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Operator
Welcome to Best Buy's conference call for the fourth quarter of fiscal 2009.
Later, we will conduct a question and answer session.
(Operator Instructions) As a reminder, this call is being recorded for playback and will be available after 12 p.m.
Eastern Time today.
I would now like to turn the conference over to Ms.
Jennifer Driscoll, Vice President of Investor Relations.
Please go ahead, ma'am.
Jennifer Driscoll - VP IR
Thank you, Patty.
Good morning, everyone.
Thank you for participating in our fiscal fourth quarter earnings conference call.
We have three speakers for you today.
First, Brian Dunn, our President and Chief Operating Officer, who becomes our CEO in June, will share his reflections on our results and our priorities for fiscal 2010.
Second, James Muehlbauer, our Executive Vice President of Finance and CFO, will recap our fourth quarter financial performance and elaborate on our fiscal 2010 guidance.
And third, we have Brad Anderson, our CEO.
Brad will share his thoughts on the long-term challenges for our Company and how we're responding to them.
We'll leave more than 1/2 of our time to your questions and if we go a little over an hour, we've allotted for that.
As usual, we also have a broad management group here with me today to answer your questions after we make our formal remarks.
We'd like to remind to callers that we would request that you limit yourself to a single 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 our queue, those who asked a question on the prior quarter's conference call.
We'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.
May we also remind you that, as usual, the media are participating in this call in a listen-only mode.
Now, before we jump into the details of the quarter, I want to comment briefly on the special charges you saw in our news release this morning.
First, our fourth quarter reported results include a net noncash impairment charge of $66 million.
The impairment charge relates to intangible assets associated with Speakeasy, which we acquired a couple of years ago to serve our small business customers better.
Secondly, our fourth quarter results included restructuring charges of $78 million.
That included $61 million related to the employee separations at our headquarters, as we disclosed in January and an additional $17 million for Canada and Magnolia audio video separations.
In the interest of consistency and clarity, I'd like to point out that the majority of our discussion on this morning's call about the quarter and our full-year results will exclude these charges that I just discussed.
That means, the comparisons we make will be on an adjusted non-GAAP basis.
For a comprehensive GAAP to non-GAAP reconciliation of our reported to adjusted results, please refer to the supplemental schedule on page 13 of this morning's news release.
With that housekeeping aside, let's turn the call over to Brian Dunn, our President and Chief Operating Officer.
Brian Dunn - President and COO
Good morning, everyone.
Thanks, Jennifer.
And thanks to all of our listeners for joining us for our fourth quarter earnings conference call.
We were pleased this morning to report annual revenue of $45 billion, an increase of 13%, compared with $40 billion for the prior fiscal year.
The Company's adjusted earnings per share for fiscal 2009 were $2.88, which was above the high-end of our updated guidance.
Stronger than expected sales in January and February, combined with a solid improvement in our gross profit rate, led to this performance.
And although we're disappointed to see a decline in earnings, the results of fiscal 2009 must be seen in context.
In this past year, more than any in recent memory, we've asked a lot of our employees and I am extremely proud of what they have delivered.
The economic climate in the second half of the year was certainly not what we had it planned for, yet our people delivered industry leading results.
The first measure of their efforts is in our market share, which continued to grow.
We estimate that we gained 1.2 points of share in our domestic business.
And that share gain not only represents revenue growth today but more importantly, it represents millions of new customers.
Millions of individuals with names and families and dreams that we now have the opportunity to engage with and support.
These new relationships will give us more growth opportunities as we get to know these customers.
The second measure of our employees' efforts is our customer satisfaction scores, which increased 150 basis points versus last year.
And our biggest improvement came in Best Buy Mobile, an area of the store customers once compared to going to the dentist.
Similarly and not coincidentally, despite the tumultuous times, our employee retention metrics have been incredible.
Employee turnover improved to 44% this year, compared with nearly 70% two years ago.
Improving employee retention produces tangible results above and beyond the obvious savings in the costs of training new employees.
Simply put, an engaged, experienced employee is much more likely to create a great customer experience.
I believe the two most important people in our Company are the customer and the employee.
So these two groups of metrics, which measure the engagement and satisfaction of customers and employees, are the most important indicators we have regarding the foundational health of our business.
I am extremely encouraged by this data and proud of how the team has kept a determined focus on what is essential to our customer, our Company, in a world full of potential distractions.
That faithful attention to what matters most had everything to do with yet another positive measure of our performance.
Better than expected earnings per share for the year.
The water level was certainly lower than we expected at the beginning of the year but I am confident that we maximized the opportunities available to us, while sharpening our spending.
No one would wish for the economic environment we now find ourselves in but I believe our performance in the fiscal year just completed reinforces something at the core of Best Buy's DNA.
That we understand, fundamentally, that difficult times create opportunities just as surely as they create challenges.
Rather than curse the fates, we intend to take full advantage of the new economic reality and use it to pressure test and galvanize our strategies.
More than ever before, this environment has shown a spotlight on; one, the value of our relationships with our customers.
And two, the vital role our employees play in that equation.
Technology can make dreams come true but only if it is made to live in service of customers.
We believe an engaged, knowledgeable employee is critical in that mission and it's our key differentiator.
That has been our bet for years and I am more confident than ever that it's the right bet.
With that back drop, I'd like to talk about the specific opportunities we see in the year to come and the four strategies we have in place to take advantage of them.
The first is growing our local market share.
On one hand, consumers have fewer traditional options in their own communities given the ongoing changes in the marketplace.
And that presents us with a unique opportunity to present a compelling and unmatched experience to the customer who has never shopped with us before.
And a second chance to win the loyalty of the customers who might have shopped us in the past and found the experience lacking.
On the other hand, customers are being presented with new choices.
New channels are aggressively pursuing our customers and old competitors are presenting themselves in new ways.
These new challenges in the marketplace are pushing us to accelerate our own evolution and innovation to ensure that we understand our customers better than anyone else.
We plan to respond to both these challenges and grow our market share by using both the scale of a $45 billion enterprise and the local entrepreneurship of our store teams around the world, like the one I visited recently in Pflugerville, Texas.
A story I'll share with you in a minute.
We have more than 30 million Reward Zone members.
We have the knowledge and insights of a network of companies that includes the Carphone Warehouse, Future Shop and Napster to name just a few.
And we have strong relationships with world class partners across our industry.
This alone describes a powerful network of assets that can help us grow in spite of the surrounding environment.
Especially when we include the most important ingredient, the 155,000 employees we have worldwide.
At the end of each day, literally, growing our share is the sum of millions of individual experiences our customers have with our people.
And the quality of those interactions will dictate whether or not those customers come back again.
Which brings me back to Pflugerville, Texas and the General Manager of the store there, Marcus Jewett.
I went into the Pflugerville store three weeks ago just outside of Austin, Texas at 7:30 at night.
It was one of those wonderful moments where you get to walk into the store stone cold.
They don't know you're coming.
When I walked in, what I saw was a beautifully merchandised store.
But most impressive in the store was as I walked through the store, section by section, department by department, talking to one line level employee after another.
What I found were individuals who are linked to this mission of growing their business in Pflugerville, Texas and knowing more about the customer in Pflugerville, Texas, than anyone else.
And as I went section by section, each of these employees spoke of me of their plans for what they were going to do differently and better in their departments to grow the business and take advantage of the opportunities they had in front of them.
And as I talked to Marcus at the end of the visit, I said to him that "You've made me proud to be a Best Buy employee tonight."
And I said, "In Pflugerville, Texas, at 8:00 at night, who knew?" And Marcus looked at me and said, "I knew." And Marcus told me his story, that he had been offered or encouraged to apply for two other store General Managerships, and had declined them knowing that Pflugerville was the place where he had the insight and the connection and the place he wanted to be.
So, who knew?
Marcus knew and now I know.
And leadership like that is how you get and keep and grow share.
We believe that's as true in Shanghai and Mexico City as it is in Pflugerville, Texas.
