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 $0.37
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
third quarter (“Q3 FY16”) ended October 31, 2015 as compared to the
third quarter (“Q3 FY15”) ended November 1, 2014.
Q3 FY16
Q3 FY15 Enterprise Revenue ($ 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 RevenueDomestic 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 benefit 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 RateDomestic 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 benefit 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 RevenueInternational 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 RateInternational 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&AInternational 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 TaxesIn 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
RepurchasesOn 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 CallBest 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.
BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF
EARNINGS ($ in millions, except per share amounts) (Unaudited
and subject to reclassification)
Three
Months Ended Nine Months Ended October 31,
November 1, October 31, November 1,
2015 2014 2015 2014 Revenue $ 8,819 $
9,032 $ 25,905 $ 26,130 Cost of goods sold 6,708 6,956 19,661
20,109 Restructuring charges - cost of goods sold (1 )
- 4 - Gross profit 2,112
2,076 6,240 6,021 Gross profit % 23.9 % 23.0 % 24.1 % 23.0 %
Selling, general and administrative expenses 1,874 1,866 5,451
5,369 SG&A % 21.2 % 20.7 % 21.0 % 20.5 % Restructuring charges
8 5 185 12
Operating income 230 205 604 640 Operating income % 2.6 % 2.3 % 2.3
% 2.4 % Other income (expense): Gain on sale of investments - 5 2 7
Investment income and other 3 - 14 10 Interest expense (20 )
(22 ) (60 ) (68 ) Earnings from continuing
operations before income tax (benefit) expense 213 188 560 589
Income tax (benefit) expense 84 72 230 (133 ) Effective tax rate
39.4 % 38.2 % 41.1 % (22.7 %) Net
earnings from continuing operations 129 116 330 722 Gain (loss)
from discontinued operations, net of tax (4 ) (9 )
88 (7 ) Net earnings including noncontrolling
interest 125 107 418 715
Net earnings from discontinued operations
attributable to noncontrolling interests
- - - (1 ) Net
earnings attributable to Best Buy Co., Inc. shareholders $ 125
$ 107 $ 418 $ 714 Amounts
attributable to Best Buy Co., Inc. shareholders Net earnings from
continuing operations $ 129 $ 116 $ 330 $ 722
Net earnings (loss) from discontinued
operations
(4 ) (9 ) 88 (8 ) Net
earnings attributable to Best Buy Co., Inc. shareholders $ 125
$ 107 $ 418 $ 714 Basic earnings
per share attributable to Best Buy Co., Inc. shareholders
Continuing operations $ 0.37 $ 0.33 $ 0.95 $ 2.07 Discontinued
operations (0.01 ) (0.03 ) 0.25
(0.02 ) Basic earnings per share $ 0.36 $ 0.30 $ 1.20
$ 2.05 Diluted earnings per share attributable
to Best Buy Co., Inc. shareholders Continuing operations $ 0.37 $
0.33 $ 0.93 $ 2.04 Discontinued operations (0.01 )
(0.03 ) 0.25 (0.02 ) Diluted earnings per
share $ 0.36 $ 0.30 $ 1.18 $ 2.02
Dividends declared per common share $ 0.23 $ 0.19 $ 1.20 $
0.53 Weighted average common shares outstanding (in
millions) Basic 344.7 350.1 348.9 349.0 Diluted 349.0 354.0 353.6
352.5
BEST BUY CO., INC. CONDENSED CONSOLIDATED
BALANCE SHEETS ($ in millions) (Unaudited and subject to
reclassification)
Excluding Five
Star November 1, October 31, 2015 November 1,
2014 2014(1) ASSETS Current assets Cash and cash
equivalents $ 1,697 $ 1,929 $ 1,711 Short-term investments 1,650
1,209 1,209 Receivables, net 1,061 1,066 1,030 Merchandise
inventories 6,651 6,900 6,573 Other current assets 676 959 764
Current assets held for sale - - 776 Total
current assets 11,735 12,063 12,063 Property and equipment, net
2,304 2,524 2,391 Goodwill 425 425 425 Intangibles, net 18 99 63
Other assets 636 651 650 Noncurrent assets held for sale 32
- 170
TOTAL ASSETS $ 15,150
$ 15,762 $ 15,762 LIABILITIES
& EQUITY Current liabilities Accounts payable $ 6,184 $
6,626 $ 6,079 Unredeemed gift card liabilities 379 381 380 Deferred
revenue 330 449 378 Accrued compensation and related expenses 306
305 294 Accrued liabilities 789 788 737 Accrued income taxes 23 33
33 Current portion of long-term debt 386 44 44 Current liabilities
held for sale - - 681 Total current
liabilities 8,397 8,626 8,626 Long-term liabilities 874 972 953
Long-term debt 1,229 1,591 1,591 Long-term liabilities held for
sale - - 18 Equity 4,650 4,573 4,574
TOTAL
LIABILITIES & EQUITY $ 15,150 $
15,762 $ 15,762
(1) Represents Condensed Consolidated Balance Sheet as of
November 1, 2014, recast to present the Five Star business in China
as held for sale.
