarcom, Inc. He is also a national trustee for the Boys and Girls Clubs of America and serves on its Twin Cities board.

Rogelio M. Rebolledo, 63, has been a director since August 2006. In 2007, Mr. Rebolledo retired from his position as chairman of PBG Mexico, the Mexican operations of Pepsi Bottling Group, Inc. He began his 30-year career with PepsiCo Inc. at Sabritas, the salty snack food unit of Frito-Lay International in Mexico. He was responsible for the development of the international Frito-Lay business, first in Latin America and then in Asia. From 2001 to 2003, he was president and chief executive officer of Frito-Lay International. He also served as president and chief executive officer of Pepsi Bottling Group's Mexico operations from January 2004 until being named chairman.

Frank D. Trestman, 73, has been a director since December 1984. Since 1989, he has been president of Trestman Enterprises, an investment and business development firm in Minneapolis, Minnesota, and chairman of The Avalon Group, a real estate development partnership in Minneapolis. From 1987 to 1989, he was a consultant to McKesson Corporation, a distributor of pharmaceutical products, and medical supplies and equipment. From 1983 to 1987, he was chairman of the board and chief executive officer of Mass Merchandisers, Inc., a distributor of non-food products to retailers in the grocery business. He is also on the board of the Harry Kay Foundation.

MANAGEMENT DISCUSSION FROM LATEST 10K

We believe transparency and clarity are the primary goals of successful financial reporting. We remain committed to increasing the transparency of our financial reporting, providing our shareholders with informative financial disclosures and presenting an accurate view of our financial position and operating results.

In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our internal control over financial reporting and concluded that such control was effective as of March 1, 2008. Management's report on the effectiveness of our internal control over financial reporting and the related report of our independent registered public accounting firm are included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in eight sections:

•
Overview

•
Business Strategy and Core Philosophies

•
Results of Operations

•
Liquidity and Capital Resources

•
Off-Balance-Sheet Arrangements and Contractual Obligations

•
Critical Accounting Estimates

•
New Accounting Standards

•
Outlook for Fiscal 2009

We consolidate the financial results of our China operations on a two-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to our China operations is also presented on a two-month lag. No significant intervening event occurred in our China operations that would have materially affected our financial condition, results of operations, liquidity or other factors had it been recorded during fiscal 2008.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Our fiscal year ends on the Saturday nearest the end of February. Fiscal 2008 and 2006 each included 52 weeks, whereas our fiscal 2007 included 53 weeks.

Overview

Best Buy is a specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services.

We operate two reportable segments: Domestic and International. The Domestic segment is comprised of all store, call center and online operations, including Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Pacific Sales and Speakeasy located within the U.S. and its territories. U.S. Best Buy stores offer a wide variety of consumer electronics, home office products, entertainment software, appliances and related services, operating 923 stores in 49 states, the District of Columbia and Puerto Rico at the end of fiscal 2008. Best Buy Mobile offers a wide selection of mobile phones, accessories and services through nine stand-alone stores located in New York and North Carolina, as well as in 181 U.S. Best Buy stores at the end of fiscal 2008. Geek Squad offers residential and commercial computer repair, support and installation services in all U.S. Best Buy stores and seven stand-alone stores at the end of fiscal 2008. Magnolia Audio Video stores offer high-end audio and video products and related services from 13 stores located in California, Oregon and Washington, as well as through 346 Magnolia Home Theater rooms located in U.S. Best Buy stores at the end of fiscal 2008. Pacific Sales stores offer high-end home-improvement products including appliances, consumer electronics and related services, operating 19 stores in California at the end of fiscal 2008. Speakeasy provides broadband voice, data and information technology services to home and small business users through a network of experienced sales associates.

The International segment is comprised of all Canada store, call center and online operations, including Best Buy, Future Shop and Geek Squad, as well as all China store and online operations, including Best Buy, Five Star and Geek Squad. Our International segment offers products and services similar to our Domestic segment's offerings. However, Canada Best Buy stores do not carry appliances, the China Best Buy store and Five Star stores do not carry entertainment software, and Geek Squad services in Canada and China are offered only through our Best Buy stores. At the end of fiscal 2008, we operated 51 Canada Best Buy stores in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan; 131 Future Shop stores throughout all of Canada's provinces; 160 Five Star stores located in seven of China's 34 provinces; and one China Best Buy store in Shanghai.

In support of our retail store operations, we also operate Web sites for each of our brands (BestBuy.com, BestBuy.ca, BestBuy.com.cn, BestBuyMobile.com, Five-Star.cn, FutureShop.ca, GeekSquad.com, GeekSquad.ca, MagnoliaAV.com, PacificSales.com and Speakeasy.net).

Our business, like that of many U.S. retailers, is seasonal. Historically, we have realized more of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S. and Canada, than in any other fiscal quarter. The timing of new store openings, costs associated with the development of new businesses, as well as general economic conditions may affect our future results.

Acquisition

Speakeasy, Inc.

On May 1, 2007, we acquired Speakeasy, Inc. ("Speakeasy") for $103 million in cash, or $89 million net of cash acquired, which included transaction costs and the repayment of $5 million of Speakeasy's debt. We acquired Speakeasy, an independent U.S. broadband, voice, data and information technology services provider, to strengthen our portfolio of technology solutions. The premium we paid, in excess of the fair value of the net assets acquired, was primarily for the synergies we believe Speakeasy will generate by providing new technology solutions for our existing and future customers, as well as to obtain Speakeasy's skilled, established workforce. Speakeasy contributed revenue of $78 million to our consolidated financial results in fiscal 2008.

Financial Reporting Changes

To maintain consistency and comparability, we reclassified certain prior-year amounts to conform to the current-year presentation as described in Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

We adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 , effective March 4, 2007. FIN No. 48 provides guidance regarding the recognition, measurement, presentation and disclosure in the financial statements of tax positions taken or expected to be taken on a tax return, including the decision whether to file or not to file in a particular jurisdiction. See Note 8, Income Taxes , of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Business Strategy and Core Philosophies

Our business, broadly defined, is about meeting the wants and needs of consumers. We believe that our assets position us to solve more customer problems than ever. Specifically, our assets include approximately 150,000 engaged employees; valuable relationships with vendors all over the world; continuing and emerging relationships with companies like Apple, Dell and The Carphone Warehouse Group PLC ("CPW"); and all of the other mutually enriching business relationships that our people continue to establish and develop wherever we go, from Asia to Silicon Valley. We also generate significant positive cash flows. All of these assets are at our disposal as we envision how we will deepen our relationships with customers and increase shareholder value.

