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Executives

Jennifer Driscoll - Vice President, Investor Relations

Bradbury H. Anderson - Vice Chairman of the Board, Chief Executive Officer

Brian J. Dunn - President, Chief Operating Officer

Shari L. Ballard - Executive Vice President, Retail Channel Management

Robert A. Willett - Chief Executive Officer Best Buy International

James L. Muehlbauer - Senior Vice President and Interim Chief Financial Officer

Mike Vitelli - Executive Vice President, Customer Operating Groups

Barry Judge - Senior Vice President, Consumer and Brand Marketing

Carla Haugen - Investor Relations

Analysts

Matthew Fassler - Goldman Sachs

Danielle Fox - Merrill Lynch

Mitchell Kaiser - Piper Jaffray

Steve Kernkraft - Berman Capital

Dan Binder - Jefferies & Co.

Dan Wewer - Raymond James

Scot Ciccarelli - RBC Capital Markets

Best Buy Co., Inc. (BBY) F4Q08 Earnings Call April 2, 2008 10:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's conference call for the fourth quarter of fiscal 2008. (Operator Instructions) I would now like to turn the conference over to Jennifer Driscoll, Vice President of Investor Relations. Please go ahead.

Jennifer Driscoll

Thanks, Eric. Good morning, everyone. Thank you for participating in our fourth quarter conference call. We have five speakers for you today. First up is Brad Anderson, our CEO and Vice Chairman; second is Brian Dunn, our President and Chief Operating Officer; third we have for you Shari Ballard, Executive Vice President of Retail Channel Management; fourth is Bob Willett, CEO of International and Chief Information Officer; and finally Jim Muehlbauer, Enterprise CFO Interim, followed by a short wrap-up again from Brad. And we are extending our call by an extra 15 minutes, given the number of things that we need to cover and we want to have a half hour of Q&A at the end. As usual, we also have a broad management group here with me to answer your questions following our formal remarks.

We would like to request that our callers limit themselves to a single one-part question so that we can include more people in our Q&A session. 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 call because we don’t always get to everyone.

I’d like to remind you that comments made 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.

As usual, the media are participating in this call in a listen-only mode.

And with that, I’ll turn our call over to Brad Anderson who will begin our remarks.

Bradbury H. Anderson

Thanks very much. Well, to start off this morning, we’re going to have a pretty detailed discussion about this past year and how we’ve put together the budget for this upcoming year and what our expectations are. I just wanted to comment very quickly before we launch into that, that the company over the years has had a number of times in which it’s faced a very difficult economic climate and this is a -- or a difficult climate within the particular industry we are in and this is one of those times where the environment is very challenging.

What we would like you to do is listen very carefully to how we are responding to that challenge. One of the concerns we’ve heard expressed this morning from some analysts is that we are too optimistic in terms of the way we view the future. We are going to try and tackle that issue head on.

The fundamental thing this enterprise looks at in times of challenge is what are the strengths it brings to the market and what’s the capability of that and how well prepared it is to compete in a marketplace that’s more difficult. And I think you are going to hear from us while we see the climate as serious and very difficult, we have an enormous amount of confidence in the skills and talent of the people we’ve got and the approach of customer-centric -- finding customer-centric value propositions to influence our results in a way that would be more positive than you would expect otherwise. And so we are going to share that argument with you and share with you the premises from which we are approaching this budget.

So with that, I would like to turn it over to Brian to get us launched into the specifics.

Brian J. Dunn

Thanks, Brad. I want to highlight four themes that emerged from the year -- our employees, our customers, our financials, and our future growth, all of which give me great confidence in our future.

First, our people -- last year was shaped by many variables but the one constant, and this goes for last year and every year before that, has been our people. I am extremely proud of our employees and I want to thank them and congratulate them for their accomplishments this past year. We are starting this year with a stronger employee base than ever. Our employee turnover was 60% this past year, which exceeded our expectations. Turnover improved eight percentage points and that marks a three-year trend of improvement, down from 81% in fiscal ’05. That’s a 26% improvement in three years. What’s more, the improvements in turnover were nationwide and at all levels. Our manager turnover alone improved nine points to 16% and the most encouraging aspect of this progress is that these results came from specific, locally created strategies. Store by store, district by district, they know their employees the best and are ultimately in the best position to create an environment that attracts and retain talent for their market.

Our future growth is largely dependent on the relationships that our employees are creating with our customers. Couple that with the power of scale that comes with $40 billion in revenue, 140,000 people and 500 million customer visits annually and we see the opportunity for exponential benefits.

As we start the new year, I take great confidence in the fact that we have a more experienced and engaged workforce because their insights and knowledge will help deliver growth.

And so as we are in a challenging environment for a period, we must find ways to preserve our customer-facing labor and to manage our expenses. Yes, we have to watch the trends in the business and flex with the volume but we haven’t lost sight of what has made us number one, and that is our people. In short time horizons, our employees closest to the customer have the greatest flexibility to follow the customer, create the experience, and find and deliver the growth.

And speaking of that, I’ll move now to my second theme -- the customer. We’re starting the new year with a larger, more loyal customer base as we continue to grow our market share. Our numbers show that we grew our share last calendar year in the U.S. by nearly a full point, putting us at almost 21%. This includes gains in nearly all major categories, including TV, computing, gaming, GPS, and digital imaging. Our data also shows that our customer satisfaction is up two points year over year.

Our largest improvements in customer satisfaction are coming in key areas like associate interactions, service desk experience, and problem resolution. Our bar is already pretty high but we are constantly working to enhance the customer experience. That’s showing up in our customer satisfaction and market share results.

Finally, we will start next year with more than 26 million Reward Zone members, including more than 1 million through Reward Zone MasterCard accounts. They represent a larger group of more loyal customers who shop more often and spend more of their dollars with us when they do shop.

Reward Zone is only one way that we’ll be reaching out to all of our customers in new and innovative ways this year. You’ll see and hear us tell our story much more clearly and forcefully as we articulate what the Best Buy brand means. The story itself is not new; simply put, the Best Buy brand story is the story of our people and the value they create when they are part of a customer shopping equation. But we will tell that story in fresh and engaging ways that communicate clearly the promise we intend to make to our customers and the standard of service to which we intend to hold ourselves.

In short, we are even stronger from an employee perspective and from a customer perspective than at any time in our history. Those strategic indicators are bright green, which brings me to my third theme, our financial performance.

We are proud of the growth that our employees delivered this last fiscal year. Twelve percent EPS growth was hard fought this past year and we clearly see the link between our strategic indicators and our financial indicators. Tougher environments test strategies and you have to offer a compelling differentiated solution in order to grow. Yes, the macro indicators are red but we treat that as an opportunity to extend our brand, not shrink it. And while our growth forecast is coming [years] below our long-term expectations, it includes investments that we believe will allow us to further advantage our company over time.

And that brings me to my final theme -- investments for future growth. We start this new year ready to accelerate in several areas where this past year showed great traction. As a growth company, it is imperative that we are always planting the seeds for the next leg of growth and that was the case last year and that is the case this coming year, too.

