Best Buy Q2 FY18 results

  • Enterprise Comparable Sales Increased 5.4%
  • GAAP Diluted EPS of $0.67 Increased 20%
  • Non-GAAP Diluted EPS of $0.69 Increased 21%

MINNEAPOLIS, 2017-Aug-31 — /EPR Retail News/ — Best Buy Co., Inc. (NYSE: BBY) today (August 29, 2017) announced results for the second quarter ended July 29, 2017 (“Q2 FY18”), as compared to the second quarter ended July 30, 2016 (“Q2 FY17”). The company reported GAAP diluted earnings per share from continuing operations of $0.67, an increase of 20% from $0.56 in Q2 FY17. Non-GAAP diluted earnings per share from continuing operations were $0.69, an increase of 21% from $0.57 in Q2 FY17.

“We are pleased today to report strong top and bottom line growth for the second quarter of fiscal 2018,” said Hubert Joly, Best Buy chairman and CEO. “Our higher-than-expected comparable sales of 5.4% were driven by stronger consumer demand for technology products and by the strong execution of our strategy. Against a backdrop of continued healthy consumer confidence, we believe broad-based product innovation is resonating with consumers and driving higher spend. And, with our effective merchandising and marketing activities, combined with our expert advice and service available online, in-store and in-home – we are garnering an increasing share of those dollars.”

Joly continued, “I want to thank all our associates across the U.S., Canada and Mexico for their hard work, dedication and customer focus as we Build the New Blue. Without them, none of this is possible.”

Best Buy CFO Corie Barry commented, “Today we are raising our topline guidance and are now expecting full year FY18 revenue growth of approximately 4.0% versus our previous outlook of 2.5%. On the profitability side, we are now expecting full year non-GAAP operating income growth 3 of 4.0% to 9.0% versus our previous outlook of 3.5% to 8.5% growth. This updated guidance reflects stronger-than-originally-expected second half revenue performance with profitability roughly in line with our previous expectations. The increased topline expectations are being driven by the anticipation of continued positive industry and consumer momentum, coupled with the impact of product launches. From a profitability perspective, while our original full year guidance anticipated an increased level of investments for FY18, we have made strategic decisions to proactively make additional Q3 and Q4 investments to continue to drive our Best Buy 2020 strategy forward.”

FY18 Financial Guidance

Note: FY18 has 53 weeks compared to 52 weeks in FY17. The extra week occurs in Q4 FY18.

Best Buy is providing the following Q3 FY18 financial outlook:

  • Enterprise revenue of $9.3 billion to $9.4 billion
  • Enterprise comparable sales growth of 4.5% to 5.5%
  • Domestic comparable sales growth of 4.5% to 5.5%
  • International comparable sales change of flat to 3.0%
  • Non-GAAP effective income tax rate of 32.0% to 32.5%3
  • Diluted weighted average share count of approximately 305 million
  • Non-GAAP diluted EPS of $0.75 to $0.803

Best Buy is updating its full year FY18 financial outlook to the following:

  • Enterprise revenue growth of approximately 4.0%
  • Enterprise non-GAAP operating income growth rate of 4.0% to 9.0%3
  • Enterprise non-GAAP effective income tax rate of approximately 34.5%3
  • On a 52-week basis, Enterprise revenue growth of approximately 2.5%
  • On a 52-week basis, Enterprise non-GAAP operating income growth rate of 2.0% to 6.0%3

Domestic Segment Second Quarter Results

Domestic Revenue
Domestic revenue of $8.3 billion increased 4.9% versus last year driven by comparable sales growth of 5.4%, partially offset by the loss of revenue from 11 large format and 42 Best Buy Mobile store closures.

From a merchandising perspective, comparable sales growth in computing, wearables, smart home, mobile phones and appliances was partially offset by declines in tablets.

Domestic online revenue of $1.1 billion increased 31.2% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 260 basis points to 13.2% versus 10.6% last year.

Domestic Gross Profit Rate
Domestic GAAP and non-GAAP gross profit rates were flat versus last year at 24.0% as improved margin rates across multiple categories, particularly in appliances, tablets and home theater, were offset by (1) margin pressure in the mobile category; (2) the negative impact of higher sales in the lower-margin wearables category; and (3) an approximately 10-basis point negative impact from lapping the $11 million Q2 FY17 periodic profit sharing benefit from our service plan portfolio.4

Domestic Selling, General and Administrative Expenses (“SG&A”)
Domestic GAAP and non-GAAP SG&A expenses were $1.67 billion, or 20.2% of revenue, versus $1.61 billion, or 20.4% of revenue, last year. GAAP and non-GAAP SG&A both increased $61 million primarily due to (1) expected increases in growth investments; (2) higher incentive compensation expenses; and (3) higher variable costs due to increased revenue. These increases were partially offset by the flow-through of cost reductions. The rate decrease was driven by sales leverage.

International Segment Second Quarter Results

International Revenue
International revenue of $668 million increased 3.7% driven primarily by comparable sales growth of 4.7% due to growth in both Canada and Mexico. The comparable sales growth was partially offset by approximately 220 basis points of negative foreign currency impact.

International Gross Profit Rate
International GAAP and non-GAAP gross profit rate was 25.1% versus 25.9% last year. The 80-basis point decline was primarily driven by a lower year-over-year gross profit rate in Canada due to lower rates in the computing and appliance categories.

International SG&A
International SG&A expenses were $161 million, or 24.1% of revenue, versus $165 million, or 25.6% of revenue, last year. Non-GAAP SG&A expenses were $161 million, or 24.1% of revenue, versus $164 million, or 25.5% of revenue, last year. The GAAP and non-GAAP decreases were primarily driven by slightly lower payroll and benefits costs. The rate decrease was primarily driven by sales leverage.

Share Repurchases and Dividends

During Q2 FY18, the company returned a total of $501 million to shareholders through share repurchases and dividends. On a year-to-date basis, the company has returned a total of $979 million to shareholders through share repurchases and dividends.

On March 1, 2017, the company announced the intent to repurchase $3 billion of its shares over a two-year period. In Q2 FY18, the company repurchased 7.3 million shares for a total of $398 million. On a year-to-date basis, the company has repurchased 15.4 million shares for a total of $771 million. The company’s cumulative share repurchases, net of dilution from equity based awards, positively benefitted GAAP and non-GAAP diluted EPS by approximately $0.02 in Q2 FY18.

On July 6, 2017, the company paid a quarterly dividend of $0.34 per common share outstanding, or $103 million.

Income Taxes – Adoption of Stock-Based Compensation Accounting Changes

In Q1 FY18, the company adopted Accounting Standards Update (ASU) 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which now requires all differences between the tax value and the book value for stock-based compensation to be recognized as either income tax expense or benefit as the shares vest or options are exercised or cancelled. The impact of this change on Q2 FY18 was a benefit of approximately $2 million, or $0.01 of non-GAAP diluted EPS. The year-to-date impact as of Q2 FY18 was a benefit of approximately $4 million, or $0.01 of non-GAAP diluted EPS. Future impacts could be positive or negative depending on the stock price, shares vested, or options exercised or cancelled in a given quarter. The company’s current expectation is that the full year impact will be a benefit to income tax expense and, based on current projections, is the primary driver of the lower FY18 non-GAAP effective income tax rate of approximately 34.5% that the company guided today, versus previous guidance of 35.5%.3

Conference Call

Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on August 29, 2017. A webcast of the call is expected to be available at www.investors.bestbuy.com both live and after the call.

Investor Day

Best Buy is hosting an investor day on September 19, 2017 from 2:00 to 6:00 p.m. Eastern Time (1:00 to 5:00 p.m. Central Time) at its corporate campus to provide more detail regarding the next phase of Best Buy’s transformation: Best Buy 2020: Building the New Blue. A webcast of the presentations and question and answer session will be available at www.investors.bestbuy.com both live and after the event.

(1) Beginning in Q1 FY18, the company will no longer be excluding non-restructuring property and equipment impairment charges from its non-GAAP financial metrics. When the company began to execute its Renew Blue transformation in Q4 FY13, it adopted a change to non-GAAP reporting to exclude non-restructuring property and equipment impairment charges from non-GAAP results. From that point, until Q4 FY17, the company believed that reporting non-GAAP results that excluded these charges provided a supplemental view of the company’s ongoing performance that was useful and relevant to its investors. Now that Renew Blue has ended and Best Buy 2020: Building The New Blue has officially launched, the company believes it is no longer necessary to adjust for non-restructuring property and equipment impairments in its non-GAAP reporting. The company believes that future such impairments will predominantly be immaterial and incurred in the ordinary scope of ongoing operations. Accordingly, commencing in Q1 FY18, the company began to no longer adjust for non-restructuring property and equipment impairments. Prior-period financial information included herein has been recast to conform with this presentation, including applicable income tax effects. A complete GAAP to non-GAAP reconciliation for FY16 and FY17, by quarter, is available on the company’s investor relations website at www.investors.bestbuy.com.

(2) On March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website. The Canadian brand consolidation had a material impact on a year-over-year basis on the Canadian retail stores and the website and, as such, all store and website revenue was removed from the comparable sales base and International (comprised of Canada and Mexico) did not have a comparable metric from Q1 FY16 through Q3 FY17. From Q1 FY16 through Q3 FY17 Enterprise comparable sales were equal to Domestic comparable sales.

Beginning in Q4 FY17, the company resumed reporting International comparable sales and as such, Enterprise comparable sales are once again equal to the aggregation of Domestic and International comparable sales.