Our business strategy is customer centricity. We define customer centricity through its parts, which we call our three core philosophies: inviting our employees to contribute their unique ideas and experiences in service of customers; treating customers uniquely and honoring their differences; and meeting customers' unique needs, end-to-end.

We start with a view of all of our customers, including what their problems are and what their desires are. We try to match that against everything we know about the solutions that now exist, or that could be created. Then we figure out how to get customers the right solutions by using our employees' unique capabilities, as well as our network of vendors and other third-party providers. If we accomplish what we have set out to do, we believe these solutions may give us something unique in the marketplace, and something truly differentiated.

Mass merchants, direct sellers, other specialty retailers and online retailers are increasingly interested in our revenue categories because of rising demand. We believe that by understanding our customers better than our competitors do, and by inspiring our employees to have richer interactions with customers, we can differentiate ourselves and compete more effectively. We further believe that this strategy can be successful for us with a variety of products and services, store formats, customer groups and even countries.

We believe that our customer centricity strategy provides the framework to grow and to enhance our business in the future. Examples of new growth areas in the past year include our Best Buy Mobile and Apple store-within-a-store experiences, our introduction of Dell computers to all U.S. Best Buy stores (making us the only U.S. retailer offering all major computing brands), our acquisition of Speakeasy and our entry into Puerto Rico.

Our future growth plans include focusing on investments that will quicken our progress in transforming the customer experience. We plan to do this by scaling the Best Buy Mobile store-within-a-store experience to the majority of our U.S. Best Buy stores in the next 18 months. In addition, we plan to invest in approximately 250 additional Apple store-within-a-store locations in the next year and to expand our private label business, which provides customers with an affordable alternative in several product categories such as home theater, computing and MP3.

We expect to continue expanding into new product categories such as musical instruments and recreation and plan to increase our market share in existing product categories such as home theater, navigation, mobile phones and gaming by improving our in-store and online customer experiences. We plan to focus the in-store customer experience on customer value propositions that provide for better and localized product assortments and resets in our store lay-out that enhance and highlight products that are generating the most customer interest such as our offerings in gaming, navigation devices, digital SLR cameras and computing. We expect online offerings to include greater assortments which include Best Buy Mobile offerings, online services scheduling, personalized shopping options and auction and outlet sites that offer more favorable pricing. Members of Reward Zone, our customer loyalty program, will also see increased benefits and program offerings in the next year with rewards becoming even greater the more they shop with us.

Our plans in fiscal 2009 also include significant investments internationally as we prepare to enter Mexico and Turkey and to expand further in China. These investments include real estate, personnel, training and enhanced information, supply chain and customer analytic systems. Our continuing plans for international expansion have been thoughtfully managed and we plan to offer tailored market assortments at optimum prices in each country we enter.

We anticipate expanding our private label business to other retailers internationally, including retailers in countries where we do not have a footprint presently. We plan to grow and to optimize our Canada business by implementing labor model changes at Future Shop, expanding financial services and broadening our loyalty program given the success we have had in the U.S. We believe the growth we are planning for in Canada will help offset our international investments in fiscal 2009. Not only are we executing on organic growth drivers, we are evaluating options to leverage our existing relationship with CPW, as well as considering potential new relationships to support our international expansion.

Results of Operations

Fiscal 2008 Summary

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Net earnings in fiscal 2008 increased 2% to slightly more than $1.4 billion, or $3.12 per diluted share, compared with nearly $1.4 billion, or $2.79 per diluted share, in fiscal 2007. The modest increase in net earnings was driven by revenue growth and a decrease in our selling, general and administrative expense ("SG&A") rate, offset by a decrease in our gross profit rate and a higher effective income tax rate. The increase in net earnings per diluted share was due primarily to the lower average number of shares outstanding, resulting from our share repurchases in fiscal 2008.

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Revenue in fiscal 2008 increased 11% to $40.0 billion. The increase reflected market share gains and was driven by the net addition of 137 new stores during fiscal 2008; a 2.9% comparable store sales gain; the non-comparable store sales generated from the acquisition of Five Star, Pacific Sales and Speakeasy; and favorable fluctuations in foreign currency exchange rates, partially offset by the impact of an extra week of business in fiscal 2007.

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Our gross profit rate in fiscal 2008 decreased by 0.5% of revenue to 23.9% of revenue. The decrease was due primarily to increased sales of lower-margin products, including increased revenue from notebook computers and video gaming hardware. Our China operations, which carry a significantly lower gross profit rate than our other operations, reduced our gross profit rate by approximately 0.2% of revenue in fiscal 2008.

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Our SG&A rate in fiscal 2008 decreased by 0.3% of revenue to 18.5% of revenue. The improvement was due primarily to the leveraging effect of the 11% growth in revenue and store operating model improvements. Our China operations, which carry a significantly lower SG&A rate than our other operations, reduced our SG&A rate by approximately 0.1% of revenue in fiscal 2008.

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During fiscal 2008, we added the Apple store-within-a-store experience to 357 new and existing U.S. Best Buy stores, the Best Buy Mobile store-within-a-store experience to 181 new and existing U.S. Best Buy stores and 44 Magnolia Home Theater rooms to new and existing U.S. Best Buy stores, bringing the total number of Magnolia Home Theater rooms to 346 at the end of fiscal 2008.

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Effective with the cash dividend paid in the third quarter of fiscal 2008, we increased our quarterly cash dividend per common share by 30%, to $0.13 per common share. During fiscal 2008, we made four dividend payments totaling $0.46 per common share, or $204 million in the aggregate.

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During fiscal 2008, we purchased and retired 75.6 million shares of our common stock at a cost of $3.5 billion pursuant to our share repurchase programs.

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In fiscal 2008, we and The Best Buy Children's Foundation contributed approximately $32 million to local communities. The Best Buy Children's Foundation supports educational programs that integrate and leverage today's technology.

Consolidated Results

Fiscal 2008 Results Compared With Fiscal 2007

Fiscal 2008 net earnings were slightly more than $1.4 billion, or $3.12 per diluted share, compared with nearly $1.4 billion, or $2.79 per diluted share, in fiscal 2007. The modest increase in net earnings was driven by revenue growth and a decrease in our SG&A rate, offset by a decrease in our gross profit rate and a higher effective income tax rate. The increase in net earnings per diluted share was due primarily to the lower average number of shares outstanding, resulting from our share repurchases in fiscal 2008.

