SHOULD YOU BELIEVE THE VAMPIRE SQUID?

I find it fascinating the mainstream corporate media and Wall Street shysters spend SO MUCH time talking down gold and spending an inordinate amount of electronic ink trying to convince the masses that only nutjobs would buy it. I believe less than 2% of people have gold in their investment portfolio, so why the endless articles bashing it?

Newsletter hawkers like Martin Armstrong take every opportunity to shit on gold as an investment. I wonder if he was shitting on it from 2001 through 2011? We don’t know, because he was in prison for investment fraud during most of that time. Fatass Barry Ritholtz is in the same boat. He’s nothing but a failed lawyer pretending to be an investment guru. He’s gleeful when gold falls. It’s because he completely missed a 10 year bull market.

The suppression of gold prices through the paper market since 2011 by the Fed and their Wall Street bank co-conspirators has thus far been successful, but it is fraying at the edges as China continues to accumulate physical gold and pushing the ponzi scheme towards its inevitable conclusion. Soaring gold prices tells the masses central bankers are a fraud, that’s why they are desperate to keep the price capped.

With zero and negative interest rates throughout the world, gold should be skyrocketing. It is showing signs of calling the central banker bluff. Jesse’s comments below should be heeded. The stock market dead cat bounce and the holiday manipulation of gold down $30 will fail. If there is a lesson from the Big Short, do the opposite of what Goldman says to do.


Chart of the Day

Gold Daily and Silver Weekly Charts – Goldman Says Have No Fear and Buy Our Paper

 

Goldman analyst Jeffrey Currie came out this morning with a ‘sell gold’ recommendation for Ma and Pa Muppet.

I was fortunate enough to hear his explanation for this in his own words on Bloomberg TV, which had touted his gold call about every fifteen minutes all day.

The net summary of Mr. Currie’s forecast is that Goldman’s economists think that there ought to be no fear in the financial paper markets, since there is an historically low chance of a recession, less than fifteen percent, and he sees no real possibility of negative interest rates.

Continue reading “SHOULD YOU BELIEVE THE VAMPIRE SQUID?”

DERANGED CENTRAL BANKERS BLOWING UP THE WORLD

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

Continue reading “DERANGED CENTRAL BANKERS BLOWING UP THE WORLD”

GO LOW

GoPro was another one of those over-hyped high flying stocks pushed on the muppets by the Wall Street IPO machine in July, 2014. It went public at $24 per share and proceeded to jump 103% in the first four trading days. It peaked at $87 per share by October, up 362% in three months. This morning it is selling for $16.80 per share as the muppets have been slaughtered again. No worries. The Wall Street killing machine reaped millions in fees and profits, before dumping it on the ignorant masses.

Actual picture of a GoPro investor after the 80% plunge in price.


IGNORE THE MEDIA BULLSH*T – RETAIL IMPLOSION PROVES WE ARE IN RECESSION

Here we go again. The dying legacy media will continue to support the status quo, who provide their dwindling advertising revenue, by papering over the truth with platitudes, lies, and misinformation. I have been detailing the long slow death of retail in America for the last few years. The data and facts are unequivocal. Therefore, the establishment and their media mouthpieces need to suppress the truth.

They spin every terrible report in the most positive way possible. They blame lousy retail results on the weather. They blame them on calendar effects. They blame them on gasoline sales plunging. That one is funny, because we heard for months that retail spending would surge because people had more money in their pockets from the huge decline in gasoline prices.

September retail sales were grudgingly reported by the Census Bureau this morning and they were absolutely dreadful. This followed an atrocious August report. The MSM couldn’t blame it on snow, cold, flooding, drought, or even swarms of locusts. So they just buried the story in their small print headlines. The propaganda media machine had nothing. They continue to spew the drivel about a 5.1% unemployment rate as a reflection of a booming jobs market. If we really have a booming jobs market, we would have a booming retail sector. The stagnant retail market reveals the jobs data to be fraudulent. The 94 million people supposedly not in the job market can’t buy shit with their good looks.

Continue reading “IGNORE THE MEDIA BULLSH*T – RETAIL IMPLOSION PROVES WE ARE IN RECESSION”

Femi-Nazis protest Kermit the Frog’s new squeeze

Via Lonely Libertarian

I shit you not. They’re upset that Kermit, a piece of cloth with a dude’s hand up his upholstered ass (get a prostate exam!!!!) dumped his piece of cloth girlfriend for another piece of cloth girlfriend.
Leaving his long-term not-really-a-person love Miss Piggy for a younger, skinnier, hotter not-really-a-person pig. Granted, the new hottie IS a Ginger, and no man can resist a redhead. But c’mon, this isn’t really something to get bent out of shape (see what I did there?) over.
They are muppets. Muppets can’t be misogynists because they are motherfucking muppets. They aren’t real. Kermit isn’t really a dude, Miss Piggy isn’t really a dumped dame. Denise, while a smokin’ hot redhead, isn’t the femme fatale. There is no War Against Women in Muppetland.


MEN GO MAD IN HERDS

The Chinese real estate bubble has been imploding for the last year. The Chinese economy is barely growing at 1.6% after decades of 10% growth. There are millions of unoccupied condos. There are dozens of ghost cities and empty office towers. It’s the most corrupt nation on earth. We are in the midst of a global recession.It’s pure madness that the Chinese stock market would soar when its leading economic indicators crash to 2008 lows.

Its stock market has gone up 115% in the last 9 months. It has gone up 80% in the last 5 months. It has gone up 35% in the last month. Housewives and other uneducated gamblers have opened a record 10.8 million new stock accounts this year, more than the total number for all of 2012 and 2013 combined.

The Hong Kong stock market has gone up 14% in three weeks.

Since real estate investing is failing miserably, the Chinese middle class have piled into stocks on margin. Where have I seen that before? Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan on Thursday. When has buying overvalued stocks on margin when the economy is tanking ever gone wrong before? Have we already forgotten 2000 and 2008? Humans truly act like irrational herds of cattle stampeding in whatever direction they are pushed by their keepers.

Continue reading “MEN GO MAD IN HERDS”

MUPPET BURGER

The Wall Street shysters really know how to slaughter muppets. They hyped the shit out of the IPO of a freaking burger joint for weeks. Shake Shack is a 63 restaurant chain with $85 million in sales and $3.5 million of profits, down 21% from 2013. This cutting edge company has this unheard of concept of selling burgers, hot dogs, shakes and fries to the obese ignorant masses. WOW!!! Sounds like a can’t miss.

The IPO price, for insiders, Wall Street executives, Washington politicians, and anyone with net worth over $1 billion was $21.

For the muppets, the stock opened at $47 per share and immediately surged to $52.50 within seconds. The muppets were piling into this sure thing. Then the Wall Street shysters pushed the sell button to lock in their easy profits.

Continue reading “MUPPET BURGER”

PIN MEET HOUSING BUBBLE 2.0

Housing bubble 2.0 just met Pin 2.0

The 30 Year U.S. Treasury bond yield hit 2.35% yesterday. That is the lowest rate in U.S. history for the 30 Year Treasury. During the deepest darkest depths of the recession in March 2009, after the stock market had fallen over 50%, the yield was 3.5%. One year ago it was yielding 4.0%. Long term interest rates are not controlled by Yellen. They reflect the economic prospects of the country. When they are rising it means the economy is doing well. When they are plummeting to all time lows, the economy is either in recession or headed into recession. Take your pick. No amount of government data manipulation, feel good propaganda spewed by the captured mainstream media, or Ivy League educated Wall Street economist doublespeak, can change the fact this economy is in the dumper and headed much lower. The Greater Depression is resuming its downward march toward inevitable war.

ust30low

  • KBH SEES 1Q BOTTOM LINE ABOUT BREAK-EVEN (against expectations of a 17c rise!)
  • KB HOME CFO SAYS FIRST-QUARTER MARGINS EXPECTED TO BE DOWN
  • KB HOME PULLED OUT OF `COUPLE’ HOUSTON LAND DEALS, CEO SAYS
  • LENNAR CFO SAYS MARGINS ARE POISED TO NARROW ON LESS PRICING POWER
  • LENNAR GROSS MARGIN DECLINED & SALES INCENTIVES GREW
  • LENNAR CEO SAYS “ACROSS THE BOARD, WE’RE SEEING INTENSIFIED COMPETITION AS BUILDERS GO OUT AND CHASE VOLUME”

KB Home had revenues of $2.4 billion in 2014. They are one of the largest home builders in the country. It’s stock has dropped 30% in the last few days. It’s down 40% from its February 2014 high. It’s down 85% from its 2005 high. It had $9 billion of revenues and delivered 60,000 homes in 2005. Then Pin 1.0 popped the first bubble. Revenues collapsed to $1.3 billion and they lost hundreds of millions from 2007 through 2012.

Lennar had revenues of $7.0 billion in 2014. They are the largest home builder in the country. It’s stock has dropped 9% this week. It had been trading at a seven year high, but is still trading 33% below its 2005 bubble high. It had $14 billion of revenues and delivered 42,000 homes in 2005. Then Pin 1.0 popped their bubble. Revenues imploded to $3 billion and they also lost hundreds of millions from 2007 through 2012.

Their admissions earlier this week are proof Bubble 2.0 has met Pin 2.0. KB Home’s 85% increase in revenue and Lennar’s 130% increase in revenue since 2011 have been nothing but a Federal Reserve/Wall Street/U.S. Treasury engineered scheme to repair the balance sheets of the insolvent Too Big To Trust Wall Street banks. The financial industry oligarchs and their servile lackey puppet politicians decided an easy money, Wall Street created scheme to boost home prices would benefit the .1% and restore some of their fraudulently acquired wealth. It isn’t a coincidence home prices rose in parallel with the Fed’s QE programs. And it isn’t a coincidence the bubble is rapidly deflating now that QE3 is over.