So we have plans to scale Best Buy Mobile to the majority of the U.S. chain in the next 18 months. Our initial results are showing tremendous customer response. In the fourth quarter, our 181 stores with Best Buy Mobile delivered a solid double-digit comp gain in wireless, while the balance of the U.S. chain showed a modest decline in wireless comps. It is the customer response and clear need for a better experience that gives us our confidence. As we look forward, we are exhilarated by what we call the connected world, which simply put means that technology and the benefits it brings are now as portable as people are. If you are still not sure what the connected world is, pay attention the next time you land in an airplane. The instant the wheels hit the ground, it seems that more than half of the people in the cabin are powering up handheld technology and connecting. There is an emerging economy in those connections and we are very excited about the role Best Buy can and will pay in it on behalf of our customers.

In addition, we will invest in 300 additional Apple locations and expand our private label business, both of which uniquely benefit Best Buy's position with our customers.

Our confidence doesn’t come from any single product life cycle but rather from a belief that our space, a space where people enable technology to serve people, is becoming more relevant every day. The lines between products, services, content, and access are constantly blurring and we think we are in a unique position as the customer’s advocate at the center of that convergence.

Furthermore, that point of view applies globally and our plans for this coming year include a step up in our international spending. Under Bob and Kevin’s leadership, we have real traction in Canada and a great start in China, and we will allocate resources to further that growth. We’re a portfolio of growth options and our job as the management team is to deploy assets to fund those ideas, even in a soft environment.

Similarly, we know that our largest growth engine is our employees and our core business in the U.S. Under Shari’s leadership, we are asking our field leaders to develop growth plans for their businesses and to be accountable for delivering results. Not surprising, the teams are rising to the challenge and want to be held accountable and rewarded for growing their business.

In summary, we’ve got a ton of energy starting fiscal 2009 with a clear picture to advantage our company. Candidly, we’re not satisfied with a 7% EPS growth outlook and we believe that this outlook does not reflect our full potential. We can better use our $40 billion of scale and better engage our employees to own their local growth plans.

With that, I’ve asked Shari to spend a few minutes talking about why we are so excited about our growth runway. Shari.

Shari L. Ballard

Thanks, Brian. Earlier today, you saw our earnings guidance for next year and some were asking if we are too aggressive in setting our comp guidance in the 1% to 3% range. I’m going to spend my time with you today going my absolute best to answer the question and to tell you why I believe the answer is no, we absolutely did not set our guidance too high.

Here’s why; when we did the work of determining how much we felt the U.S. business could grow next year, we did it this way -- first, from a centralized perspective, we looked at external factors, including the macroeconomic environment, product life cycles the competitive landscape, those kind of factors, and formed part of our plan, definitely.

Second though, we went to our local teams, including every territory in the U.S., and asked them to identify growth opportunities they could see from their vantage point. We added the local component because we wanted to test the hypothesis that there is an enormous amount of opportunity to grow that would only be visible to somebody living in the same community as the customer. These are the kinds of things you’d never be able to see from a centralized or in our case, a Minneapolis based vantage point.

The bumpers we gave the local teams as they built their plans from growth were: A, that all stores had to grow; B, they had to base that growth on specific identified customer need; C, that every employee gets to and must participate in growing our company; and D, the teams needed to have concrete plans for how they would achieve the growth.

We spent the first two weeks in March visiting the teams in all eight U.S. territories to hear them present their plans for growing their markets and what came out of those discussions is what’s causing us to believe that the last thing we have is a growth problem. The ideas and plans were spot-on in terms of addressing specific customers and their very unique needs.

I heard a few recurring themes and a lot of original ideas but the bottom line was this -- our stores see growth opportunities all over the place. For example, in store 663 in Clarkesville, Tennessee, they went after identifying growth opportunities with a zip code analysis. This analysis gave the store their overall market share by zip code and their customer segment share by zip code. The store has an annual volume of roughly $20 million in a market share of about $200 million, with wide variations in market share by zip code.

Lindsay Robinson, the general manager and her team did something really smart and very consistent with our strategy. They asked their employees who lives in each of these communities? Then, community by community, zip code by zip code, the looked for insights on where we were under serving those customers. They asked questions like are the customers not seeing our promotions? Are the offers not relevant to certain customer segments, et cetera.

Long story short, one of those underserved customer groups they identified was military families who were prominent in several of the low market share zip codes. From there, lots of things happened, from new product SKUs such as heavy duty laptops and carrying cases for military personnel to new ideas for supporting families who have loved ones deployed to better matching store labor with customer traffic. Each door they opened led to more doors opening and it was all driven by following the customer, creating an experience that solves their need, and starting the cycle over.

Another example is in store 1133 in Mooresville, North Carolina. Walt [Goney] is our GM there and he and his team are growing their business in part by understanding the retirement community their store serves as part of their overall market. This specific group of retirees they are working with call themselves the golden boys and Walt’s team created specific in-store experiences designed to help these individuals see what technology can do for them in their lives, invited the members of that community into their store before the store opened to get personalized service. The return on the investment to date has been absolutely fantastic from a customer and employee view and also from a financial perspective. It’s been outstanding.

Walt’s response when we told him we loved what he was doing was “it’s not hard, I’m one of them so I can see what the needs are.” That is the beginning, the middle, and end of the story. That’s customer centricity. Walt, Lindsay, and your teams, keep it up. Thank you.

So while we recognize that our comp guidance may sound high to investors, the combination of using both the centralized and localized inputs into our plan gives us confidence that our guidance reflects the totality of what we see today.

More importantly, we believe that over time a demand driven culture, the one where employees in large part pull what they need to serve customers versus having solutions pushed at them results in a much better return on internal investment and much better service to our customers because we are getting them what they need, not what we wish they needed.

Out of the eight territories, none of them submitted plans that had less than a 3% comp gain. Moreover, the territory leaders asked to have our bonus plans tied to achieving the high-end of the guidance. They know we have to grow, they know we have to grow profitably, and they know we have a responsibility to the customers we serve and the employees who serve them to find a way to deliver on that. Honestly, the biggest question in my mind right now isn’t how we’ll comp in Q1 in places like Clarkesville. I know we can grow. The question is how quickly we can learn our way to serving these unmet customer needs and then how far we can go with these same customers after we do that.

Our genuine belief in the power that lies in the 150,000 individuals who make us Best Buy is now paired with a clear plan of action that gives all of them the freedom and accountability -- freedom to go after growth opportunities without fear of getting in trouble for trying or getting it wrong and accountability for delivering profitable growth and being rewarded when they achieve it, regardless of whether they work in one of our stores, our terrific distribution centers, our call centers, or here at the corporate campus.

As a result, we are confident we’ll achieve a higher level of growth in either the macro or the product cycle would indicate.

With that, let me turn it over to Bob who will recap the international team’s headlines. Bob, congratulations from the U.S. team on a terrific year.

Robert A. Willett

Thanks, Shari. Good morning, everyone. I too would like to congratulate and thank all of our folk everywhere for their boundless energy and commitment on behalf of our customers and some good results under some interesting conditions.

Shari talked very eloquently about customer centricity and the important role of our employees. People truly are the secret source. They are the glue. Their behavior and their culture is what will sustain us.

As someone who has worked internationally perhaps longer than I wish to recall, and with some of the finest retailers globally, I believe there is really no other retailer in the world who is trying to accomplish customer centricity the Best Buy way. There are very successful retailers out there that segment customer information and those that have systems capable of tailoring both assortments and pricing based on locality demand.