(3) A reconciliation of the projected non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS, which are forward-looking non-GAAP financial measures, to the most directly comparable GAAP financial measures, is not provided because the company is unable to provide such reconciliation without unreasonable effort. The inability to provide a reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. These GAAP measures may include the impact of such items as restructuring charges; litigation settlements; goodwill impairments; gains and losses on investments; and the tax effect of all such items. Historically, the company has excluded these items from non-GAAP financial measures. The company currently expects to continue to exclude these items in future disclosures of non-GAAP financial measures and may also exclude other items that may arise (collectively, “non-GAAP adjustments”). The decisions and events that typically lead to the recognition of non-GAAP adjustments, such as a decision to exit part of the business or reaching settlement of a legal dispute, are inherently unpredictable as to if or when they may occur. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results.

(4) In Q2 FY17, the Domestic business recorded an $11 million periodic profit sharing benefit from its services plan portfolio. In Q2 FY18, there was no equivalent profit sharing benefit recorded.

Forward-Looking and Cautionary Statements:
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the 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,” “assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “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: macro-economic conditions (including fluctuations in housing prices, oil markets and jobless rates), conditions in the industries and categories in which the company operates, changes in consumer preferences or confidence, changes in consumer spending and debt levels, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, trade restrictions or changes in the costs of imports, competitive initiatives of competitors (including pricing actions and promotional activities), strategic and business decisions of our vendors (including actions that could impact promotional support, product margin and/or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, the company’s ability to prevent or react to a disaster recovery situation, changes in law or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developments and resolution of other discrete tax matters, foreign currency fluctuation, the company’s ability to manage its property portfolio, the impact of labor markets, the company’s ability to retain qualified employees and management, failure to achieve anticipated expense and cost reductions, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which the company will incur costs, development of new businesses, failure to complete or achieve anticipated benefits of announced transactions, and our ability to protect information relating to our employees and customers. A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission(“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K filed with the SEC on March 24, 2017. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

Investor Contact:
Mollie O’Brien
612-291-7735
mollie.obrien@bestbuy.com

Media Contact:
Jeff Shelman
612-291-6114
Jeffrey.shelman@bestbuy.com

Source: Best Buy Co., Inc.

Best Buy Approves Plan to Return Excess Capital to Shareholders

  • Two-Year $3 Billion Share Repurchase Plan
  • 21% Increase in Quarterly Dividend to $0.34 per Share

MINNEAPOLIS, 2017-Mar-07 — /EPR Retail News/ — Best Buy Co., Inc. (NYSE: BBY) today ( March 1, 2017) announced that its Board of Directors approved a plan to return excess capital to shareholders as follows:

  • A new $3 billion share repurchase plan expected to be completed over the next two years; and
  • A 21% increase in the regular quarterly dividend to $0.34 per share, effective immediately.

This updated capital return plan is consistent with the company’s long-term capital allocation strategy to first fund operations and investments in growth, including potential acquisitions, and then to return excess free cash flow over time to shareholders through dividends and share repurchases, while maintaining investment grade credit metrics. The company is targeting a non-GAAP dividend payout ratio1 between 35% and 45%.

Hubert Joly, Best Buy chairman and CEO, commented, “Today we are pleased to announce our fiscal 2018 return of capital plan which includes a 21% increase in the regular quarterly dividend to $0.34 per share and a share repurchase plan that accelerates from $1 billion over two years to $3 billion over two years. This is in addition to the nearly $2.7 billion in cash we returned to shareholders in fiscal 2016 and 2017 combined. The increase in the dividend and acceleration of our share repurchase program are aligned with our long-term capital allocation strategy and display continued confidence in our ongoing business performance and future cash-flow generation.”

In order to execute the two-year $3 billion share repurchase plan, the board of directors approved a new $5 billion share repurchase authorization for the company’s common stock, superseding the existing authorization dated June 2011 which had $2.2 billion in purchases remaining.

The regular quarterly dividend will be payable on April 12, 2017 to shareholders of record as of the close of business on March 22, 2017. The company had 311,278,169 shares of common stock issued and outstanding as of January 28, 2017. The regular quarterly dividend and share repurchases will be funded through existing cash and cash equivalents on the balance sheet and future cash flow generation. The share repurchases will be executed in the open market or through privately negotiated transactions at times and amounts determined by the company based on its evaluation of market conditions and other factors and may be suspended, discontinued or resumed at any time.

(Editor’s Note: Best Buy Co., Inc. this morning also issued a separate press release announcing its fourth quarter and full year fiscal 2017 financial results.)

Forward-Looking and Cautionary Statements:

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the 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,” ”assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “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: macro-economic conditions (including fluctuations in housing prices, oil markets and jobless rates), conditions in the industries and categories in which we operate, changes in consumer preferences or confidence, changes in consumer spending and debt levels, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, trade restrictions or changes in the costs of imports, competitive initiatives of competitors (including pricing actions and promotional activities), strategic and business decisions of our vendors (including actions that could impact promotional support, product margin and/or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, the company’s ability to prevent or react to a disaster recovery situation, changes in law or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developments and resolution of other discrete tax matters, foreign currency fluctuation, the company’s ability to manage its property portfolio, the impact of labor markets, the company’s ability to retain qualified employees and management, failure to achieve anticipated expense and cost reductions, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which we will incur costs, development of new businesses, failure to complete or achieve anticipated benefits of announced transactions, and our ability to protect information relating to our employees and customers. A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission (“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K filed with the SEC on March 23, 2016. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

(1) The company defines its non-GAAP dividend payout ratio as annual dividends divided by annual non-GAAP Net Earnings from Continuing Operations. Reconciliations of its non-GAAP earnings measures to its GAAP equivalents are provided in its quarterly releases and in its Forms 10-K and 10-Q. A reconciliation of the projected non-GAAP dividend payout ratio, which is a forward-looking non-GAAP financial measure, to the most directly comparable GAAP financial measure, is not provided because the company is unable to provide such reconciliation without unreasonable effort. The inability to provide a reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. These GAAP measures may include the impact of such items as restructuring charges; litigation settlements; asset impairments, gains and losses; and the tax effect of all such items. Historically, the company has excluded these items from non-GAAP financial measures. The company currently expects to continue to exclude these items in future disclosures of non-GAAP financial measures and may also exclude other items that may arise (collectively, “non-GAAP adjustments”). The decisions and events that typically lead to the recognition of non-GAAP adjustments, such as a decision to exit part of the business, the early retirement of an asset or reaching settlement of a legal dispute, are inherently unpredictable as to if or when they may occur. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results.

Investor Contact:
Mollie O’Brien
(612) 291-7735
mollie.obrien@bestbuy.com

Media Contact:
Jeff Shelman
(612) 291-6114
jeffrey.shelman@bestbuy.com

Source: Best Buy Co., Inc.

Best Buy announces results for the first quarter ended April 30, 2016

  • GAAP Diluted EPS of $0.69
  • Non-GAAP Diluted EPS Increased 19% to $0.44
  • Domestic Segment Comparable Sales Essentially Flat

MINNEAPOLIS, 2016-May-25 — /EPR Retail News/ — Best Buy Co., Inc. (NYSE:BBY) today announced results for the first quarter ended April 30, 2016 (“Q1 FY17”), as compared to the first quarter ended May 2, 2015 (“Q1 FY16”). The company reported GAAP diluted earnings from continuing operations of $0.69, an increase from $0.10 in Q1 FY16. Non-GAAP diluted earnings per share from continuing operations were $0.44, an increase of 19% from $0.37 in Q1 FY16.

Q1 FY17 Q1 FY16
Revenue ($ in millions)1
Enterprise $8,443 $8,558
Domestic segment $7,829 $7,890
International segment $614 $668
Enterprise comparable sales % change (0.1%) 0.6%
Domestic comparable sales % change (0.1%) 0.6%
Domestic comparable online sales % change 23.9% 5.3%
International revenue % change (8.1%) (22.1%)
International revenue % change on a constant currency basis (1.2%) (12.1%)
Operating Income:
GAAP operating income as a % of revenue 4.4% 1.0%
Non-GAAP operating income as a % of revenue 2.9% 2.6%
Diluted Earnings per Share (EPS):
GAAP diluted EPS from continuing operations $0.69 $0.10
Non-GAAP diluted EPS from continuing operations $0.44 $0.37
For GAAP to non-GAAP reconciliations, please refer to the attached supporting schedule titled “Reconciliation of non-GAAP Financial Measures.”

“Our teams delivered a strong first quarter, with better-than-expected revenue, improved profitability and progress against our fiscal 2017 initiatives,” said Best Buy Chairman and CEO Hubert Joly. “We are reaffirming our previously provided full year financial outlook which includes approximately flat revenue and non-GAAP operating income, with non-GAAP EPS growth driven by share repurchases. Although we are reporting better-than-expected results today, we are not raising our full year outlook as the first quarter represents less than 15% of full year earnings and at this stage we have no new material information as it relates to product launches throughout the year.”

Joly continued, “In our Domestic business, we are reporting essentially flat comparable sales versus guidance of a 1% to 2% decline driven by strong year-over-year sales growth in health & wearables, home theater and appliances offset by continued softness in mobile phones and tablets. Contributing to these better-than-expected results was the strong performance in our online channel, which grew 24% in the quarter.”

Joly concluded, “As we look forward, we remain focused on our FY17 priorities. These priorities are (1) to build on our strong industry position and multi-channel capabilities to drive the existing business; (2) to drive cost reductions and efficiencies; and (3) to advance key initiatives to drive future growth and differentiation. We are investing to make it easy for customers to learn about and enjoy the latest technology as they pursue their passions and take care of what is important to them in their lives. With our combination of digital, store and in-home assets, we feel we have a great opportunity to address key customer pain points, build stronger ongoing relationships with our customers and unleash growth opportunities.”

Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “As Hubert said, we are reaffirming our previously provided full year financial outlook of approximately flat revenue and non-GAAP operating income, including lapping the significant periodic profit sharing benefits from our services plan portfolio that we earned in FY16. A key element to achieve this will be the delivery of our cost reduction and gross profit optimization initiatives. Based on current industry dynamics and how we see the various product cycles playing out, we are expecting slight declines in revenue in the first half followed by growth in the back half. As discussed in our last earnings release, we recognize this will be challenging without a strong mobile cycle and improvements in the NPD-reported categories overall.”

McCollam continued, “For Q2 FY17, our guidance is Enterprise revenue in the range of $8.35 billion to $8.45 billion and both Enterprise and Domestic comparable sales of approximately flat. We expect our Q2 non-GAAP diluted earnings per share to be in the range of $0.38 to $0.42, assuming a diluted weighted average share count of approximately 325 million and a non-GAAP effective income tax rate in the range of 36.0% to 36.5%.”

McCollam concluded, “In line with our original expectations, there are two factors impacting our year-over-year non-GAAP EPS guidance for the second quarter. First, we are expecting an approximate $0.03 net negative impact from the lapping of the periodic profit sharing benefit from our services plan portfolio that we received in the second quarter of last year. Second, we are expecting an approximate $0.06 negative impact from the carryover of last September’s services pricing investment. In addition, in digital imaging, we are now expecting an approximate $0.03 to $0.04negative impact due to the April 2016 earthquake in Japan, which is impacting inventory availability in this high-margin category. Combined, these are putting $0.12 to $0.13 of pressure on Q2 FY17, which will be partially offset by an approximate $0.04 benefit from share repurchases.”

Domestic Segment First Quarter Results

Domestic Revenue

Domestic revenue of $7.8 billion decreased 0.8% versus last year. This decrease was primarily driven by the loss of revenue from 13 large format and 24 Best Buy Mobile store closures. Comparable sales were essentially flat against a backdrop where the NPD-reported categories were down 1.9%.2

From a merchandising perspective, comparable sales growth in health & wearables, home theater, major appliances and computing was offset by declines in mobile phones, tablets and gaming. As expected, television sales related to the shift of the Super Bowl into Q1 FY17 positively impacted the Domestic segment by approximately 70 basis points. The company also saw continued revenue declines in services due to investments in services pricing and the reduction of frequency of claims on extended warranties which has reduced repair revenue.

Domestic online revenue of $832 million increased 23.9% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 210 basis points to 10.6% versus 8.5% last year.

Domestic Gross Profit Rate
Domestic gross profit rate was 25.4% versus 23.9% last year. On a non-GAAP basis, gross profit rate was 23.0% versus 22.9% last year. Both the GAAP and non-GAAP gross profit rates increased 10 basis points primarily due to (1) a prior-year reserve on non-iconic phone inventory which did not recur this year; and (2) improved rates primarily driven by our more disciplined promotional strategy across product categories. These increases were partially offset by our investments in services pricing. The GAAP gross profit rate was also positively impacted by $183 million in CRT settlement proceeds.

Domestic Selling, General and Administrative Expenses (“SG&A”)
Domestic SG&A expenses were $1.59 billion, or 20.3% of revenue, versus $1.58 billion, or 20.1% of revenue, last year. On a non-GAAP basis, SG&A expenses were $1.56 billion, or 19.9% of revenue, versus $1.56 billion, or 19.8% of revenue, last year. Non-GAAP SG&A was flat as investments in the business were offset by the flow-through of Renew Blue Phase 2 cost reductions. GAAP SG&A increased year over year due primarily to $22 million in legal fees and costs associated with the CRT settlement proceeds.

International Segment First Quarter Results

International Revenue
International revenue of $614 million declined 8.1%. This decline was primarily driven by (1) approximately 690 basis points of negative foreign currency impact; and (2) the loss of revenue associated with closed stores as part of the Canadian brand consolidation. On a constant currency basis, International revenue declined 1.2%.

International Gross Profit Rate
International gross profit rate was 25.9% versus 21.6% last year. On a non-GAAP basis, gross profit rate was 25.9% versus 22.8% last year. Both the GAAP and non-GAAP gross profit rates increased 310 basis points primarily driven by a higher year-over-year gross profit rate in Canada as the company (1) lapped the significant disruption and corresponding increased promotional activity related to the brand consolidation in Q1 FY16; and (2) received a higher periodic profit sharing payment in the services business. The GAAP gross profit rate increase was also impacted by the prior year impact of COGS restructuring charges.

International SG&A
International SG&A expenses were $157 million, or 25.6% of revenue, versus $182 million, or 27.2% of revenue, last year. On a non-GAAP basis, SG&A expenses were $156 million, or 25.4% of revenue, versus $179 million, or 26.8% of revenue, last year. This $23 million, or 140-basis point, decrease in GAAP and non-GAAP SG&A was primarily driven by the elimination of expenses associated with closed stores as part of the Canadian brand consolidation and the positive impact of foreign exchange rates. GAAP SG&A decreased an additional $2 million due primarily to lower Canadian brand consolidation charges.

Income Taxes
In Q1 FY17, the GAAP continuing operations effective income tax rate decreased 1,300 basis points to 37.3% versus 50.3% last year. On a non-GAAP basis, the continuing operations effective income tax rate increased 130 basis points to 37.7% versus 36.4% last year.

Q2 FY17 Financial Guidance
Best Buy is providing the following Q2 FY17 financial guidance:

  • Enterprise revenue in the range of $8.35 to $8.45 billion, a decline of (2.1%) to (0.9%)
  • International revenue decline of (5%) to (10%)
  • Enterprise and Domestic comparable sales of approximately flat
  • Non-GAAP effective income tax rate of approximately 36.0% to 36.5% versus 37.1% last year
  • Diluted weighted average share count of 325 million versus 354 million last year, resulting in a positive $0.04year-over-year non-GAAP EPS impact
  • Non-GAAP diluted EPS of $0.38 to $0.42 versus $0.49 last year

Note: Enterprise comparable sales are currently equal to Domestic comparable sales due to the impacts of the Canadian brand consolidation.1 The company’s non-GAAP financial guidance does not reflect the potential impact of non-GAAP adjustments, which include (but, in future periods, may not be limited to) restructuring charges, CRT and LCD settlements, asset impairments, gains and losses on investments, other brand consolidation costs and the tax effect of such items. The company cannot reliably predict or estimate if and when these types of transactions or adjustments may occur or their impact to its financial statements.

Share Repurchases and Dividends
On February 25, 2016, the company announced the intent to repurchase $1 billion of its shares over a two-year period. In Q1 FY17, the company repurchased 3.2 million shares for a total of $97 million. The company’s cumulative share repurchases positively benefitted non-GAAP diluted EPS by $0.04 in Q1 FY17.

On April 07, 2016, the company paid a quarterly dividend of $0.28 per common share outstanding, or $90 million, and a special one-time dividend of $0.45 per common share outstanding, or $145 million.

Restructuring Charges
During Q1 FY17, the company made decisions to cease certain operations and restructure certain teams. As such, restructuring charges of $29 million were recorded primarily relating to asset impairments and severance. In Q1 FY16, restructuring charges of $186 million were recorded primarily in relation to the Canadian brand consolidation.

Reminder: Discontinuation of Holiday Sales Press Release in FY17
Beginning in January FY17, the company will no longer issue an interim Holiday press release due to the increasing significance of the month of January to the company’s overall fourth quarter financial results.

Conference Call
Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) onMay 24, 2016. A webcast of the call is expected to be available at www.investors.bestbuy.com both live and after the call.

(1) On March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website. The Canadian brand consolidation has a material impact on a year-over-year basis on the Canadian retail stores and the website. As such, all store and website revenue has been removed from the comparable sales base and International (comprised of Canada andMexico) no longer has a comparable metric until International revenue is comparable on a year-over-year basis. Therefore, Enterprise comparable sales will be equal to Domestic comparable sales until International revenue is again comparable on a year-over-year basis. Additionally, the company is no longer reporting comparable sales excluding the impact of installment billing as the mix of installment billing plans is comparable on a year-over-year basis.

The term constant currency represents results adjusted to exclude foreign currency impacts. Foreign currency impact represents the difference in results that is attributable to fluctuations in currency exchanges rates the company uses to convert the results of its International segment where the functional currency is not the U.S. dollar. The company calculates the impact as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period’s currency exchange rates. The company believes the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates and ongoing inability to report comparable store sales for the International segment as a result of the Canadian brand consolidation.

(2) According to The NPD Group’s Weekly Retail Tracking Service as published May 9, 2016, revenue for the CE (Consumer Electronics) industry declined 1.9% during the 13 weeks ended April 30, 2016 compared to the 13 weeks ended May 2, 2015. The CE industry, as defined by The NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging and other categories. Sales of these products represent approximately 65% of the company’s Domestic revenue. The CE industry, as defined by The NPD Group, does not include mobile phones, appliances, services, gaming, Apple Watch, movies or music.

Forward-Looking and Cautionary Statements:
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the 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,” ”assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “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: macro-economic conditions (including fluctuations in housing prices, oil markets and jobless rates), conditions in the industries and categories in which we operate, changes in consumer preferences, changes in consumer confidence, consumer spending and debt levels, online sales levels and trends, average ticket size, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, competitive initiatives of competitors (including pricing actions and promotional activities of competitors), strategic and business decisions of our vendors (including actions that could impact promotional support, product margin and/or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, the company’s ability to prevent or react to a disaster recovery situation, changes in law or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developments and resolution of other discrete tax matters, foreign currency fluctuation, availability of suitable real estate locations, the company’s ability to manage its property portfolio, the impact of labor markets, the company’s ability to retain qualified employees and changes in senior management, failure to achieve anticipated expense and cost reductions from operational and restructuring changes, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities and brand consolidations), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which we will incur costs, acquisitions and development of new businesses, divestitures of existing businesses, failure to complete or achieve anticipated benefits of announced transactions, integration challenges relating to new ventures, and our ability to protect information relating to our employees and customers. A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission (“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K filed with the SEC on March 23, 2016. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

Source: Best Buy Co., Inc.