The fraudulent nature of the supposed housing recovery can be deciphered by analyzing a few pertinent data points. 30 year mortgage rates were in the 5% to 6% range during the first bubble. Mortgage rates have been consistently below 4% for the last three years. In a healthy market driven economy, these low rates should have brought in first time home buyers and led to a sustainable long-term recovery.

Instead, the number of homes bought by first time buyers has languished at record low levels. The majority of homes sold in 2011 and 2012 were distressed foreclosures and short sales, and the vast majority of sales in the last two years have been to Federal Reserve financed Wall Street investors, Chinese billionaires and fast buck flippers. New home sales of just above 400,000 five years into an economic recovery are at previous recession lows, despite record low mortgage rates. They languish 65% below 2005 levels, when KB Home and Lennar were minting money. Existing home sales of 5 million are back at 1999 levels and 30% below the 2005 highs. This pitiful result is after $3.5 trillion of QE, extremely low mortgage rates, and tremendous hype from the NAR and the corporate MSM (It’s always the best time to buy).

The falsity of the housing recovery storyline can be seen in the fact that mortgage applications linger at 1995 levels, even though mortgage rates are 400 basis points lower than they were in 1995. A critical thinking individual might ask how home prices could rise by 20% since 2012 even though mortgage purchase applications are 20% lower than they were in 2012 and 65% below 2005 levels. The answer is they couldn’t have risen by 20% without massive monetary manipulation and insider deals between Wall Street banks, Wall Street hedge funds, FNMA, Freddie Mac, The Fed, and the U.S. Treasury.

gt10mbap

You see, average Americans buy houses not as an investment, but as a place to live. They save enough for a down payment by spending less than they earn, and then make monthly payments for 30 years from their rising household income. Of course, that was the old days. Real median household income is exactly where it was in 1995. It is currently below the level of 1989. Average Americans have made no headway in 20 years. The median price of a home in 1995, according to the Census Bureau, was $128,000. The median price of a home today is $281,000. When prices go up 120% and your real income remains stagnant, even record low mortgage rates is just pushing on a string. With real wages continuing to fall, young people saddled with a trillion dollars of student loan debt, the full impact of the Obamacare neutron bomb (kills small business, doctors and jobs, but not insurance conglomerates or government bureaucracy) just detonating, and an economy clearly going into the tank, there is absolutely no possibility of a real housing recovery in the foreseeable future.

nnnnffffff

The Too Big To Trust banks have consistently accounted for 35% to 55% of all mortgage originations in the U.S. over the last four years. Wells Fargo is the undisputed leader. All of these banks have reported dreadful financial results this week, with plunging revenues and profits, even with accounting shenanigans like relieving loan loss reserves and marking their balance sheets to fantasy rather than true market values. In the midst of a supposed housing recovery, with mortgage rates at historic lows, the largest mortgage originator in the world, saw their mortgage originations FALL by 12% over last year. They are down 65% from two years ago. JP Morgan and Citigroup also saw their mortgage businesses contracting. These banks have been firing thousands of people in their mortgage divisions. This is surely a sign of a healthy growing housing market. Right?

Essentially, the entire housing recovery storyline has revolved around the Federal Reserve providing free money to Wall Street banks, who then withheld foreclosures from the market, sold them in bulk at inflated prices to Wall Street hedge funds like Blackstone, who then created a nationwide rental business, driving prices higher. FNMA and Freddie Mac did their part by selling their bulk foreclosures to the same connected hedge funds. The average person had no opportunity to bid on foreclosed homes and reap the benefits of lower prices. Blackstone has since created a new derivative, by packaging their rental income streams into an “investment” to sell to muppets. Their rental properties are concentrated in the previous bubble markets of Arizona, California, Florida, and Nevada. What a beautiful business concept. Free money from their Federal Reserve sugar daddy, kicking people out of their homes and then renting their houses back to them, driving prices higher by restricting supply and stopping new household formations, double dipping by creating a new exotic subprime investment opportunity, and then exiting stage left before it all blows sky high again.

Continue reading “PIN MEET HOUSING BUBBLE 2.0”

CAN CNBC SINK ANY LOWER?

We all know how it will end.

But the game will continue until ends abruptly and without warning.

 

They Are BTFATH, Are You?

Tyler Durden's picture

Because when Elmo sees the economic fundamentals taking the Dow to at least 36,000, how can you possibly stay out of the market?

FILTHY STINKING LIARS

Oil company executives and Wall Street shysters were made for each other. The shale oil boom is built upon lies, misleading projections, false data, and bad math. The CEOs of shale drillers have only one purpose – to get rich. The easiest way to get rich is to lie about the potential, pump your stock price up, pay yourself with stock options, and sell the overinflated stock before the truth is revealed.

To count as proved reserves to the SEC, companies must have “reasonable certainty” that the oil and gas will be extracted from existing wells and those scheduled to be drilled within five years. The forecasts are based on fuel prices, geology, engineering and the performance of nearby wells. Planned wells must be economically and technically viable.

The amount of reserves they put into official SEC documents is 80% less than the figures they tell stock investors. I wonder why? Do you think they would be more likely to lie to the SEC or to muppet investors? The energy independence morons never address the “economically & technically viable” aspects of extracting shale oil. If it costs you more to extract the oil than you get by selling it, you won’t extract it.

We are nearing the point where extracting shale oil is no longer profitable enough for drillers to drill. Due to the worldwide recession which is spreading across the globe, oil prices have plunged from $100 per barrel to $85 per barrel. If prices drop below $80 per barrel, the shale oil miracle will become a shale oil bust. But liars gotta lie. It’s the American way.

ARE THE MUPPETS ABOUT TO BE SLAUGHTERED AGAIN?

Do you get the feeling the Wall Street oligarchs are positioning themselves to pull the rug out from beneath this rigged market? I’ve noticed that Marketwatch, owned by the ultimate oligarch – Rupert Murdoch, has been running dire headlines for the last week. Today’s huge headline appears to be designed to scare the muppets:

Warning: That plunge in stocks is just the beginning

 
They are usually cheerleaders, pumping up the market with their propaganda. Everyone knows the market is rigged. We also know their plan has succeeded beyond their wildest dreams. They have used the free money from the Fed and their HFT supercomputers to pump the market to all-time highs without mom and pop investors (referred to as muppets by the Wall Street bankers) being involved. But, as usual, the retail investor has dumped $100 billion into the market in the last few months as every valuation measure is flashing red. They don’t want to miss a chance to sail on the Titanic before its voyage into history.
  • Individual investors are plowing money back into the U.S. stock market just as professional strategists say gains for this year are over. About $100 billion has been added to equity mutual funds and exchange-traded funds in the past year, 10 times more than the previous 12 months, according to data compiled by Bloomberg and the Investment Company Institute.
  • Professional investors, such as Nick Skiming of Ashburton Ltd., say that individuals investors are attracted to stocks after seeing others getting rich from a big rally, a time when equities are usually overpriced. The bursting of the technology bubble in March 2000 was marked by mutual funds absorbing a record $102 billion in the first quarter.

Guess who has been selling their stock to the muppets? You guessed right. The Wall Street scumbags have lured the muppets into the market for the next slaughter. I believe the Wall Street oligarchs are now positioned short and are attempting to ignite a conflagration on par with 2008. It’s not like these criminals haven’t done this before. They were selling derivatives to their muppet clients in 2008, while simultaneously shorting those derivatives.

The Wall Street bankers see their heroine dealers at the Fed cutting off the flow of heroine (QE) and they will not stand for it. They will create a new financial crisis and then use their corporate MSM to scream for a banker bailout to save the country again. The captured politicians will rally around the Wall Street flag and do whatever it takes with your money to save the country. They’ll do it for the children. Democrats and Republicans will finally come together and cooperate to screw you again.

Mom and pop muppets will be slaughtered again, but Wall Street will dole out record bonuses next year. This story never grows old.

 

WALL STREET HAS ALWAYS BEEN CORRUPT OR ABOUT TO BE CORRUPTED

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” Upton Sinclair – I, Candidate for Governor: And How I Got Licked

“The U.S. financial markets had always been either corrupt or about to be corrupted.” Michael Lewis, Flash Boys

I finished reading Michael Lewis’ Flash Boys take-down of Wall Street banks, hedge funds, government regulators and high frequency traders last week when I had spare time created by a weeklong denial of service attack on my website. It appears to me technology is being utilized more frequently as a mechanism for malevolence rather than a mechanism for good. The smartest guys in the room are figuring out ways to steal you blind in the financial markets, pilfer your personal information, spy on your electronic communications, and censor your right to free speech by taking away your ability to communicate freely on the internet. After reading Lewis’ maddening tome and experiencing the frustration of an attack that reached 50 million hits per day on my website, I’m reminded of two quotes from the brilliant dystopian visionary Aldous Huxley.

“Technological progress has merely provided us with more efficient means for going backwards.” ― Aldous Huxley – Ends and Means

“You shall know the truth and the truth shall make you mad.” Aldous Huxley

Technology has been pushed on the masses like a drug by the mega-corporation and mega-media dealers. Just walk down any city street and observe the technologically entranced zombies shuffling along the sidewalks staring blankly at a tiny screen, tapping away on an itsy bitsy keypad as if whatever they are conveying is of vital importance to the future of mankind. # Give me a break. God forbid if we had to go out in public without our iGadget attached to an appendage. We might actually have to use our brain to think. We might be able to look someone in the eye and smile. We might be able to say hello to a stranger. We might have to act like a human being.

Being connected electronically 24 hours per day is not progress. The technology being peddled to the masses by mega-corporations is designed to keep people amused, apathetic, distracted and uninterested in thinking critically. Our society has devolved into a technologically narcissistic, ego driven, submissive, trivial culture, asphyxiating in a sea of irrelevance and driven by greed and need to fulfill our every desire, rather than a technologically proficient, selfless, humble, critical thinking, civil minded society of self-reliant human beings who take responsibility for their own lives and refuse to saddle future generations with the financial consequences of living beyond their means. Our willful ignorance, misuse of technology, and inability to control our impulses and desires will be the ruin of our perverted civilization.