And we will hold all of our leaders, myself included, to the standard Marcus represents.
Our second priority is what we call connected digital solutions.
And it's all about what we see as an increasingly connected world.
It's the essence of customer centricity.
More and more, people want to connect with technology, with the media, and digital services of their choice.
And with each other on their terms; on the go, on the road, at home.
Literally in the palms of their hands.
We are exploring and investing on their behalf to make technology serve them on their terms.
The overwhelming customer response to Best Buy Mobile is the simplest example to use.
The need for an integrator of products and services in the mobile space is accelerating.
And that's why we're being so aggressive in our investment in Best Buy Mobile and so excited about the results so far.
Our third strategic priority is international growth.
Best Buy International is uniquely positioned to extend our influence around the world.
With an already strong presence in Europe, China and Canada and with the expansion into Mexico underway, this year, we'll place less emphasis on new store openings and focus instead on getting the most out of assets already in place.
To do that, we'll bring to bear the full range of the Best Buy enterprise.
You'll see us place much greater emphasis on tapping the strengths we have in one part of the business and leveraging them across the globe.
The best example of what I'm talking about is the profound impact that Carphone Warehouse had on the Best Buy Mobile business in the US.
Likewise, we will take full advantage of the decades of experience in the Best Buy US retail team to serve customers better everywhere in the world and earn a larger share of their business.
Finally, our fourth priority is driving an efficient and effective enterprise.
As a first pass on this priority, you will see that we are dramatically slowing our SG&A and capital spending growth in fiscal 2010.
Our core SG&A will rise approximately 1% year-over-year and that includes the addition of new stores.
This is a significant change in trajectory and reflects the current environment and the fact that we have to plan prudently.
We have also cut our capital spending roughly in half.
In large part because we will open fewer stores.
This is not a change in our commitment to investing for the future but rather, a change in the strategy behind our investments.
We are aligning our resources behind the biggest opportunities for future value and we will continue to invest in technology and to support our core strategies.
So, while we are slowing our investments this year, we will continue to progress on key drivers of the future, which we firmly believe will put us in an even better position when the global economy begins to recover.
In closing, I want to emphasize that we are not blind to the economic realities facing all companies today.
We are by nature an optimistic Company but this optimism is balanced by healthy doses of reality and we take very seriously our responsibility to our shareholders.
One of the responsibilities we have, however, is to scan the horizon and proactively seek out opportunities for growth.
And as I said earlier, we believe this environment presents a tremendous amount of opportunity and we intend to take full advantage of those opportunities.
With that, I'll turn it over to Jim Muehlbauer for his thoughts on our quarterly results and the outlook for fiscal 2010.
Jim Muehlbauer - CFO & EVP Finance
Thanks, Brian.
And good morning, everyone.
First, I'd like to recap our fourth quarter financial results and provide some additional color on our performance.
Then, I'll comment on our plans and assumptions for fiscal 2010.
This morning, we reported adjusted quarterly net earnings of $1.61 per diluted share, which was a 6% decline versus last year.
This performance was better than we had anticipated when we provided our update guidance in early January, primarily due to an improvement in January and February domestic comparable store sales trends versus our lowered expectations.
Fourth quarter revenue rose 10%.
The revenue increase was driven by the inclusion of Best Buy Europe and the net addition of 213 stores over the past 12 months.
These gains were offset by a fourth quarter comparable store sales decline of 4.9% and the unfavorable impact from foreign currency exchange rates of approximately 2.5%.
While we are never excited by a quarter in which our comparable store sales decline, we believe these results were strong relative to the consumer environment during the quarter.
The benefits of our customer centric strategy, coupled with the strong execution by our employees, continued to prove themselves, as evidenced by the consistent gains in market share and customer satisfaction that Brian discussed earlier.
We feel we are well positioned to continue this momentum, as we introduce and in some cases reintroduce customers to the Best Buy brand and our unique way of meeting their needs to enrich their lives with technology.
In our domestic segment, fourth quarter revenue totaled $11.3 billion, which was up nearly 1% from last year.
As I mentioned up front, the 4.8% decline in comparable store sales was better than we expected.
Sequentially, January and February sales results improved significantly from the December comparable store sales decline of 6.8%.
The quarter's decline in comparable store sales was offset by the addition of 136 new stores over the past 12 months.
Revenue in our international segment was largely consistent with our expectations for the quarter.
Mobile connections in Europe grew by 3%, reflecting continued strong market share gains.
Both Canada and China experienced mid-single digit comparable store sales declines in the quarter, as customer traffic slowed during the period.
One of the key highlights in our model over the past couple of quarters has been the continued expansion of our gross profit rate.
This quarter, the enterprise gross profit rate increased by 90 basis points versus last year.
While the improvement was driven primarily by the inclusion of Best Buy Europe, our domestic business continued to expand margins in a difficult environment.
Growing by 40 basis points in the quarter.
Our focus on providing customers with products and services, which meet their unique needs, coupled with a steady promotional environment, drove the improvement in the domestic gross profit rate.
The improvement was fueled by an increase in rates across most of our major product categories such as home theater and computing.
We have been effectively managing our promotional strategies, leveraging buying opportunities and improving our assortments to help drive these gains.
Partially offsetting these improvements, was a decline related to the shift in revenue mix, primarily driven by customer demand for notebook computers, which carry a lower gross profit rate.
Within the international segment, the European business gross profit rate of 28.4% was significantly below the prior year, due to an aggressive strategy to grow our market share and due to a mix shift to lower margin items.
As a result of the change in the gross profit rate, Best Buy Europe finished the year more dilutive to the overall enterprise results in fiscal 2009 than we had expected at the time the transaction was completed.
In the balance of the international portfolio, we saw modestly lower gross profit rates in Canada and gross profit rates improvement in China.
SG&A expenses totaled $2.5 billion or 17% of revenue for the quarter.
The inclusion of Best Buy Europe's higher operating cost model contributed to a majority of the increase.
As you recall, early in the third quarter, we stepped up actions to reduce nonessential corporate expenses and to lower our noncustomer facing overhead costs.
We did that based on our view of what lies ahead in the difficult macro environment.
As a result of the strong focus and execution by both our field and corporate teams, we delivered on our cost reduction goals during the fourth quarter.
In fact, with our higher than expected top line revenue, we beat our fourth quarter SG&A rate expectations.
In addition to these spending reduction actions, our rate also benefited by approximately 20 basis points from lower incentive compensation expense due to lower earnings.
Now switching to the balance sheet, I want to provide a little more context on our inventory actions during the quarter.
Given the dramatic reduction we saw in consumer demand, starting in September, we took aggressive actions to lower our inventory positions through the third and fourth quarters.
We established an internal goal of having our domestic comparable store inventory decline by 5% in dollar terms by the end of the fiscal year.
As we ended the year, our domestic comparable store inventory was actually down 15%.
I view this result as a paradox as it contains good and bad news.
First, the good news.
We aggressively managed our working capital to provide flexibility and to protect profitability from expensive markdowns during a time of significant uncertainty in the marketplace, including the liquidation of a large competitor.
And now, the bad news.
In some product categories, we simply did not have sufficient inventory to meet the higher than expected levels of consumer demand, which resulted in lost sales.
Since year end, we've worked with our vendors to improve our in-stock positions to meet customer demand.
Looking back at the year in total, we clearly ended with a dramatically different environment than we had all expected.
The global breadth and speed of these changes has had a material impact on the overall performance of the economy, to which we were not immune.
However, in the areas that we control, our performance in fiscal 2009 met or exceeded many of the goals we established on this call with you a year ago.
For example, we grew our market share in excess of our original expectations for the year.
Our plans called for a gross profit rate in the domestic business that was flat.
And we actually expanded the rate in an environment where most retailers reduced margins to maintain revenue.
We spent less G&A for the year overall than we had planned at the beginning of the year.
And most importantly, as Brian stated right up front, we continue to improve our customer satisfaction and employee retention metrics.