Best Buy Co., Inc.

Investor Contact:
Mollie O’Brien, 612-291-7735
mollie.obrien@bestbuy.com

or

Media Contact:
Jeff Shelman, 612-291-6114
jeffrey.shelman@bestbuy.com

Best Buy CAO and CFO Sharon McCollam to step down and will be succeeded by Corie Barry on June 14, 2016

  • CAO and CFO Sharon McCollam to step down at conclusion of company’s annual shareholder meeting in June
  • Current Chief Strategic Growth Officer to assume CFO role

MINNEAPOLIS, 2016-May-25 — /EPR Retail News/ — As part of an internal succession plan, Best Buy today announced that Sharon McCollam, the company’s chief administrative and chief financial officer, will be stepping down on June 14, 2016. McCollam will remain with the company in an advisory capacity until the end of the fiscal year, January 28, 2017, to ensure a seamless transition. (PDF Version)

Corie Barry, a 16-year veteran of Best Buy and its current chief strategic growth officer, will become the company’s chief financial officer at the conclusion of Best Buy’s annual shareholder meeting, being held on June 14.

Hubert Joly, Best Buy chairman and CEO commented, “Over her many years at Best Buy, Corie has held several field and corporate roles, both in operations and finance. She was formerly the senior vice president of U.S. Finance and, until recently, she led our services business on an interim basis while standing up the company’s Strategic Growth Office. Since Sharon arrived, she has been grooming Corie for this role and the Board of Directors, Sharon and I are confident that Corie’s experience, skills and commitment to Best Buy’s future make her the perfect choice for this role.”

Joly continued, “On behalf of my colleagues on the executive team and the people around Best Buy whose professional lives she’s touched, I want to thank Sharon for all that she’s done for Best Buy. Sharon came out of retirement in 2012 to help revitalize the company when it was facing a multifaceted crisis. Three and a half years later, we are in a completely different place and are into the next phase of our journey as a company. Sharon can leave with a sense of confidence in the future of the company and certain that her legacy will endure.”

Joly concluded, “To my friend, I say simply, thank you for the profound and lasting impact that you have had here! The ability to now begin to spend more time with your husband is so well-deserved.”

Sharon McCollam, CAO and CFO commented, “In every person’s career, there are moments when their heart is filled with emotion. Today is one of those moments for me. I cannot express deeply enough what an immense privilege it has been to be a part of this remarkable company and exciting transformation. With our team of more than 125,000 people, we have worked hand-in-hand to Renew Blue, and today, Best Buy is stronger than ever. What I will cherish most of my time here is the pride that I have felt working with one of the most talented and dedicated teams in retail, not to mention with Hubert who is an extraordinary leader, an inspiring business partner and a friend. I will be forever grateful to have had the opportunity to share this journey with my entire Best Buy family.”

McCollam continued, “As I step down, I do so knowing that we have never been as well-positioned as we are today to take Best Buy to a new level. For this, I would like to thank Hubert, my peers, our corporate and field teams, and in particular, my direct reports, for their exceptional contributions that have made this possible. I would also like to thank our Board and our shareholders for their confidence and support.”

McCollam concluded, “Finally, I would like to thank Corie. Corie has been my strategic right-hand partner since I joined Best Buy. With her exceptional financial acumen and deep understanding of Best Buy’s operations, she has been an influential leader over the financial and cost disciplines that have been established across the company over the past several years. She is also a highly respected cross-functional leader and will be an incredible CFO of whom I could not be more proud or confident. Congratulations, Corie!”

Succeeding Barry as the chief strategic growth officer is Asheesh Saksena. Saksena was most recently the executive vice president of strategy and new business development for Cox Communications. Previously, he was the deputy chief strategy officer for Time Warner Cable. He joins Best Buy next month, reporting to Joly and serving on the executive team.

McCollam’s duties as chief administrative officer will be assumed by several members of the company’s executive team.

  • Barry will also have reporting to her the company’s information technology, information security, audit, procurement and pricing functions.
  • Shari Ballard, president of U.S. retail, takes on the real estate function and will have Best Buy’s business in Mexico reporting to her. In recognition of her additional duties and broad responsibilities, she has been promoted to senior executive vice president.
  • Mike Mohan, Best Buy’s chief merchandising officer, will now have reporting to him the supply chain function. He, too, has been promoted to senior executive vice president in recognition of his expanded role and responsibilities.
  • Trish Walker, president of services, will now have the company’s Enterprise Customer Care function reporting to her. Walker joined Best Buy in April 2016 after two decades with Accenture where, most recently, she led their retail practice.

 

Investor Contact:

Mollie O’Brien
(612) 291-7735 or mollie.obrien@bestbuy.com

Media Contact:
Jeff Shelman
(612) 291-6114 or jeffrey.shelman@bestbuy.com

Best Buy CEO Hubert Joly: Domestic revenue declined 0.8% during the holiday period driven by the mobile phone category

  • Domestic Revenue Decreased 0.8%
  • Repurchased $203 million in Stock for a Year-to-Date Total of $588 million
  • Improving the Fourth Quarter Operating Margin Outlook

MINNEAPOLIS, 2016-Jan-18 — /EPR Retail News/ — Best Buy Co., Inc. (NYSE:BBY) today announced revenue results for the nine weeks ended January 2, 2016 as compared to the nine weeks ended January 3, 2015.

Hubert Joly, Best Buy chairman and CEO, commented, “During the holiday period, Domestic revenue declined 0.8% against a backdrop where the NPD-reported categories were down a greater-than-expected 4.8%5. The Domestic decline was primarily driven by the mobile phone category, which was softer than both our expectations and the prior year. Excluding mobile phones, Domestic revenue increased year over year due to our strong performance in health & wearables, home theater and appliances. Online revenue increased 12.6% on top of a 13.4% increase last year. In addition, we saw a significant improvement in our Net Promoter Score. From a financial perspective, despite a slightly softer-than-expected topline, we are improving our fourth quarter operating income rate outlook as a result of our continuing conviction to a disciplined promotional strategy and strong expense management.”

Joly concluded, “These results and our outlook are driven by the solid execution of our holiday strategy and the leveraging of investments in our merchandise assortment, digital capabilities, higher in-stocks, Blue Shirt and Geek Squad expertise and faster shipping. Ultimately, this performance is the result of the hard work, dedication and customer focus on the part of all of our associates.”

Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “Based on the holiday results Hubert just discussed, we are updating our fourth quarter outlook as follows. In the Domestic business, we are expecting (1) a revenue decline of near 1.5% versus our previous expectation of near flat due to softer consumer demand in mobile phones and greater-than-expected declines in the NPD-reported categories; and (2) a non-GAAP operating income rate decline of 10 to 15 basis points versus our previous expectation of a rate decline of 20 to 35 basis points. As a reminder, the shift of the Super Bowl into Q1 FY17 is driving an expected 40 basis points of pressure on this quarter’s revenue.

“In the International business, our outlook has not changed. We continue to expect (1) an International revenue decline of approximately 30% due to the ongoing impacts of the Canadian brand consolidation, foreign currency fluctuations and softness in the Canadian market; and (2) an International non-GAAP operating income rate in the range of positive 2.0% to 3.0%.

“Based on the above, our Enterprise outlook includes (1) a revenue decline of near 4% versus our previous expectation of a low single-digit decline; and (2) a non-GAAP operating income rate decline of approximately 15 to 30 basis points versus our previous expectation of a rate decline of 25 to 45 basis points. From a tax rate perspective, we now expect the non-GAAP effective income tax rate from continuing operations to be in the range of 34.5% to 35%, versus 34.2% last year, which is expected to result in a negative $0.01 to negative $0.03 year-over-year non-GAAP diluted EPS impact in Q4 FY16.”

Share Repurchases Reach $588 million

On March 3, 2015, the company announced the intent to repurchase $1 billion worth of its shares over a three-year period. On a year-to-date basis, the company has already repurchased 17.8 million shares for a total of $588 million – of which 6.6 million shares, or $203 million, were repurchased in the nine-week period ended January 2, 2016. The company intends to continue to repurchase shares through the end of the fourth quarter.

Domestic Segment Holiday Revenue Results

Domestic revenue of $10.1 billion decreased 0.8% versus last year. This decrease was primarily driven by a comparable sales decline of 1.4%, excluding the estimated 20-basis point benefit associated with the classification of revenue for the mobile carrier installment billing plans3 and the loss of revenue from closed stores. These declines were partially offset by an estimated 20-basis point benefit associated with installment billing3 and an approximate 95-basis point periodic profit sharing benefit from our externally-managed extended service plan portfolio.

Domestic online revenue of $1.7 billion increased 12.6% on a comparable basis primarily due to a higher conversion rate. As a percentage of total Domestic revenue, online revenue increased 200 basis points to 16.7% from 14.7% last year.

From a merchandising perspective, comparable sales growth in health & wearables, home theater and major appliances was more than offset by significant declines in mobile phones, tablets and digital imaging. The company also saw continued revenue declines in services due to investments in services pricing, declining attach rates of traditional warranty plans and, to a lesser extent, the reduction of frequency and severity of claims on extended warranties which has reduced repair revenue.