If the masses were capable of critical thinking and questioned the existing paradigm, they would conclude a small cadre of evil men has colluded to hijack the financial, political, and social systems in order to syphon off the nation’s wealth, while controlling the serfs through propaganda and luring them into debt servitude. Those who haven’t been brainwashed by media propaganda or amused to death by technology, are kept in check by thousands of laws, statutes, and regulations, enforced by millions of government bureaucrats and police state thugs. Technology is used by the state as a means of control, surveillance, censorship, and bilking the populace of their wealth. And if you don’t like it, the IRS, DHS, FBI, CIA, BLM, HHS, or some other three letter government agency will harass, arrest, fine, or kill you for not “cooperating”. And while the government is keeping you under their thumb, Wall Street shysters are stealing you blind.

The Truth Shall Make You Mad

“As soon as you realize that you are not able to execute your orders because someone else is able to identify what you are trying to do and race ahead of you to the other exchanges, it’s over. It really just pissed me off that people set out this way to make money from everyone else’s retirement account. I knew who was being screwed, people like my mom and pop, and I became hell-bent on figuring out who was doing the screwing.” – John Schwall – Flash Boys

As I continued reading Flash Boys I got progressively madder as more truth was revealed about the inner workings of Wall Street, the wasting of human intelligence on technological schemes to defraud the public, and the utter level of corruptness in the government agencies supposed to protect the public from the vultures in the financial industry feasting on the carcasses of dupes who still believe the “stocks for the long run” drivel regurgitated incessantly by the bimbos and slime balls on CNBC. The concepts of right and wrong, moral and immoral, honesty and dishonesty, and truth and lies are all purposefully blurred in shades of grey by those in power, in a blatant attempt to maintain and expand their vast wealth, immense power and complete governing control.

Michael Lewis focuses on our warped, rigged financial system, but his insights apply across the board to our entire society. Our economic, financial, political, regulatory, and judicial systems are all rigged. This serves the interests of the Deep State, Invisible Government, Oligarchs, Owners, or whatever other term you choose to describe the obscenely wealthy minority controlling this country. The existing establishment will never willingly change the system because it serves their myopic gluttonous interests.

“The deep problem with the system was a kind of moral inertia. So long as it served the narrow self-interests of everyone inside it, no one on the inside would ever seek to change it, no matter how corrupt or sinister it became.” Michael Lewis – Flash Boys

Flash Boys is the fourth Michael Lewis book I’ve read. I had previously read Liar’s Poker, The Big Short, and Boomerang. He is a masterful storyteller. He has the ability to humanize complicated financial concepts and cut through the purposeful complexity built into the financial system to reveal the corruption, criminality and moral degradation of Wall Street bankers and Washington DC politicians. He slices through all the spin, misinformation, and mistruths flogged by Wall Street and their paid-off media mouthpieces to reveal everyone on Wall Street to be in on the action when it comes to fleecing their customers (muppets). The stench emanating from the bowels of Wall Street banks, hedge funds, and high frequency trading bucket shops hangs like toxic smog over our bloated fetid crony capitalist corpse of a country. This cast of despicable felonious characters, scalps investors day after day, with the insiders pretending all is well and the man on the street is being protected.

“The reason is that everyone is a bad actor. There’s an ecosystem that has risen up around a broken pipe on Wall Street. You have high-frequency traders who are scalping the market. They pay exchanges for the tools they need to scalp investors; the exchanges pay banks to essentially mishandle the stock orders so high-frequency traders can maximize the take. It’s a system designed to extract taxes from investors.” – Michael Lewis –Wired

The average person believes the stock market is run on free market principles, with willing buyers and sellers paying and receiving the most efficient price with regards to their transactions. The American people have put their trust in gargantuan bureaucratic government agencies, funded with their tax dollars, to protect their interests and fight for their rights in the financial marketplace. They innocently believe a private bank – The Federal Reserve – owned and controlled by the Too Big To Trust Wall Street Mega-Banks, is actually enforcing regulations and looking out for the best interest of the small investor. They evidently haven’t been paying attention for the last fourteen years, as the Federal Reserve has purposefully created bubble after bubble with ridiculously low interest rates, money printing on an epic scale, encouraging complete deregulation of banks, inciting speculation, and ignoring criminal behavior by their Wall Street owners.

After reading Lewis’ exposes about these Wall Street scumbags, you realize Scorsese’s seemingly over the top portrayal of these people in Wolves of Wall Street is accurate. Nothing has changed since Lewis worked at Salomon Brothers in the 1980’s. The people inhabiting that culture are unscrupulous, greedy, obtuse, ignorant, and intent upon preying on the weaknesses of their “clients”, who they hold in contempt. They are the wolves and you are sheep. The comforting picture of a stock broker representing your interests on a small commission basis has been replaced by stock exchanges colluding with Wall Street banks, hedge funds and high frequency traders to fleece mom and pop out of hundreds of billions on an annual basis using their super-fast computers located within the stock exchanges. The people who know the truth have no interest in drawing the new picture because their massive paychecks depend upon not drawing the picture.

You can tell how accurate a portrayal is by the reaction of those being portrayed. Flash Boys and the subsequent interview of Lewis by 60 Minutes resulted in a broad based assault by Wall Street bankers, HFT dirt bags, corrupt stock exchange CEOs, SEC lackeys, Federal Reserve Chairwomen, bought off politicians, faux financial journalists, sellouts like Buffett, and of course the mouthpieces of Wall Street on CNBC. The oligarchs benefitting immensely from the HFT scams, Dark Pool schemes, and Stock Exchange pay to play swindles, attempted to ambush the good guys (Brad Katsuyama and Michael Lewis) on CNBC, the captured media pawn of the Wall Street ruling elite.

CNBC stacked the deck against the good guys with the President of the BATS exchange, William O’Brien, given the task of shouting the loudest in an attempt to discredit the factual assertions made in the book. The BATS exchange was founded by high frequency traders and designed to foster the predatory schemes of high frequency trading firms who paid the exchange for the privilege of swindling investors. He went berserk on-air, accusing Brad Katsuyama of lying and denying that his firm purposefully allowed high frequency traders to front run slower orders from regular investors. I guess he thought rage, fury, screaming and false accusations would convince the hoi polloi of his innocence. He was wrong. The traders on the NYSE and in trading firms across Wall Street stopped trading to watch the contest on their screens. They would cheer every time Brad Katsuyama calmly responded with truth based facts.

Michael Lewis described the encounter shortly thereafter in an interview:

“The substantial shocker from this encounter is that Katsuyama tried to get O’Brien to admit that the BATS Exchange uses one very slow data feed to give investors the prices in the market, while selling, for vast sums of money, a faster feed to high-frequency traders, the effect being that the high-frequency trader knows the prices in the exchange before your order. So he has the privilege of trading against you at an old price if he wants to. And O’Brien says no that’s not true. He lied, on national television, about a central fact about his business.” Michael Lewis –Wired

Under threat of prosecution, the BATS exchange had to admit its esteemed President blatantly lied on national TV. That seems par for the course when it comes to Wall Street executives. Deceitfulness, duplicity, and evasiveness are crucial requirements for the psychopaths occupying the corner offices in this warped world of high finance. The Wall Street Journal reluctantly revealed the truth:

BATS Global Markets Inc., under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work.

BATS President William O’Brien, during a CNBC interview Tuesday, said BATS’s Direct Edge exchanges use high-speed data feeds to price stock trades. Thursday, the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.

 The distinction matters because high-speed traders can use powerful computers and superfast links between markets to outpace traders and trading venues that rely on slower market data, such as the SIP.

Would the BATS Exchange have revealed the truth if they had not been pressured by the New York Attorney General to do so? Not bloody likely. Wall Street never admits guilt for any of its crimes, wrongdoings, misconduct, deceit or deceptions. They pay $1 billion in fines to their government co-conspirators as a public relations ploy, without admitting guilt and after reaping $10 billion of criminally generated profits. Not a bad ROI. The principles of right versus wrong, moral versus immoral, honesty versus dishonesty, and clarity versus opacity are willfully evaded by the titans of Wall Street and create no dilemmas for these greed driven psychopaths. Money and power are their drugs and the Federal Reserve is their dealer.

Michael Lewis books strike a chord with the public because he chooses a good guy hero his audience can empathize with. He played the sympathetic character in Liar’sPoker. Michael Burry, the brilliant Asperger’s Syndrome suffering investment genius, plays the role in The Big Short. And Brad Katsuyama, the mild mannered good hearted hobbit-like Canadian, takes on the evil forces of Mordor in Flash Boys. These characters all have something in common. They don’t fit in. They question the existing paradigm. They refuse to give in to the depraved culture permeating Wall Street. They exhibit an inner moral strength that enables them to resist the temptation of ill-gotten riches. And they don’t surrender their principles for a buck. This passage gives you a glimpse into the soul of Brad Katsuyama:

“In America, even the homeless were profligate. Back in Toronto, after a big bank dinner, Brad would gather the leftovers into covered tin trays and carry them out to a homeless guy he saw every day on his way to work. The guy was always appreciative. When the bank moved him to New York, he saw more homeless people in a day than he saw back home in a year. When no one was watching, he’d pack up the king’s banquet of untouched leftovers after the NY lunches and walk it down to the people on the streets. “They just looked at me like, ‘What the fuck is this guy doing?’” he said. “I stopped doing it because it didn’t feel like anyone gave a shit.” –  Michael Lewis – Flash Boys

The apologists for the corrupt establishment attempted to trash Lewis and Katsuyama by contending the market has always been rigged and manipulated, therefore, the HFT embezzlement is just business as usual. Warren Buffett, king of oligarchs and apologist for the Wall Street billionaire club, assures the peasants the financial markets are fairer than ever. If Uncle Warren says it’s so to his girl Becky Quick on CNBC, how can anyone doubt him? It’s as if the supposedly mathematical genius billionaire forgot everything he learned in business school.