BEST BUY CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS ($ in millions) (Unaudited and subject to
reclassification)
Nine Months Ended October
31, 2015 November 1, 2014 OPERATING ACTIVITIES
Net earnings $ 418 $ 715
Adjustments to reconcile net earnings to
total cash provided by (used in) operating activities:
Depreciation 494 484 Restructuring charges 189 17 Gain on sale of
business, net (99 ) (1 ) Stock-based compensation 80 63 Deferred
income taxes (43 ) (381 ) Other, net 3 4 Changes in
operating assets and liabilities: Receivables 229 237 Merchandise
inventories (1,494 ) (1,541 ) Other assets 20 14 Accounts payable
1,152 1,526 Other liabilities (271 ) (263 ) Income taxes
(215 ) (100 ) Total cash provided by operating activities
463 774
INVESTING ACTIVITIES Additions to property
and equipment (493 ) (425 ) Purchases of investments, net (196 )
(983 ) Proceeds from sale of business, net of cash transferred upon
sale 102 38 Change in restricted assets (45 ) 25 Settlement of net
investment hedges 14 - Other, net - 3
Total cash used in investing activities (618 ) (1,342 )
FINANCING ACTIVITIES Repurchase of common stock (385 ) -
Repayments of debt, net (18 ) (19 ) Dividends paid (421 ) (185 )
Issuance of common stock 44 27 Other, net 19 2
Total cash used in financing activities (761 ) (175 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH (13 )
(6 )
DECREASE IN CASH AND CASH EQUIVALENTS (929 ) (749 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD EXCLUDING HELD
FOR SALE 2,432 2,678
CASH AND CASH EQUIVALENTS HELD FOR SALE
AT BEGINNING OF PERIOD 194 -
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,697 $
1,929
BEST BUY CO., INC. SEGMENT
INFORMATION ($ in millions) (Unaudited and subject to
reclassification)
Domestic Segment
Performance Summary Three Months Ended Nine Months
Ended October 31, November 1, October 31,
November 1, 2015 2014 2015 2014
Revenue $8,090 $7,992 $23,858 $23,358 Gross profit $1,948 $1,841
$5,780 $5,382 SG&A $1,702 $1,632 $4,922 $4,688 Operating income
$244 $204 $857 $688
Key Metrics Comparable sales %
change1 0.8% 3.2% 1.7% 0.0% Comparable sales % change, excluding
installment billing2 0.5% 2.4% 0.8% (0.3%) Comparable online sales
% change1 18.3% 21.6% 13.3% 24.3% Gross profit as a % of revenue
24.1% 23.0% 24.2% 23.0% SG&A as a % of revenue 21.0% 20.4%
20.6% 20.1% Operating income as a % of revenue 3.0% 2.6% 3.6% 2.9%
Non-GAAP Results3 Gross profit $1,948 $1,841 $5,692
$5,382 Gross profit as a % of revenue 24.1% 23.0% 23.9% 23.0%
SG&A $1,693 $1,626 $4,878 $4,662 SG&A as a % of revenue
20.9% 20.3% 20.4% 20.0% Operating income $255 $215 $814 $720
Operating income as a % of revenue 3.2% 2.7% 3.4% 3.1%
International Segment Performance Summary Three Months
Ended Nine Months Ended October 31, November
1, October 31, November 1, 2015
2014 2015 2014 Revenue $729 $1,040 $2,047