International Segment Holiday Revenue Results

International revenue of $911 million declined 26.1% versus last year. This decline was primarily driven by (1) a negative foreign currency impact of approximately 1,350 basis points; (2) the loss of revenue associated with closed stores as part of the Canadian brand consolidation; and (3) ongoing softness in the Canadian economy and consumer electronics industry.

(1) On March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores and the conversion of the remaining 65 Future Shop stores to the Best Buy brand.

(2) Best Buy’s comparable sales is comprised of revenue at stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculation of comparable sales excludes the impact of revenue from discontinued operations.

The Canadian brand consolidation, which includes the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website, has a material impact on a year-over-year basis on the Canadian retail stores and the website. As such, all store and website revenue has been removed from the comparable sales base and International (comprised of Canada and Mexico) no longer has a comparable metric until International revenue is comparable on a year-over-year basis. Therefore, Enterprise comparable sales will be equal to Domestic comparable sales until International revenue is again comparable on a year-over-year basis.

(3) In April of 2014, Best Buy began offering mobile carrier installment billing plans to its Domestic customers in addition to two-year contract plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As the mix of installment billing plans increases, there is an associated increase in revenue and cost of goods sold, and a decrease in gross profit rate, with gross profit dollars relatively unaffected. The company estimates that its nine week ending January 2, 2016 Enterprise and Domestic comparable sales of 1.2% include approximately 20 basis points of impact from this classification difference. The impact on the gross profit rate at the Enterprise and Domestic levels for the quarter was immaterial. The company believes that providing information regarding this impact of installment billing and an estimate of the company’s comparable sales absent this impact assists investors in understanding the company’s underlying operating performance in relation to prior periods when the mix of installment billing plans was lower.

(4) Enterprise comparable sales for the nine weeks ending January 3, 2015 include revenue from continuing operations in the International segment. Excluding the International segment, Enterprise comparable sales for the nine weeks ending January 3, 2015, excluding the impact of installment billing, would have been 2.6%, or equal to Domestic comparable sales excluding the impact of installment billing, for the same period.

(5) According to The NPD Group’s Weekly Tracking Service as published January 11, 2016, revenue for the CE (Consumer Electronics) industry declined 4.8% during the 9 weeks ended January 2, 2016 compared to the 9 weeks ended January 3, 2015. The CE industry, as defined by The NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging and other categories. Sales of these products represent approximately 65% of the company’s Domestic revenue. The CE industry, as defined by The NPD Group, does not include mobile phones, appliances, services, gaming, Apple Watch, movies or music.

Forward-Looking and Cautionary Statements:
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the 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,” ”assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “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: macro-economic conditions (including fluctuations in housing prices, oil markets and jobless rates), conditions in the industries and categories in which we operate, changes in consumer preferences, changes in consumer confidence, consumer spending and debt levels, online sales levels and trends, average ticket size, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, competitive initiatives of competitors (including pricing actions and promotional activities of competitors), strategic and business decisions of our vendors (including actions that could impact promotional support, product margin and/or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, the company’s ability to prevent or react to a disaster recovery situation, changes in law or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developments and resolution of other discrete tax matters, foreign currency fluctuation, availability of suitable real estate locations, the company’s ability to manage its property portfolio, the impact of labor markets, the company’s ability to retain qualified employees, failure to achieve anticipated expense and cost reductions from operational and restructuring changes, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities and brand consolidations), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which we will incur costs, acquisitions and development of new businesses, divestitures of existing businesses, failure to complete or achieve anticipated benefits of announced transactions, integration challenges relating to new ventures, and our ability to protect information relating to our employees and customers. A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission(“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K filed with the SEC on March 31, 2015. Best Buycautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

Source: Best Buy Co., Inc.

Best Buy Co., Inc.

Investor Contact:
Mollie O’Brien, 612-291-7735

Investor Relations
mollie.obrien@bestbuy.com

or

Media Contacts
Amy von Walter, 612-437-5956

Public Relations
amy.vonwalter@bestbuy.com

or

Jeff Shelman, 612-291-6114
Public Relations
jeffrey.shelman@bestbuy.com

Best Buy Q3 FY16: Domestic comparable sales growth and operating income expansion

  • Domestic Segment Revenue Increased 1.2%
  • Non-GAAP Diluted EPS from Continuing Operations Increased 21% to $0.41
  • GAAP Diluted EPS from Continuing Operations Increased 12% to $0.37

MINNEAPOLIS, 2015-11-20 — /EPR Retail News/ — Best Buy Co., Inc. (NYSE: BBY) today announced results for the third quarter (“Q3 FY16”) ended October 31, 2015 as compared to the third quarter (“Q3 FY15”) ended November 1, 2014.

Q3 FY16 Q3 FY15
Enterprise Revenue ($ in millions)1 $8,819 $9,032
Domestic segment $8,090 $7,992
International segment1 $729 $1,040
Enterprise Comparable Sales % Change:
Excluding the estimated benefit of installment billing2,3 0.5% 2.2%4
Estimated benefit of installment billing3 0.3% 0.7%
Comparable sales % change2 0.8% 2.9%4
Domestic Comparable Sales % Change:
Excluding the estimated benefit of installment billing2,3 0.5% 2.4%
Estimated benefit of installment billing3 0.3% 0.8%
Comparable sales % change2 0.8% 3.2%
Comparable online sales % change2 18.3% 21.6%
     
  Q3 FY16 Q3 FY15
Operating Income:
GAAP operating income as a % of revenue 2.6% 2.3%
Non-GAAP operating income as a % of revenue5 2.8% 2.4%
Diluted Earnings per Share (EPS):
GAAP diluted EPS from continuing operations $0.37 $0.33
Impact of non-restructuring SG&A charges6 $0.02 $0.02
Impact of restructuring charges6 $0.02 $0.01
Impact of gain on investments, net $0.00 ($0.01)
Income tax impact of Non-GAAP adjustments7 $0.00 ($0.01)
Non-GAAP diluted EPS from continuing operations5 $0.41 $0.34

 

Hubert Joly, Best Buy chairman and CEO, commented, “We have delivered another quarter of Domestic comparable sales growth and operating income expansion. At the Enterprise level, on revenue of $8.8 billion, we increased our non-GAAP operating income rate by 40 basis points to 2.8% and our non-GAAP diluted EPS by $0.07 to $0.41, an increase of 21%.”

Joly continued, “In the Domestic business, our comparable sales, excluding the impact of installment billing, increased 0.5%. Online comparable sales increased 18% as our new mobile site and overall enhanced dotcom capabilities continued to drive higher conversion rates and increased traffic. These results were achieved in a context where industry sales in the NPD-tracked categories were down 4.3%.8

Joly continued, “We are excited by what we are offering and delivering to our customers during this Holiday shopping season. First, we have created an expansive assortment of amazing technology products, especially in 4K TVs, health & wearables, connected or smart devices, drones, and many other giftable items. These products will be offered at very attractive prices to our customers throughout the Holiday shopping season.

“Second, we have built some terrific new capabilities since last year, including (1) a range of new digital capabilities, especially Blue Assist which provides the ability to call on Blue Shirt advice from our new mobile app; (2) an additional 1,100 stores-within-a-store which come on top of the over 3,700 we had a year ago; (3) the increasing expertise and proficiency of our sales people; (4) our enhanced multi-channel delivery capabilities, illustrated by faster shipping enabled by ship-from-store and a better in-store pickup experience; (5) the optimization of our supply chain to enable earlier store replenishments and higher order fill rates; and (6) a range of services offered to our customers, including free Geek Squad setup on top tech gifts and the ability for customers to give a gift of a Geek Squad agent’s time. Also, from a marketing perspective, we believe we are entering the quarter with a high-performing media campaign, a significantly greater social media presence and more refined personalization capabilities through our investments in our Athena database.”

Joly continued, “We of course recognize that we are up against a strong performance in the fourth quarter of last year and that the NPD industry declines that we saw in the third quarter, both sequentially and year-over-year, may continue throughout this year’s fourth quarter.  We have also made incremental investments in services pricing and SG&A that are putting pressure on our fourth quarter earnings outlook.”

Joly concluded, “Irrespective, one thing we are certain about is our team’s ability to execute exceptionally well throughout the Holiday. We are going into the Holiday clear on our priorities and our plan, and with a better trained, engaged and most importantly, highly determined team. I am grateful for what they have accomplished so far this year and extremely proud of their capabilities and passion to win.”

Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “As Hubert said, we are excited about our Holiday plans and new capabilities, and we are confident in our ability to execute our plan. This gives us a positive outlook on our Domestic performance versus the industry. However, the 4.3% decline we saw in the NPD-reported categories got progressively worse throughout the quarter, which adds a level of caution to our outlook. With that, our year-over-year non-GAAP outlook for Q4 FY16 is as follows. In the Domestic business we are expecting (1) near flat revenue assuming an approximate 4% industry decline in the NPD-reported categories, in line with Q3, and the timing of the Super Bowl shifts approximately 40 basis points of sales out of Q4 into Q1 FY17; and (2) a non-GAAP operating income rate decline of 20 to 35 basis points driven by gross profit rate pressure and higher SG&A. The gross profit rate pressure is primarily driven by (1) a 25-basis point investment in services pricing; (2) higher distribution costs associated with our growth in the online channel and the appliance and large-screen television categories; and (3) product mix and product cycle pressures. Largely offsetting these gross profit pressures is an expected 55-basis point periodic profit sharing benefit from our externally-managed extended service plan portfolio. The higher SG&A is due to our investment in growth initiatives, partially offset by cost savings. In the International business, due to the ongoing impacts of the Canadian brand consolidation, foreign currency fluctuations and softness in the Canadian market, we are expecting (1) an International revenue decline of approximately 30%; and (2) an International non-GAAP operating income rate in the range of positive 2% to 3%.