There is $21 trillion worth of U.S. stocks traded every year. Based upon Katsuyama’s analysis of how much high frequency traders, Wall Street dark pools, and the stock exchanges selling access were skimming on virtually every transaction, he estimated at least $160 million per day was being stolen from stock investors. That comes to a cool $40 billion per year, at a minimum. High frequency trading accounted for 25% of all stock trades in 2005. By 2008 high frequency traders accounted for 65% of all trades. They now account for in excess of 80% of all trading. The Ivy League educated Wall Street elite insist this extreme level of computer generated trading provides liquidity and efficiency for the markets. In reality, the actual trading results of the HFT firms, hedge funds and Wall Street TBTF banks prove the game is rigged. JP Morgan experienced ZERO trading loss days in 2013. Goldman Sachs, Morgan Stanley and most of the mega-banks have had virtually perfect daily trading results since 2010. If they are all winning, who is losing? Guess. Lewis provides further evidence of “investing” perfection:

“In early 2013, one of the largest high-frequency traders, Virtu Financial, publicly boasted that in five and a half years of trading it had experienced just one day when it hadn’t made money, and that the loss was caused by “human error.” In 2008, Dave Cummings, the CEO of a high-frequency trading firm called Tradebot, told university students that his firm had gone four years without a single day of trading losses. This sort of performance is possible only if you have a huge informational advantage.” – Michael Lewis – Flash Boys

Buffett, the financial “journalists” on CNBC, and all of the defenders of the Wall Street criminal cabal must have been asleep during their Stat class in college. The statistical probability of going four years or even four weeks without a losing trading day is as close to zero as you can get, unless the game is rigged and you are cheating. These results were not accomplished due to the brilliance of Wall Street big hanging dicks and their oversized brains. They were accomplished by front running stock market orders, bribing stock exchanges for first access, gaming the system with more powerful computers, ripping off clients in shadowy dark pools, and keeping the SEC at bay with promises of jobs and riches if they look the other way. This was all done under the veil of hyper-complexity designed to obscure, confuse, and cover-up the truth from unsuspecting investors.

And it is all done “legally” under the auspices of Regulation NMS, established by the SEC in 2007, to foster both competition among individual markets and competition among individual orders, in order to promote efficient and fair price formation across securities markets. As with almost every government regulation, law, or diktat, the new method of “protecting” the sheeple created fresh ways to fleece the sheeple by those who wrote the regulation. See Dodd-Frank and the Affordable Care Act. I don’t need a law or regulation to tell me the difference between right and wrong.

When obnoxiously wealthy pricks with the ability to bribe stock exchanges to place their trading computers on the floor of the exchange and financially induce the Wall Street banks to funnel trades through their dark pools in order to know what is happening a nanosecond before everyone else, and use this information to front run unknowing investors to generate risk free profits, it’s wrong. It really is black and white. I don’t care that it is supposedly “legal”.  By complying with Regulation NMS the smart order routers of institutional investor firms like Vanguard, Fidelity and Schwab simply funneled naïve investors into various snares laid for them by the unscrupulous high frequency traders. The bad guys always win and the good guys always lose on Wall Street. And no one does anything because they are all on the take. Lewis puts it in terms the average person can understand.

“It was riskless, larcenous, and legal – made so by Reg NMS. The way Brad had described it, it was as if only one gambler were permitted to know the scores of last week’s NFL games, with no one else aware of his knowledge. He places bets in the casino on every game and waits for other gamblers to take the other side of those bets. There’s no guarantee that anyone will do so; but if they do, he’s certain to win.” – Michael Lewis – Flash Boys

If you aren’t mad yet, you will be after I go into the details of the regulatory capture, obscure deep pools within the bowels of the Too Big To Trust Banks, misuse of technology to defraud the public, and purposeful complexity built into the financial system to confuse and mislead the investing populace. I’ll tackle that in Part Two of this article.

WHO COULDA HAVE PREDICTED THIS?

Shocking news. I wish someone had predicted this. Wall Street will say it’s BULLISH!!!! They need some more muppets to fleece.

1,100 more empty stores in malls across America. I’m sure landlords will have no problem filling those spaces. That hot new retailer SPACE AVAILABLE will take over all of the locations.

I’m sure this brilliant retail strategy will surely revitalize RadioShack. I wonder when JC Penney, Sears, Kohls, and dozens of other retailers will be announcing the same brilliant strategy?

Here is a preview of RadioShack’s new ad campaign.

 

RadioShack to close 20% of its stores; earnings miss

Same-store sales slide 19%

By Ben Fox Rubin

RadioShack Corp. said Tuesday that it expects to close up to 1,100 U.S. stores, or about 20% of its footprint, while reporting its fourth-quarter loss widened significantly.

Shares (NYSE:RSH) dropped about 28% premarket as the struggling electronics retailer’s results were considerably worse than market expectations. The company said it will continue to have about U.S. 4,000 locations.

Chief Executive Joseph C. Magnacca said the poor results were driven by lower store traffic, intense discounting particularly in consumer electronics and a “very soft” mobility marketplace, as well as a few operational issues. Despite all those problems, he said the retailer is making progress on its turnaround.


Bloomberg

RadioShack has struggled to reverse a string of recent losses deepened by a sales strategy focused around smartphones, which failed to improve revenue over the last two years.

Magnacca, a former Walgreen Co. executive who was hired last February, outlined a strategy last year to refurbish stores by overhauling layouts and removing items from the shelves, part of a broader effort to improve perception among younger customers while keeping traditional “do-it-yourself” patrons satisfied.

Sales at stores open at least a year dropped 19%, driven by traffic declines and soft performance in the mobility business, while gross margin narrowed to 29.8% from 35.8%.

RadioShack reported a loss of $191.4 million, or $1.90 a share, compared with a year-earlier loss of $63.3 million, or 63 cents a share. Excluding some write-downs and other items, the per-share loss was $1.29.

Revenue sank 20% to $935.4 million.

Analysts polled by Thomson Reuters had most recently forecast a per-share loss of 14 cents on revenue of $1.12 billion.

The company ended the quarter with total liquidity of $554.3 million, including $179.8 million in cash and cash equivalents and $374.5 million available under a 2018 credit agreement.

BEST BUY REVENUE FALLS BY $450 MILLION & PROFIT FALLS BY $225 MILLION: STOCK SOARS

Cut through all the gibberish, spin, bullshit and lies and you see that Best Buy had a horrible fourth quarter after an atrocious fourth quarter last year.

  • Revenue declined by $451 million.
  • Actual profit from the business declined by $225 million.
  • Cash flow from operations declined by $300 million versus last year.
  • They have slashed inventories by $1.2 billion, an 18% reduction. What are they going to sell in 2014?

The Wall Street muppet show continues. Every retailer has reported awful 4th quarter results and Wall Street cheers because it was better than expected. They need muppets. Buy buy buy.

Best Buy Reports Fourth Quarter Results

Non-GAAP diluted EPS from continuing operations of $1.24GAAP diluted EPS from continuing operations of $0.88Annualized Renew Blue cost reductions reach $765 million

MINNEAPOLIS, Feb 27, 2014 (BUSINESS WIRE) — Best Buy Co., Inc. /quotes/zigman/219712/delayed/quotes/nls/bbyBBY+6.66% today announced results for the 13-week fourth quarter (“Q4 FY14”) and 52-week year ended February 1, 2014 (“FY14”), as compared to the 13-week fourth quarter (“Q4 FY13”) and 53-week year ended February 2, 2013 (“FY13”).

Revenue Q4 FY14 Q4 FY13 FY14 FY13
Revenue ($ in millions) $14,470 $14,921 $42,410 $43,913
Comparable store sales % change1 (1.2%) (1.4%) (0.8%) (3.5%)
Domestic Segment:
Comparable store sales % change (1.2%) 0.9% (0.4%) (1.7%)
Comparable online sales % change 25.8% 11.2% 19.8% 11.4%
International Segment:
Comparable store sales % change (1.7%) (12.6%) (3.1%) (12.0%)
Operating Income, Diluted EPS and Return on Invested Capital (ROIC) Q4 FY14 Q4 FY13 FY14 FY13
GAAP
Operating income (loss) as a % of revenue 3.2% (1.2%) 2.7% 0.4%
Diluted EPS from continuing operations $0.88 ($1.36) $1.98 ($0.80)
Non-GAAP2
Operating income as a % of revenue 4.5% 5.7% 2.8% 3.4%
Diluted EPS from continuing operations $1.24 $1.47 $2.07 $2.54
ROIC3 n/a n/a 9.1% 9.2%

Note: All information regarding the company’s results pertain to continuing operations and do not include the impact of the European business, which was sold on June 26, 2013, or mindSHIFT Technologies, which was sold on February 1, 2014. The extra week in FY13 occurred in Q1 FY13 and contributed approximately $735 million in revenue.

Hubert Joly, Best Buy president and CEO, commented, “As we said in our holiday sales release, the fourth quarter was an environment of declining retail traffic, intense promotion, fewer holiday shopping days and severe weather. In the face of these unusual circumstances, our strategy to be price competitive and provide an improved customer experience resulted in market share gains4 in a weaker-than-expected consumer electronics market.

While we cannot be satisfied with the fourth quarter operating income rate decline of 120 basis points, the decline included the expected approximate 100-basis point negative impact associated with our mobile warranty and new credit card agreement economics that we called out in our Q3 FY14 earnings release. Thus we were able to materially offset the price investments we have been making with substantial cost savings and other operational improvements.”