$2,772 Gross profit $164 $235 $460 $639 SG&A $172 $234 $529
$681 Operating income (loss) ($14) $1 ($253) ($48)
Key
Metrics Comparable sales % change1 N/A 0.2% N/A (3.2%) Gross
profit as a % of revenue 22.5% 22.6% 22.5% 23.1% SG&A as a % of
revenue 23.6% 22.5% 25.8% 24.6% Operating income (loss) as a % of
revenue (1.9%) 0.1% (12.4%) (1.7%)
Non-GAAP Results3
Gross profit $163 $235 $464 $639 Gross profit as a % of revenue
22.4% 22.6% 22.7% 23.1% SG&A $171 $234 $520 $680 SG&A as a
% of revenue 23.5% 22.5% 25.4% 24.5% Operating income (loss) ($8)
$1 ($56) ($41) Operating income (loss) as a % of revenue (1.1%)
0.1% (2.7%) (1.5%)
(1) 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 Bust 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 no
longer has a comparable metric until International revenue is
comparable on a year-over-year basis.
(2) 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.
(3) Please see table titled “Reconciliation of Non-GAAP
Financial Measures” at the back of this release.
BEST BUY CO., INC. REVENUE CATEGORY SUMMARY
(Unaudited and subject to reclassification)
Excluding the estimated benefit of mobile phone installment
billing1 Revenue Mix Summary Comparable
Sales Three Months Ended Three Months Ended
Domestic Segment
October 31,2015
November 1,2014
October 31,2015
November 1,2014
Consumer Electronics 30% 29% 3.0% 3.1% Computing and Mobile Phones
48% 49% (1.5%) 1.6% Entertainment 7% 7% (6.0%) 16.6% Appliances 9%
8% 16.4% 5.7% Services2 5% 6% (11.1%) (10.3%) Other 1% 1% n/a n/a
Total 100% 100% 0.5% 2.4%
Including the estimated benefit of mobile phone
installment billing1 Revenue Mix Summary
Comparable Sales Three Months Ended Three Months
Ended Domestic Segment
October 31,2015
November 1,2014
October 31,2015
November 1,2014
Consumer Electronics 30% 29% 3.0% 3.1% Computing and Mobile Phones
49% 49% (0.9%) 3.2% Entertainment 6% 7% (6.0%) 16.6% Appliances 9%
8% 16.4% 5.7% Services2 5% 6% (11.1%) (10.3%) Other 1% 1% n/a n/a
Total 100% 100% 0.8% 3.2%
Revenue Mix Summary
Three Months Ended International Segment3
October 31,2015
November 1,2014
Consumer Electronics 27% 25% Computing and Mobile Phones 55% 54%
Entertainment 8% 9% Appliances 4% 5% Services2 5% 6% Other 1% 1%
Total 100% 100%
(1) 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.
(2) The "Services" revenue category consists primarily of
service contracts, extended warranties, computer related services,
product repair and delivery and installation for home theater,
mobile audio and appliances.
(3) The Canadian brand consolidation is expected to have a
material impact on all of the Canadian retail stores and the
website on a year-over-year basis. As such, all Canadian revenue
has been removed from the comparable sales base and International
no longer has a comparable metric until International revenue is
comparable on a year-over-year basis.