“Based on the above expectations, our Enterprise level outlook is as follows: (1) a negative low-single digit revenue growth rate; and (2) a non-GAAP operating income rate decline of 25 to 45 basis points. From a tax rate perspective, we expect the non-GAAP effective income tax rate from continuing operations to be in the range of 36% to 37%, versus 34.2% last year, which is expected to result in a negative $0.04 to negative $0.06 year-over-year non-GAAP diluted EPS impact in Q4 FY16.”

 

Domestic Segment Third Quarter Results

Domestic Revenue

Domestic revenue of $8.1 billion increased 1.2% versus last year. This increase was primarily driven by (1) a comparable sales increase of 0.5%, excluding the estimated 30-basis point benefit associated with the classification of revenue for the mobile carrier installment billing plans3; (2) an estimated 30-basis point benefit associated with installment billing3; and (3) a 30-basis point impact from a periodic profit sharing payment based on the performance of the company’s externally managed extended service plan portfolio.

From a merchandising perspective, comparable sales growth in computing, major appliances, health & wearables and large-screen televisions was partially offset by declines in tablets, mobile phones and digital imaging. The company also saw continued revenue declines in services, which was almost entirely due to the reduction of frequency and severity of claims on extended warranties, which has reduced repair revenue, and to a much lesser extent, declining attach rates of traditional warranty plans.

Domestic online revenue of $709 million increased 18.3% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 130 basis points to 8.8% versus 7.5% last year.

 

Domestic Gross Profit Rate

Domestic gross profit rate was 24.1% versus 23.0% last year. This 110-basis point increase was primarily due to (1) the positive impact of changes in mobile warranty plans which resulted in lower costs due to lower claim frequency and severity; (2) an increased mix of higher-margin large screen televisions; (3) a positive mix benefit from significantly decreased revenue in the lower-margin tablet category; (4) a greater portion of vendor funding being recorded as an offset to cost of goods sold rather than SG&A; and (5) a 20-basis point impact from a periodic profit sharing payment based on the performance of the company’s externally managed extended service plan portfolio. These increases were partially offset by the lapping of a prior year benefit from the receipt of restitution on a legal claim related to an inventory dispute of 15 basis points.

 

Domestic Selling, General and Administrative Expenses (“SG&A”)

Domestic SG&A expenses were $1.70 billion, or 21.0% of revenue, versus $1.63 billion, or 20.4% of revenue, last year. On a non-GAAP basis, SG&A expenses were $1.69 billion, or 20.9% of revenue, versus $1.63 billion, or 20.3% of revenue, last year. This $67 million, or 60 basis-point, increase in non-GAAP SG&A was primarily driven by a greater portion of our vendor funding being recorded as an offset to cost of goods sold rather than SG&A, investments in future growth initiatives and higher incentive compensation. This was partially offset by the flow through of Renew Blue phase two cost reductions.

 

International Segment Third Quarter Results

International Revenue 

International revenue of $729 million declined 29.9% versus last year. This decline was primarily driven by (1) the loss of revenue associated with closed stores as part of the Canadian brand consolidation; (2) a negative foreign currency impact of approximately 1,350 basis points; and (3) ongoing softness in the Canadian economy and consumer electronics industry.

 

International Gross Profit Rate

International gross profit rate was 22.5% versus 22.6% last year. On a non-GAAP basis, gross profit rate was 22.4% versus 22.6% last year. This 20-basis point decrease was primarily due to a higher mix of sales from our Mexico business which carries a lower gross profit rate.

 

International SG&A

International SG&A expenses were $172 million, or 23.6% of revenue, versus $234 million, or 22.5% of revenue, last year. On a non-GAAP basis, SG&A expenses were $171 million, or 23.5% of revenue, versus $234 million, or 22.5% of revenue, last year. In dollars, non-GAAP SG&A decreased $63 million primarily driven by the positive impact of foreign exchange rates and the elimination of expenses associated with closed stores as part of the Canadian brand consolidation. From a rate perspective, non-GAAP SG&A increased 100 basis points driven by year-over-year sales deleverage.

 

Income Taxes

In Q3 FY16, the non-GAAP continuing operations effective income tax rate decreased 100 basis points to 37.1% versus 38.1% last year driven by discrete income tax benefits in the quarter.

For Q4 FY16, the non-GAAP continuing operations effective income tax rate is expected to be in the range of 36% to 37%, versus 34.2% last year, which is expected to result in a negative $0.04 to negative $0.06 year-over-year non-GAAP diluted EPS impact in Q4 FY16.

 

Dividends and Share Repurchases

On October 6, 2015, the company paid a quarterly dividend of $0.23 per common share outstanding, or $79 million.
On March 3, 2015, the company announced the intent to repurchase $1 billion worth of its shares over a three-year period. In Q3 FY16, the company repurchased 1.9 million shares of its common stock for $64 million, for a total repurchase of 11.3 million shares, or $385 million, since the resumption of the program.

 

Conference Call

Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on November 19, 2015. A webcast of the call is expected to be available at www.investors.bestbuy.com both live and after the call.

 

(1) On February 13, 2015, Best Buy completed the sale of its Five Star business in China and as a result Five Star’s Q3 FY15 financial results are reflected in discontinued operations. Q3 FY15 Enterprise revenue and International revenue, respectively, as reported on November 20, 2014, was $9.38 billion and $1.39 billion. Additionally, on March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores and the conversion of the remaining 65 Future Shop stores to the Best Buy brand.

(2) Best Buy’s comparable sales is comprised of revenue at stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculation of comparable sales excludes the impact of revenue from discontinued operations.
The Canadian brand consolidation, which includes the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website, is expected to have a material impact on a year-over-year basis on the Canadian retail stores and the website. As such, all store and website revenue has been removed from the comparable sales base and International (comprised of Canada and Mexico) no longer has a comparable metric until International revenue is comparable on a year-over-year basis.  Therefore, Enterprise comparable sales will be equal to Domestic comparable sales until International revenue is again comparable on a year-over-year basis.

(3) In April of 2014, Best Buy began offering mobile carrier installment billing plans to its Domestic customers in addition to two-year contract plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As the mix of installment billing plans increases, there is an associated increase in revenue and cost of goods sold, and a decrease in gross profit rate, with gross profit dollars relatively unaffected. The company estimates that its Q3 FY16 Enterprise and Domestic comparable sales of 0.8% include approximately 30 basis points of impact from this classification difference. The impact on the gross profit rate at the Enterprise and Domestic levels for the quarter was immaterial. The company believes that providing information regarding this impact of installment billing and an estimate of the company’s comparable sales absent this impact assists investors in understanding the company’s underlying operating performance in relation to prior periods where the mix of installment billing plans was lower.

(4) Enterprise comparable sales for Q3 FY15 include revenue from continuing operations in the International segment.  Excluding the International segment, Enterprise comparable sales for Q3 FY15, excluding the impact of installment billing, would have been 2.4%, or equal to Domestic comparable sales excluding the impact of installment billing, for the same period.

(5) The company defines non-GAAP gross profit, non-GAAP SG&A, non-GAAP operating income, non-GAAP net earnings and non-GAAP diluted earnings per share for the periods presented as its gross profit, SG&A, operating income, net earnings and diluted earnings per share for those periods calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”), adjusted to exclude cathode ray tube (CRT) Litigation settlements, restructuring charges, non-restructuring asset impairments, other Canadian brand consolidation charges, gains on investments and the acceleration of a non-cash tax benefit as a result of reorganizing certain European legal entities.
These non-GAAP financial measures provide investors with an understanding of the company’s financial performance adjusted to exclude the effect of the items described above. These non-GAAP financial measures assist investors in making a ready comparison of the company’s financial results for its fiscal quarter ended October 31, 2015, against the company’s results for the respective prior-year periods and against third-party estimates of the company’s financial results for those periods that may not have included the effect of such items. Additionally, management uses these non-GAAP financial measures as an internal measure to analyze trends, allocate resources and analyze underlying operating performance. These non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, GAAP financial measures and may differ from similar measures used by other companies. Please see the table titled “Reconciliation of Non-GAAP Financial Measures” at the end of this release for more detail.

(6) The company has consolidated certain line items from the Reconciliation of Non-GAAP Financial Measures schedule included at the back of this earnings release. The impact of non-restructuring SG&A charges line includes (1) non-restructuring asset impairments and (2) other Canadian brand consolidation charges. The impact of restructuring charges line includes (1) restructuring charges and (2) restructuring charges – COGS.

(7) Income tax impact of Non-GAAP adjustments is the summation of the calculated income tax charge related to each non-GAAP non-income tax adjustment.  Income tax charge is calculated using the estimated annual effective tax rate in effect during the period of the related non-GAAP adjustment.

(8) According to The NPD Group’s Weekly Tracking Service as published November 9, 2015, revenue for the CE (Consumer Electronics) industry declined 4.3% during the 13 weeks ended October 31, 2015 compared to the 13 weeks ended November 1, 2014. The CE industry, as defined by The NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging and other categories. Sales of these products represent approximately 65% of the company’s Domestic revenue. The CE industry, as defined by The NPD Group, does not include mobile phones, appliances, services, gaming, movies or music.