Joly continued, “Turning to the full year, during fiscal 2014 we made substantial progress against our Renew Blue priorities. First, after only one year, we exceeded our original Renew Blue cost reduction target of $725 million by delivering annualized Renew Blue cost reductions totaling $765 million. Second, we have made progress in stabilizing our top and bottom lines. Domestic comparable store sales were virtually flat for the year. Domestic operating income rate, however, was down 70 basis points versus 130 basis points in the previous year. Again, excluding the impact of the increased mobile warranty expense, our cost savings and other operational improvements have materially offset pricing and other Renew Blue investments.

Third, and very important for our future, we have enhanced how we serve our customers and have been building key foundational capabilities. Most notably, we have: (1) increased Domestic online sales by 20%; (2) significantly increased our price competitiveness; (3) rolled out ship-from-store to more than 1,400 locations; (4) opened 1,400 Samsung and 600 Windows stores-within-a-store and completed the first phase of our floor space optimization; (5) increased our Net Promoter Score by more than 300 basis points; (6) re-launched our loyalty and credit card programs; (7) advanced the transformation of our online platform and customer database; and (8) significantly strengthened our balance sheet through a renewed focus on our core business and a substantially more disciplined capital allocation process.”

Joly concluded, “Our Renew Blue transformation is a multi-year journey, and while it is off to an encouraging start, it is still in the early stages. As we move forward, we will continue to address three business imperatives: (1) improving our operational performance; (2) building foundational capabilities necessary to unlock future growth strategies; and (3) leveraging our unique assets to create significant differentiation that is meaningful for our customers and our vendors. Our focus is on executing against these imperatives in pursuit of our long-term non-GAAP financial targets of 5% to 6% operating income rate and 13% to 15% ROIC.”

Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “With each of the imperatives Hubert just outlined comes year-over-year financial change – both positive and negative – and we know that modeling such changes absent additional information in a transformation like ours is extremely difficult. Therefore, as we have done the past several quarters, we are providing you today with our quarterly estimates of how these discrete financial impacts will affect our quarterly operating income rates for FY15.

These financial impacts continue to include the following business drivers: (1) the negative impact of ongoing pricing investments; (2) the negative impact of our incremental Renew Blue SG&A investments; (3) the temporary negative impact of our mobile warranty costs; (4) the negative impact of the economics of our new credit card agreement; and (5) the offsetting positive impact of the realization of Renew Blue cost savings, which now total $765 million on an annualized basis.

In our Q3 FY14 earnings release, we quantified the net year-over-year impact of these drivers to the operating income rate by quarter as follows: (1) negative 60 to 90 basis points in Q1 FY15; (2) negative 70 to 100 basis points in Q2 FY15; and (3) negative 30 to 60 basis points in Q3 FY15.

Today, due to a higher than expected negative impact from the economics of our new credit card agreement and incremental year-over-year pricing investments, we are now expecting the net impact of these drivers to be negative 70 to 90 basis points in Q1 FY15. In Q2 FY15 and Q3 FY15, however, due to the timing of the benefits, we will begin realizing substantially greater Renew Blue cost savings and will be able to significantly offset the impact of the negative P&L drivers for those quarters.”

McCollam continued, “We will also have discrete year-over-year impacts related to income tax in FY15. In Q1 FY15, we expect to reorganize certain foreign legal entities to simplify our overall structure. This reorganization will accelerate a non-cash tax benefit of approximately $0.87 to $1.01 per diluted share. Due to its materiality, this will be treated as a non-GAAP adjustment. In prior years, this benefit has been historically recognized on a periodic basis. As a result of this acceleration, the company will have a higher quarterly income tax expense and income tax rate going forward on both a GAAP and non-GAAP basis. For tax purposes, this benefit will continue to be amortized.

In addition, there are other discrete year-over-year income tax-related items that we also expect will have a negative impact on the FY15 income tax expense and the FY15 income tax rate.

We estimate the combined diluted EPS impact of these discrete income tax-related items on both a GAAP and non-GAAP basis to be as follows: (1) negative $0.03 to $0.04 in Q1 FY15; (2) flat to positive $0.01 in Q2 FY15; (3) flat to negative $0.01 in Q3 FY15; and (4) negative $0.09 to $0.10 in Q4 FY15.

From a revenue perspective, in light of overall economic concerns, we are assuming that the industry declines in the consumer electronics category that we saw in the fourth quarter will continue. As a result, it is reasonable to expect that total company revenue and comparable store sales will remain slightly negative – similar to Q4 FY14 – in the first half of the year.”

Domestic Segment Fourth Quarter Results

Revenue

Domestic revenue of $12.30 billion declined 1.8% versus last year. This decline was primarily driven by a comparable store sales decline of 1.2%. Excluding a 30-basis point impact from the continuing rationalization of non-core businesses and a 30-basis point impact from a periodic profit sharing payment based on the long-term performance of the company’s externally managed extended service plan portfolio that occurred in January FY13 and did not recur in January FY14, the company estimates Domestic comparable store sales would have declined approximately 0.6%.

Comparable online sales increased 25.8% to $1.57 billion due to: (1) a higher average order value; (2) improved inventory availability supported by our ship-from-store and online distribution center expansion initiatives; (3) increased traffic; and (4) higher conversion on both the core and mobile sites.

From a merchandising perspective, growth in computing, appliances and gaming was more than offset by declines in other categories, including digital imaging, movies and home theater.

Gross Profit Rate

Domestic gross profit rate was 20.0% versus 22.3% last year. Excluding the 30-basis point impact from the periodic profit sharing payment described above, Domestic gross profit rate declined 200 basis points. This decline was primarily driven by (1) a 125-basis point incremental investment in structural and promotional pricing; (2) a 40-basis point negative impact of the new credit card agreement, which has less favorable economics than the expired agreement due to changes in both the regulatory environment and overall consumer credit market; (3) a 35-basis point negative impact from increased product warranty-related costs associated with higher claims frequency in the mobile phone category; and (4) a lower gross margin in mobile due to lower attachment rates on mobile service plans. These impacts were partially offset by the realization of Renew Blue cost reductions and other supply chain cost containment initiatives.

Selling, General and Administrative Expenses (“SG&A”)

Domestic SG&A expenses were $1.96 billion or 16.0% of revenue versus $2.06 billion or 16.5% of revenue last year. On a non-GAAP basis, Domestic SG&A expenses were $1.91 billion or 15.5% of revenue versus $2.05 billion or 16.4% of revenue last year. This 90-basis point rate decline was primarily driven by (1) the realization of Renew Blue cost reduction initiatives; (2) tighter expense management throughout the company; (3) lower legal-related expenses; and (4) lower incentive compensation. These impacts were partially offset by Renew Blue investments in online growth and advertising.

International Segment Fourth Quarter Results

Revenue

International revenue of $2.17 billion declined 9.6% versus last year. The decline was primarily driven by (1) the negative impact of foreign currency exchange rate fluctuations; (2) the loss of revenue from large format store closures in Canada and China; and (3) a comparable store sales decline of 1.7%. Comparable store sales were negatively impacted primarily by declining industry trends in Canada and Mexico.

Gross Profit Rate

International gross profit rate was 21.3% versus 22.3% last year. This 100-basis point rate decline was primarily driven by increased promotional activity and a mix shift into lower margin products in Canada.

SG&A

International SG&A expenses were $369 million or 17.0% of revenue versus $460 million or 19.2% of revenue last year. On a non-GAAP basis, International SG&A expenses were $363 million or 16.7% of revenue versus $425 million or 17.7% of revenue last year. This 100-basis point rate decline was primarily driven by Renew Blue cost reductions and tighter expense management in Canada, and to a lesser extent, the elimination of expenses associated with previously closed stores.

Renew Blue Cost Reduction Initiatives Update

Since the company’s Q3 FY14 earnings release, Renew Blue annualized cost reductions have increased $260 million, bringing the total Renew Blue annualized cost reductions to $765 million ($570 million in SG&A and $195 million in cost of goods sold). The additional $260 million in cost reductions ($230 million in SG&A and $30 million in cost of goods sold) is primarily driven by (1) the optimization of the field and store operating models in the U.S. and Canada; (2) structural changes to certain compensation and benefits programs; and (3) ongoing optimization of returns, replacements and damages.

The company has already exceeded the $725 million North American cost reduction opportunity it presented at its Investor Day in November 2012. Today the company is increasing the target to $1 billion. These additional cost reductions are expected to come primarily from the optimization of (1) returns, replacements and damages and (2) logistics and supply chain.

Restructuring Charges and Non-Cash Impairments

During Q4 FY14, the company recorded pre-tax restructuring charges totaling $115 million primarily related to severance charges associated with the Renew Blue SG&A cost reduction initiatives outlined above. The majority of the $115 million is expected to be paid in cash in FY15.

The company also recorded $65 million of non-restructuring asset impairments (within the SG&A expenses line). These non-cash impairments were primarily a result of store-related impairment charges in the Domestic segment.

Please see the table titled “Reconciliation of Non-GAAP Financial Measures” attached to this release for more detail.

mindSHIFT Transaction

On February 1, 2014, the company completed the sale of mindSHIFT Technologies, a business-to-business technology services provider it had acquired in December 2011. Results from mindSHIFT are now presented as discontinued operations.

Dividends

On December 31, 2013, the company paid a quarterly dividend of $0.17 per common share outstanding, or $59 million.

Conference Call

Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on February 27, 2014. A webcast of the call is expected to be available at www.investors.bestbuy.comboth live and after the call.

(1) Best Buy’s comparable store sales is comprised of revenue at stores, websites and call centers operating for at least 14 full months as well as revenue related to other comparable sales channels. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores and businesses are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The portion of the calculation of the comparable store sales percentage change attributable to the International segment excludes the effect of fluctuations in foreign currency exchange rates. The calculation of comparable store sales excludes the impact of revenue from discontinued operations and the extra week of revenue in FY13. The method of calculating comparable store sales varies across the retail industry. As a result, Best Buy’s method of calculating comparable store sales may not be the same as other retailers’ methods. Online revenue is included in Best Buy’s comparable store sales calculation.