BEST BUY CO., INC.RECONCILIATION OF
NON-GAAP FINANCIAL MEASURESCONTINUING OPERATIONS($ in
millions, except per share amounts)(Unaudited and subject to
reclassification)
The following information provides reconciliations of non-GAAP
financial measures from continuing operations to the most
comparable financial measures calculated and presented in
accordance with accounting principles generally accepted in the
U.S. (“GAAP”). The company has provided non-GAAP financial
measures, which are not calculated or presented in accordance with
GAAP, as information supplemental and in addition to the financial
measures presented in the accompanying news release that are
calculated and presented in accordance with GAAP. Such 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, the GAAP financial measures presented in the
news release. The non-GAAP financial measures in the accompanying
news release may differ from similar measures used by other
companies.
The following tables reconcile gross profit, SG&A, operating
income, net earnings and diluted earnings per share for the periods
presented for continuing operations (GAAP financial measures) to
non-GAAP gross profit, non-GAAP SG&A, non-GAAP operating
income, non-GAAP net earnings and non-GAAP diluted earnings per
share for continuing operations (non-GAAP financial measures) for
the periods presented.
Three Months Ended Three Months Ended
October 31, 2015 November 1, 2014 $
% ofRev.
$
% ofRev.
Domestic -
Continuing Operations
SG&A $1,702 21.0% $1,632 20.4% Non-restructuring asset
impairments - SG&A (9) (0.1%) (6) (0.1%) Non-GAAP SG&A
$1,693 20.9% $1,626 20.3% Operating income $244 3.0% $204
2.6% Non-restructuring asset impairments - SG&A 9 0.1% 6 0.1%
Restructuring charges 2 0.0% 5 0.1% Non-GAAP operating income $255
3.2% $215 2.7%
International -
Continuing Operations
Gross profit $164 22.5% $235 22.6% Restructuring charges - COGS (1)
(0.1%) 0 0.0% Non-GAAP gross profit $163 22.4% $235 22.6%
SG&A $172 23.6% $234 22.5% Other Canada brand consolidation
charges - SG&A2 (1) (0.1%) 0 0.0% Non-GAAP SG&A $171 23.5%
$234 22.5% Operating income (loss) ($14) (1.9%) $1 0.1%
Restructuring charges - COGS (1) (0.1%) 0 0.0% Other Canada brand
consolidation charges - SG&A2 1 0.1% 0 0.0% Restructuring
charges 6 0.8% 0 0.0% Non-GAAP operating income (loss) ($8) (1.1%)
$1 0.1%
Consolidated -
Continuing Operations
Gross profit $2,112 23.9% $2,076 23.0% Restructuring charges - COGS
(1) (0.0%) 0 0.0% Non-GAAP gross profit $2,111 23.9% $2,076 23.0%
SG&A $1,874 21.2% $1,866 20.7% Other Canada brand consolidation
charges - SG&A2 (1) (0.0%) 0 0.0% Non-restructuring asset
impairments - SG&A (9) (0.1%) (6) (0.1%) Non-GAAP SG&A
$1,864 21.1% $1,860 20.6% Operating income $230 2.6% $205
2.3% Restructuring charges - COGS (1) (0.0%) 0 0.0% Other Canada
brand consolidation charges - SG&A2 1 0.0% 0 0.0%
Non-restructuring asset impairments - SG&A 9 0.1% 6 0.1%
Restructuring charges 8 0.1% 5 0.1% Non-GAAP operating income $247
2.8% $216 2.4% Net earnings $129 $116 Restructuring charges
- COGS (1) 0 Other Canada brand consolidation charges - SG&A2 1
0 Non-restructuring asset impairments - SG&A 9 6 Restructuring
charges 8 5 Gain on investments, net 0 (5) Income tax impact of
Non-GAAP adjustments4 (2) (1) Non-GAAP net earnings $144 $121
Diluted EPS $0.37 $0.33 Per share impact of restructuring
charges - COGS 0.00 0.00 Per share impact of other Canada brand
consolidation charges - SG&A2 0.00 0.00 Per share impact of
non-restructuring asset impairments - SG&A 0.02 0.02 Per share
impact of restructuring charges 0.02 0.01 Per share impact of gain
on investments, net 0.00 (0.01) Per share income tax impact of
Non-GAAP adjustments4 0.00 (0.01) Non-GAAP diluted EPS $0.41 $0.34
Nine Months Ended Nine Months Ended
October 31, 2015 November 1, 2014 $
% ofRev.