 

Forward-Looking and Cautionary Statements:

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the 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,” ”assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “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: macro-economic conditions (including fluctuations in housing prices, oil markets and jobless rates), conditions in the industries and categories in which we operate, changes in consumer preferences, changes in consumer confidence, consumer spending and debt levels, online sales levels and trends, average ticket size, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, competitive initiatives of competitors (including pricing actions and promotional activities of competitors), strategic and business decisions of our vendors (including actions that could impact promotional support, product margin and/or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, the company’s ability to prevent or react to a disaster recovery situation, changes in law or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developments and resolution of other discrete tax matters, foreign currency fluctuation, availability of suitable real estate locations, the company’s ability to manage its property portfolio, the impact of labor markets,  the company’s ability to retain qualified employees, failure to achieve anticipated expense and cost reductions from operational and restructuring changes, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities and brand consolidations), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which we will incur costs, acquisitions and development of new businesses, divestitures of existing businesses, failure to complete or achieve anticipated benefits of announced transactions, integration challenges relating to new ventures, and our ability to protect information relating to our employees and customers.  A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission (“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K filed with the SEC on March 31, 2015. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

 

Investor Contact:

Mollie O’Brien, Investor Relations
(612) 291-7735 or mollie.obrien@bestbuy.com

 

Media Contacts

Amy von Walter, Public Relations
(612) 437-5956 or amy.vonwalter@bestbuy.com

Jeff Shelman, Public Relations
(612) 291-6114 or jeffrey.shelman@bestbuy.com

SOURCE: Best Buy

Best Buy Co. Q2 FY16: Domestic Segment Revenue Increased 3.9% vs Q2 FY15

  • Domestic Segment Revenue Increased 3.9%
  • Non-GAAP Diluted EPS from Continuing Operations Increased 17% to $0.49
  • GAAP Diluted EPS from Continuing Operations Increased 18% to $0.46

MINNEAPOLIS, 2015-8-26— /EPR Retail News/ — Best Buy Co., Inc. (NYSE: BBY) today announced results for the second quarter (“Q2 FY16”) ended August 1, 2015 as compared to the second quarter (“Q2 FY15”) ended August 2, 2014.

Q2 FY16 Q2 FY15
Enterprise Revenue ($ in millions)1 $8,528 $8,459
Domestic segment $7,878 $7,585
International segment1 $650 $874
Enterprise Comparable Sales % Change:
Excluding the estimated benefit of installment billing2,3 2.7% (2.2%)4
Estimated benefit of installment billing3 1.1%
Comparable sales % change2 3.8% (2.2%)4
Domestic Comparable Sales % Change:
Excluding the estimated benefit of installment billing2,3 2.7% (2.0%)
Estimated benefit of installment billing3 1.1%
Comparable sales % change2 3.8% (2.0%)
Comparable online sales % change2 17.0% 22.0%
Q2 FY16 Q2 FY15
Operating Income:
GAAP operating income as a % of revenue 3.4% 2.7%
Non-GAAP operating income as a % of revenue5 3.4% 2.9%
Diluted Earnings per Share (EPS):
GAAP diluted EPS from continuing operations $0.46 $0.39
Impact of cathode ray tube (CRT) settlements6 ($0.03) $0.00
Impact of non-restructuring SG&A charges7 $0.03 $0.02
Impact of restructuring charges7 $0.03 $0.01
Non-GAAP diluted EPS from continuing operations5 $0.49 $0.42

Hubert Joly, Best Buy chairman and CEO, commented, “We believe these better-than-expected second quarter results are affirmation that our strategy of offering advice, service and convenience at competitive prices is paying off. Enterprise revenue grew 0.8% to $8.5 billion driven by a 3.9% increase in the Domestic segment, partially offset by the impact of the Canadian brand consolidation and 120 basis points of pressure from foreign currency. Better year-over-year performance in the Domestic segment drove a 50-basis point increase in the Enterprise non-GAAP operating income rate to 3.4% and a 17% increase in non-GAAP diluted EPS to $0.49. We also returned $321 million in cash to shareholders through share repurchases in addition to $81 million in regular dividends.”

Joly continued, “In the Domestic business, our comparable sales increased 2.7%, excluding the impact of installment billing3, driven by continued strong performance in major appliances, large screen televisions and mobile phones. Online comparable sales increased 17.0% as our investments in new capabilities continued to drive increased traffic and higher conversion rates. We also saw industry revenue in the NPD-tracked categories, representing 65% of our revenue, improve from a decline of 5.3% in Q1 to a decline of 1.3%8 in Q2.”

Joly concluded, “As we look forward, while we are cognizant of the recent financial market turbulence, we believe the combination of an opportunity-rich environment and the strength of our competitive advantages leads us to have a positive outlook about our future prospects, starting with the important back-to-school third quarter. We would like to thank all of our associates for their hard work and contributions to our success. The opportunities we have before us today are possible because of the talent and engagement of our entire team – and I am extremely proud of their performance and ability to win.”

Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “As Hubert said, our competitive advantages and strong execution provide us a positive outlook on our Domestic performance versus the industry, which bodes well for us as we enter the third quarter. It is difficult to know, though, if the recent volatility in the financial markets will affect overall consumer spending. To date, however, we have not seen a measurable impact versus our original expectations. As such, our outlook assumes there will be no material changes in consumer spending in the third quarter. With that said, our year-over-year non-GAAP outlook for Q3 FY16 is as follows. In the Domestic business we are expecting (1) flat to low-single digit revenue growth; and (2) an approximately flat operating income rate change driven by a higher gross profit rate offset by increased SG&A due to inflation and growth-related investments. In the International business, due to the ongoing impacts of the Canadian brand consolidation and foreign currency, we are expecting (1) an International revenue decline of approximately 30% and (2) an International non-GAAP operating income rate in the range of negative 2.5% to negative 3.5%.

“With these expectations, which assume continued strength in our Domestic business offset by the near-term impacts of Canada, at the Enterprise level we expect (1) a flat to negative low-single digit revenue growth rate and (2) an operating income rate growth of flat to negative 20 basis points. Additionally, we expect the non-GAAP continuing operations effective income tax rate to be in the range of 39% to 40%, versus 38.1% last year, which could result in a negative $0.01 year-over-year non-GAAP diluted EPS impact in Q3 FY16.”

Domestic Segment Second Quarter Results

Domestic Revenue

Domestic revenue of $7.9 billion increased 3.9% versus last year. This increase was primarily driven by (1) a comparable sales increase of 2.7%, excluding the estimated 110-basis point benefit associated with the classification of revenue for the mobile carrier installment billing plans3; (2) an estimated 110-basis point benefit associated with installment billing3; and (3) a 30-basis point impact from a periodic profit sharing payment based on the performance of the company’s externally managed extended service plan portfolio and an extended warranty deferred revenue adjustment.

From a merchandising perspective, comparable sales growth in major appliances, televisions, mobile phones (excluding the impact of installment billing3) and health and fitness was partially offset by a decline in tablets. The growth in mobile phones was primarily driven by higher year-over-year selling prices. The company also saw continued revenue declines in services. This decline of 13.1% was primarily driven by the reduction of frequency and severity of claims on extended warranties, which has reduced repair revenue, and to a much lesser extent, declining attach rates.

Domestic online revenue of $676 million increased 17.0% on a comparable basis primarily due to increased traffic and higher conversion rates. As a percentage of total Domestic revenue, online revenue increased 90 basis points to 8.6% versus 7.7% last year.

Domestic Gross Profit Rate

Domestic gross profit rate was 24.7% versus 23.4% last year. On a non-GAAP basis, gross profit rate was 24.6% versus 23.4% last year. This 120-basis point increase was primarily due to (1) the positive impact of changes in mobile warranty plans which resulted in lower costs due to lower claim frequency and severity; (2) rate improvements in computing hardware; (3) an increased mix of higher-margin large screen televisions; (4) a 25-basis point impact from a periodic profit sharing payment based on the performance of the company’s externally managed extended service plan portfolio and an extended warranty deferred revenue adjustment; and (5) an additional positive mix shift due to significantly decreased revenue in the lower-margin tablet category. These increases were partially offset by a lower rate in the mobile category driven by increased sales of higher priced iconic mobile phones, which have higher gross profit dollars but carry a lower gross profit rate.

Domestic Selling, General and Administrative Expenses (“SG&A”)

Domestic SG&A expenses were $1.64 billion, or 20.8% of revenue, versus $1.52 billion, or 20.1% of revenue, last year. On a non-GAAP basis, SG&A expenses were $1.62 billion, or 20.6% of revenue, versus $1.51 billion, or 19.9% of revenue, last year. This $114 million, or 70 basis-point, increase in non-GAAP SG&A was primarily driven by investments in future growth initiatives, SG&A inflation and higher incentive compensation.

International Segment Second Quarter Results

International Revenue 

International revenue of $650 million declined 25.6% versus last year. This decline was primarily driven by (1) the loss of revenue associated with closed stores as part of the Canadian brand consolidation; (2) a negative foreign currency impact of approximately 1,200 basis points; and (3) ongoing softness in the Canadian consumer electronics industry.

International Gross Profit Rate

International gross profit rate was 23.4% versus 22.9% last year. On a non-GAAP basis, gross profit rate was flat year-over-year at 22.9%.

International SG&A

International SG&A expenses were $175 million, or 26.9% of revenue, versus $227 million, or 26.0% of revenue, last year. On a non-GAAP basis, SG&A expenses were $170 million, or 26.2% of revenue, versus $227 million, or 26.0% of revenue, last year. In dollars, non-GAAP SG&A decreased $57 million primarily driven by the elimination of expenses associated with closed stores as part of the Canadian brand consolidation and the positive impact of foreign exchange rates. From a rate perspective, non-GAAP SG&A increased 20 basis point driven by year-over-year sales deleverage.