Revenue in fiscal 2008 increased 11% to $40.0 billion, compared with $35.9 billion in fiscal 2007. The increase resulted primarily from the net addition of 137 new Best Buy, Future Shop, Five Star, Pacific Sales and Best Buy Mobile stores during fiscal 2008, a full year of revenue from new stores added in fiscal 2007, a 2.9% comparable store sales gain and the non-comparable store sales generated from the acquisition of Five Star, Pacific Sales and Speakeasy. The remainder of the revenue increase was due primarily to the favorable effect of fluctuations in foreign currency exchange rates. Excluding the impact of the extra week in fiscal 2007, the net addition of new stores during the past fiscal year accounted for more than one-half of the revenue increase in fiscal 2008; the comparable store sales gain accounted for more than two-tenths of the revenue increase; the non-comparable store sales generated from the acquisition of Five Star, Pacific Sales and Speakeasy accounted for more than one-tenth of the revenue increase; and the remainder of the revenue increase was due to the favorable effect of fluctuations in foreign currency exchange rates.

Our comparable store sales gain in fiscal 2008 benefited from a higher average transaction amount driven by the continued growth in higher-ticket items, including video gaming hardware, flat-panel televisions and notebook computers. Products having the largest impact on our fiscal 2008 comparable store sales gain included video gaming hardware and software, notebook computers, flat-panel televisions and navigation products. An increase in online purchases also contributed to the fiscal 2008 comparable store sales gain. Revenue from our online operations increased more than 25% in fiscal 2008 and added to the overall comparable store sales increase.

Our gross profit rate in fiscal 2008 decreased by 0.5% of revenue to 23.9% of revenue. The decrease was due primarily to increased sales of lower-margin products, including increased revenue from notebook computers and video gaming hardware. Our China operations, which carry a significantly lower gross profit rate than our other operations, reduced our gross profit rate in fiscal 2008 by approximately 0.2% of revenue. These factors were partially offset by better promotional programs in home theater, as well as lower financing rates and Reward Zone costs.

Our SG&A rate in fiscal 2008 decreased by 0.3% of revenue to 18.5% of revenue. The improvement was due primarily to the leveraging effect of the 11% growth in revenue and store operating model improvements. Our China operations, which carry a significantly lower SG&A rate than our other operations, reduced our SG&A rate by approximately 0.1% of revenue in fiscal 2008.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Consolidated Performance Summary

Net earnings were $179 million, or $0.43 per diluted share, in the first quarter of fiscal 2009, compared with $192 million, or $0.39 per diluted share, in the same period one year ago. The decrease in net earnings reflects a reduction in our gross profit rate, an increase in our SG&A expense rate and a decrease in investment income, partially offset by an increase in revenue. The increase in our earnings per diluted share was primarily the result of a lower share count driven by the share repurchase activities in fiscal 2008.

Revenue in the first quarter of fiscal 2009 increased 13% to $9.0 billion, compared with $7.9 billion in the same period one year ago. The net addition of 145 new stores in the past 12 months accounted for nearly six-tenths of the revenue increase in the first quarter of fiscal 2009; the 3.7% comparable store sales gain accounted for approximately three-tenths of the revenue increase; the favorable effect of fluctuations in foreign currency exchange rates accounted for just over one-tenth of the revenue increase; and the remainder of the increase was due to the acquisition of Speakeasy.

Our comparable store sales in the first quarter of fiscal 2009 increased 3.7%, reflecting a higher average transaction amount, which was driven by continued growth in the sales of higher-priced products. Also contributing to the fiscal first-quarter comparable store sales gain was an increase in online purchases of 30%, as we continued to add features and capabilities to our Web sites. In the first quarter of fiscal 2009, our largest comparable store sales gains were in flat-panel televisions, video gaming hardware and software, notebook computers, mobile phones and GPS navigation products. Growth in the sales of these product categories was partially offset by comparable store sales declines in tube and projection televisions, digital cameras, CDs and DVDs.



Our gross profit rate in the first quarter of fiscal 2009 decreased by 0.2% of revenue to 23.7% of revenue. The gross profit rate decrease was due to a decrease in our Domestic segment’s gross profit rate, partially offset by an increase in the gross profit rate in our International segment. For further discussion of each segment’s gross profit rate changes, see the Segment Performance Summary for Domestic and International below.



Our SG&A expense rate in the first quarter of fiscal 2009 increased by 0.1% of revenue to 20.6% of revenue. The SG&A expense rate increase was due to increases in our Domestic and International segments’ SG&A expense rates. For further discussion of each segment’s SG&A expense rate changes, see the Segment Performance Summary for Domestic and International below.



Other Income (Expense)



Our investment income and other in the first quarter of fiscal 2009 decreased to $21 million, compared with $44 million in the same period one year ago. The change was primarily due to the impact of lower average cash and investment balances, resulting from our fiscal 2008 accelerated share repurchase (“ASR”) program.

Additionally, interest expense in the fiscal first quarter increased to $13 million, compared with $7 million in the prior year’s period. The change was primarily due to the increased borrowings to fund our fiscal 2008 ASR program.



Income Tax Expense



Our effective income tax rate in the first quarter of fiscal 2009 was unchanged at 37.1%, compared with the same period one year ago. The impact of our lower balances of tax-advantaged investments was offset by our lower state and foreign taxes.



Segment Performance Summary



Domestic

Note: Three U.S. Best Buy stores were relocated during the first quarter of fiscal 2008. No other store in the Domestic segment was relocated during the first quarter of fiscal 2008.



Our Domestic segment’s operating income in the first quarter of fiscal 2009 was $277 million, or 3.7% of revenue, compared with $270 million, or 4.0% of revenue, in the same period one year ago. The decrease in our Domestic segment’s operating income rate reflected a decrease in our gross profit rate and an increase in our SG&A expense rate, partially offset by an increase in revenue.



Our Domestic segment’s revenue in the first quarter of fiscal 2009 increased 11% to $7.5 billion, compared with $6.7 billion in the same period one year ago. The net addition of 106 new stores in the past 12 months accounted for just over two-thirds of the revenue increase; the 3.5% comparable store sales gain accounted for just over three-tenths of the revenue increase; and the remainder of the increase was due to the acquisition of Speakeasy.

Our Domestic segment’s comparable store sales gain in the first quarter of fiscal 2009 reflected an increase in the average transaction amount driven by the continued growth in the sales of higher-priced products, including flat-panel televisions and notebook computers. The products having the largest effect on our Domestic segment’s comparable store sales gain in the fiscal first quarter were flat-panel televisions, video gaming hardware and software, notebook computers, mobile phones and GPS navigation products. Strong sales in these product categories were offset by comparable store sales declines in product categories such as tube and projection televisions, digital cameras, CDs and major appliances.