But what is different about our approach is the empowerment of our employees who are the sustaining glue to provisioning this individual customer experience. Frankly, one reason we’ve outperformed our industry is because of customer centricity. We’ve wallowed in it at times but we are a better company even for attempting it. This strategy is the whole reason we believe we have any business expanding internationally.

Finally, I want to amplify Shari’s point, in that we are going to keep pursuing customer centricity. We need to keep it simple and that applies to the infrastructure and operating model as well as we endeavor to change how retailing is done in the connected world.

Now I would like to take you through our priorities for the international segment for fiscal 2009, plus another review of our enablers, including supply chain and information technology and then I’ll turn it over to Jim for our financial discussion.

Our international segment’s performance was strong in terms of year-over-year growth. International contributed nearly 40% of the company’s annual growth in operating income dollars for fiscal 2008, led by Canada even as we invested in preparation for our expansion. Our Canadian business continued its journey towards a 5% income rate, clocking in at 3.9% last year, a huge accomplishment.

The Canadian team delivered these results through a balanced, three-dimensional approach: one, delivering on the core business, which was the primary focus; two, optimizing for the short-term impact; and three, transforming the business for the long-term impact across the dual brands. We are beginning to use this same approach now in other countries as well. Congratulations to Kevin and the team.

China achieved strong comparable store sales last quarter; however, results softened at Five Star. Our Best Buy in Shanghai exceeded revenue expectations and the second is expected to open at any time, subject to government approval. Our results also reflected the costs associated with building our international capabilities, including a merchandising and financial system infrastructure that will support more brands, formats, new stores, and countries.

Over time, this infrastructure will enable us to absorb the increasing costs in these developing countries as they mature. Again, congratulations to Redmond and the team in China.

Collectively, our international efforts continue to fuel our belief that our company has a real point of difference to offer global consumers. As we select markets for growth, we focus on where there’s an opportunity to become the number one place to work and to shop, both through stores and online and to grow profitably.

In the coming year, we expect our international profit growth to be constrained somewhat by our investments for growth in three countries -- China, Turkey, and Mexico. The costs of expanding in China and launching in two other countries will decrease the visibility of continued improvements in Canada. With moderating growth in Canada and the additional investments in real estate, people and systems in other three countries, we’re expecting total international operating income to be similar to last year’s, with higher revenue but also higher SG&A.

We believe that these investments are critical to our long-term growth and we can deliver improved value for money at this time, as spare capacity becomes available internationally. As we saw in Canada, it can take two or three years of investing to get it right and then we can expand the operating profit rate.

Allow me to describe our five priorities for the coming year. Firstly, we will continue to grow and optimize our Canadian business. Our priorities include boosting marketing effectiveness, implementing labor model changes at Futureshop, expanding our financial services and launching a loyalty program based on our success state side. We are targeting profit growth in the high teens in Canada, which will help fund our international investments.

Secondly, we will continue to pursue careful growth in China, as we learn about the consumer and our two brands there. Some specific things we have done this year, including the opening of more new stores, further tests to transition the Five Star Model, expanding our international private label business internally and through other retailers, and preparing to implement enhanced systems.

It’s hard work to bring China’s operating margins up to a higher base level. That’s our challenge. However, we believe there are no structural barriers to achieving improvement over time as we’ve evidenced in our single Best Buy store there to date.

Thirdly, because of the horizon of opportunity we see internationally, we plan to make material investments in preparation for greenfielding in Mexico and Turkey. These investments include personnel, real estate, training, and systems. We don’t want to delay any longer our participating in these fast-growing economies. In addition, we have proven tools that we can apply to reduce our risk in entering new countries such as tailored market assortment, price optimization, collaborative pricing, forecasting replenishment and now, space planning at both the micro and the macro level.

Fourthly, we are reviewing our opportunities to leverage our existing relationships with Car Phone Warehouse both here in the U.S. and Europe, as we explore other relationships to support our international expansion.

For example, we are pleased with the customer analytics and data we’ve gathered with the help of another third party, which is key to implementing customer centricity internationally.

Fifth and finally, putting my enterprise hat on, we are continuing to invest in the enablers of our strategy, namely supply chain and information technology, to maintain our growth trajectory. Within the supply chain, we are completing our end-to-end fulfillment capabilities and are building out four critical systems applications that will provide us line of sight by product, as well as improve customer availability and revenue growth, reducing the work required to be done at the store level.

For example, we believe we can reduce the time to unload a truck or a [inaudible] to 20 minutes versus two to four hours that it takes today. The four critical systems applications are expected to deliver significant benefits beginning in the second year. Our IT investments are heavily focused on the completion of ongoing initiatives to simplify the existing business and enable customer centricity.

For example, we have just transitioned our gift cards to the industry-leading platform and we’ve done it without any disruption to the customer. Other IT investments are centered on supporting Best Buy Mobile’s rollout in the U.S. and then internationally. We will provide you an update of these five priorities as the year unfolds.

Thank you for listening. Now I’d like to hand you over to my friend and colleague, Jim, to take us through our fourth quarter results and our guidance for fiscal 2009. Jim.

James L. Muehlbauer

Thanks, Bob. Good morning, everyone. This morning my comments will focus on three areas in order to provide context for our current results, as well as the framing for our future performance expectations. First, I will review the drivers of our performance in the fourth quarter; second, I will spend a few minutes summarizing the key financial highlights for the year. Finally, we’ll discuss the outlook for fiscal 2009.

The operating results we reported this morning were generally in line with our mid February update. Diluted earnings per share was slightly higher than our revised outlook but that was driven by below-the-line items, including a better than expected tax rate.

Looking back, our business held up pretty well in Q3 and early Q4, despite the increasing pressures on the consumer. In Q4, however, we clearly experienced a decelerating trend from December and early January when results were still in line with our expectations. From there, traffic slowed, which was the basis for our lowered outlook for the fourth quarter.

Although it was a tougher environment than we originally expected, we still posted solid results and grew our earnings per share 10% in the quarter. When you take out the noise from last year’s quarter, things like gift card breakage, the [Gulf Galaxy] gain, and the addition of the 53rd week, we grew EPS by roughly 17% in the quarter.

Walking down the income statement, revenue of 4%, or 9% adjusting for the extra week, was the story of the quarter. Domestically, comparable store sales declined 0.9% as traffic weakness in the final six weeks more than offset earlier sales growth. Inventory shortages in gaming hardware exacerbated the slowdown, but we’ve seen gaming inventory improve since then.

The macroeconomic pressures on the consumer are impacting traffic in most of our major categories. As Brian mentioned, we are very pleased with our share gains in what has played out as a broad-based, U.S. consumer slowdown.

Concluding with the top line discussion, international revenue grew 23%, including 15 percentage points from foreign exchange and 3.4% comparable store sales gain. While the sales growth was stronger than in the U.S., the Canadian results also softened in January and into February after what was a very good December.

The gross profit rate for the quarter declined 40 basis points. Excluding gift card breakage benefit in last year’s quarter, the rate was down 25 basis points. As has been the case for most of the year, mix was the biggest driver of the gross profit rate decline. Revenue growth in notebooks and gaming hardware accounted for more than 50 basis points of pressure on the gross profit rate alone.