Income Taxes

In Q2 FY16, the non-GAAP continuing operations effective income tax rate increased 250 basis points to 37.1% versus 34.6% last year due to a discrete income tax benefit recognized in Q2 FY15.

For Q3 FY16, the non-GAAP continuing operations effective income tax rate is expected to be in the range of 39% to 40%, versus 38.1% last year, which could result in a negative $0.01 year-over-year non-GAAP diluted EPS impact in Q3 FY16.

Dividends and Share Repurchases

On July 2, 2015, the company paid a quarterly dividend of $0.23 per common share outstanding, or $81 million.
On March 3, 2015, the company announced the intent to repurchase $1 billion worth of its shares over a three-year period. Under this program, the company repurchased a total of 9.4 million shares of its common stock for $321 million during Q2 FY16.

Conference Call

Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on August 25, 2015. A webcast of the call is expected to be available at www.investors.bestbuy.com both live and after the call.

(1) On February 13, 2015, Best Buy completed the sale of its Five Star business in China and as a result Five Star’s Q2 FY15 financial results are reflected in discontinued operations. Q2 FY15 Enterprise revenue and International revenue, respectively, as reported on August 26, 2014, was $8.90 billion and $1.31 billion. Additionally, on March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores and the conversion of the remaining 65 Future Shop stores to the Best Buy brand.

(2) Best Buy’s comparable sales is comprised of revenue at stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculation of comparable sales excludes the impact of revenue from discontinued operations.
The Canadian brand consolidation, which includes the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website, is expected to have a material impact on a year-over-year basis on the Canadian retail stores and the website. As such, all store and website revenue has been removed from the comparable sales base and International (comprised of Canada and Mexico) no longer has a comparable metric.  Therefore, Enterprise comparable sales will be equal to Domestic comparable sales until International revenue is again comparable on a year-over-year basis.

(3) In April of 2014, Best Buy began offering mobile carrier installment billing plans to its Domestic customers in addition to two-year contract plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As the mix of installment billing plans increases, there is an associated increase in revenue and cost of goods sold, and a decrease in gross profit rate, with gross profit dollars relatively unaffected. The company estimates that its Q2 FY16 Enterprise and Domestic comparable sales of 3.8% include approximately 110 basis points of impact from this classification difference. The impact on the gross profit rate at the Enterprise and Domestic levels for the quarter was immaterial. The company believes that providing information regarding this impact of installment billing and an estimate of the company’s comparable sales absent this impact assists investors in understanding the company’s underlying operating performance in relation to periods prior to the introduction of installment billing.

(4) Enterprise comparable sales for Q2 FY15 include revenue from continuing operations in the International segment.  Excluding the International segment, Enterprise comparable sales for Q2 FY15 would have been negative 2.0%, or equal to Domestic comparable sales, for the same period.

(5) The company defines non-GAAP gross profit, non-GAAP SG&A, non-GAAP operating income, non-GAAP net earnings and non-GAAP diluted earnings per share for the periods presented as its gross profit, SG&A, operating income, net earnings and diluted earnings per share for those periods calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”), adjusted to exclude CRT Litigation settlements, restructuring charges, non-restructuring asset impairments, other Canadian brand consolidation charges, gains on investments and the acceleration of a non-cash tax benefit as a result of reorganizing certain European legal entities.

These non-GAAP financial measures provide investors with an understanding of the company’s financial performance adjusted to exclude the effect of the items described above. These non-GAAP financial measures assist investors in making a ready comparison of the company’s financial results for its fiscal quarter ended August 1, 2015, against the company’s results for the respective prior-year periods and against third-party estimates of the company’s financial results for those periods that may not have included the effect of such items. Additionally, management uses these non-GAAP financial measures as an internal measure to analyze trends, allocate resources and analyze underlying operating performance. These non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, GAAP financial measures and may differ from similar measures used by other companies. Please see the table titled “Reconciliation of Non-GAAP Financial Measures” at the end of this release for more detail.

(6) On November 14, 2011, Best Buy filed a lawsuit captioned In re Cathode Ray Tube Antitrust Litigation in the United States District

Court for the Northern District of California (“CRT Litigation”). The company alleges that the defendants engaged in price fixing in violation of antitrust regulations relating to cathode ray tubes for the time period between March 1, 1995 and November 25, 2007. No trial date has been set. In connection with this action, the company received settlement proceeds net of legal expenses and costs in the amount of $8 million in Q2 FY16. Best Buy will continue to litigate against the remaining defendants and expect further settlement discussions as this matter proceeds; however, it is uncertain whether the company will recover additional settlement sums or a favorable verdict at trial.

(7) The company has consolidated certain line items from the Reconciliation of Non-GAAP Financial Measures schedule included at the back of this earnings release. The impact of non-restructuring SG&A charges line includes (1) non-restructuring asset impairments and (2) other Canadian brand consolidation charges. The impact of restructuring charges line includes (1) restructuring charges and (2) restructuring charges – COGS.

(8) According to The NPD Group’s Weekly Tracking Service as published August 10, 2015, revenue for the CE (Consumer Electronics) industry declined 1.3% during the 13 weeks ended August 1, 2015 compared to the 13 weeks ended August 2, 2014. The CE industry, as defined by The NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging and other categories. Sales of these products represent approximately 65% of the company’s Domestic revenue. The CE industry, as defined by The NPD Group, does not include mobile phones, gaming, movies, music, appliances or services.

Forward-Looking and Cautionary Statements:

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the 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,” ”assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “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: macro-economic conditions (including fluctuations in housing prices, oil markets and jobless rates), conditions in the industries and categories in which we operate, changes in consumer preferences, changes in consumer confidence, consumer spending and debt levels, online sales levels and trends, average ticket size, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, competitive initiatives of competitors (including pricing actions and promotional activities of competitors), strategic and business decisions of our vendors (including actions that could impact product margin or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, the company’s ability to prevent or react to a disaster recovery situation, changes in law or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developments and resolution of other discrete tax matters, foreign currency fluctuation, availability of suitable real estate locations, the company’s ability to manage its property portfolio, the impact of labor markets,  the company’s ability to retain qualified employees, failure to achieve anticipated expense and cost reductions from operational and restructuring changes, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities and brand consolidations), failure to accurately predict the duration over which we will incur costs, acquisitions and development of new businesses, divestitures of existing businesses, failure to complete or achieve anticipated benefits of announced transactions, integration challenges relating to new ventures, and our ability to protect information relating to our employees and customers.  A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission (“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K filed with the SEC on March 31, 2015. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

Investor Contact:
Mollie O’Brien, Investor Relations
(612) 291-7735 or mollie.obrien@bestbuy.com
Media Contact:
Amy von Walter, Public Relations
(612) 437-5956 or amy.vonwalter@bestbuy.com

Jeff Shelman, Public Relations
(612) 291-6114 or jeffrey.shelman@bestbuy.com

Printable PDF version: Click here

Best Buy opens additional Teen Tech Centers in Seattle, Jersey City, New Jersey, Washington, D.C. and Denver

Washington, DC, 2014-10-22— /EPR Retail News/ — A 12-year-old aspiring inventor created a desk fan for his mom with parts from a broken PC and a cardboard box. Adding a single-throw switch, and wires for the circuit, the fan came alive. Beaming with pride, the boy started his own fan project with a completed prototype and has plans to design a custom enclosure using a 3D printer and a program called Tinkercad.

Believe it or not, he brainstormed and executed his fan project within the walls of the Best Buy Teen Tech Center in Minneapolis.

In a world where technology and media continue to be more ingrained in everyday life interactions and career choices, it’s important to prepare students like this young inventor for future career success. That’s where the Teen Tech Centers come in. With existing centers already inspiring and training kids in Minneapolis, Chicago, Miami and San Antonio, this month Best Buy has opened additional centers in Seattle, Jersey City, New Jersey, and Washington, D.C. And on Oct. 22, the eighth center will open in Denver.

Housing state-of-the-art technology, Best Buy Teen Tech Centers are free after-school programs where teens can play, discover and learn about a variety of topics including graphic design, digital photography, audio and video production, game and app development, film-making and much more. Teens can also attend workshops led by Geek Squad Agents and other experts in technology, giving teens the opportunity to express themselves in an online global environment. The centers continue to lead the way when it comes to helping teens develop 21st century skills by giving them access to technology in a hands-on environment.

Best Buy CEO and President Hubert Joly spoke to a packed room of teens and local leaders at the opening of the Teen Tech Center at the Washington, D.C. Boys and Girls Club earlier this month. Alongside Joly was Housing and Urban Development Secretary Julián Castro, who shared his experience growing up in Texas as a member of the Boys and Girls Club. Castro said the partnership between Best Buy and the Boys and Girls Clubs is a great example of what can be accomplished when organizations work together.

Aaron Lundholm, coordinator of the Hennepin County Library-Minneapolis Central location, said the centers invite teens to get involved in creating information and media rather than just consuming it.

“They are learning by designing and in the context of projects they are interested in and care about,” he said. “They’re building 21st-century skills and fluency with technology in a hands-on way.”

The presence of the Hennepin County Library center (in Minneapolis) has been significant within the local community.

“Many of the young people we serve don’t otherwise have access to the powerful tools and support the center provides,” Lundholm said. “We’ve been successful in reaching ‘at risk’ youth who haven’t had access and opportunities like this before. Several of the teens are homeless and many (or most) are not in a position to afford hardware or software they find in the center.”

###

Best Buy opens additional Teen Tech Centers in Seattle, Jersey City, New Jersey, Washington, D.C. and Denver

Best Buy opens additional Teen Tech Centers in Seattle, Jersey City, New Jersey, Washington, D.C. and Denver