In the first quarter of fiscal 2009, our Domestic segment’s consumer electronics revenue category posted a 0.6% comparable store sales decline. The consumer electronics comparable store sales decline was driven primarily by decreases in the sales of tube and projection televisions, digital cameras and MP3 players, partially offset by increases in flat panel televisions and GPS navigation products. Our home office revenue category posted a 9.3% comparable store sales gain driven primarily by a continued gain in notebook computers and gains in mobile phones due to the roll-out of our Best Buy Mobile store-within-a-store locations. The entertainment software revenue category recorded an 8.2% comparable store sales increase due primarily to a gain in the sales of video gaming hardware and software. The gain was partially offset by expected comparable store sales decreases in CDs and DVDs. Our appliances revenue category recorded a 10.6% decline in comparable store sales driven primarily by a decrease in the sales of major appliances. Our services revenue category recorded a 5.0% comparable store sales gain due primarily to increases in the sales of computer and home theater services and extended service contracts.



Our Domestic segment’s gross profit rate in the first quarter of fiscal 2009 decreased by 0.2% of revenue to 24.4% of revenue. The decrease was due primarily to an increase in our revenue mix of lower-margin products such as notebook computers and video gaming hardware, partially offset by an increase in our revenue mix of higher-margin products within our mobile phones product category. In addition, we experienced an improved gross profit rate in home theater due primarily to lower financing costs.

Our Domestic segment’s SG&A expense rate in the first quarter of fiscal 2009 increased by 0.1% of revenue to 20.7% of revenue. The increase was due primarily to increased investment spending, including the roll-out of the Best Buy Mobile store-within-a-store experience and information technology projects to enhance our point-of-sale systems and multi-channel capabilities. These increases were partially offset by leveraging corporate and retail labor expense on strong revenue growth.



International

Our International segment broke even in the first quarter of fiscal 2009, compared with an operating loss of $4 million for the same period one year ago. The International segment’s increase in operating income resulted primarily from increases in revenue and the gross profit rate in both Canada and China and a decrease in Canada’s SG&A expense rate. These gains were partially offset by SG&A expense rate increases in China as well as SG&A costs associated with the development of our International segment’s support capabilities and new store start-up expenses for Mexico and Turkey.



Our International segment’s revenue in the first quarter of fiscal 2009 increased 26% to $1.5 billion, compared with $1.2 billion for the same period one year ago. Favorable fluctuations in foreign currency exchange rates accounted for slightly more than one-half of the revenue increase; the net addition of 39 new stores accounted for nearly three-tenths of the revenue increase; and the 4.7% comparable store sales gain accounted for the remainder of the revenue increase.

CONF CALL

Jennifer Driscoll

Thank you, Brittany. Good morning, everyone. Thank you for participating in our fiscal first quarter conference call. We have five speakers for you today. First up is Brian Dunn, our President and Chief Operating Officer; second, Chris [Geigle], General Manager of Store Number 22 in Davenport, Iowa; third we have Mike Vitelli, Executive Vice President of Customer Operating Group calling in; fourth, Bob Willett, CEO of International and Chief Information Officer; and we will wrap up with Jim Muehlbauer, Executive Vice President of Finance and our CFO.

As usual, we have a broad management group here with me, including our CEO, available to answer your questions after our formal remarks.

We would like to request that our callers limit themselves to a single question so we can include more people in our Q&A session, and consistent with our approach on prior calls, we will move to the end of the queue those who asked a question on last quarter’s conference call.

We’d like to remind you that our comments made either by me or by others representing Best Buy may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management’s expectations.

May we also remind you that as usual, the media are participating in this call in a listen-only mode.

And with that, let’s turn the call over to Brian Dunn, who will begin our prepared remarks.

Brian J. Dunn

Thanks, Jennifer. Good morning, everyone. We are very pleased to be reporting a great start to our new fiscal year, with a 3.7% comparable store sales gain and $0.43 in diluted earnings per share, I am pleased for our customers, our shareholders, and most importantly our employees. Our employees see the results of their individual efforts every day but it is awesome to see the results of their combined efforts on the main stage like they are today.

On top of the financial results, we continue to see positive strategic results. First, we continue to grow our market share and we are confident that our value proposition is working. We picked up share across the board -- in TVs, gaming, computing, and mobile phones, while delivering sold gross profit rate performance in the quarter.

Second, our customer satisfaction scores hit a record high during the quarter, and finally, we have made record improvements in our employee turnover. In short, these results suggest that we are growing our business in the right ways and that should fuel our continued growth.

With those highlights as the backdrop, I want to give some examples where we see our strategy playing out very well. My first example is our continued success in the computing space. We have the complete product lineup, outstanding employees, and the service brand in the marketplace. Nobody else can match that today, and we believe this market position puts us at main and main of the connected world. Our trend has continued in this fiscal year as we gained another 3.5 points of computing market share in the first quarter. This quarter marked the 22nd consecutive quarter with double-digit comparable store sales gains in notebooks, and it is more than just the products.

Our Geek Squad services grew at twice the rate as the rest of the business in the first quarter. Our in-store Geek Squad attachment rates in computing were up. We think that is incredibly compelling evidence that customers want more than just a transaction and that our commitment to never leaving our customers hanging has massive implications across every part of our business.

I also want to point out that services was at the top of nearly every territory local growth plans that we talked about on the last call. I have no doubt that there is a high correlation between those local plans and these enterprise results.

Improving the extended service experience was also very high on all of those territory growth plans in the U.S. and it also grew faster than the base business in the quarter. Extended service attachment rates on TV over 30-inches were up in the quarter. It was also up in computing. We’ve been investing in the back-end of our service capability and our overall proposition and our blue shirts are confidently offering those solutions to our customers and we are seeing the proof. There is a customer need. We have the skill to serve it and the employees are engaged to make it right for the customer, and it takes all three. These are important clues and they are examples of why we are so optimistic and confident in our core hypothesis of igniting human ingenuity.

Which brings me to my second example, the crossroad of that intersection, mobile phones. We have taken a giant step forward this quarter by announcing our deeper relationship with the Carphone Warehouse. It was the culmination of a ton of work by a lot of people at both companies and I want to thank all of them.

Mobile connectivity is exploding around the world and our two companies have a shared vision about serving human beings in that new world. If the evidence from our initial work in best plan mobile is any indicator, we would predict a very bright future together. Fully 599 U.S. Best Buy locations are now equipped with the Best Buy mobile experience and the results continue to impress. Even with only half the chain converted for the majority of the quarter, our wireless comparable store sales gains was 50% in the quarter. The strong double-digit comp at the converted stores was four times that of the unconverted stores, or as I guess I should call them the soon-to-be-converted stores, as we’ll have the U.S. chain converted in its entirety by the end of the calendar year.