Improvements in promotional effectiveness were able to partially offset the mix headwind. The good news is that we are lapping a lot of the negative mix in the coming year, which I’ll talk about in a minute when I take you through our guidance.

We continued our solid SG&A performance in the quarter. Excluding the unique items in last year’s quarter, the SG&A rate was relatively flat year over year. Lower incentive compensation and changes in the store labor model helped offset the impact of a domestic comparable store sales decline.

The international segment delevered SG&A modestly as investment spending on ERP implementation and customer analytic capabilities to support our international growth more than offset gains in Canada.

All in all, our operating income rate for the quarter was down 30 basis points, driven in large part by slower revenue growth and negative margin impacts of product mix shifts to lower margin categories.

Finally, our year-end inventory was up 14% year over year, excluding currency impacts. Most of that increase was for new stores. Our comp inventory was up approximately 4%. The main driver of the increase was better assortment in accrued availability in key categories like computing and gaming.

Customer availability in both of these categories was very lean at the end of last year, plus we’ve added Apple and Dell to the computing assortment. We feel comfortable with our inventory positions at the end of the year and with the investments that we’ve made to support our growth in fiscal 2009.

Looking back on the year in total, we are pleased with the progress that we made in a difficult environment. Our business reached an important milestone of $40 billion in revenue, essentially doubling our revenue over the past five years.

Additionally, our U.S. dot.com business broke the $1 billion sales mark this year. Most importantly, the strategic results Brian mentioned were all green and we benefited from prior investment in differentiators like Geek Squad, private label, expanded product mix, and Reward Zone, our loyalty program.

We are proud of the financial results that our employees produced in the past year and while the customer environment changed, we still delivered double-digit EPS growth. This of course included the benefit of repurchasing $3.5 billion of our stock, or 16% of our outstanding shares at the beginning of fiscal 2008.

As we enter fiscal 2009, it appears likely that consumers will continue to face challenging economic headwinds, especially through the first half of the year. During this time, our focus will be on the factors that are within our control. We will continue to invest in key growth initiatives and thoughtfully manage our expenses.

For example, we are putting more resources behind Best Buy Mobile this year, where we believe we can move the needle on market share by offering a better experience for the customer. We currently operate 181 Best Buy Mobile store-within-a-store, and we plan to scale Best Buy Mobile to the majority of our U.S. stores in the next 18 months.

Based on our recent performance, we are expecting the Best Buy Mobile experience to help drive a strong double-digit gain in comparable store sales in our wireless business in the upcoming year.

In total, our guidance is for 9% revenue growth. The revenue growth is expected to be fueled by 140 new stores, an increase of 11%, and a comparable store sales gain for the enterprise of 1% to 3%. Like you, we do not have visibility on how the macro environment will actually play out in the near-term. Looking at the softness as we finish the year, we estimate the comp growth for fiscal 2009 will be driven primarily by performance later in the year. As you would expect, we will be closely monitoring the business trends and evaluating trade-offs in our spending.

Our primary focus will continue to be investing for our future growth. Of course, the art of managing in a less certain environment, you have to strike the right balance between near-term performance and strategic investments for the future. That means getting very clear on our top priorities and allocating those resources to drive growth.

From a gross profit rate perspective, we are planning a flat rate year over year. Unlike fiscal 2008 when the revenue mix was the largest single driver of the rate decline, we expect the mix to be neutral in fiscal 2009. We expect notebooks and gaming hardware to continue to grow in the mix, which will be ahead a bit but much less than last year.

Offsetting that headwind, we expect a mix benefit from growth in mobile phones, GPS, and services. Furthermore, our field, merchant, and marketing teams continue to collaborate to identify new opportunities to increase our promotional effectiveness.

So we have levers within our control that we think can help mitigate margin pressures and potentially provide us some room for some upside.

Over the past several years, we have been successful in funding investment to support our growth initiatives while still leveraging SG&A expense. We will expand these initiatives in fiscal 2009 in order to accelerate both our domestic business and grow internationally.

As a result, we expect to delever SG&A in a less robust sales environment. Furthermore, we expect more pressure on the rate earlier in the year, given the expected timing of our spending and estimated revenue growth.

While we will thoughtfully manage our expenses and redirect spending to key initiatives, our SG&A rate will increase 30 to 40 basis points as we continue investing in growth drivers for the future. Specifically, we will increase our spending to support the Best Buy Mobile rollout, which means store layout changes, employee training costs, incremental labor spending and system costs to deliver that experience for our customers. Furthermore, as Brian alluded to, we are protecting our customer facing labor as our people are our competitive advantage and a key to our growth plans.

Internationally, we are adding staff, building market research tools and implementing enhanced systems to support the international expansion into existing and new countries. This is also a good opportunity for me to give you some more specific color on the international segment, as it is becoming a large part of our business. This segment now represents 17% of our revenue and is coming off a strong year, with 37% revenue growth and a 64% operating income growth. And while we would love to forecast that level of performance again, we are expecting a more modest level of revenue growth in fiscal 2009. Specifically, we are planning for 19% revenue growth coming from new stores and comparable store sales gains. The largest increase in SG&A spending for the international segment is headcount driven, supporting our expansion in China and launch in Mexico and Turkey. Those investments will offset operational gains, reducing the international segment’s operating income by up to 20 basis points this year, although still growing profit dollars.

In short, we are very excited about the growth prospects for our international segment and we are making the necessary investments to support this important source of long-term growth and portfolio diversification for the future.

To conclude the P&L outlook, we are expecting the operating income rate for the enterprise to decrease approximately 30 to 40 basis points in the coming fiscal year. Rolling in the below-the-line items and the lower share count, we are forecasting annual EPS of $3.25 to $3.40, representing growth of 4% to 9%.

From a capital perspective, we continue to allocate our capital to fund our growth and deliver a high rate of return for our shareholders. Last year, we used our strong cash flow and balance sheet to invest in 12% more stores, improve our IT and supply chain infrastructure, make investments in Car Phone Warehouse and Speakeasy, as well as repurchase $3.5 billion worth of our own stock.

Our first priority continues to be investing in high return growth projects in our core business. We expect to generate $2.2 billion in operating cash flow this coming year and we plan to invest $1.1 billion of that back into our business to strengthen our infrastructure and grow the business.

Specifically, our largest step-up is behind our international expansion, where we’ll invest in new stores in IT to support growth in China. In Canada, spending will increase to fund a new POS system to support growth and improve throughput capabilities for the business. In the U.S., we’ll invest in our existing and new stores, aggressively rolling out Best Buy Mobile and investing in IT to support differentiators like Reward Zone.

We are also earmarking incremental investment dollars to fund new business initiatives, initiatives that are directly tied to where we see the future needs of the customers. In short, we are investing in areas where we see growth and areas that will differentiate us from the competition.

Similarly, after funding high return investments in the core, we continue to look for value-enhancing external investments, those that add unique capabilities or dimensions to our business and support our growth strategy.

Finally, shareholder initiatives like stock repurchases remain in our vocabulary as we think about investing our free cash flow. Specific to our fiscal 2009 guidance, we have assumed roughly $800 million of share repurchases.

As demonstrated by fiscal 2008, the amount allocated to each of the three above areas can and will vary depending on the environment and the opportunities that are available, but our overarching principal of investing for growth in value creation is unchanged.