(2) The company defines non-GAAP gross profit, non-GAAP SG&A, non-GAAP operating income and non-GAAP diluted earnings per share for the periods presented as its gross profit, SG&A, operating income and diluted earnings per share for those periods calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”) adjusted to exclude restructuring charges, non-restructuring asset impairments, gains on sales of investments and the required tax allocation impact from the sale of the company’s European business.

These non-GAAP financial measures provide investors with an understanding of the company’s financial performance adjusted to exclude the effect of the items described above. These non-GAAP financial measures assist investors in making a ready comparison of the company’s gross profit, SG&A, operating income and diluted earnings per share for its fiscal quarter and year ended February 1, 2014, against the company’s results for the respective prior-year periods and against third party estimates of the company’s gross profit, SG&A, operating income and diluted earnings per share for those periods that may not have included the effect of such items. Additionally, management uses these non-GAAP financial measures as an internal measure to analyze trends, allocate resources, and analyze underlying operating performance. These non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, GAAP financial measures and may differ from similar measures used by other companies. Please see “Reconciliation of Non-GAAP Financial Measures” at the end of this release for more detail.

(3) The company defines non-GAAP return on invested capital (“ROIC”) as non-GAAP net operating profit after taxes divided by average invested capital for the periods presented (including both continuing and discontinued operations). Non-GAAP net operating profit after taxes is defined as our operating income for the periods presented calculated in accordance with GAAP adjusted to exclude the effects of: (i) operating lease interest; (ii) investment income; (iii) net earnings attributable to noncontrolling interests; (iv) income taxes; (v) all restructuring charges in costs of goods sold and operating expenses, the effect of Q2 FY14 LCD legal settlements, and goodwill and tradename impairments; and (vi) the noncontrolling interest impact of the restructuring charges, and transaction costs related to the disposition of our interest in Best Buy Europe (BBE). Average invested capital is defined as the average of our total assets for the trailing four quarters in relation to the periods presented adjusted to: (i) exclude excess cash and cash equivalent and short-term investments; (ii) include capitalized operating lease obligations calculated using a multiple of eight times rental expenses; (iii) exclude our total liabilities, less our outstanding debt; and (iv) exclude equity of noncontrolling interests.

This non-GAAP financial measure provides investors with a supplemental measure to evaluate how effectively the company is investing its capital and deploying its assets. Management uses this non-GAAP financial measure to assist in allocating resources. Trends in the measure may fluctuate over time as management balances long-term initiatives with possible short-term impacts. Our ROIC calculation utilizes total operations in order to provide a measure that includes the results of and capital invested in all operations, including those businesses that are no longer continuing operations. This non-GAAP financial measure should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, GAAP financial measures and may differ from similar measures used by other companies. Please see “Reconciliation of Non-GAAP Financial Measures” at the end of this release for more detail.

(4) Share gain is determined by reference to information from The NPD Group and other industry sources. According to The NPD Group’s POS Weekly Tracking Service, revenue for the CE industry was down 3.2% during the 13 weeks ended February 1, 2014 compared to the 13 weeks ended February 2, 2013. The CE industry, as defined by The NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging and other categories. It does not include mobile phones, gaming, movies, music, appliances or services.

Forward-Looking and Cautionary Statements:

