Best Buy is latest to offer shares

Discount Store News, April 29, 1985

BURNSVILLE, Minn. -- Best Buy, a mass merchandiser of consumer electronics, is the latest of a handful of CE retailers tapping the public market to raise funds for future expansion.

Best Buy, a nine-unit chain-based in this suburb of Minneapolis, and servicing the Greater Minneapolis-St. Paul market, will follow on the heels of Crazy Eddie (see DSN, April 1, p. 2) which also issued its second offering within the past several weeks.

In addition, Highland Appliance, the 33-unit Troy, Mich.-based CE and major appliance retailer, appears to be ready to make its initial public stock offering, reportedly by the end of this month.

Several industry analysts indicated a recent shifting of investors' affections away from CE manufacturers, particularly, computer companies, to more broad-based CE retailers. Indeed, many have pegged the consumer electronics industry as one of the fastest growing retail segments through the next 15 years.

Over the past two years, major Ce retailer The Federated Group and smaller Stereo Village have gone public and each of their initial offerings, $12.50 and $6, respectively, have almost tripled in price.

Trading Limited

Best Buy, for its part, made an initial offering in 1970 but over-the-counter trading has been limited and sporadic over the years. In fact, it has only been over the last three years that Best Buy has evolved into a mass merchandiser of video and audio products and major home appliances.

Prior to 1980, the company operated its stores under the name "Sound of Music," specializing in component audio systems. The company has grown from $5 million in sales in 1980 to $28.5 million in fiscal 1984. Earnings have turned around from 1980's loss of $123,000 to a net income of $284,000 in fiscal 1983, which ended last April.

Although 1984's full figures were unavailable at presstime, Best Buy's nine-month totals were $37.5 million in sales with $853,000 in earnings for the period.

As for the latest public offering, 650,000 common shares at an estimated $13 each could raise approximately $8 million, which would be used for working capital and to finance the chain's expansion thrusts.

An additional 100,000 shares will be sold by Richard M. Schulze, founder and president of the company. Best Buy will not receive any of the proceeds from his sale. Schulze will still own over one million shares after the offering, over 50% of the company's 2,064,000 outstanding shares.

Two New Superstores

Best Buy will use the proceeds of this latest offering to open at least two new "superstores" this year at an estimated cost of $850,000 each. All of its future openings will be of the "superstore" variety, according to the prospectus, with units ranging in size from 8,000 sq. ft. to 24,000 sq. ft. Besides being larger, the "superstores" differ from traditional Best Buy units in that inventory is displayed warehouse-style on the selling floor.

Currently, four of its nine units are "superstores" with the remaining five stores ranging in size from 4,500 sq. ft. to about 7,000 sq. ft. Future locations currently under consideration are Fargo-Moorhead, Rochester, St. Cloud and Sioux Falls, Minn.

The company will also use the infusion of public funds to relocate its corporate offices, distribution center and service department, and to expand the retail selling space of its Burnsville, Minn., store, its current headquarters. The cost of the refurbishing is estimated at $250,000.

The Burnsville location is slated to double in selling space from 12,000 sq. ft. to approximately 24,000 sq. ft. once corporate headquarters is shifted to another site in the Greater Minneapolis Area.