In conclusion, we continue to make solid progress in improving our strategic results and clearly experienced the effects of the macroeconomic impact on the consumer in late fiscal 2008. We are planning for continued headwinds in the revenue environment going forward into the new year but as a growth company, we remain focused on executing and investing in our strategy that will drive sustaining return for our shareholders.

With that, I would like to turn it over to Brad who will wrap up our prepared comments.

Bradbury H. Anderson

Thanks, Jim and before we go to questions, I just want to restate the central premise that we are using as an enterprise. The first part of that premise is that we are in the early stages of building out a connected world, that Best Buy today is the leading retailer in the world in delivering to our customers the benefit of that connected world and most of the benefits are yet in front of us.

More significantly I think for that, the fundamental rationale the company is using is that it is using -- it has won so far we believe because our employees have done a better job in the marketplace than our competitors at delivering the appropriate value proposition for our customers at a compelling pace. What we are levering is the very tools that we are selling into the marketplace to deliver the connected world also allows us to run the company in a way that is different from the way retailers have been run over the years, and that combination of the talented workforce with better tools than have existed before is what we believe will allow us on a global basis to provide absolutely unique benefits to customers around the world and again, we believe this is at the early stages.

So as we are confronting a difficult climate, we also see that climate as an opportunity-rich climate for us to differentiate that skill set and deliver it in more places with more depth than any other retailer in the world can do. And with that, we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Matthew Fassler with Goldman Sachs. Please go ahead.

Matthew Fassler - Goldman Sachs

Thanks a lot. Good morning. I would ask you how you are doing but I think I would use my one part of my one question, so --

Unidentified Participant

But you kind of did, didn’t you?

Matthew Fassler - Goldman Sachs

Not quite. My question relates to gross margin and specifically your comments in your press release about tools to pull back to some degree on promotions. Could you discuss what you have in mind there and how big a part of your gross margin forecast that really is?

Jennifer Driscoll

That question will be answered by Mike Vitelli.

Mike Vitelli

Good morning. I would characterize the comment as not so much as pulling back on our promotions but a more effective use of our promotions. In working with our marketing colleagues, it’s a matter of addressing our customers in a more direct basis, whether that be through our Reward Zone program and how we utilize the various marketing tools and reaching our customers during the course of the year.

I think you have seen and will see that we are continually aggressive in our promotions, whether they be financing, how we deliver products and pricing to our consumers but it’s a matter of a more effective use of that. And equally important is we are seeing some very solid success in how we are dealing with our end-of-life products as we make transitions. That was an important thing for us to improve in fiscal year ’08 and we even see a better runway of doing that in fiscal year ’09 as we find better outlets, including the Best Buy outlet on our website, to deal with products as they get to their end of life.

So we think that effective use of promotions is what’s going to give us a margin improvement.

Matthew Fassler - Goldman Sachs

Are you saying in a sense that you will be less kind of mass market shotgun approach and more targeted than you’ve been?

Mike Vitelli

I would say directionally, that’s correct. But that doesn’t mean we’re going to at all step back from our position as being the best value in the marketplace.

Matthew Fassler - Goldman Sachs

And just finally, is this decision a reflection of anything that you’ve seen in the environment about the way your competitors are promoting and your need to be as prominent with that kind of message?

Mike Vitelli

I think it’s more of a reflection of our success with our best customers and realizing that those customers are loyal to us, our Reward Zone members continue to grow, our Reward Zone MasterCard members continue to grow and being able to communicate with them directly is more effective in addition to what we do on a mass scale.

Matthew Fassler - Goldman Sachs

Thanks so much.

James L. Muehlbauer

I would also add to that -- this is a benefit that we’ve also seen in the Q3 of this year and Q4 of this year as well, so really what we are doing is we are leveraging some of the capabilities and the insights that our store teams have taught us and that the data from our Reward Zone program has helped educate us on where consumers are really looking for help and our support in providing some of those promotional strategies. So we are going to see a full year benefit of that next year but it’s really based on the momentum of the things we learned in this year.

Matthew Fassler - Goldman Sachs

Thanks so much.

Jennifer Driscoll

Next question, please.

Operator

Our next question comes from Danielle Fox with Merrill Lynch. Please go ahead.

Danielle Fox - Merrill Lynch

Thanks. Good morning. I understand that you have a bottoms-up forecast but it sounds like you’ve mandated positive comps at the store level and what I’m wondering is how many of your store managers have actually been through a recession or a sharp slowdown? And connected to that, could you talk about what element of your forecast you do feel reflect conservatism about the current spending environment? In other words, how would your forecast be different if the economy were not weak?

Jennifer Driscoll

Why don’t you start that off, Jim, and the Shari will chime in.

James L. Muehlbauer

Thank you. So maybe I’ll talk about the spending environment and then we could talk a little bit about the comp sales. So from a spending standpoint, one of the things that we mentioned up-front, Danielle, is just because we think we are moving into a little more difficult headwind from an economic standpoint, we’ve really made a determination that we are going to continue to invest in our growth drivers for the future. So if the environment were more robust in the next year, we may actually look at increasing some of that spending. But what we are doing most thoughtfully is we are making sure that we have the adequate bandwidth from a capital and from a human deployment standpoint around our key initiatives. So we feel really good about the things we are going to focus on next year and having the ability to get focused and execute on those.

From a comp sales perspective, as Shari mentioned we have comp performance in our stores that ranges all over the board. We have stores that perform very, very well, that is in one part based on how those store employees and teams are meeting customer needs. But we also recognize there are certain parts of the country where the economic pressures are a little bit more difficult on the consumer.

I think the core message that you are hearing from us today, however, is that it doesn’t matter what part of the country you are in, how your part of the country is being impacted by the economy -- each of our store teams has identified opportunities to serve customers better in their local markets and that we know we have opportunities to increase our existing share of wallet, recognizing that the total share of wallet for consumers next year in the CE space may be more challenged, as we know it is a discretionary item.

So we’re not limiting our growth expectations just based on our traditional market share or the product comps that we see in front of us. We are really looking at going those -- looking at going after those unmet needs because we listen to customers and our store teams are telling us that we are not meeting the needs of our customers from a technology standpoint and there is much more that they want to do. We just have to unlock the secrets as to how to get that accomplished with them and grow our share of wallet for next year.

Shari L. Ballard

Did that get your question or do you want me to put a little more color commentary to it for you?

Danielle Fox - Merrill Lynch

Yeah, actually maybe if you could just talk a little bit about the experience level of some of the store managers who are being asked to forecast in what is admittedly a very unpredictable environment. How comfortable are they coming up with a realistic range of forecasts in such an unpredictable environment, whether or not a significant number of them have actually managed through a similar type of environment?

Shari L. Ballard

Thank you for that. I’ll be happy to do that and actually, there are a number of them on the phone who would probably be better equipped to tell you their own story than I am, but to the point about every store having to grow, that is true. We believe strongly that we’ve got to set the message out there that we’ve got to grow the company and in truth, that’s actually not the hardest part of the job right now because the store managers know we have to grow. They know we have to grow. They know they’ve got employees that are working in those stores who need to be working for a company that does so well at serving its customers that it’s a healthy company that’s here for the long haul. So that’s not actually the hardest part of it.