As we survey what lies ahead for fiscal 2010, it is difficult to imagine a more complex set of variables to predict customer spending behaviors.
We clearly expect consumer spending to remain challenged in fiscal 2010.
Yet, we plan to invest in focus areas that will position Best Buy for long-term growth, while maintaining the health and flexibility of the enterprise.
Given the expected volatility in the environment, more than ever, we are focused on managing our business based on the sign post ahead and not based on history.
As such, we believe it is prudent to provide our point of view on how we have built our plans for the year.
In doing so, we recognize up front, that the year ahead will be full of volatility as events in the macro environment continue to unfold.
As Brad is fond of reminding us, results and transformations are not linear.
And this past year serves, once again, to validate this perspective.
We simply believe it's important to give you our best thinking, as of this point in time, so you can independently assess how the changing environment may influence our assumptions as we progress through the year.
In total, our fiscal 2010 plan calls for top line revenue of $46.5 to $48.5 billion, which is an average of 6% growth year-over-year.
The revenue growth is expected to benefit from a full year impact of the inclusion of Best Buy Europe and by the net addition of approximately 65 new store openings.
Partially offsetting the growth, our comparable store sales are projected to be flat to down 5%.
Given the phasing of our performance in fiscal 2009, we expect comparable store sales declines to be larger in the first half of the year, especially when we compare again the stronger comps in the first and second quarter of last year.
From a gross profit rate perspective, we expect that the inclusion of Best Buy Europe for a full year will again add to our gross margin rate.
The balance of our business is planning for essentially flat margins when compared to fiscal 2009.
Overall, gross margins are expected to increase 20 to 30 basis points.
We made solid progress in lowering the growth in our SG&A in fiscal 2009 and have set spending plans for fiscal 2010 to deepen these reductions.
In fact, we're planning for SG&A dollar spending, excluding acquisitions, to increase by approximately 1%.
This compares to a historical run rate increase of approximately 9% in SG&A annually.
Also included in our overall fiscal 2010 expectations are start-up losses and infrastructure expenses related to our international growth strategy for Best Buy big box stores in China, Europe, Mexico and Turkey, in excess of $100 million.
Capital spending next year will be reduced to approximately $700 million, which includes $100 million for Best Buy Europe.
After taking that into account, we expect to generate free cash flow, which we define as operating cash flow less CapEx in excess of $1 billion for fiscal 2010, which is a significant improvement over fiscal 2009.
Let me take a moment here to provide you with additional context on our expectations for Best Buy Europe.
In light of the natural complexities of reporting on a venture where our partner utilizes a different basis of accounting, a different functional currency and a different reporting period; I recognize that trying to triangulate the results of this business from the outside is difficult, to say the least.
As fiscal 2010 will be the first period in which we consolidate a full year of results for Best Buy Europe, we'd like to assist you in your modeling of this business by providing some of the key financial assumptions.
Please note that these assumptions are based on US GAAP in US dollars and for Best Buy's fiscal year.
We expect Best Buy Europe total revenue of approximately $5.3 billion, which is up approximately 2% in local currency over the comparable twelve-month period.
The operating income rate is expected to decline to 3% before purchase accounting amortization.
When we include the amortization of these items, the reported operating income rate is anticipated to be closer to 1.4%.
This operating income rate is lower than our original expectations due to the changes in the promotional activity to maintain market share in the difficult European trading environment.
As you know, we consolidate 100% of the results of this venture and then, record minority interest to reflect CPW shares of the business.
From a mechanics perspective, the total net earnings from the venture are divided 50/50 between the partners.
And then, we reduce our portion of the earnings by the after tax impact of the purchase accounting items, which we anticipate will approximate $90 million or $70 million after tax in fiscal 2010.
We estimate that the net earnings from the operations of Best Buy Europe will be dilutive by approximately $10 million or $0.02 in EPS to our results.
To conclude, the overall enterprise P&L outlook, we're expecting a tax rate of 38% to 38.5% in the coming fiscal year.
Bringing it all together, we are forecasting EPS of $2.50 to $2.90 for fiscal 2010, representing a range of a decline of 13% to an improvement of 1% year-over-year, excluding restructuring and impairment charges.
Keep in mind, as I mentioned earlier, our comparable store sales comparisons are more challenging in the first half of the year.
We'll also have the rollover impact of operating expenses associated with last year's new store openings.
Both of these factors will put increased pressure on our earnings in the first half of the year.
We see both opportunities and risks in the environment, which can materially impact the performance expectations I just outlined.
Key items we'll be watching include; dramatic changes in consumer spending behaviors, the ability of customers to access credit, and the impacts of stimulus activities and other material legislative changes.
Let me finish with a couple of important take aways.
First, our customer centric strategy has allowed us to build market share consistently and to outperform competitors in our space.
This strategy brings benefits to our customers, as consumers across the globe are looking for someone to help integrate the promise that technology brings into their lives.
Second, our entire management team, now more than ever, is aligned to follow and anticipate customer needs and to use this strategy to improve both our revenue growth and our return on investment.
With that, I'd like to turn the call over to Brad.
Brad Anderson - CEO
Thanks, Jim and good morning, everyone.
Because of the challenging global economy, for the last few months, we've heard more about the threats facing our industry over the longer term.
As I approach my retirement from the role of CEO in June, I'd like to share with you my view of these threats.
It's important to understand because it also speaks to why we've been successful in the past and why I believe we will continue to be successful in the future.
What have people given as reasons this Company may not be as successful in the future?
Many of them say we're a good Company but it's like being the best house on a bad street.
Let me examine that, why some may view the consumer electronics industry as a "bad street."
The first threat to the Company is that the product cycle we're in is dead.
As evidenced, many say, by this year's Consumer Electronics Show, often called CES.
The concern is whether our profits peaked with the digital TV cycle.
The second threat, is that new forms of distribution will kill us, either from direct sellers or Internet based retailers.
The third threat is international failure.
And this is [showing] up because, conventional wisdom, is that nobody in retail succeeds when they leave their home country.
The fourth threat is that because -- is that business will commoditize and all of the customers are going to move to mass merchants, such as Wal-Mart and Costco.
There are other threats but for now, let's focus on what are arguably the top four that we hear today.
I would propose that none of these are new threats.
Yes, they're legitimate views but they're definitely not new.
And here's how I'd like to answer each of them.
First, I believe the product cycle threat has never been a true threat.
Those who invest in our Company because they liked the DVD or the flat panel, they may have invested wisely but not for the right reasons.
The macro trend is multi-product and it's not one big innovation.
And that's why we can never prove that we have a killer app.
It's not one new thing.
It's literally thousands.
I've been to almost 30 CES shows and the headline, it seems to me almost every year, is there's nothing new at CES.
I differ.
There's always something new at CES, it's just hard to see.
My example this year is Windows 7.0, shown at the Microsoft booth at CES two months ago.
Even the hardware companies are consistently saying that this product is much stronger than anything we've seen from Microsoft before.
Furthermore, Windows 7.0 could provide the fuel for thousands more innovations.
Look at the rate of growth in our industry.
It was flat to down slightly last year.
Now, it's a highly discretionary category and it fared much better than housing or many other categories that are also discretionary.
Further, it deeply impacts people's lifestyles.
For proof, you don't need to look any farther than your own household.
We've only begun to see the digital lifestyle and the changes that it will bring to how people live.
Look at how much more a part of your family's life technology is.
And the number and types of technologies and applications we're each using, whether we're 12 years old or 80 years old.
Look at the customer benefit.
Is it stronger than it was in the past or is it weakening?
I believe we have not scratched the surface in terms of what people will do with digitization in their homes, in their businesses, in their vehicles.
And that Best Buy can help.
The second threat is the direct model.
That threat is older than our Company.
It started as a catalog based threat.
Some of you may remember -- some of the older months you might remember companies like 47 Street Photo and morph to models like Dell's.
Initially, the primary threat was lower prices.
And more recently, it's been a richer connection with the customer through call centers, Websites and enhanced distribution from companies like UPS.