So we are very optimistic about how we are positioned in the macro trends in the industry but that’s only part of the equation, and meaningless without the people who are the strategic differentiator for this company; the people who are the culture of this company and the face and voice of Best Buy to our customers.

With that, I want to introduce Chris [Geigle], store 22 in Davenport, Iowa. As context, Chris has been with Best Buy for 10 years and has been a GM for the last five years. Store 22 is 23 years young and just posted a 15% comp for the first quarter. Last year’s team delivered a 5% comp and a 10% profit growth. He is going to talk about how he is using the assets that we have put in place as a $40 billion enterprise to better understand his customers and his store’s growth on a local level. Chris.

Chris Geigle

Thanks, Brian. Good morning, everyone. As Brian said, I became the general manager of the Davenport, Iowa location just about three years ago, after spending my first two years as a general manager of the Dubuque, Iowa location.

Our story really started about six months ago when Brian and Shari challenged our team and every store in the company to really figure out new ways to grow at a local level. So we began thinking about who shops in our store and what could we do to serve them better, what did they need that we could probably provide them better than anybody else?

In case you haven’t been to Davenport -- and really, most people haven’t -- I’ll give you a little background on our town. Davenport’s your typical Midwestern small city. We’ve got a population of around 100,000 people with a total of about 400,000 people in our trade area. We call it the [Cross] Cities. We are located right on the Mississippi River on the border with Illinois. Agriculture is a big part of our economy and John Deere is on of the largest employers in our area.

Our team did a deep dive into the customer segment shopping in our stores using a tool that we didn’t even have when I first became a GM. We found that the empty nesters, we kind of think of them as baby boomers who are retired or just about to retire, call them Charlie and Helen, were the largest customer demographic in the [Cross] Cities. The problem we saw was that these customers didn’t shop with us and they made up the smaller percentage of our revenue of any customer segment.

Our strategy was simple -- we had to figure out a way to get this huge customer segment into our stores and shopping with us. We tried a couple of things and we failed. Helen and Charlie didn’t want to shop with us; they didn’t even want to come into our stores. We reached out to some of our community partners to see what they thought. One of them had a great idea -- why not go to public library, talk to these customers, and figure out what they need? So we did. What we learned surprised us. Helen and Charlie were intimidated by us. They sometimes didn’t understand the terminology we used. They often didn’t know how technology can make their lives simpler. Most importantly, they didn’t want to be sold to.

That’s when Brett Jones, one of our part-time home theater employees, had a fantastic idea. Let’s go to the library and start training classes at the public library. If we could share our knowledge with Helen and Charlie around technology and what it could do to enhance their lifestyle, maybe they’d feel more comfortable coming to our store.

So Brett developed a plan -- he didn’t have a manual to figure this out. There really was no standard operating procedure. He worked with the library to arrange classes. He developed course materials, and he leveraged other experts on our team. He used his passion around growing our store and he shared it with our customers.

It’s working. Slowly at first, customers started coming to our store asking for Brett. They were more prepared to make their buying decisions. They used the terms he taught them the night before and they wanted the solutions he showed them. They’ve even shared their knowledge with friends and family. We continue to learn so much from this specific customer segment as we get more and more interactive with them due to this program.

I’ve got no doubt that we are better serving our community that we live in. We’ve already had requests for more trainings in the community and recent sessions at the library have been standing room only.

What I am most proud of is we’ve been able to share our story throughout our territory and other stores in the area are learning from us and making it their own and growing their business as well.

Thank you, Brian, Shari, Brad, for inviting me up here to tell our story and the store is absolutely excited. They think this is really cool. They just told me not to mess it up, so hopefully we did good. Back to you, Brian.

Brian J. Dunn

Thanks, Chris, and congratulations to your entire team on outstanding work and rest assured you didn’t mess it up and I am sure your team is very proud, just as we are. Chris is probably too humble to point it out himself, but he has fostered a culture of growth in his store and that is the long-term power of his story -- really awesome.

We’ve covered a lot of ground so I want to wrap up our section and at the risk of trying to describe our company in a couple of sentences, I’ll try. Our strategy includes three inter-connected elements, all of which were woven throughout our examples. First, a zealous focus on unmet customer needs and customer insights, both at the macro level and at the local level; second, building a network of people, companies, partnerships, and capabilities, all aimed at addressing those needs; third, and maybe most important of all, an engaged customer focused and growth oriented culture that aims to connect those first two elements and serve customers.

It’s hard putting all three together but it’s also hard to copy. We also think that it yields exponential growth options. Consider the possible pairings of a unique employee, one of 140,000, with a unique insight with a network of capabilities supporting her. The number of combinations is staggering. That is why we feel so confident. We are getting very sharp about the brand promise we are making to customers. We are playing offense in the market place and we are very excited about the future.

With that, I’ll turn it over to Mike Vitelli. He has a couple of more great illustrations of customer value propositions from this past quarter, and at the risk of embarrassing Mike, I want to tell you a quick story. When we asked Mike to lead the U.S. Operating Groups, he said he would on one condition, and that condition was that he would go and work in a store in a blue shirt for a few weeks before he took on his new role. He did just that and I think it showed us a lot about who Mike is. It also showed us that while Mike can sell a lot of TVs in the macro, he can’t sell a TV face-to-face with a customer if his life depends on it. Mike, you have the floor.

Mike Vitelli

Well, thanks, Brian. Good morning. Brian talks about what customer-centricity means to us, focusing on customers’ unmet needs, utilizing customer insights and employee insights, and doing so both at the macro level and at the local level, so here’s my view.

Generally, local independent retailers in any industry tend to excel at customer care, having committed employees who really know their customers, who their best customers are, and then bending over backwards to meet their needs.

In contrast, larger, national retailers often excel at the benefits of scale, offering broader and deeper assortments of products and services, pricing power, brand awareness, and vendor relationships that give them a window into seeing upcoming trends and cycles.

I believe that the company that can do both, exploit the economies of scale and deliver that hometown customer experience like Chris described earlier through inspired employees, we will indeed be the winning company, and that’s precisely what we are building here at Best Buy every day, one customer and one employee at a time, both in the stores and here at the corporate campus.