But what we did need to do is make sure that the district territory and store teams have the tools that they need to actually be able to look at things like what kind of traffic do they have coming in their stores today, how effectively are they selling to the people that are in the stores today, what do their close rates look like, what’s their customer SAT information look like? What segments do they have coming in their stores? What kind of market share do they have with those segments?

So trying to get those teams the right tools, and this is part of the investments we’ve made over the last few years, so that they can actually look at their business, use the tools to figure out this is where scale actually helps us. If you move these indicators just a little bit, it’s worth a lot. And so to be -- and I’ll just tell you what the store teams said. When we first started talking about growing the company and figuring out how to get every store to grow, I heard a number of managers say “Shari, at first that was terrifying, you know, to think about how do I actually do that? But once myself and my team started using the tools we’ve got” -- they call it the what if? tool -- where they basically go into the spreadsheet and they start working with all the analytics of the business, figuring out which pieces they would have to move and what it would be worth and actually building a plan to do that, their confidence level went way up and they’ve got specific plans for how to do it.

Now, they might not be right. You know, they’ve got a hypothesis on an unmet customer need. That military example I gave you earlier, they -- they’ll try something. They are going to measure what they are doing because they have to know whether it’s working for the consumer or not. If it’s not working, they’ll try something else.

But the prevailing point of view is that the stores at a very local level, when you ask them to look for opportunities rather than looking for them to be afraid, when you ask them to look for opportunities, they find them. The major work here for us is to figure out what do they need to actually be able to pull that off with the customer and to continue to give them what they need to actually be able to do that.

So that’s -- I guess that’s my perspective. I could go on for like 20 minutes on this. Did it answer your question?

Danielle Fox - Merrill Lynch

Yes, thank you very much.

Jennifer Driscoll

Next question, please.

Operator

Our next question comes from Mitch Kaiser with Piper Jaffray. Please go ahead.

Mitchell Kaiser - Piper Jaffray

Good morning. Thanks for the comments on the planning process. That was very helpful. I think one of the biggest concerns on the stock continues to be the TV category. I was hoping you could comment on your outlook for TVs with regard to demand and impact on margins, especially given -- my assumption is that mix is going to hurt you a little bit because you exited tube and projection in the first half of, or towards the back half of last year. And then there is also a lot of talk about Sony launching this stripped down version, so if you could highlight those comments, I think it would be helpful.

Jennifer Driscoll

We will. I’ll direct that one to Mike Vitelli.

Mike Vitelli

So a couple of things; to talk about the industry, I think we agree with the industry consensus that the television industry will grow a little bit slower in ’09 than it did in ’08, and that’s built into our plan. Flat-panel is continuing to grow in double-digits and we see that in our plan as well, and to your point the tube -- the tube business is almost gone, both in the industry and with us. We were a little bit ahead of it and I think we’ll, in a positive way, start lapping out of compares of huge declines in tube relatively soon.

As far as your question is about -- so that kind of addresses the demand issue and we think we are going to be able to increase our share across the board and we believe that for several reasons. One is we have the broadest assortment in the industry, bar none. That goes from the entry level product that you described that tier one manufacturers are making available across the board but equally important in some of the entry level brands that some of the mass and club channels carry where we have our private label brand that addresses that customer need better than some of those brands do. Plus we go all the way up to the specialty brands that some of the independents carry, and we have those in our Magnolia home theater space.

So literally, we can address every customer need in the TV space from your basic entry level TV up to the best television in the industry. And we think that yes, while the industry growth rate is going to be different from last year, our growth rate will exceed that because of the breadth of what we have in our store. But more importantly is we, better than anyone else, have the blue shirts there that can help our consumers through that incredible and increasingly complex world of watching a television show and can get them what they need.

In fact, I am thrilled to tell you that that home theater team, both in all of our stores and here at headquarters, this year increased their share and increased their margin rate. I don’t know if there is anybody else in the industry that can say that.

Barry Judge

Not to mention the last piece of that is the ability to install the TVs in the home and then we increasingly after the sale, we are there with you throughout the life of the TV, so if things go wrong with the TV, you want to upgrade the picture on the TV, you want to put a DVD player, et cetera in there, so post sale support becomes a much more important element as time goes on, as people try to get a little bit more out of their television experience. So I think that gives us a real different place in the marketplace than really anyone else can do.

Mike Vitelli

That was a big part of what the increase in margins were in the home theater experience overall too, is part of that, the install and other services.

Jennifer Driscoll

Good point, Barry. Thank you and thanks, Mike. Next question, please.

Operator

Our next question comes from David Berman with Berman Capital. Please go ahead.

Steve Kernkraft - Berman Capital

It’s Steve [Kernkraft] for David. We just had a quick question as it relates to your capital structure where you still have $2.5 billion left on your share repurchase program and looking at your payout ratio and your dividends is about a 15% payout ratio, so I just wanted to know what your thoughts are about continuing to do a share repurchase, or raising the dividend above the level that it’s at now.

Jennifer Driscoll

We’ll start that one with Jim and then turn to Ryan.

James L. Muehlbauer

Thank you very much for the question, Steve. I think as I talked about our capital structure, I would just like to reiterate that we really look at all the options we have in the marketplace to increase shareholder value, but the ones we are most excited about funding first are those that are within our core business, which is why you’ve seen us continue to invest in some of the infrastructure investments both domestically and more so going forward in our international space that really allow us to leverage those benefits for the customer and build that back-end that our store teams can support on. So as we think about our capital structure, the first thing we do is we make sure that we are allocating sufficient capital to continue the long-term growth of the enterprise.

The second lens we look through is we think about what type of capabilities that may reside outside of our local legal system, to look for investments of people who can bring different thoughts and ideas into our portfolio and really help us build our growth strategy with their insights. So looking at acquisitions is also something that is beneficial we think for our capital structure and our strategy.

And then lastly, we continue to think about shareholder initiatives, like share repurchases. Obviously we did a very dramatic increase in share repurchases this past year and dividends. I think our dividends were up roughly 17% year over year. So we still look at those as kind of arrows in our quiver, but the first things we look at are really the investments in our core business just on the long-term growth of Best Buy.

Steve Kernkraft - Berman Capital

But given from what you are saying, I mean, you look at yourself as a growth company but you certainly have enough capital to buy that growth either through acquisitions or investing in the mobile phone business. But above and beyond that, in terms of your choices between going to share repurchase and dividend, it seems like you are just opting to the share repurchase rather than raising the dividend above where it’s at now.

James L. Muehlbauer

Yeah, actually it’s a fair question and it’s one that we talk about and review with our board on an annual basis and we are certainly open to considering the mix of that, but once again first and foremost, as we look at all of those investments in our capital structure, we know that the opportunities in the marketplace are going to change year from year, which is why some years I know we’ll invest more in our capital and in our core business. Some years we may lean more into acquisitions, just like last year we leaned more into share repurchases. It’s really going to be dependent upon what opportunities we see in the environment.

Steve Kernkraft - Berman Capital

Okay, but this payout ratio of 15%, you don’t see raising it from 15 to 25, 30% from current levels?

James L. Muehlbauer

We have not forecasted any plans, as I’ve said.

Steve Kernkraft - Berman Capital

Okay.

Jennifer Driscoll

Next question, please.

Operator

Our next question comes from Dan Binder with Jefferies. Please go ahead.

Dan Binder - Jefferies & Co.