All of which makes it more formidable than it's been in the past.
My view is that the direct channel will do well and so will Best Buy.
It's both.
And in fact, it's Dell inside Best Buy, as a current example of why, while that does well, we can gain market share -- and we're gaining market share in computers faster than ever.
We couldn't have more abundant evidence than as you look at Dell, Apple and HP, which sell computers directly and also in our stores.
In the process of both of these worlds coexisting, we'll create new products and our own brands, coexisting with the stores and we believe we will continue to add to our share gains.
Third, the failure of retailers who grow abroad has been the conventional wisdom for as long as I can remember.
With the exception that Europeans were viewed as more successful because they had more respect for the differences in the countries they served.
We see early evidence that the conventional wisdom is false.
We're in other countries as much to learn as to teach.
And we have evidence we're already learning.
We learned from multiple brands in Canada.
We learned about sourcing in China and about mobile phones in Europe.
We're engaging with the world as a learning experience in which innovations go both ways.
And one reason our growth profit rate held up this year is we used the skill set we assembled outside the United States.
Our private label business is up more than 40% from a year before.
And a second example is our mobile phone business.
One take away from this year's CES was the message that three screens and the integration of those three screens is critical.
That people want to create an excess content, interchangeably amongst their TV, computer and mobile screens.
We had a huge share in two of those screens; televisions and computer, and a tiny share in the third.
Now, we've had nearly triple digit comps in mobile phones.
And we've achieved these results through international knowledge transfer.
And now, it's fair to point out while mobile phones are doing well, our international segment's operating income was lower than our domestic rate.
But my perspective is that those are the growing fields for our future.
Early on, the development costs are higher and we don't expect to harvest the same size returns at this stage.
The reason we're making the investment is that we believe that there's a horizon there and that we can transfer globally developed skills into these countries and vice versa.
That brings me to the fourth threat, commoditization.
Commoditization has been a threat for at least 30 years and the business will commoditize.
Yes and we're not afraid of it.
In fact, we got to our current position in the market by going down the road that we called Concept2.
And Concept2 was designed to give our stores the ability to benefit from commoditization and sell great products at fair prices, in an efficient, flexible, grab-and-go environment.
That remains our model today.
We're engineered as a discount store, that's conveniently located, with a flexible architecture, that can compete on prices.
Moreover, the same stores have considerably higher revenue today than they did when we launched them.
We're not seeding the space of commoditization of the mass merchants.
And we don't need to lower our prices to get there.
We are the number one buyer of products in our key categories.
And in addition, we do our own sourcing and are increasingly our own manufacturer.
We said at the beginning that all of these are threats -- yet all of these are threats yet they're not new.
In fact, this discussion is important because these threats have been the engine of Best Buy.
We face these threats and we've continually adapted our presentation to the changes in the environment.
And we've learned that when we see a threat, we win if we recognize it quickly and adapt to it.
So today, if a new threat comes at us, we will quickly see it as an opportunity or challenge.
And we have an incredible, flexible capability to adapt to these challenges to a degree that other retailers haven't shown.
My point is this.
We're consistently adapting the enterprise because of the industry we're in.
Because these very challenges that you know as well as we do, are real.
Those of you who followed our story awhile, probably heard our founder Dick Schulze say much the same thing.
As CEO, he talked about the importance of staying in lock step with the customer and how the keys to success are passion, good partners and persistence.
He would tell the story of how you don't have to have an MBA to see how customers respond.
And that at our tornado sale, we offered great products and we saw it tangibly.
The fact of the matter is that we had no other viable option at that point but to adapt or to die.
Today's challenges likewise are big and very real.
For the Company to be 43 years old and have survived when others didn't, we had to learn to surmount successively larger obstacles.
And in the process, we developed unique skill sets.
In a horizon in which the products and services we offer look to become more important in consumers' lives in the future than they are today, I believe our boundaries are not marked by borders and are only limited by the imagination of our employees.
So, we're poised here today in a challenging global economy but with a set of products and services that have never been more relevant.
And with competitive pricing, with a multi-channel approach, and with more experience than ever at adapting to our environment.
I have enjoyed the last years as CEO and view myself as a transition figure in this Company's story.
We had a huge adaption to make when I began.
From a product centric Company, to one that looks at customers with depth and its employees as having unique strengths.
In my seven years as CEO, I started the journey and I'm proud of that.
But more of the journey is ahead of us than behind us.
Being CEO is like being a parent.
And I'd say that Best Buy is a teenager.
One of the things that excites me in retiring has been handing the reins to Brian.
And the sense that I have a community and the continuity of that dream.
Yet, it's not precisely the same dream.
And he's certainly someone who exemplifies being able to adapt and to surmount any obstacles.
And with that, we'll turn the call over to questions.
Operator
(Operator Instructions) The first question is from the line of Brad Thomas from Keybanc Capital Markets.
Please go ahead.
Brad Thomas - Analyst
Yes, thanks.
First of all, let me congratulate you guys on some nice execution there in this quarter.
Brian Dunn - President and COO
Thank you.
Good morning.
Brad Thomas - Analyst
I wanted to just ask a little bit about what you're seeing now that Circuit City is closed?
They started closing stores in some markets back as early as November of last year.
And obviously, wrapped up just a couple of weeks ago.
Could you just talk a little bit more about what kind of impact you're seeing and then how you're factoring that into your guidance for this year?
Jennifer Driscoll - VP IR
Brian will answer that one.
Brian Dunn - President and COO
I'll certainly kick off the answer, Jennifer.
Here's how we're thinking about the Circuit City opportunity that's been afforded us.
We see it as being all about customer acquisition.
And we have a wonderful opportunity here to bring new people into the brand that haven't been in the brand.
And candidly, more importantly to my view, is to get another crack at customers that we have disappointed along the way that have left the brand over time.
And I'm going to ask Mike Vitelli in a minute, to talk about some of the categories and how we're thinking about that.
But it really illustrates -- we've talked about local share growth.
We really see this opportunity as being leveraging the macro capabilities of a $45 billion Company, our enterprise capabilities.
But really directing them and connecting them with customers in Pflugerville, Texas and customers in Miami; in all the places where this opportunity is.
We will gather more than our fair share based on the efforts of our teams locally.
Mike.
Mike Vitelli - EVP Customer Operating Groups
The way we're thinking about the Circuit City customers, we're looking at areas in their lives where the product lines that we sell more dramatically overlap with what Circuit City sold.
And as you look at the key areas there are hiring, home theater and digital imaging categories and some of the computing spaces they were in.
Clearly, as you mentioned, as they started to first close stores and certainly as they went into liquidation in the fourth quarter, we began taking share even in the fourth quarter from them.
And I think that some of the increasing demand that we saw, particularly in the TV area, which is one area where we would have liked to have had more inventory, that was direct response to that them going out at that time.
That's where we're looking at areas where we have that additional opportunities as we go into next year.
So the higher end home theater space, certainly digital imaging and computing; are all areas where we're looking to focus our attention.
And we think that the loyalty we can get there can actually apply to some of the more ubiquitous categories like music, movie and gaming, as well.
That are often in more places than you can imagine.
But we think that if we give the customers the experience that they're looking for, they'll come back to us for those products as well.
Brad Thomas - Analyst
Okay.
Is there -- in the markets where Circuit City exited earlier, is there a specific quantification of the lift that you've seen from market share gains?
And is there any specific sales number that you're trying to bake into your guidance for this year?
Jim Muehlbauer - CFO & EVP Finance
Yes.
This is Jim Muehlbauer.
We clearly have a range of expectations around the dramatic opportunity we're going to have next year to improve our sales as a result of the liquidation of Circuit City.
I think the team has got good local market insights, as Brian mentioned.
And we've got a little history to work from as well.
As we have seen other competitors over the last few years dissipate.
Whether it was CompUSA or others, we kind of know what the customer transference has been.
And I would tell you that the first 150 stores of Circuit City, we did see -- I'd say we have good information on those markets.