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that reflect management’s current views and estimates regarding future market conditions, company performance and financial results, business prospects, new strategies, the competitive environment and other events. You can identify these statements by the fact that they use words such as “anticipate,” “believe,” ”assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “plan,” “outlook,” and other words and terms of similar meaning. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: general economic conditions, changes in consumer preferences, consumer confidence, consumer spending and debt levels, online sales levels and trends, average ticket size, the mix of products and services offered for sale, credit market changes and constraints, product availability, sales volumes, competitive initiatives of competitors, including pricing actions and promotional activities of competitors, profit margins and the impact of pricing investments on our revenue, weather, natural or man-made disasters, the company’s ability to react to a disaster recovery situation, changes in law or regulations, including changes in tax rates, foreign currency fluctuation, availability of suitable real estate locations, the company’s ability to manage its property portfolio, the impact of labor markets and new product introductions on overall profitability, the availability of qualified labor pools, the company’s ability to retain qualified employees. management turnover, failure to achieve anticipated expense and cost reductions from operational and restructuring changes, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated profitability increases from operational and restructuring changes, failure to accurately predict the duration over which we will incur costs, acquisitions and development of new businesses, divestitures of existing businesses, failure to achieve anticipated benefits of announced transactions, integration challenges relating to new ventures and unanticipated costs associated with previously announced or future restructuring activities, our ability to protect information relating to our customers, A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission (“SEC”), including, but not limited to, Best Buy’s Transition Report on Form 10-K filed with the SEC on March 27, 2013. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
($ in millions, except per share amounts)
(Unaudited and subject to reclassification)
Three Months Ended Twelve Months Ended
Feb 1, 2014 Feb 2, 2013 Feb 1, 2014 Feb 2, 2013
Revenue $ 14,470 $ 14,921 $ 42,410 $ 43,913
Cost of goods sold 11,553 11,589 32,720 33,547
Restructuring charges – cost of goods sold 1 1
Gross profit 2,917 3,331 9,690 10,365
Gross profit % 20.2% 22.3% 22.8% 23.6%
Selling, general and administrative expenses 2,333 2,522 8,391 8,954
SG&A % 16.1% 16.9% 19.8% 20.4%
Goodwill impairment 822 822
Restructuring charges 115 168 159 420
Operating income (loss) 469 (181) 1,140 169
Operating income (loss) % 3.2% (1.2%) 2.7% 0.4%
Other income (expense):
Gain on sale of investments 2 20
Investment income and other 9 3 27 19
Interest expense (23) (28) (100) (109)
Earnings (loss) from continuing operations before income tax expense 457 (206) 1,087 79
Income tax expense 146 254 398 349
Effective tax rate 32.0% (122.7%) 36.7% 443.6%
Net earnings (loss) from continuing operations 311 (460) 689 (270)
Gain (loss) from discontinued operations, net of tax (17) 81 (166) 37
Net earnings (loss) including noncontrolling interest 294 (379) 523 (233)
Net earnings from continuing operations attributable to noncontrolling interests (1) (1) (2) (1)
Net (earnings) loss from discontinued operations attributable to noncontrolling interests (29) 11 (15)
Net earnings (loss) attributable to Best Buy Co., Inc. shareholders $ 293 $ (409) $ 532 $ (249)
Amounts attributable to Best Buy Co., Inc. shareholders
Net earnings (loss) from continuing operations $ 310 $ (461) $ 687 $ (271)
Net earnings (loss) from discontinued operations (17) 52 (155) 22
Net earnings (loss) attributable to Best Buy Co., Inc. shareholders $ 293 $ (409) $ 532 $ (249)
Basic earnings (loss) per share attributable to Best Buy Co., Inc. shareholders
Continuing operations $ 0.89 $ (1.36) $ 2.01 $ (0.80)
Discontinued operations (0.04) 0.15 (0.45) 0.07
Basic earnings (loss) per share $ 0.85 $ (1.21) $ 1.56 $ (0.73)
Diluted earnings (loss) per share attributable to Best Buy Co., Inc. shareholders
Continuing operations $ 0.88 $ (1.36) $ 1.98 $ (0.80)
Discontinued operations (0.05) 0.15 (0.45) 0.07
Diluted earnings (loss) per share $ 0.83 $ (1.21) $ 1.53 $ (0.73)
Dividends declared per Best Buy Co., Inc. common share $ 0.17 $ 0.17 $ 0.68 $ 0.66
Weighted average Best Buy Co., Inc. common shares outstanding (in millions)
Basic 346.3 338.1 342.1 339.0
Diluted 352.6 338.1 347.6 339.0
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(Unaudited and subject to reclassification)
Excluding Best Buy Europe
Feb 1, 2014 Feb 2, 2013 Feb 2, 20131
ASSETS
Current assets
Cash and cash equivalents $ 2,678 $ 1,826 $ 1,665
Short-term investments 223
Receivables 1,308 2,704 1,075
Merchandise inventories 5,376 6,571 6,042
Other current assets 900 946 821
Total current assets 10,485 12,047 9,603
Net property and equipment 2,598 3,270 2,918
Goodwill 425 528 528
Tradenames 101 131 105
Customer relationships 203 77
Equity and other investments 43 86 61
Other assets 361 522 249
TOTAL ASSETS $ 14,013 $ 16,787 $ 13,541
LIABILITIES & EQUITY
Current liabilities
Accounts payable $ 5,122 $ 6,951 $ 5,933
Unredeemed gift card liabilities 406 428 424
Accrued compensation 444 520 425
Accrued liabilities 1,272 1,639 1,316
Accrued income taxes 147 129 121
Short-term debt 596
Current portion of long-term debt 45 547 544
Total current liabilities 7,436 10,810 8,763
Long-term liabilities 976 1,109 1,029
Long-term debt 1,612 1,153 1,150
Equity 3,989 3,715 2,599
TOTAL LIABILITIES & EQUITY $ 14,013 $ 16,787 $ 13,541
(1) Represents the assets, liabilities and equity as of Feb 2, 2013 excluding Best Buy Europe.
BEST BUY CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited and subject to reclassification)
Twelve Months Ended
Feb 1, 2014 Feb 2, 2013
OPERATING ACTIVITIES
Net earnings (loss) including noncontrolling interests $ 523 $ (233)
Adjustments to reconcile net earnings (loss) to total cash provided by operating activities:
Depreciation 701 876
Amortization of definite-lived intangible assets 15 41
Goodwill impairments 822
Restructuring charges 259 457
Loss on sale of business 143
Stock-based compensation 90 117
Realized gain on sale of investment (18)
Deferred income taxes (28) (100)
Excess tax benefits from stock-based compensation (9)
Other, net 71 68
Changes in operating assets and liabilities, net of acquired assets and liabilities:
Receivables 7 (217)
Merchandise inventories 597 265
Other assets (70) (110)
Accounts payable (986) 38
Other liabilities (273) (432)
Income taxes 54 (152)
Total cash provided by operating activities 1,094 1,422
INVESTING ACTIVITIES
Additions to property and equipment (547) (742)
(Purchases) sales of investments, net (180) 56
Proceeds from sale of business, net of cash transferred upon sale 206 25
Acquisition of business, net of cash acquired (31)
Change in restricted assets 5 74
Other, net (1) 16
Total cash used in investing activities (517) (602)
FINANCING ACTIVITIES
Repurchase of common stock (255)
Borrowings of debt, net 381 70
Dividends paid (233) (224)
Issuance of common stock 171 27
Excess tax benefits from stock-based compensation 9
Other, net (9) (14)
Total cash provided by (used in) financing activities 319 (396)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (44) 1
INCREASE IN CASH AND CASH EQUIVALENTS 852 425
ADJUSTMENT FOR CHANGE IN FISCAL YEAR 202
INCREASE IN CASH AND CASH EQUIVALENTS AFTER ADJUSTMENT 852 627
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,826 1,199
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,678 $ 1,826
BEST BUY CO., INC.
SEGMENT INFORMATION
($ in millions)
(Unaudited and subject to reclassification)
Domestic Segment Performance Summary
Three Months Ended Twelve Months Ended
Feb 1, 2014 Feb 2, 2013 Feb 1, 2014 Feb 2, 2013
Revenue $12,298 $12,519 $35,831 $36,716
Gross profit $2,454 $2,796 $8,274 $8,741
SG&A $1,964 $2,062 $7,006 $7,365
Operating income $393 $650 $1,145 $1,040
Key Metrics
Comparable store sales % change1 (1.2%) 0.9% (0.4%) (1.7%)
Gross profit as a % of revenue 20.0% 22.3% 23.1% 23.8%
SG&A as a % of revenue 16.0% 16.5% 19.6% 20.1%
Operating income as a % of revenue 3.2% 5.2% 3.2% 2.8%
Adjusted (non-GAAP) Results2
Gross profit $2,454 $2,797 $8,010 $8,742
Gross profit as a % of revenue 20.0% 22.3% 22.4% 23.8%
SG&A $1,905 $2,053 $6,887 $7,342
SG&A as a % of revenue 15.5% 16.4% 19.2% 20.0%
Operating income $549 $744 $1,123 $1,400
Operating income as a % of revenue 4.5% 5.9% 3.1% 3.8%
International Segment Performance Summary
Three Months Ended Twelve Months Ended
Feb 1, 2014 Feb 2, 2013 Feb 1, 2014 Feb 2, 2013
Revenue $2,172 $2,402 $6,579 $7,197
Gross profit $463 $535 $1,416 $1,624
SG&A $369 $460 $1,385 $1,589
Operating income (loss) $76 ($831) ($5) ($871)
Key Metrics
Comparable store sales % change1 (1.7%) (12.6%) (3.1%) (12.0%)
Gross profit as a % of revenue 21.3% 22.3% 21.5% 22.6%
SG&A as a % of revenue 17.0% 19.2% 21.1% 22.1%
Operating income (loss) as a % of revenue 3.5% (34.6%) (0.1%) (12.1%)
Adjusted (non-GAAP) Results2
SG&A $363 $425 $1,368 $1,552
SG&A as a % of revenue 16.7% 17.7% 20.8% 21.6%
Operating income $100 $110 $48 $72
Operating income as a % of revenue 4.6% 4.6% 0.7% 1.0%
(1) Best Buy’s comparable store sales is comprised of revenue at stores, websites and call centers operating for at least 14 full months, as well as revenue related to other comparable sales channels. The portion of the calculation of the comparable store sales percentage change attributable to the International segment excludes the effect of fluctuations in foreign currency exchange rates.
(2) Please see table titled “Reconciliation of Non-GAAP Financial Measures” at the back of this release.
BEST BUY CO., INC.
REVENUE CATEGORY SUMMARY
(Unaudited and subject to reclassification)
Domestic Segment Summary
Revenue Mix Summary Comparable Store Sales
Three Months Ended Three Months Ended
Feb 1, 2014 Feb 2, 2013 Feb 1, 2014 Feb 2, 2013
Consumer Electronics1 32% 33% (5.9%) (5.0%)
Computing and Mobile Phones1 46% 44% 2.9% 11.4%
Entertainment 11% 12% (5.6%) (18.9%)
Appliances 5% 5% 17.1% 11.7%
Services2 5% 5% (9.2%)3 6.2%3
Other 1% 1% n/a n/a
Total 100% 100% (1.2%) 0.9%
International Segment Summary
Revenue Mix Summary Comparable Store Sales
Three Months Ended Three Months Ended
Feb 1, 2014 Feb 2, 2013 Feb 1, 2014 Feb 2, 2013
Consumer Electronics1 31% 34% (10.0%) (17.8%)
Computing and Mobile Phones1 39% 38% 2.7% (5.0%)
Entertainment 11% 10% 0.6% (17.8%)
Appliances 15% 14% 3.8% (14.7%)
Services2 4% 4% (0.7%) (12.8%)
Other <1% <1% n/a n/a
Total 100% 100% (1.7%) (12.6%)
(1) During the first quarter of fiscal 2014, e-Readers were moved from the “Consumer Electronics” revenue category to “Computing and Mobile Phones” to reflect the continued convergence of their features with tablets and other computing devices. Prior years have been recast for comparability.
(2) The “Services” revenue category consists primarily of service contracts, extended warranties, computer related services, product repair and delivery and installation for home theater, mobile audio and appliances.
(3) The Domestic comparable store sales for the “Services” revenue category reflects a periodic profit sharing payment based on the long-term performance of the company’s externally managed extended service plan portfolio that occurred in January FY13 and did not recur in January FY14. Excluding this impact, comparable store sales would have been (2.6%) in Q4 FY14 and (0.9%) in Q4 FY13.
BEST BUY CO., INC.
REVENUE CATEGORY SUMMARY
(Unaudited and subject to reclassification)