I would like to give you some local examples and examples from headquarters of how we are doing that, offering the benefits of scale plus local service to drive growth, so let’s start local. And I’ve been at Best Buy about four years and really never had significant retail experience, so as Brian mentioned, as a prelude to my new assignment, I decided to work for a few weeks in a Best Buy store. My intent was to see first-hand how the work we do here at the corporate campus shows up in the stores and how we are helping or hurting our store employees and their ability to create memorable customer experiences.

So I worked in our Apple Valley, Minnesota, store 245, for general manager Paul [Zindrick]. A few of you met him last month when you visited Minneapolis. Most importantly, I worked a few days in several departments, from helping at the customer service counter with Brittany to unloading trucks and stocking shelves with Scott and Mike, scheduling labor hours with Adam, working the entertainment department with Robin, trying to sell flat panel TVs with Alan and Christine.

And when I reflect back on those weeks, one takeaway is there are certainly many things we can do here at the support center to help the team, and in a single word it would be simplicity -- simplicity in our systems and how they work, simplicity in processes, making them easier to learn and to execute, and simplicity in promotions and programs, so that they are easier to understand for our customers and our employees alike.

Another big takeaway was that if we can make things simpler, then Paul and his team can spend their time and energy doing what they do best -- unleashing an unbridled enthusiasm to thrill their customers all the time every day, and we can absolutely count on them and indeed, all the people in our thousand domestic Best Buy store teams to do the right thing for the customer in the moment every time, and that’s a key part of the growth strategy.

Working in Best Buy's Apple Valley store was really inspirational for me. I now better understand why Brad and Brian and others often go to the stores for ideas and in fact, renewed energy.

But our story is the story of the [and], and our growth coming from both inside [store] at the local level and the macro level, so let’s look at a couple of the macro examples.

The first is around the next generation DVD format war, so old news. Blu-Ray emerged as the victor and while we were very pleased that the format war ended, we were concerned about the HD DVD customers, the conquered, if you will, and that’s where the story starts.

With the help of our marketing department, we looked into our customer database and found out, not surprisingly, that HD DVD early adopters included some of our very best customers. And armed with that information, and knowing that our strategy is about building customer relationships, not creating transactions with customers, the decision became obvious. We chose to offer a $50 gift card to all customers who had purchased an HD DVD player. We had no obligation to do it. Customers who are early adopters often make decisions like this knowing the inherent risks. We could have easily rationalized things -- oh, these players still play standard DVDs and even up-convert them, and it certainly was hard, perhaps impossible, to predict the financial outcome based upon customers’ feeling better about Best Buy.

Ultimately, we felt it was the right thing to do, consistent with our customer-centric strategy, even though we expected a financial hit, and we did it. The story had a happy ending. Our customers actually surprised us by spending 50% more than we normally get when they redeem a gift card, including an average basket significantly higher than norm, and all of that dramatically reducing the cost of offering the gift card. So we interpreted this behavior as the customers’ way of saying hey thanks, Best Buy, for not leaving me hanging and valuing my relationship with you. And we expect that these customers will be more loyal than ever and likely telling others of their experience.

Now afterwards, a well-known competitor offered a gift card on purchases of new Blu-Ray players. It was a somewhat flattering imitation but the idea wasn’t to sell more Blu-Ray players, although that happened too. Our point was to acknowledge the customer relationships we already had and to make them stronger in Apple Valley, in Davenport, and across the chain.

My second example is another customer-centric story where our scale in the macro helps us to compete locally, so when we began planning for the first quarter, we looked at the macro environment, with rising oil costs, falling home prices, and all the other various indicators which we are all too familiar. Now, buried in that bad news were falling interest rates, lowering our financing costs.

We also saw an opportunity to simplify our financing promotions for customers and employees. They’ve been telling us guess what? They both get confused when our financing offers differed by department and change week after week, so we had a hypothesis that consumers are concerned about the economic environment, I believe they feel better in their pocket book when the financing expired 18 or 24 months from now. At the very least, we are guaranteed to have a new President by then.

So we developed a store-wide promotion offering 0% financing on all purchases over $999 across the store, and we think this offer resonated with our consumers and made Best Buy an attractive place to shop, even for consumers using the government stimulus check to pay off existing high interest debt, but still wanted the flexibility to purchase items with no interest financing.

We believe what resulted were higher sales, market share gains, and some consumers literally adding items to their shopping cart so they could hit the $999 minimum purchase. So like the gift card story, the financing story reflects customer insights based on customer data, a culture of testing and trying new things, and a habit of looking at things differently than anybody else.

Now as a non-practicing CPA, my colleagues joke that I’m one of those people that [speak in spreadsheets], and they’re right. So I could understand if some of our listeners are saying okay, you just got lucky or how could you prove you wouldn’t have had the same sales without these promotions, or what’s so different about those ideas? And even more skeptically, won’t all this dry up after your second quarter when there’s fewer checks in the market?

I understand. But what I’m attempting to describe is simply how retailing is done here and not at most other companies, and this is coming from a very pragmatic East Coast guy. I understand you don’t have to have all the advantages that I’ve had of being at the territory meetings and seeing first-hand how differently we are running the company, nor are you likely to spend a month working at a Best Buy store. And Brian, I did sell a TV or two, though I am glad my life and my continued employment at Best Buy didn’t depend on it.

And that sure the mass merchants are [aiming] at some of our product categories and adding SKUs, but as I said before the mass merchants have always had a decent share in selling things like inexpensive televisions. And with no analog tube TVs left, they are going to sell LCD digital TVs.

But the higher end of the CE industry is not an easy space, and while flat panel TVs, notebook PCs, and mobile phones are becoming ubiquitous, we like our odds, as we see what we can offer our customers versus anybody else in the industry.

Ours is a space fraught with complexity, focused on higher price points and complete solutions. The customer experience is only truly enhanced through the growth of services, which is an even harder business than retail.

So that’s what we plan to continue to do. Our plan is to exploit our economies of scale and deliver a hometown customer experience through inspired employees. We think this approach will benefit customers, employees, and shareholders alike.

With that, I would like to turn the call over to Bob Willett, CEO of Best Buy International. Bob.

Robert A. Willett

Thanks, Mike. Good morning, everyone. I am here today to share with you an overview of our international results by country from the first quarter, plus what we see ahead for the balance of the year.

We talked last quarter about how we believe no other retailer in the world is attempting to accomplish customer-centricity the Best Buy way. We also said this strategy, coupled with our faith in our employees, quality of execution are the reasons we believe we can expand internationally carefully and less risk.

So let me give you an update on how we are performing in this increasingly large segment of our business. Like the domestic segment, we are very much focused on customer insights and analytics using our [Dunholm] relationship, combined with an energized employee population to build customer relationships. We are also learning from our operations in the U.S. and Canada, applying those insights in the other countries where we operate.