But candidly, 150 stores versus a full chain is a dramatically different story.
And when you overlay that with the macroeconomic environment and what customer behaviors could do in the next year, it makes pinning down a specific number rather challenging, to say the least.
We're very comfortable that we are going to capture, as Brian said, more than our fair share.
And it is materially impacting our comps, expectations and our guidance for next year.
Brad Thomas - Analyst
Okay.
Great.
And just one follow-up on that, Jim.
During your comments, you mentioned a steady promotional environment.
Would that be steady from the third quarter and more promotional October and November that we saw?
And is it fair to assume that perhaps that's moderated even a little bit now that we've gotten into the first quarter, now that Circuit City has gone away?
Jim Muehlbauer - CFO & EVP Finance
Yes, so we haven't commented on what's happened in our current fiscal year.
But consistent with what we said in the third quarter, the promotional environment played out both in Q3 and Q4 pretty much as we expected.
Certainly, I'm not including in that the liquidation activities that Circuit went through.
But as we looked at the core CE category in our ongoing competitors, the promotional environment was very steady from -- versus our internal expectations.
Jennifer Driscoll - VP IR
And on a year-over-year basis sort of, yes.
Thanks, Jim.
Next question please.
Brad Thomas - Analyst
Okay.
Thanks so much.
Operator
Thank you very much.
And our next question comes from the line of Dan Binder from Jefferies & Company.
Please go ahead.
Dan Binder - Analyst
Good morning.
It's Dan Binder.
A couple questions for you.
Just wondering if you could quantify what you think the sales miss opportunity was, given the shortage of inventory and how quickly does that get addressed?
And then secondly, if you can comment on whether it's in dollar terms or percentage terms, the shortfall from your expectations on Europe for both Q4 and with regard to your expectations for next year?
Brian Dunn - President and COO
Dan, happy to do that.
Why don't I do this?
Why don't I talk first about the inventory?
And I'm going to ask Shari and Mike to chime in with what we heard from the field teams and what we heard certainly from our vendors and merchant groups as we were progressing through the year.
It is very difficult to quantify precisely how much of an impact or inventory shortfalls we had, for a couple of reasons.
Number one is, we're not fully back in stock to the levels we want to be.
And we won't know until we get that in place.
Secondly, trying to assess that level during a period of time when a major competitor is going out of business provides a challenging set of analytics.
What we do know is that our traffic patterns in February were significantly higher than we saw in December and January.
And we know that our close rates in the store dramatically fell in February versus what we saw earlier in the quarter.
So that, coupled with the anecdotal evidence that is very strong from our retail leaders around the interactions they were having with customers, who not just kicking tires but who were looking to buy certain products that weren't available, is a very strong indicator to us that we left some business on the table.
And I wouldn't suggest for a minute that our negative roughly 5 comps for the quarter would have been flat had we had the inventories.
But it wouldn't be out of the realm of expectations to see maybe 1.5 point to 2 points of comp for the quarter if we would have had inventory levels.
But once again, it's a real hard number to pin down in light of what was going on in the system.
Dan Binder - Analyst
That's helpful.
And when do you think you could be back in stock?
Jennifer Driscoll - VP IR
Mike, do you want to handle that one?
Mike Vitelli - EVP Customer Operating Groups
Yes.
In a sense, in explaining the supply chain a little bit, when you look at what happened when the market and the world started to change.
In September.
October, November, probably the first three to four weeks of December, right until you got to Christmas, you were in pretty significant almost double-digit declines in the industry.
So, the industry is looking at that.
Our projections at that time, the fact that Circuit was literally going out of business at that point and had announced it.
Not surprisingly, there were massive reductions in production plans during that period of time.
Second what happens is, we're in the process of transitioning a tremendous amount of our televisions, digital imaging products right now.
So they are at the end of their production life cycle.
So you can imagine the signals manufacturers giving to their own factories and to other chip and component suppliers saying, "Here's where we are October, November, December.
We're going to end the production life of the SKU in February and March.
And here's our plans."
Then January and, as Jim mentioned, particularly February comes and the consumer demand is a little bit higher than we already had planned.
The world manufacturing was already down to the trough of where they were going to go and now they're trying to build back up.
And in a normal period, when you're in the middle of a life cycle of a product, their ability to rebound would probably have been about six weeks.
The fact that they were at the end of a product life cycle didn't allow for that.
Because they weren't really going to gear up and build more of last year's product, so to speak.
We believe we're in a position where we're getting some of the earliest allocations of some of the new products in 2009.
We just reset about 50% of our television SKU's this past weekend.
That's starting to happen both in television and digital imaging as well.
So we think as we get into the early parts of middle of April, we'll be in a position we'll start to begin to find where that water level is with customer demand on our inventory levels.
Dan Binder - Analyst
Great.
Thanks.
Jim Muehlbauer - CFO & EVP Finance
Dan, your second question was around the performance of Best Buy Europe, I believe in Q4 and in next year.
And I'll give you a couple of overview comments and I'll let Bob Willett jump in with some more context on the business.
But starting with FY '09, the results from the acquisition period through the end of our fiscal year was really a story primarily around what was happening with market share and gross profit rate.
And that our sales assumptions for the venture basically came in pretty close to expectations for the first year.
And our SG&A spend was very close to what we expected also.
The big change in the environment that took place in the back half of our year with Europe were twofold.
Once, as the economy started to soften, the promotional environment intensified in Europe.
And we made a conscious decision, with our partners at CPW to make sure that we maximized market share opportunities that we saw in this space in light of the environment we see moving forward in the connected world.
So we lowered our margin expectations for the business proactively in the business.
We also saw an increased mix shift into the business as customers were moving a little bit more away from postpaid handsets to mobile broadband, which mobile broadband is a still a very profitable category.
But from a margin rate standpoint, it's less profitable than the core prepaid or postpaid handset business.
So, really that change in gross profit rate is what drove our variance in Q4 -- I'm sorry, for FY '09.
We're expecting kind of the same phenomena for next year.
In that, in Europe, our top line expectations for next year are still fairly consistent with what we originally anticipated.
But we continue to expect to see pressure in the margin as we continue to grab share.
And we've also purposely, and this is not different from the acquisition assumptions, is that we're going to incur significant expenses in Europe to prepare the business for a Best Buy big box launch.
So infrastructure costs are going in around systems, people, the work we need to do to get ready for that big box launch in Europe.
Bob, do you want to provide some color on Europe?
Bob Willett - CEO - Best Buy International & CIO
I think you've said most of it, Jim.
But just to sort of reiterate that, whilst we knew that we deliberately set out to reduce our margin over Christmas in order to take the number one market share spot, which we did.
In fact, we materially grew our market share over the Christmas period.
In fact, we were one of the very few retailers in Europe, particularly in the UK, that actually had positive comps.
So I think there's only two in the UK at the time and CPW Best Buy Europe was one of those.
Having said that, we're not letting the margin deterioration remain.
We did that deliberately to grow our share, so that when we come out of this economic situation over the next 18 months to two years, we want to be in a very, very strong position.
A bit like we are here in the US.
So we're putting a number of things in place to make sure that we grow the margin.
And this is where the joint work of the two enterprises really comes into play.
We're experimenting with a number of smaller stores.
[Wireless] World Stores, 3,000 square feet, where we're using the combination of Best Buy strengths around PC's, around accessories, gaming.
And we have Geek, plus Best Buy -- plus CPW's mobile business.
And those four stores are actually really starting to work very well for us.
But our prime aim, first of all, is to sweat our existing assets; to sweat the 2,500 units that CPW has.
And so, Geek is now in those units.
We have gaming going in.
We have accessories going in.
A lot of work going on at the moment and you'll see a material change.
So, yes, a margin sacrifice in the first instance but that will come back over the coming 12, 18 months.
And I'm sure it's the right thing to do.
Because we to want make sure that during this tough period that we really grow our share.
We're not going to give up on that because we are a growth business and that's the way we want to stay.
Dan Binder - Analyst
Thank you for the color.