Domestic Segment Summary
Revenue Mix Summary Comparable Store Sales
Twelve Months Ended Twelve Months Ended
Feb 1, 2014 Feb 2, 2013 Feb 1, 2014 Feb 2, 2013
Consumer Electronics1 30% 32% (5.6%) (7.7%)
Computing and Mobile Phones1 48% 45% 4.7% 7.0%
Entertainment 8% 10% (16.3%) (21.5%)
Appliances 7% 6% 16.7% 10.1%
Services2 6% 6% 0.2%3 0.3%3
Other 1% 1% n/a n/a
Total 100% 100% (0.4%) (1.7%)
International Segment Summary
Revenue Mix Summary Comparable Store Sales
Twelve Months Ended Twelve Months Ended
Feb 1, 2014 Feb 2, 2013 Feb 1, 2014 Feb 2, 2013
Consumer Electronics1 28% 31% (9.4%) (17.2%)
Computing and Mobile Phones1 40% 39% (1.7%) (4.1%)
Entertainment 7% 8% (9.3%) (17.1%)
Appliances 20% 17% 8.4% (17.3%)
Services2 5% 5% (5.3%) (10.0%)
Other <1% <1% n/a n/a
Total 100% 100% (3.1%) (12.0%)
(1) During the first quarter of fiscal 2014, e-Readers were moved from the “Consumer Electronics” revenue category to “Computing and Mobile Phones” to reflect the continued convergence of their features with tablets and other computing devices. Prior years have been recast for comparability.
(2) The “Services” revenue category consists primarily of service contracts, extended warranties, computer related services, product repair and delivery and installation for home theater, mobile audio and appliances.
(3) The Domestic comparable store sales for the “Services” revenue category reflects a periodic profit sharing payment based on the long-term performance of the company’s externally managed extended service plan portfolio that occurred in January FY13 and did not recur in January FY14 Excluding this impact, comparable store sales would have been 2.2% in FY14 and (1.6%) in FY13.
BEST BUY CO., INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
CONTINUING OPERATIONS
($ in millions, except per share amounts)
(Unaudited and subject to reclassification)
The following tables reconcile operating income, net earnings and diluted earnings per share for the periods presented for continuing operations (GAAP financial measures) to adjusted operating income, adjusted net earnings and adjusted diluted earnings per share for continuing operations (non-GAAP financial measures) for the periods presented.
Three Months Ended Three Months Ended
Feb 1, 2014 Feb 2, 2013
$ % of Rev. $ % of Rev.
Domestic – Continuing Operations
Gross profit $2,454 20.0% $2,796 22.3%
Restructuring charges – COGS 0 0.0% 1 0.0%
Adjusted gross profit $2,454 20.0% $2,797 22.3%
SG&A $1,964 16.0% $2,062 16.5%
Non-restructuring asset impairments – SG&A (59) (0.5%) (9) (0.1%)
Adjusted SG&A $1,905 15.5% $2,053 16.4%
Operating income $393 3.2% $650 5.2%
Restructuring charges – COGS 0 0.0% 1 0.0%
Non-restructuring asset impairments – SG&A 59 0.5% 9 0.1%
Goodwill impairment 0 0.0% 3 0.0%
Restructuring charges 97 0.8% 81 0.6%
Adjusted operating income $549 4.5% $744 5.9%
International – Continuing Operations
SG&A $369 17.0% $460 19.2%
Non-restructuring asset impairments – SG&A (6) (0.3%) (35) (1.5%)
Adjusted SG&A $363 16.7% $425 17.7%
Operating income (loss) $76 3.5% ($831) (34.6%)
Non-restructuring asset impairments – SG&A 6 0.3% 35 1.5%
Goodwill impairment 0 0.0% 819 34.1%
Restructuring charges 18 0.8% 87 3.6%
Adjusted operating income $100 4.6% $110 4.6%
Consolidated – Continuing Operations
Gross profit $2,917 20.2% $3,331 22.3%
Restructuring charges – COGS 0 0.0% 1 0.0%
Adjusted gross profit $2,917 20.2% $3,332 22.3%
SG&A $2,333 16.1% $2,522 16.9%
Non-restructuring asset impairments – SG&A (65) (0.4%) (44) (0.3%)
Adjusted SG&A $2,268 15.7% $2,478 16.6%
Operating income (loss) $469 3.2% ($181) (1.2%)
Restructuring charges – COGS 0 0.0% 1 0.0%
Non-restructuring asset impairments – SG&A 65 0.4% 44 0.3%
Goodwill impairment 0 0.0% 822 5.5%
Restructuring charges 115 0.8% 168 1.1%
Adjusted operating income $649 4.5% $854 5.7%
Three Months Ended Three Months Ended
Feb 1, 2014 Feb 2, 2013
$ % of Rev. $ % of Rev.
Net earnings (loss) $310 ($461)
After-tax impact of restructuring charges – COGS 0 1
After-tax impact of net LCD settlements1 6 0
After-tax impact of non-restructuring asset impairments – SG&A 42 31
After-tax impact of goodwill impairment 0 821
After-tax impact of restructuring charges 74 107
Income tax impact of Best Buy Europe sale2 4 0
Adjusted net earnings $436 $499
Diluted EPS $0.88 ($1.36)
Per share impact of restructuring charges – COGS 0.00 0.01
Per share impact of net LCD settlements1 0.02 0.00
Per share impact of non-restructuring asset impairments – SG&A 0.12 0.09
Per share impact of goodwill impairment 0.00 2.42
Per share impact of restructuring charges 0.21 0.31
Per share income tax impact of Best Buy Europe sale2 0.01 0.00
Adjusted diluted EPS $1.24 $1.47
Twelve Months Ended Twelve Months Ended
Feb 1, 2014 Feb 2, 2013
$ % of Rev. $ % of Rev.
Domestic – Continuing Operations
Gross profit $8,274 23.1% $8,741 23.8%
Restructuring charges – COGS 0 0.0% 1 0.0%
LCD settlements3 (264) (0.7%) 0 0.0%
Adjusted gross profit $8,010 22.4% $8,742 23.8%
SG&A $7,006 19.6% $7,365 20.1%
Non-restructuring asset impairments – SG&A (84) (0.2%) (23) (0.1%)
LCD settlement legal fees3 (35) (0.1%) 0 0.0%
Adjusted SG&A $6,887 19.2% $7,342 20.0%
Operating income $1,145 3.2% $1,040 2.8%
Restructuring charges – COGS 0 0.0% 1 0.0%
Net LCD settlements3 (229) (0.6%) 0 0.0%
Non-restructuring asset impairments – SG&A 84 0.2% 23 0.1%
Goodwill impairment 0 0.0% 3 0.0%
Restructuring charges 123 0.3% 333 0.9%
Adjusted operating income $1,123 3.1% $1,400 3.8%
International – Continuing Operations
SG&A $1,385 21.1% $1,589 22.1%
Non-restructuring asset impairments – SG&A (17) (0.3%) (37) (0.5%)
Adjusted SG&A $1,368 20.8% $1,552 21.6%
Operating loss ($5) (0.1%) ($871) (12.1%)
Non-restructuring asset impairments – SG&A 17 0.3% 37 0.5%
Goodwill impairment 0 0.0% 819 11.4%
Restructuring charges 36 0.5% 87 1.2%
Adjusted operating income $48 0.7% $72 1.0%
Twelve Months Ended Twelve Months Ended
Feb 1, 2014 Feb 2, 2013
$ % of Rev. $ % of Rev.
Consolidated – Continuing Operations
Gross profit $9,690 22.8% $10,365 23.6%
Restructuring charges – COGS 0 0.0% 1 0.0%
LCD settlements3 (264) (0.6%) 0 0.0%
Adjusted gross profit $9,426 22.2% $10,366 23.6%
SG&A $8,391 19.8% $8,954 20.4%
Non-restructuring asset impairments – SG&A (101) (0.2%) (60) (0.1%)
LCD settlement legal fees3 (35) (0.1%) 0 0.0%
Adjusted SG&A $8,255 19.5% $8,894 20.3%
Operating income $1,140 2.7% $169 0.4%
Restructuring charges – COGS 0 0.0% 1 0.0%
Net LCD settlements3 (229) (0.5%) 0 0.0%
Non-restructuring asset impairments – SG&A 101 0.2% 60 0.1%
Goodwill impairment 0 0.0% 822 1.9%
Restructuring charges 159 0.4% 420 1.0%
Adjusted operating income $1,171 2.8% $1,472 3.4%
Net earnings (loss) $687 ($271)
After-tax impact of restructuring charges – COGS 0 1
After-tax impact of net LCD settlements3 (142) 0
After-tax impact of non-restructuring asset impairments – SG&A 67 41
After-tax impact of goodwill impairment 0 821
After-tax impact of restructuring charges 104 271
After-tax impact of gain on sale of investments (12) 0
Income tax impact of Best Buy Europe sale2 18 0
Adjusted net earnings $722 $863
Diluted EPS $1.98 ($0.80)
Per share impact of net LCD settlements3 (0.41) 0.00
Per share impact of non-restructuring asset impairments – SG&A 0.19 0.12
Per share impact of goodwill impairment 0.00 2.42
Per share impact of restructuring charges 0.30 0.80
Per share impact of gain on sale of investments (0.04) 0.00
Per share income tax impact of Best Buy Europe sale2 0.05 0.00
Adjusted diluted EPS $2.07 $2.54
(1) Represents interim period tax reporting impact of Q2 FY14 LCD-related legal settlements.
(2) Tax impact of Best Buy Europe sale and resulting required tax allocation between continuing and discontinued operations.
(3) Includes settlements reached in Q2 FY14. Settlements reached prior to Q2 FY14 are not included.
BEST BUY CO., INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
($ in millions)
(Unaudited and subject to reclassification)
The following information provides a reconciliation of a non-GAAP financial measure to the most comparable financial measure calculated and presented in accordance with GAAP. The company has provided the non-GAAP financial measure, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measure that is calculated and presented in accordance with GAAP. Such non-GAAP financial measure should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measure. The non-GAAP financial measure in the accompanying news release may differ from similar measures used by other companies.The following table includes the calculation of Adjusted ROIC for total operations, which includes both continuing and discontinued operations (non-GAAP financial measures), along with a reconciliation to the calculation of return on total assets (“ROA”) (GAAP financial measure) for the periods presented.
Calculation of Return on Invested Capital1
Feb 1, 20142 Feb 2, 20132
Net Operating Profit After Taxes (NOPAT)
Operating income – continuing operations $ 1,140 $ 169
Operating loss – discontinued operations (206) (14)
Total operating income 934 155
Add: Operating lease interest3 517 587
Add: Investment income 33 32
Less: Net (earnings) loss attributable to noncontrolling interest (NCI) 9 (16)
Less: Income taxes4 (629) (763)
NOPAT $ 864 $ (5)
Add: Restructuring charges and impairments5 256 1,340
Add: NCI impact of BBYM profit share buyout, restructuring charges and impairments (38) (3)
Adjusted NOPAT $ 1,082 $ 1,332
Average Invested Capital
Total assets $ 14,174 $ 16,551
Less: Excess Cash6 (1,564) (554)
Add: Capitalized operating lease obligations7 8,272 9,397
Total liabilities (10,453) (12,485)
Exclude: Debt8 1,674 2,140
Less: Noncontrolling interests (160) (627)
Average invested capital $ 11,943 $ 14,422
Adjusted return on invested capital (ROIC) 9.1% 9.2%
Calculation of Return on Assets1
Feb 1, 20142 Feb 2, 20132
Net earnings (loss) including noncontrolling interests $ 523 $ (233)
Total assets 14,174 16,551
Return on assets (ROA) 3.7% (1.4%)
(1) The calculations of Return on Invested Capital and Return on Assets use total operations, which includes both continuing and discontinued operations.
(2) Income statement accounts represent the activity for the 12 months ended as of each of the balance sheet dates. Balance sheet accounts represent the average account balances for the 4 quarters ended as of each of the balance sheet dates.
(3) Operating lease interest represents the add-back to operating income driven by our capitalized lease obligations and represents fifty percent of our annual rental expense which is the multiple used for the retail sector by one of the nationally recognized credit rating agencies that rates our creditworthiness, and we consider it to be an appropriate multiple for our lease portfolio.
(4) Income taxes are calculated using a blended statutory rate at the enterprise level based on statutory rates from the countries we do business in.
(5) Includes all restructuring charges in costs of goods sold and operating expenses, goodwill and tradename impairments, non-restructuring impairments, and the BBE transaction costs.
(6) Cash and cash equivalents and short-term investments are capped at the greater of 1% of revenue or actual amounts on hand. The cash and cash equivalents and short-term investments in excess of the cap are subtracted from our calculation of average invested capital to show their exclusion from total assets.
(7) The multiple of eight times annual rental expense in the calculation of our capitalized operating lease obligations is the multiple used for the retail sector by one of the nationally recognized credit rating agencies that rates our creditworthiness, and we consider it to be an appropriate multiple for our lease portfolio.
(8) Debt includes short-term debt, current portion of long-term debt and long-term debt and is added back to our calculation of average invested capital to show its exclusion from total liabilities.

SOURCE: Best Buy Co., Inc.