Overall, we are comfortable with our progress. However, we need to keep our operating model simply and continue to raise the quality of our execution so it’s steady as she goes.

Our international business unit delivered top line growth of 26%, driven by foreign currency fluctuations, new store openings, and solid comparable store sales gains. International results continued to lead the chain in comparable store sales, finishing the quarter with a comp of 4.7%. Consumers are responding well to our offers, including the choice of two unique brands in both Canada and China. Canada with 184 stores had a comparable store sales gain of 4.3%, including improvement at both FutureShop and Best Buy stores there. Canada’s solid results came on top of 12.8% comp in the prior year’s period, thanks to a steadily improving average selling price and solid in-store execution.

China had a comparable store sales gain of 6.3%, which is somewhat amazing given the strong revenue growth last year, as well as the unusual snow this year, which shut down traffic in large parts of the country. Since then, as you know, the region suffered a massive earthquake and our thoughts are with those who suffered the loss of loved ones. We salute the China team’s response to the tragedy and thank them for giving to the relief efforts and for collecting customer contributions at the checkouts as well.

Our Five Star stores comprised the majority of China’s revenue for Best Buy, although our Best Buy store there now is included in the comp as well, adding to this quarter’s performance.

We made solid gains on the gross profit line as well, reporting an improvement of 40 basis points for the international segment. The improvement was driven by Canada, where solid lifecycle management drove a reduction in markdowns and more private label products offset the impact of more low margin gaming in the revenue mix. Our stores in China also had a modest improvement in the gross profit rate due to the lower product costs.

Our SG&A rate increased on a plan basis by 10 points for the international segment. If you look at the sub-components, however, you will see that we actually had material improvement in Canada due to the continued cost controls and optimization work. Profit growth in Canada and Five Star continues to fund investments for future growth in China, Turkey, Mexico, and Europe.

On a related note, our first store in Mexico currently is expected to open in the fourth quarter of the current fiscal year. I feel terrific about the talent of our local team in Mexico, their confidence in our value proposition and the quality of our real estate pipeline. We are also excited about a new thrust in the credit arena for these consumers -- a credit offer which brings more choice and attractive terms.

In China, our Best Buy store continues to learn and apply customer insights with the goal of reinventing the way Chinese consumers shop. Opening stores in China requires us to gain government approval, a process that we are learning to manage better. As we learn, we are adjusting our expectations for new store openings, as noted in our press release.

Turning to Turkey, this very exciting and vibrant market will see us open our first store in Istanbul next spring in our fiscal 2010. We are also reviewing our approach, utilizing the capabilities already present in our partners, CPW.

Altogether, our international results showed a sizable increase in revenue and a $4 million improvement in operating income. As we continue to expand our capabilities, the 30 basis point improvement in the international operating profit rate largely reflected our work to both grow and optimize Canada’s performance. In fact, Canada delivered its 10th straight quarter of strong performance, more than doubling its profit versus the prior year’s quarter, while massively improving its operating profit rate. This improvement more than offset the impact of higher investments to help us scale more quickly in new countries.

In many ways, fiscal 2009 is a transformational year which will see us accelerate the build-up of our capabilities and growth engines while continuing to deliver shareholder expectations.

So how do we plan to grow profits in Canada and China, which arguably will face a choppy macro environment? We plan to mitigate those factors through a combination of offensive strategies, such as the launch of Dell in Canada and an Apple Store-within-store in China. We are also aggressively managing our expenses, including indirect marketing costs, work more closely with our Chinese vendors in global sourcing or private label, and increase our global sourcing across all geographies.

We will be a little busy yet we have a strong foundation, including experience selling our private label goods to other retailers, [Kasidanki] in Japan and CPW in Europe. And we are expecting our first order from the Future Group in India shortly.

We are plowing these earnings gains from Canada and China back into the business, accelerating our investments in information technology, supply chain infrastructure, and customer research, as we build capacity to consolidate and efficiently operate in these countries we’ve entered. In the short-term, these investments will more than offset the profit growth we are planning to drive, resulting in our expectations of an overall profit decline for the international segment, as already described.

We will be in a great position, however, when the environment changes, as surely it will, and when the up-tick comes we will be in great shape to help consumers enter the connected world.

Next I’d like to update you on our relationship with Carphone Warehouse, Europe’s largest independent retailer of mobile phones. CPW will have a tremendous impact on our international business. As you know, based on the results of our relationship in the U.S. and further opportunities we see, on May the 8th we announced that we’d agreed to form a new venture. The new venture is expected to accelerate both companies’ growth by capitalizing on the European consumers’ evolving appetite for consumer electronics and the connected world. This new venture includes Carphone Warehouse’s 2,400 stores and websites in nine countries, and their share of our existing relationships, including the Best Buy Mobile experience in the States and Geek Squad in the U.K. and now Spain.

Through this new venture, we expect to essentially double our international footprint and enlarge our operating profit contribution, while adding a high quality management team, new avenues of growth and more capabilities to serve customers’ evolving needs.

We are already building on our successful U.S. relationship. For example, Best Buy and CPW recently made the decision to bring Best Buy Mobile brand to Canada, China, Mexico, and Turkey in order to offer this unique wireless phone experience for consumers in those countries, utilizing the expertise of Charles Dunstone, who is the CEO of CPW.

Together with CPW, our employees have demonstrated that we can create good value for both our customers and our shareholders. We believe that passion for the customer experience and customer-centricity has global applications. Charles is an innovative entrepreneur who helped to build a market leading position in independent mobile phone retailing in the United Kingdom and a strong position in many other European countries. He will play a key role as we expand Best Buy Mobile internationally.

We will start in Canada with the launch of a standalone Best Buy Mobile store later this calendar year. We anticipate that new Best Buy Mobile stores will be located in shopping malls and offer mobile phones, voice, and data plans, mobile accessories, and related items.

The first stores are planned for construction in the greater Toronto area and are slated to open before the 2008 holiday shopping season. Expansion plans also include upgrading the mobile sections of select Best Buy stores across Canada for the Best Buy Mobile store-within-store experience.

Some time in September we plan to share with you more information on our specific expectations from our various initiatives and for our new venture. At that time, we also hope to share with you our plans for greenfielding new stores carefully in the United Kingdom and Europe. So far, we’ve been very pleased with the availability of good locations for potential stores.

At this point, I would like to thank all of our international employees for some great results on our journey. Thank you for your attention. Now I’d like to hand over to my friend and colleague, Jim. Over to you, Jim.