That's helpful.
Brad Anderson - CEO
Thanks, Dan.
Jennifer Driscoll - VP IR
Next question, please.
Operator
Thank you.
And our next question comes from the line of Michael Lasser from Barclays Capital.
Please go ahead.
Michael Lasser - Analyst
Good morning.
Thanks a lot for taking my question.
Brad Anderson - CEO
Good morning, Michael.
Michael Lasser - Analyst
Now that the Company is entering a new era, where it's responsible for stewarding a greater percentage of the overall presentation space of electronics to consumers.
How do you think about the balance or even tension between the responsibility of being a good partner to your vendors, along with maximizing profitability for shareholders by leveraging the scale of your enterprise by perhaps extracting the best terms from your partners and promoting private label brands?
Over time, do you expect to see better product margins as a result of the changing competitive landscape?
Jennifer Driscoll - VP IR
We'll turn that question, Mike, over to Mr.
Vitelli.
Mike Vitelli - EVP Customer Operating Groups
I think the way we look at how we accept that responsibility is creating a win/win for our suppliers.
What they're all striving to do is investing billions of dollars to try and create products that can excite and improve people's lives.
And our job, what we take our position in that, is to present that in a way that it is compelling and that people can see the effort that they brought out.
We have a value that we present and I think they see it.
And I think we work with them, that we're producing a return that's good for our shareholders and they're producing a return that's good for their shareholders.
Our value, I think, increases in an environment where there's less options to go.
And I think that's a positive for them coming to us and for us wanting to work with them.
But I think we take the responsibility seriously because we're both becoming larger and more important to each other.
There's a consolidation of retailers and there's a consolidation of manufacturers.
So that kind of symbiotic relationship actually gets stronger.
On the question you pointed out about private label products, I think they appreciate the fact of what we're doing.
It's relatively new in the industry for consumer electronics to have a strong private label business.
We're doing that quite well.
And we do it with the thought of bringing products into the market that are different and unique than some things that come out from our suppliers.
And in that sense, we're complementary because we're bringing things that we see that they haven't done and we try to look at that each year.
At the same time, let's -- we need to all be pragmatically realistic, is many of our manufacturers have retail locations and Websites, as we have private label products.
And I think that's just the nature of the way the industry is going, as well.
So, I don't think there's undue or unbalanced tension between us and them, any more than there would be with them opening a store or opening a Website.
Brian Dunn - President and COO
Mike, it's true, though, that in a sense, that is relatively fresh.
Where there's much more coop-petition in the industry.
So they have -- we actually want them to have other options besides just us.
And that also gives us the freedom to have other options besides just them.
Mike Vitelli - EVP Customer Operating Groups
As I said, I think that it's very well balanced.
In some cases they create the stores and the environments to be able to show their products and their services the way they see them sometimes.
And I think that's all positive.
Michael Lasser - Analyst
And then, a quick follow-up.
Brian, as you begin to think about the way you lead the Company, do you see any deficiencies in the capabilities, of where the Company currently stands, to take advantage of the opportunities, such that you would need to commit large amounts of capital to gain those capabilities?
Something like did you for Best Buy Europe?
Brian Dunn - President and COO
Well, I think the good news is I see lots of deficiencies that we can leverage and improve and grow from.
The truth of the matter is, I don't see any massive deficiencies that need to be addressed with large tranches of capital, certainly, over the short-term or even the mid-range here.
Which is not to say that -- again, this environment will provide opportunities and we'll be aggressively scanning the horizon, looking to position the Company for growth in the best way we can.
Michael Lasser - Analyst
Thank you very much.
Good luck with everything.
Jennifer Driscoll - VP IR
Thank you, Michael.
Operator, next question, please.
Operator
Thank you.
And our next question come from the line of Michael Baker from Deutsche Bank.
Please go ahead.
Michael Baker - Analyst
Thanks.
So, two questions.
One, you said that you picked up 1.2% share domestically this quarter.
I think last quarter you said 1.7%.
So I am curious as to why you pick up less share this quarter?
Is that because of the Circuit City liquidation sales and then we should expect that to accelerate now that they're gone?
And then, just trying to reconcile two things.
One, so traffic was better in February.
Your in-stocks now seem to be a little bit better in March.
So, I would assume that March is doing well but you seem cautious on March given the tough comparisons.
So, I'm wondering if you can speak on for how we should expect the first quarter?
Jennifer Driscoll - VP IR
Michael, this is Jennifer.
We weren't cautious, we just weren't commenting on March.
Michael Baker - Analyst
Okay.
Fair enough.
Brian Dunn - President and COO
I'll comment on the share gains and then, I'll turn it over to Jim.
So, Brad taught me this a long time ago, about 15 years ago.
There's two events you can't take away from your competitor, the GO and the going out of business sale.
And while we're very pleased with how business held up during that, it's undeniable that the Circuit City GOB did a big tranche of business that came out of the market over the January/February horizon.
Michael Baker - Analyst
Okay.
Brian Dunn - President and COO
And you add to that, the fact that we were unusually out of stock.
Michael Baker - Analyst
Right, Okay.
Brad Anderson - CEO
And I think, Jennifer, I think you answered the question on what's the trend of business been in March.
It's early in the year, obviously.
Many things are going to play out as the year progresses.
I think so I also mentioned in comments, Michael, that we're going to go up against our toughest comp compares during the first half of the year, as we lap stimulus checks from last year and things of that nature.
So, it's been a very volatile environment in FY '09 month by month.
We have no reason to believe it's going to be any different month by month in the fiscal 2010, which is why we're going to continue to manage the business based on the sign posts and opportunities we see ahead.
Michael Baker - Analyst
Okay.
And you did comment that you do know what you picked up when CompUSA went away for instance.
Are you going to -- and want to share those market share gains with us?
Jim Muehlbauer - CFO & EVP Finance
Not at this point in time.
Because once again, I don't find that they'll be overly instructive, based on the environment that we're moving towards.
I think the impact on our business, we know the impact will be dramatic.
We are going to get more than our fair share of our business.
And candidly, we don't want to look at the traditional metrics that we've used to acquire customers when other retailers have gone out of business.
We think the Circuit customer and the size of that business and the times that we're moving into from a connected world standpoint, are dramatically different.
And we actually don't want to rely on the old analogs.
We want to do better.
So, that's part of our challenge.
Brian Dunn - President and COO
I'll add one last piece of commentary about share gains and I think it's important.
We don't rent share gains.
We have a long trend line of acquiring share and holding that share and growing from that new high water mark, which I think is very encouraging for us in this environment.
Michael Baker - Analyst
Okay.
Thanks for the color.
Brad Anderson - CEO
Thanks, Michael.
Jennifer Driscoll - VP IR
Thank you.
And that was in order Brian, then Brad, then Jim and Brian at the end.
Next question, please, Patty.
Operator
Thank you.
And our next question comes from the line of Alan Rifkin from Bank of America.
Please go ahead.
Alan Rifkin - Analyst
Yes, certainly, can't let this conference call pass without saying congratulations, Brad, on your retirement.
Brad Anderson - CEO
Thank you, Alan.
Alan Rifkin - Analyst
I wish you health and happiness going forward.
It's been nice to know you for 12 or 13 years.
Brad Anderson - CEO
Thanks very much, Al, I appreciate that.
Alan Rifkin - Analyst
It's well deserved.
A couple of questions if I may.
With respect to the warranties, I believe you said that the ASP's rose.
I was wondering if maybe Jim or Brad, you could provide some color as to what was behind that and maybe provide a little color on where warranty attachment rates are?
Thank you.
Jennifer Driscoll - VP IR
We won't be commenting on the attachment rates, since that's not our policy to do so.
But Sean Scully from our services team will address the question that you had, Alan, about warranties.
Sean Scully - SVP Services
So, in the third quarter, as we spoke, we rolled out what we call Geek Squad Black Tie Protection, which is an improved warranty program, which gives the customer much more choice about whether they want a basic fundamental coverage or if they want an extension.