$
% ofRev.
Domestic -
Continuing Operations
Gross profit $5,780 24.2% $5,382 23.0% CRT settlements1 (88) (0.4%)
0 0.0% Non-GAAP gross profit $5,692 23.9% $5,382 23.0%
SG&A $4,922 20.6% $4,688 20.1% CRT settlement legal fees and
costs1 (13) (0.1%) 0 0.0% Non-restructuring asset impairments -
SG&A (31) (0.1%) (26) (0.1%) Non-GAAP SG&A $4,878 20.4%
$4,662 20.0% Operating income $857 3.6% $688 2.9% Net CRT
settlements1 (75) (0.3%) 0 0.0% Non-restructuring asset impairments
- SG&A 31 0.1% 26 0.1% Restructuring charges 1 0.0% 6 0.0%
Non-GAAP operating income $814 3.4% $720 3.1%
International -
Continuing Operations
Gross profit $460 22.5% $639 23.1% Restructuring charges - COGS 4
0.2% 0 0.0% Non-GAAP gross profit $464 22.7% $639 23.1%
SG&A $529 25.8% $681 24.6% Other Canada brand consolidation
charges - SG&A2 (6) (0.3%) 0 0.0% Non-restructuring asset
impairments - SG&A (3) (0.1%) (1) (0.0%) Non-GAAP SG&A $520
25.4% $680 24.5% Operating loss ($253) (12.4%) ($48) (1.7%)
Restructuring charges - COGS 4 0.2% 0 0.0% Other Canada brand
consolidation charges - SG&A2 6 0.3% 0 0.0% Non-restructuring
asset impairments - SG&A 3 0.1% 1 0.0% Restructuring charges
184 9.0% 6 0.2% Non-GAAP operating loss ($56) (2.7%) ($41) (1.5%)
Consolidated -
Continuing Operations
Gross profit $6,240 24.1% $6,021 23.0% CRT settlements1 (88) (0.3%)
0 0.0% Restructuring charges - COGS 4 0.0% 0 0.0% Non-GAAP gross
profit $6,156 23.8% $6,021 23.0% SG&A $5,451 21.0%
$5,369 20.5% CRT settlement legal fees and costs1 (13) (0.1%) 0
0.0% Other Canada brand consolidation charges - SG&A2 (6)
(0.0%) 0 0.0% Non-restructuring asset impairments - SG&A (34)
(0.1%) (27) (0.1%) Non-GAAP SG&A $5,398 20.8% $5,342 20.4%
Operating income $604 2.3% $640 2.4% Net CRT settlements1
(75) (0.3%) 0 0.0% Restructuring charges - COGS 4 0.0% 0 0.0% Other
Canada brand consolidation charges - SG&A2 6 0.0% 0 0.0%
Non-restructuring asset impairments - SG&A 34 0.1% 27 0.1%
Restructuring charges 185 0.7% 12 0.0% Non-GAAP operating income
$758 2.9% $679 2.6% Net earnings $330 $722 Impact of net CRT
settlements1 (75) 0 Impact of restructuring charges - COGS 4 0
Impact of other Canada brand consolidation charges - SG&A2 6 0
Impact of non-restructuring asset impairments - SG&A 34 27
Impact of restructuring charges 185 12 Impact of gain on
investments, net (2) (7) Income tax impact of Europe legal entity
reorganization3 0 (353) Income tax impact of Non-GAAP adjustments4
(33) (9) Non-GAAP net earnings $449 $392
Diluted EPS $0.93 $2.04 Per share impact of net CRT settlements1
(0.21) 0.00 Per share impact of restructuring charges - COGS 0.01
0.00 Per share impact of other Canada brand consolidation charges -
SG&A2 0.02 0.00 Per share impact of non-restructuring asset
impairments - SG&A 0.10 0.08 Per share impact of restructuring
charges 0.52 0.03 Per share impact of gain on investments, net
(0.01) (0.02)
Per share impact of income tax effect of
Europe legal entity reorganization3
0.00
(1.00)
Per share income tax impact of Non-GAAP adjustments4 (0.09) (0.02)
Non-GAAP diluted EPS $1.27 $1.11
(1) 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.(2) Represents charges related to the
Canadian brand consolidation, primarily due to retention bonuses
and other store-related costs, that did not qualify as
restructuring charges.(3) Represents the acceleration of a non-cash
tax benefit of $353 million as a result of reorganizing certain
European legal entities to simplify our overall structure in Q1
FY15.(4) Income tax impact of Non-GAAP adjustments is the summation
of the calculated income tax charge related to each non-GAAP
non-income tax adjustment. Income tax charge is calculated using
the estimated annual effective tax rate in effect during the period
of the related non-GAAP adjustment.