Good morning. I just wanted to focus a little bit more on Best Buy Mobile. I guess for starters, I think in your last analyst meeting, you talked about having 2% market share in that category. I was wondering if that’s roughly where you ended this year and where do you think you can take the market share in fiscal year ’09? And maybe as part of that, maybe describe to us in a little bit more detail why I would, as a customer, go to Best Buy for my mobile needs versus an operator store? If we could just start with that, that’d be great.

Brian J. Dunn

I’m just going to frame it a bit and then we’ll ask Bob to get at a bit of it as well. The core thing I would ask everyone on the call to think about here and the way we think about it internally, Best Buy Mobile is a very vivid example of something that’s come directly from our customer centricity work. It’s a classic example of a very customer unfriendly experience going to buy a cellular phone essentially anywhere in America and going into a store -- that’s a very cumbersome experience. We saw a huge opportunity there, an unmet need for our customers. Our employees were very loud about it and we got some help from a partner to help us with it, and Bob’s going to talk about that in a second.

But I ask you to think about our Best Buy Mobile work as a direct extension of customer insight married to employees saying we’re not serving our customers in a way that makes sense here. It’s a very vivid example of what Shari’s talking about.

Robert A. Willett

Thanks, Brian. This is a part of our central theme to drive towards the connected world and the reason why we formed our partnership with Car Phone Warehouse is that they’ve been coming from the connected world with the phone and we’ve been coming from the connected world or to the connected world with a PC. The two of us together have hugely synergistic skills and all of it is around the customer experience which candidly, it varies from different parts of the world.

And one of the things that we’ve been trying to do is to look for where is the best experience across the world and who has that capability and how do we partner with them to accelerate our strategy. And we started this work just over a year ago. We had some bumpy rides for the first few months but I’m delighted to say in the last four or five months, we’ve really seen huge growth and I mean huge growth in the 180 stores that we’ve converted. We’ve almost doubled our market share in literally a quarter.

And we are starting to see growth. I get into trouble for talking about the numbers specifically but let’s just say we are absolutely over the moon with the progress that we are making on a comp basis. It’s not just in one store. It’s across 180 and the other comparison is that if you look at the stores that haven’t been converted, they were in a state of hold or decline. We’ve completely reversed that and also we are seeing improvements in the gross margin. But above all, we are also seeing a much, much better customer experience that actually, it’s a bit like the halo of Best Buy -- that that sort of work starts to, if you like, enhance the overall Best Buy brand. And so we see ourselves doing more of this, not just with Car Phone Warehouse but with also other partnerships. This is central to us looking for best capability out there and leveraging it to grow the strategy.

Barry Judge

I just want to frame up a little bit. I think part of the question was what will the customer experience. Brian talked a little bit about the problem so what are we doing to help try to solve that need and as Bob mentioned, it had good results around it. I think the big pieces are there’s better choice, so 90 phones and nine plans depending on the market that we are in. No one else can do that. More knowledgeable sales associates in the store, a very significant training program around understanding customer need and understanding what phone would be right for people and what plan would be right, consistent with what Shari talked about in terms of the local opportunity. Straightforward pricing -- you know, pricing is very confusing out there and that’s one of the things people get upset about.

And I think lastly, kind of consistent with a little bit of what Mike talked about within the home theater space, is that we -- and Brad mentioned with the connected world, sort of the convergence of hardware and software. And when you think about around the marketplace, there’s not many people that can bring both of those together. So think about smartphones and the complexity of smartphones. We have the hardware, we have the plans that I mentioned, plus we’ve got the Geek Squad that can help you figure out how to use that thing, can port data from one phone to another, et cetera. And that starts getting us that -- what we talked about earlier, the importance of post-sale support as we think about people trying to get more out of the stuff that they buy.

Shari talks about in some of the conversations around -- people just want to be able to make the technology work and that’s what we are getting at -- getting more out of it and a little bit more out of it than you might have expected.

Dan Binder - Jefferies & Co.

So just as a follow-up, any thoughts on where you could take the market share overall for the company in fiscal year ’09? With the 181 stores now up and running, are there any details you can share with us on the new models, investment requirements, operating margins and ROI versus the total company?

Barry Judge

I can tell you our market share has grown since we’ve launched Best Buy Mobile. We’re growing at a faster pace than the industry. All of those details I don’t think we’re going to -- I don’t think we share and that’s [not my area].

Dan Binder - Jefferies & Co.

Okay, great. Thanks.

Jennifer Driscoll

Thank you for not sharing that, Barry. Good answer on the customer experience and that was helpful, and earlier it was Bob and thank you all. Next question, please.

Operator

Our next question comes from Dan Wewer with Raymond James. Please go ahead.

Dan Wewer - Raymond James

Thank you. A question regarding the planning for our fiscal year 2009; does the outlook for a drop in profits during the first half of the year, is it more than offset during the second half of the year? Does that assume an improving macro environment or does it assume that these company specific initiatives begin to gain traction by the second half of the year?

And then also a question regarding the plan -- if I were a store manager in a market such as Phoenix or Las Vegas and I thought I would be lucky for my same-store sales to drop only 5%, would Shari be asking me to come back with a new plan showing at least a 1% increase?

Jennifer Driscoll

Let’s start that with Jim and then move to Shari.

James L. Muehlbauer

So specifically towards our guidance as to how earnings will phase during the year, there’s a couple of core assumptions that you hit on that I’ll reiterate. One is we think the back half is going to get better, based on number one is what we are doing internally to improve our results, so the initiatives that our store teams are going to take to grow with their customer. We know we are building traction as we speak and that traction will accelerate as we get towards the back half of the year. That’s one key element.

The other element is we are making investments to launch many, many more Best Buy Mobile stores, as we mentioned on the call. Those initiatives will be up and running towards the back half of the year.

The other thing that we are looking at is that we are counting on a little bit more of a stable macroeconomic environment. To what extent we are going to see that, I think it’s anybody’s guess at this point in time but we know given the strength of the product offerings we’ve put out there and businesses like computing where we’ve added an assortment of new vendors and our computing business continues to be strong. We believe that we have opportunities to continue to build share in those spaces.

And then lastly, as Mike Vitelli mentioned, as we look at the television business, the broad range of assortment that we are going to have and the ramp up to the digital transition in 2009, we expect to see more impact of that in the back half of the year as well.

Shari L. Ballard

Can I take the second part of the question --

Jennifer Driscoll

Absolutely.

Shari L. Ballard

The second part of the question was if you’re a store manager in did you say Phoenix or Las Vegas?

Dan Wewer - Raymond James

Let’s say any market that is seeing a significant housing problem or employment problem and they are talking to their neighbors and they are seeing more of their neighbors losing their job, will they still be required to show a 1% increase or better in their sales budget?

Shari L. Ballard

It depends on what their hypothesis is. So we could use a specific example -- you used Phoenix and Vegas, which I think are -- that’s totally fine because that meets the criteria you’ve just said. I’ve actually talked to -- I’ve been to both of those markets. So it depends on what their rationale is for why they are saying what they are saying. So if, for example, they believe they can’t grow their store because -- fully of cannibalization, as an example, then yeah, I’m going to ask them what they’ve got available to them where they can -- what customers are they under serving today, how can we actually get at some of those customers, just like I mentioned earlier today. So if there are -- it depends on what their logic is.