Which can allow us to serve them better.
And we saw, therefore, an ASP increase, particularly on critical categories where that value was higher, so high-end laptops, high-end TV's.
Where we saw that benefit and candidly, even appliances, even though the category was down.
So that's why our ASP increase went up.
And then, I'll turn it to Jim, if he wants to talk about essentially what that impact was to the Company.
Jim Muehlbauer - CFO & EVP Finance
So, we don't provide specific color on attachment rates.
You can see that our services business contribution to our overall comparable store sales for the quarter.
I think it also, using Sean's example, it points to the some of the cornerstone strengths of the Company about going beyond the sale of the product and identifying new value propositions that really are in response to what customers are telling us.
So, we know we have opportunities to continue to evolve our assurance business around products.
And now given the assets that we have built from a repair perspective, given the strength of our relationships with vendors, we can add more value for customers.
And actually, provide them things that actually drive better value for our shareholders over the long-term as well.
So, it's an exciting part of the model that we get into, as more and more of these devices work together and need to be networked together.
And we have invested in the integration skills and the skills to repair those things when they don't work according to the customers' and the manufacturers' plans.
Alan Rifkin - Analyst
Okay.
And one follow-up, if I may, either for Brad or Brian.
Does the Chinese government's posture towards Coca-Cola and not allowing them to expand pretty significantly into China through that proposed acquisition of theirs, does that cause you to maybe take a step back and look at what the real opportunities in China may be over the long, long-term in?
Brad Anderson - CEO
I think that's a great question.
We have been -- And I'll just comment briefly and let Bob respond.
But one of the things we know fundamentally about China, is it's very different from the other ecosystems that we're in.
I think we've tried to handle that, to try to come into harmony with the climate we found in China and the interest of the Chinese government in particular, in the way we've operated and the choices we've made.
And so far, our experience in China has been, I would say overall, remarkable in terms of the kind of cooperation and support we've had.
Though, we're clearly aware that we do not have the same flexibility you might have in say Europe or the US.
Bob, do you want to comment about that?
Bob Willett - CEO - Best Buy International & CIO
Alan, I would answer it very simply.
In going into other countries, there's no question you have to be very much on listening mode.
And have you to make sure that you fully understand their laws, both the stated laws and unstated laws.
And the reason why we took nearly two years before we got anywhere near a site, was to make sure we really understood it.
And even then, candidly, we made mistakes.
But one of the things we did was to make sure that all times we were communicating adequately with both local and central government.
And I can't tell you how many times I've sat in central government corridors.
And in the end, when the Chinese government understands that you are there to comply with their laws, they are very good to you.
We have had excellent support from the central Chinese government and from the provincial governments, in all provinces.
In particular, Shanghai and Nanjing.
And we are having absolutely no problems now in getting approval.
So sites in the first instance, we didn't understand the process terribly well.
There was a lot of determination going on with central government, how much they should pass out to local government.
But once that was clearly determined, we were clear.
We had no issues whatsoever.
And they have been extremely helpful in pointing out shortcuts to the process.
And now, of course, we've been given approvals not to apply to central government.
We now only have to apply to local governments, which is -- which we were the first to be given that permission.
So whilst it's arduous, whilst it's time and painstaking, if you're going to enter a big economy, you have to do that.
And make sure that, at all times, you're listening and behaving properly.
And all I can say is we're delighted with there.
There's a huge opportunity there, even though at the moment in parts of China there is no question that there is some downturn going on.
But it's still a great place to be.
Brad Anderson - CEO
A critical thing I think for us has been an example was, we discovered that the company we acquired was opening new stores without actually getting the approval of Chinese government, as was the law.
And once we discovered that, we went immediately to the Chinese government and let them know that we discovered we were in violation of Chinese law.
And so, we're trying to establish a relationship with them that has -- where they know that we are a completely honest broker and that we share their interests.
Alan Rifkin - Analyst
Okay.
Thank you very much.
Jennifer Driscoll - VP IR
Thank you, Alan.
Next question, please.
Operator
Thank you.
And our next question comes from the line of Mitch Kaiser from Piper Jaffray.
Please go ahead.
Mitch Kaiser - Analyst
Thanks, guys.
Good morning.
My congratulations as well.
And Brad, best wishes.
Brad Anderson - CEO
Thank you.
Mitch Kaiser - Analyst
Mike, maybe could you talk -- and this is a follow-up to Michael's question.
Could you talk more broadly about what you think the mix of the products will be in the store?
I think you've talked previously about a potential SKU rationalization.
And I know a lot of the merchants have been trained on GMROII.
And where you see maybe the opportunities from an inventory perspective?
Thank you.
Mike Vitelli - EVP Customer Operating Groups
Thanks, Mitch.
Yes, we talked about that with several of you the last time you were here.
When you think about it, really doing some of the fundamentals that you would do as any good retailer or manufacturer would, is looking at the productivity of our SKU's.
And taking out those that are less productive.
That's a logical thing to do.
And more importantly, the way we're looking at it is, there are SKU's that sell really well.
In any category or departmental mix, there are SKU's that do really well and SKU's that don't do as well.
If you can eliminate the ones that don't do as well and create more facings and stock space for the ones that are doing well, that's actually going to add a tremendous amount of productivity in the stores in the sense of being able to fill shelves with inventory, less times, to have to down stock less.
They sound like simple operations but when do you those in the stores seven days a week, times 1,000 plus stores, that's not a trivial improvement.
So, we think that that's going to allow us to actually get better turns our inventory, to make our store employees more efficient.
So it's looking at the basic blocking and tackling that you would do.
We're just doing it with a little more attention and focus than we were doing a year or two ago.
And we're pleased with the results that the teams are coming in right now.
Mitch Kaiser - Analyst
Okay.
And where do you think you are in that process?
And then, is there any numbers that we can hang our hat on related to that in terms of inventory reduction or SKU reduction or those types of things?
Mike Vitelli - EVP Customer Operating Groups
Well, I'm sure all of you are going to go out and count televisions and things like that over the next couple of months.
Mitch Kaiser - Analyst
Well, we're not.
Our junior analysts are.
Mike Vitelli - EVP Customer Operating Groups
(Laughter) So, things are universal.
But I think you'll see that we've made good progress and we are reducing SKU counts of televisions.
So that what we'll do is, we'll have better in-stock positions of the TV's we have.
So I don't think that the situation that we're going to have is that we're going to have less inventory dollars.
We're going to have the dollars on the SKU's that we know are going to sell.
And I think what that's going to do is, we're going to have more people coming into our stores than ever looking at the SKU's that we have.
And part of the SKU rationalization is making sure that we're competitive with the assortments that are in mass channels.
That were priced the same.
So, our SKU is assortment is both in its quantity and its quality.
Mitch Kaiser - Analyst
Okay.
Thank you, guys.
Good luck.
Jennifer Driscoll - VP IR
Thanks, Mitch.
Next question, please, Patty.
Operator
Thank you very much.
And our next question comes from Dan Wewer from Raymond James.
Please go ahead.
Thank you very much.
Dan Wewer - Analyst
Jim, you noted that your comp guidance for 2010 assumes a sizable benefit from Circuit City.
I think you also noted you thought you'd get more than your fair share.
When you're thinking about getting more than your fair share, are you thinking in context of your 22% total market share or more specifically, your share among the specialty competitors, which I believe is around 70%?
Jim Muehlbauer - CFO & EVP Finance
Yes, I think you have to look at it in the context of Circuit's total business and the products that they sell.
As Mike Vitelli took us through.
So certainly, the customers who participate in that model today will look through different channels and competitors to fulfill those needs going forward.
Some of them may continue to participate in a mass channel.
Some may go to more specialty retailing.
I think Mike said it well, when he talked about the key product categories that we overlap with them in the high end home theater space.
Obviously, we're going to pick up a representative share of our existing business.
But as we get into some of the more commoditized and more general categories that are represented throughout the different channels of distribution, we'll be a little bit lower percentage.
