Best Buy: Evaluating Growth Opportunities

S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L

Columbia University Graduate School of Business

November 3, 2009

Safe Harbor

Forward-Looking and Cautionary Statements:

This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the U.S. Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that reflect management’s current views and estimates regarding future market conditions, company performance and financial results, business prospects, new strategies, the competitive environment and other events. You can identify these statements by the fact that they use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “plan,” “outlook,” and other words and terms of similar meaning. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: general economic conditions, acquisitions and development of new businesses, divestitures, product availability, sales volumes, pricing actions and promotional activities of competitors, profit margins, weather, changes in law or regulations, foreign currency fluctuation, availability of suitable real estate locations, our ability to react to a disaster recovery situation, and the impact of labor markets and new product introductions on overall profitability. A further list and description of risks, uncertainties and other matters can be found in Best Buy’s annual report and other reports filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, Best Buy’s Annual Report on Form 10-K filed with the SEC on 30 April 2008. Management cautions that the foregoing list of important factors is not complete and assumes no obligation to update any forward-looking statement that it may make.

Executive Biography

Ryan Robinson – Domestic CFOSenior Vice-president Finance and TreasurerRyan D. Robinson is chief financial officer, United States, senior vice president of finance, and treasurer for Best Buy Co., Inc., a multinational retailer of technology and entertainment products and services. In this capacity, Robinson oversees the planning, performance management and development of Best Buy U.S. operations. Robinson manages the treasury functions for the global enterprise including capital structure, financing and investing needs. He also oversees the financial matters of several of the company’s emerging businesses, including Best Buy Financial Services, Best Buy for Business, Best Buy Mobile, Pacific Sales and Magnolia stand-alone stores.

Robinson joined Best Buy in 2002 as vice president of finance and treasurer. Robinson previously led the company’s corporate development activities, including mergers, acquisitions and new business ventures as well as the enterprise tax function.

Prior to joining Best Buy, Robinson spent 15 years at ABN AMRO, a leading international bank, most recently serving as senior vice president and director of the company’s North American private equity activities. Robinson also held a number of other management positions in ABN AMRO’s corporate finance, finance advisory, acquisitions and asset securitization divisions.

Robinson earned a bachelor’s degree from the University of Notre Dame and a master’s of business administration from the J.L. Kellogg Graduate School of Management at Northwestern University.

Agenda

1. Best Buy Background

2. The Retail Growth Model

3. Retail Growth Deep Dive – Evaluating New Stores

4. Q&A

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Best Buy Background

1,140 United States

– Best Buy and Best Buy Mobile

– Magnolia Audio Video

– Pacific Sales Kitchen & Bath Centers

205 Canada

– Future Shop

– Best Buy and Best Buy Mobile

171 China

– Five Star Appliance

– Best Buy China

2,450 Europe

– The Carphone Warehouse

– The Phone House

Multiple Web Sites and Call Centers

Source: Company data. Numbers are as at the end of Q2 FY10

World’s Largest Consumer Electronics RetailerFounded in 1966 | Based in Minneapolis, MN

A Long History of Strong Growth

-- in U.S. $ billions --Source: Company public filings

* Non-GAAP operating income rate. Adjusted to exclude restructuring and goodwill impairment charges taken in FY09. Please see appendix.

Best Buy Ranks Among the Largest Retailers in the World

Sales (TTM)Sales / Sq

FtEBIT %

Adj.

EV/EBITDATSR%

$47 billion ~ $860 4.3% 6.8X 52.6%

$403 billion ~ $430 4.3% 7.9X -5.9%

$71 billion ~ $900 2.5% 9.6X 2.1%

$88 billion ~ $2,000 5.3% 9.9X 8.2%

$119 billion ~ $1,700 3.4% 9.8X 14.8%

Source: Bloomberg. Data is U.S. dollars and represents the trailing 12 months in each companies most recently reported period.

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How Do Retailers Grow?

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How Do Retailers Grow?

$45B

FY09 Future

New Distribution Points e.g. New Stores, Concepts, Channels

New Offerings e.g. New Products, Services

New Geographies e.g. International Expansion

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New Store Example– Union Square, NY

Best Buy’s first 24 hour store with all major value proposition elements opening Nov. 13

48,000 square foot former Circuit City Box

High Quality Urban Real Estate, Part of Urban Fill-In Strategy

In addition to Primary Trade Area of approx. 450,000 people; store will serve young, high

income, Urban Trendsetters and Tourists

7th Store in Manhattan bringing Population Per Store to an average of 230,000

Note: Store financials are hypothetical and do not reflect Best Buy’s actual estimates.

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Rigorous Cross-Functional Approval Process Enhances Likelihood of Selecting Most Valuable Investment Options

Strategic Rationale / Fit Financial Evaluation Resource Constraints

• Alignment with Priorities

Low Cannibalization Urban

Isolated Markets

Competitive Positioning

• Reaching New Customers In New

Markets with Relevant Value Proposition

Hispanic Markets

Semi rural / Suburban Markets

• Real Estate Quality e.g. Co-

tenancy, Highway Visibility, Convenience

Facilities,

• Long Term Value Creation

NPV of EVA > 0

IRR > WACC

• Short Term Financial Impact

Y1 Impact to Total Chain Sales

and NOP

• Sensitivity of Financial Outcomes to

change in key variables e.g. Sales

, Margin, Project Cost

• Financial Plan

Available Capital / Resources

Impact to Earnings and Risk

Free Cash Flow

• Rank Project Against Other Investment

Alternatives

Financial Value

Strategic Fit

• Structure of Real Estate e.g. Lease Vs.

Buy Analysis, Risk Mitigation

Investment Decisions are where the strategic “Art” meets financial “Science.”

$12B

$15B

$17B

$19B

$22B

$25B

$27B

$31B

$33B$35B790K

680K

600K

531K

483K

444K404K

367K329K

300K

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

Domestic Sales US Pop. Per Store

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US Market Penetration Through New Store Openings Has Contributed Significantly To Growing Top Line and Market Share

357

Stores

~ 13%

Mkt Shr

419

Stores

481

Stores

548

Stores

608

Stores

668

Stores

742

Stores

822

Stores

923

Stores

1,023

Stores

~ 22%

Mkt Shr

• Over the last decade BBY US Store count has increased by almost 190% reducing US population per store by over 60%

• Store ramp up a significant driver of 12% Sales CAGR over this period as well as market share gain of 10%

On Facebook: Search “Best Buy Union Square”

17

Financial Valuation Model

Economic Value Added (EVA)

measures the magnitude of

shareholder value created by a

project. Theoretically, value is

created when EVA greater

than 0

NPV of EVA measures the long term

value of a project by discounting

annual EVA by WACC

Internal Rate of Return (IRR) is a

measure of the efficiency of capital

use NOT value creation. It is the

discount rate at which NPV is 0

IRR of a value creating project

is greater than WACC

If Project A has an EVA of

$10M and IRR of 16%; and

Project B has an EVA of $12M

and IRR of 13%. Project B is a

better project than Project A

Sales

Gross profit

- SG&A

Operating profit

- Taxes

NOPAT

Cash

Inventories

Net PP&E

Op lease capital

Goodwill

Other

Total assets

Vendor payables

Other Curr. Liab.

Debt

Op lease liabilities

Retained earnings

(Repurchases)

(Dividends)

Equity

Total Liab. & Equity

P&L

Balance Sheet

“Operating”

Capital

“Financial”

Capital(Debt + Equity)

NOPAT

- Cap Charge

EVA

NOPAT

10%

(WACC)x

ROIC

- 10% (WACC)

EVA per

$ of Capital = EVAx