Am I going to come back to every single one of them depending on their argument and say universally, you must get to a one comp? No, that would be -- no, I would not do that. But what I am looking at is an orthodoxy and a mindset that says we have to grow this company we love. We have to grow store by store by store, which again is so not the hardest part of this job right now. The teams are there and they know that.

It’s more about understanding all the things you’ve got available to you at a local level to actually grow your business and so depending on what the specifics were of what the store manager was saying, if they were saying Shari, I don’t think I’m going to grow my business for the next X number of months because I need to do these things to better understand my customer needs, to get back into the community and build relationships with the community, I need to reengage my employee base because they don’t feel like they are in a position to actually contribute to the growth of the company, or the environment isn’t conducive to that, so give me time to actually build that and then I think I can do A, B, and C, I’d give them the time to do that because I think that’s a rock solid hypothesis and I’d be confident that they’ll learn their way to how to actually serve the customer.

So it’s not as absolutist as me sending out an e-mail to star everyone saying everybody get to positive comps. It’s more of a -- it’s a conversation and an orthodoxy and a commitment to grow this company we love because we understand that we have a responsibility to the customers and the new employees who are coming on board to actually do that.

And then working with the local teams on the orthodoxy of growth and then helping to build out plans for how do we actually do that in a way that we serve the customers in the community better than anybody else does. And when you look at it that way -- you know, I had a GM tell me in one of our growth plan sessions, he said “Shari, here’s how I looked at it; I basically looked at the amount that customers in my area spend on all the stuff we sell, and then I looked at how much of that they spend with us” -- this is not assuming any growth, it’s not assuming any new traffic, it’s not assuming anything -- just assuming what he’s dealing with today. He said “I looked at all that and I started asking myself, I wonder why not Best Buy? I wonder why other people besides Best Buy? So then I started talking to my team. Who are these customers, why not Best Buy? We’ve got all this stuff we can do for these customers. How do we do a better job of helping the customers know who we are and what we can do?” That -- we will win with that, that kind of orthodoxy. You know, the orthodoxy we’ve got right now in one of our territories led by Carl Sam who just refuses to believe that we can’t grow this business and they mechanically go at it a customer at a time figuring out how to serve the customer so well that they don’t shop anywhere else and his territory is growing extraordinarily well.

So it’s more that than it is a -- kind of a -- and I probably positioned it that way earlier, but than it is kind of a -- you know, everybody just grow. It’s an orthodoxy, it’s a culture, and it’s the accountability and tools to go along with that.

Does that answer your question?

Dan Wewer - Raymond James

Yes, it does, thanks. That was helpful.

Jennifer Driscoll

Bob, you wanted to add something?

Robert A. Willett

The other thing to say is if you look at the business this year versus last year, our proposition across a number of fronts has dramatically improves, as has the experience. And I think the critical thing about what Shari was talking about and what they are trying to do is to move much more from a push model to a pull model, where we are providing tools, base management tools, tailored market assortment tools to understand the locality demand, and then giving much more empowerment to local GMs to make the difference.

You know, 80% of all stores will be broadly the same the world over but the reality is the importance is that 20% and how you flex that 20% and whether you try to do that centrally or locally, and we’re setting out to do that locally, which is significantly different to what other people have tried to do.

And I would not underestimate the power of that or what that can drive in terms of gross margin and comp sales.

Brian J. Dunn

I would also add just to amplify Bob and Shari’s point, the remarks I made earlier about turnover and the reduction in turnover around our management levels in the stores and our fulltime level in the store in particular have really dramatically improved, so we have a more experienced, more engaged staff in place than we ever have that is not only ready for this but hungry for this kind of opportunity.

Jennifer Driscoll

We have time for maybe one or two more questions, Operator.

Operator

Our next question comes from Scot Ciccarelli with RBC Capital Markets. Please go ahead.

Scot Ciccarelli - RBC Capital Markets

I guess my question is also back to the flat panel TV category. As that category continues to mature and customers become more familiar with the product and start buying second and third sets, which may be outside the primary living room or family room, would you expect that to start to have an impact on size and installation rates? And what would that mean for margins going forward in the category?

Mike Vitelli

That’s a great question. We’ve in fact factored that into our plan this year because we were a leader in getting the first flat panels into most homes in the United States. We think we are going to continue to be that leader of the first home for the many, many households that have yet to really get there, but also recognizing that those initial customers are coming back for their second and third TV. It’s a significant part of what our strategy has been in increasing small screen sizes. A dramatic increase, and you’ll see it this year, in our Insignia brand levels in the store for people that are going to come back for a value second level piece.

So those mixes that you are describing are in our plan as we factored it in going into this year because we see the same thing. There’s multiple levels of people entering this marketplace at different points in time and we are perfectly positioned for everyone.

I like Shari’s point of view of why not Best Buy in almost every case? I can’t think of a reason why anybody would want to buy a TV any place else, because whether it’s the best TV, it’s your first one, you are going to make a solid investment and you want to get everything, you want it to have the [inaudible] system, you want it to be great. Or it’s I just need another TV for the kid’s bedroom or wherever I’m going to put it, we have that entire range and we can take you through it and we’ve got the people to do it.

You know, it’s kind of this -- we should have 100% share and we’ll work our way down from it. And I know that’s obviously unrealistic but we’ve built the plan in to do exactly what you are describing on all the range and all the mix in there already.

Scot Ciccarelli - RBC Capital Markets

I guess the question is do you start to see a significant reduction in the install rate as you move into the second and third sets in someone’s home?

Mike Vitelli

Well, there is no question that smaller TVs are installed less than larger TVs, and that’s built into the factors, so if you -- we look at the -- we kind of look at the install rates as how people do it of above 36-inch and below. I think that’s the distinction. So we don’t expect, if you will, a very high attachment rate on smaller TVs because we know that’s not what our customers do. We’re prepared to do it, you know, people are doing that, but it’s not a natural act, so to speak.

But above 37-inch, it’s a pretty high percentage that we are able to get people to have the televisions installed because that’s what they want to do. They want to hang them on the wall.

Barry Judge

[inaudible]

Mike Vitelli

And large is huge.

Barry Judge

And that market is going to continue to grow.

Mike Vitelli

Continue to grow -- in fact, it’s going to get bigger because as the cost per inch goes down, the size of the average $1,000 TV goes up and that’s good for installations.

Brian J. Dunn

And Vitelli hasn’t gotten his yet, but he’s going to do that soon, so --

Carla Haugen

Thank you. That was Mike, Barry, and Brian, and thanks to our audience for participating in our fourth quarter earnings conference call. As a reminder, a replay will be available in the U.S. by dialing 800-405-2236 or 303-590-3000 international. The personal identification number is 11111346. The replay will be available from 11:00 a.m. Central Time today until noon Central Time next Wednesday, April 9th. You can also hear the replay on our website under “For Our Investors”.

If you have additional questions, please call Jennifer Driscoll at 612-291-6110, Charles Marentette at 612-291-6184, or me, Carla Haugen, at 612-291-6146. Reporters on the other hand, please call Sue Bush at 612-291-6114, and that concludes our call. Thank you.

Operator

Ladies and gentlemen, this does conclude the Best Buy fourth quarter fiscal year 2008 earnings conference call. ACT would like to thank you for your participation and you may now disconnect.

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