Dan Wewer - Analyst
So it sounds like you're saying, it's probably around 30% of whatever business was left, is what you're penciling in.
Jim Muehlbauer - CFO & EVP Finance
It sounds like that's what you're saying, Dan.
I don't know the exact number.
Brad Anderson - CEO
One of the things, to be honest with you, from my lens is because we've watched, over many years, I've watched many, many competitors disappear.
Is that I don't think -- you can come up with a rough approximation but even long after looking into the numbers because of the other numbers in the ecosystem shifting.
But I would say, the sort of rational look would be in the distance between the 22% and 70%.
And it won't be 70% and it won't be -- I don't think it will be 22%.
Because if you look at the -- there are -- I think Shari keeps making the point here, those are customers who consciously chose not to buy at Best Buy.
It wasn't because they didn't know we existed.
So, we've got to win those customers over one at a time.
And there's a reason they're not shopping with us.
And part of our core effort is to try to really listen and pay attention to why they chose not to shop with us.
And see if we can make a significant enough difference that they come.
And more important, that they sustain with us if they give us another shot.
Jim Muehlbauer - CFO & EVP Finance
And we've been successful in doing that as other competitors have gone out of business, which gives us the level of encouragement and excitement about what could happen this year.
And quite candidly, coupled with the strategy that we launched last year with the local teams in looking at their individual markets.
This is an outstanding opportunity for them to acquire customers, market by market.
And are having the local teams focused on that and owning that independently, we think is going to give us better traction, quite candidly than we --.
Brad Anderson - CEO
And we've never seen anybody go out of business when we had 30 million Reward Zone members.
Just as an example, we've got a lot more tools potentially to win those customers back.
Now, the question is how effectively are we going to be able to do it?
Dan Wewer - Analyst
And then, as a follow-up.
On the forecast of $1 billion or more free cash flow during fiscal year 2010, what does that assume for inventory growth?
It sounds like you're, what, down 15% per store?
Are we assuming that perhaps it's up 2% or 3%?
Jim Muehlbauer - CFO & EVP Finance
Yes, Dan, but we haven't quoted a number.
I think the real key is going to be; Where does the environment play out for the year and how does customer demand move through the year?
So as we get to year end, as you know, inventory growth as of individual date is going to be more a view of what the forward view is.
We are going to make improvements in our working capital and continue to make improvements.
Some of that will come from the activities that Mike talked about earlier, in the improving our SKU rationalization and the utilization of our inventory turns.
But I think key, in that for us, is we've taken expense actions in light of the environment we see ahead.
And have kept spending available to focus behind the things we know are going to drive future growth for the enterprise.
The combination of the level of expense reductions that we've taken, coupled with basically taking our core CapEx down 50% year-over-year, is going to provide a lot more flexibility from a cash flow standpoint for the year, which we think is prudent based on the environment that could be ahead.
Dan Wewer - Analyst
Okay, thanks.
Jim Muehlbauer - CFO & EVP Finance
Thank you.
Jennifer Driscoll - VP IR
Thank you, Brad and Jim.
And operator, if you could divine who's got a short question for our final one?
Operator
Thank you.
And our next question comes from the line of Daryl Boehringer from Cleveland Research.
Please go ahead.
Daryl Boehringer - Analyst
Thanks.
Jim, can you give us a little bit more color on the Household financial agreement?
And specifically, what are your expectations for credit approval rates and your financing offers as we go through the year in 2009?
Jim Muehlbauer - CFO & EVP Finance
Yes.
Thank you for the question.
Maybe I'll just give a little context on the overall consumer environment, from a credit perspective, that we've seen throughout the year, without getting into the details of the Household agreement.
Because I think, to be honest, what will impact us and other retailers are more of the macro trends, than the trends within individual agreements.
Interesting to note, as I said in the at the end of the third quarter, we certainly see the pressure in the macro economy around customers' access to credit.
And you can't pick up a newspaper and not read about increased delinquencies and credit card portfolios, the increase in employment and the impact that will have on future delinquencies.
Interestingly enough, in our portfolio, we have been working with our partners to turn the dials around approvals and some of the credit programs as we move throughout the year.
We have actually seen our approval rates, though, remain very stable through the entire year on credit cards.
And that's really due to two reasons.
One, is our core approval rates on customers who have lower FICO scores had been moving down just like the industry has.
But given the attractiveness of the offers that we've put in the marketplace, around 18 months financing, in anything in the store, initially in the year over $999 and then through the fall and into the holiday selling season of $499.
We actually saw customers who were more attractive credit customers come in and want those offers.
So the combination of more attractive customers coming in with better credit scores offset the decline that we saw in lower credit score customers through the year.
I expect that we're going to continue to see pressure next year, as we move into the cycle.
And what we're going to have to continue to manage is; How do we use our promotional levers and look at the financing expense versus the other levers we have in Reward Zone, all-on sale events and other ways we can bundle the products, to find a way to find a right balance there?
But clearly, our focus for next year is making sure that we have adequate access for customers who deserve credit in the marketplace.
And that we utilize all of our tools, from a promotional standpoint, to put offers together that are compelling and are industry leading.
Like we've done this year.
Daryl Boehringer - Analyst
So, if Household is obviously pulling back some of their US consumer lending, as long as -- if your portfolio stays relatively healthy, they won't, just from overall general perspective of limiting their credit, does that have an effect on your portfolio?
As long as your portfolio stays healthy, there should be no material changes in kind of how we're looking at approval rates going forward?
Jim Muehlbauer - CFO & EVP Finance
I think you're going to see everybody's portfolios have changes next year.
The consumer environment is going to continue to be tough for a period of time.
We would expect Household, HSBC, along with the other are going to continue to review in what's going on in the economy, and adjust credit standards.
I think our challenge is, that's just one tool we have in the arsenal.
We have the ability to move some of the economics.
And like everything else, from a promotional lever standpoint, there are two things we can look at.
We can look at; How much financing expense do we want to incur in our deal with Household and what their approval rates are?
So we have levers that we can move back and forth, based on where we best see the consumer demand and the best opportunities in the marketplace.
So I don't think there is just one lever that we're focused on approvals.
We can influence that lever through other mechanisms that we have with HSBC.
Daryl Boehringer - Analyst
Great.
And then, just finally, what percentage of the business is roughly done on the credit card?
Jim Muehlbauer - CFO & EVP Finance
What we've said historically, is that roughly 1 in 5 customers that come shop us, use some form of branded payments.
Whether it's our Reward Zone MasterCard, whether it's our private label credit card.
And obviously, we have a number of customers and a number of offers in those programs at any different point in time.
So we have our standard offering from an interest rate standpoint.
And then, we have the special 0% financing that we've been using for a period of time.
So roughly, 1 in 5 uses some form of credit that's our credit.
I think the bigger issue overall, though, is that a lot of our transactions in retail, given the size of our items, are credit card driven.
So it really doesn't matter whether it's just our portfolio or somebody else's portfolio.
Those same credit concerns are out there.
Daryl Boehringer - Analyst
Great.
Thanks a lot.
Jim Muehlbauer - CFO & EVP Finance
Thank you for your question.
Andrew Lacko - Senior Director of IR
Thanks, everybody.
Thanks for participating in our fourth quarter earnings call this morning.
As a reminder, a replay will be available in the United States by dialing 1-800-405-2236 or 303-590-3000 internationally.
The personal identification number is 11127868.
Again, that's 11127868.
The replay will be available from 11 a.m.
Central Time today until noon Central Time next Thursday, April 2.
You can also hear the replay on our Website under "For Our Investors." If you have any additional questions, please feel free to contact Wade Bronson at 612-291-5693, Jennifer Driscoll at 612-291-6110 or me, Andrew Lacko at 612-291-6992.
Reporters, on the other hand, should contact Sue Busch at 612-291-6114.
Thank you, everyone, for your attention.
And that concludes our call today.
Operator
Ladies and gentlemen, that does conclude our conference for today.
Thank you for your participation.
You may now disconnect.