CHICAGO (Business Wire) -- Fitch Ratings has affirmed its Issuer Default Rating (IDR) and debt ratings on Best Buy Co., Inc. (Best Buy) as follows:
--IDR at 'BBB+';
--Bank credit facility at 'BBB+';
--Senior unsecured notes at 'BBB+';
--Convertible subordinated debentures at 'BBB'.
The Rating Outlook has been revised to Negative from Stable. Approximately $2.7 billion of debt was outstanding at Aug. 30, 2008.
The change in outlook reflects the recent sharp decline in comparable store sales and the expectation that same store sales could remain significantly pressured through calendar 2009. As a result, operating results are expected to weaken.
Best Buy reported comparable store sales declines of 1.3% and 7.6% in September and October, respectively, as a result of a sharp decrease in consumer spending on electronic products, and has lowered its annual comparable store sales guidance to a decline of 1% to 8% for fiscal 2009. Previously, Best Buy had increased inventory levels ahead of the holiday season with comparable store inventory up around 10% in the second quarter of fiscal 2009 versus the prior year. Fitch expects Best Buy's operating margins will weaken on lower sales leverage of fixed costs.
Fitch anticipates that the operating environment will remain challenging into calendar 2009 and comparable store sales and operating margins will remain under pressure. Competition will remain intense given the discounters' expanded electronics offerings and the expected negative effect of liquidation sales from struggling competitors in this space in the near to intermediate term. However, Best Buy will benefit from the recent acquisition of the higher margin Carphone Warehouse business and productivity and expense management initiatives should help offset some of the top line pressure. Nonetheless, credit metrics are anticipated to weaken from current levels. For the latest twelve months ended Aug. 30, 2008, Best Buy's adjusted debt/operating EBITDAR and EBITDAR coverage of interest and rents were 2.5 times (x) and 4.2x, respectively.
Best Buy continues to benefit from its leading market position in the consumer electronics sector and its successful customer-driven operating strategy which has allowed it to gain market share. Fitch expects the company will remain prudent in its financial management, and does not expect Best Buy to repurchase any shares in fiscal 2009.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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