James L. Muehlbauer

Thanks, Bob and good morning, everyone. As Brian mentioned up-front, we are very pleased with both our strategic indicators and our financial results in the first quarter, particularly considering the continued uncertainty of the underlying economic environment. Our $0.43 of diluted EPS was better than we expected and we continue to grow our market share. The results in the quarter continued to support our confidence that our core strategy is working.

I want to walk you through the highlights of our performance in the quarter, update you on our investment spending and capital structure, and briefly review our thinking on guidance for fiscal 2009.

Our top line grew 13% as we continued to grow our market share in key categories like TV, gaming, notebooks, and mobile phones. Overall, we added more than a point-and-a-half to our already industry leading market share position in the quarter. Our 3.7% comparable store sales gain was modestly above our expectations, as both gaming and flat panel TVs were above plan.

The domestic segments comparable store sales gain of 3.5% was certainly above the trends exiting the fourth quarter, and included continued mix into higher ASP products, plus an online comp of over 30%.

Canada’s 4.3% comp was on plan and impressive, considering its near 13% comparable store sales gain in the prior year. Similarly, China posted a 6.3% comp, which included our sole Best Buy store in China for the first time.

Total international revenue grew 26%, or roughly 13% excluding the impact of foreign currency. We had a solid performance around the globe across our largest brands.

Candidly, there were a lot of factors in play in the first quarter in the U.S., including the team’s ability to add to their own growth with local insights and solutions, which they did. We believe that we are making sustainable progress in our growth story -- not just that we are growing, but how we are growing. We are certainly not declaring victory but we are very encouraged that we are strengthening new growth muscles, ones that we can expect to get stronger as we keep challenging ourselves to adapt and change faster and faster, both at the macro and at the local levels.

We are also encouraged by the underlying strength of our consumer relationship, as evidenced by our market share gains, customer satisfaction scores, and record reward zone membership. We added 3 million members to our -- 3 million customers to our loyalty program this quarter and now we have more than 29 million customers earnings rewards from Best Buy. The way we look at it, we’re capitalizing on an immediate opportunity to distance ourselves further from the competition, which we believe will pay dividends both today and well into the future.

Clearly there were also other factors at work in the quarter which favorably impacted our performance -- factors such as stimulus checks, strong value propositions including financing offers, which levers our customer insights and partner relationships, and improved gaming product availability. It is difficult to dissect and quantify the individual impact of each of these factors which they had on the quarter but we believe that they worked in conjunction with our local execution to drive our results.

From a gross margin perspective, the 15 basis point decline was a little below what we planned but within our expected range for the quarter. Gaming and computer sales continue to grow in the mix, and so those categories presented the same headwind as they did in the fourth quarter of approximately 40 basis points. But that’s a problem we welcome.

As expected, mobile phones grew in the mix, which helped offset some of that headwind. Additionally, we improved our home theater margins in the first quarter. As you’ll recall, the rate was hurt last year as a function of the record number of product transitions. As you saw, we successfully positioned a great customer value proposition that included financing based on our customer insights, and given our partner relationships, we were able to meet a customer need, significantly grow our share, and slightly improve our home theater margins in the quarter.

Our SG&A dollar spending was in line with our expectations for the quarter and the 10 basis points of deleverage was actually better than we expected, due to the solid top line performance.

As you’ll recall, our guidance for the year assumed an SG&A rate increase of 30 to 40 basis points. As we discussed on our last call, we plan to purposefully invest in our growth runways, and that’s exactly what we are doing. We rolled out 418 Best Buy mobile locations in the quarter and we plan to have the entire chain converted by the end of the calendar year.

We are also continuing to invest in our POS systems, our customer management capabilities, and our multi-channel experience for customers. Multi-channel customers shop us more frequently and spend more.

Our continued strength in online revenue, 30% this quarter, is evidence of this customer demand. Internationally, we continue to invest in the underlying infrastructure for a long runway of growth, such as an ERP system and building customer analytic capabilities. We are also spending in preparation for additional store openings in China, as well as our debuts in Mexico and Turkey.

Our strong revenue growth around the globe is encouraging, but we are in the very early stages of that journey and we are investing in the long-term infrastructure to support that growth.

All in all, our operating income rate was slightly better than we expected and we are pleased with the momentum we started to build in the first quarter, especially in the difficult environment.

Next, I want to give you a status update on our use of capital to drive growth and shareholder returns. Fiscal year-to-date, we have opened up 35 net new stores globally, including 26 Best Buy stores in the U.S. Our number one priority continues to be prudently investing in high return parts of the business for our shareholders.

The big new item announced in the quarter was, of course, our intended roughly $2 billion investment for 50% of Carphone Warehouse’s retail business in Europe. We currently expect to complete that transaction around June 30, 2008. As mentioned previously, we no longer expect to repurchase any of our shares this year in order to fund this investment in Car Phone. Everything else held equal, continuing to invest in growth and paying down some of the incremental debt used to fund the Car Phone transaction are higher priorities for us than turning the share repurchases back on in the near-term. That said, we do generate more than $2 billion of operating cash flow a year, so we feel that we have not over-extended the balance sheet, meaning future growth investments or share repurchases certainly haven’t left our vocabulary forever.

As I said, we still expect to close the CPW transaction in our fiscal second quarter. In fact, we are in the very final stage now. Additionally, we now plan to initially report this venture on a two-month lag basis, the same way we do for our business in China. This is slightly different than what we had planned earlier. As a result, we now expect the net impact of the CPW transaction and lower share repurchases will be modestly below the range of $0.05 to $0.07 of accretion that we provided earlier.

To be clear, our operating expectations for the venture have not changed -- just the timing of when they will show up in our reported results.

I expect to update our annual guidance element on our second quarter call after we have closed the transaction. This update will provide an integrated outlook, including our second half expectations for our existing business, as well as the performance expectations for the new venture, which will be included in our international segments results.

That brings me to my final point before we open it up for Q&A; our current earnings outlook for the year. We are off to a solid start for the year and we are on track to deliver the $3.25 to $3.40 of EPS this fiscal year. We are a few pennies ahead of where we thought we would be after the first quarter and all of our strategic indicators are still green. That said, we recognize that it is very early in the year and the environment will continue to be difficult for consumers. We believe it is prudent to drive our strategy and continue to monitor macro consumer spending trends as the year continues to develop.

To conclude, we are off to a good start for the year and we are excited about the traction our local growth plans are building for the entire organization. We know it will continue to be a choppy environment for our customers, but we are confident in the growth drivers for our future that are within our control. We will continue to invest where we see customer opportunities and where our employees can drive growth.

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