BEST BUY CO., INC.RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES($ in millions)(Unaudited and
subject to reclassification)
The following information provides a reconciliation of a
non-GAAP financial measure to the most comparable financial measure
calculated and presented in accordance with GAAP. The company has
provided the non-GAAP financial measure, which is not calculated or
presented in accordance with GAAP, as information supplemental and
in addition to the financial measure that is calculated and
presented in accordance with GAAP. Such non-GAAP financial measure
should not be considered superior to, as a substitute for, or as an
alternative to, and should be considered in conjunction with, the
GAAP financial measure. The non-GAAP financial measure in the
accompanying news release may differ from similar measures used by
other companies.
The following table includes the calculation of Non-GAAP ROIC
for total operations, which includes both continuing and
discontinued operations (non-GAAP financial measures), along with a
reconciliation to the calculation of return on total assets ("ROA")
(GAAP financial measure) for the periods presented.
Calculation of Return on Invested Capital1
October 31, November 1,
20152
20142
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,414 $ 1,092 Operating
income (loss) - discontinued operations 77 (19) Total
operating income 1,491 1,073 Add: Operating lease interest3 411 465
Add: Investment income 21 26 Less: Net (earnings) loss attributable
to noncontrolling interest (NCI) (1) (2) Less: Income taxes4
(767) (659)
NOPAT $ 1,155 $
903 Add: Restructuring charges and impairments5 176
225
Non-GAAP NOPAT $ 1,331 $
1,128
Average Invested
Capital
Total assets $ 14,423 $ 14,509 Less: Excess cash6 (3,259) (2,628)
Add: Capitalized operating lease obligations7 6,581 7,434 Total
liabilities (9,638) (10,130) Exclude: Debt8 1,613 1,644 Less:
Noncontrolling interests (1) (4)
Average invested
capital $ 9,719 $ 10,825
Non-GAAP return on invested capital (ROIC)
13.7% 10.4% Calculation of Return on
Assets1 October 31, November 1,
2015(2) 2014(2) Net earnings including noncontrolling
interests $ 938 $ 1,009 Total assets 14,423 14,509
Return on assets (ROA) 6.5% 7.0%
(1) The calculations of Return on Invested Capital and Return on
Assets use total operations, which includes both continuing and
discontinued operations.(2) Income statement accounts represent the
activity for the 12 months ended as of each of the balance sheet
dates. Balance sheet accounts represent the average account
balances for the 4 quarters ended as of each of the balance sheet
dates.(3) Operating lease interest represents the add-back to
operating income driven by the capitalization of our lease
obligations using the multiple of eight times annual rent expense
and represents 50 percent of our annual rental expense, which we
consider to be appropriate for our lease portfolio.(4) Income taxes
are calculated using a blended statutory rate at the enterprise
level based on statutory rates from the countries we do business
in.(5) Includes all restructuring charges in costs of goods sold
and operating expenses, tradename impairments and non-restructuring
impairments.(6) Cash and cash equivalents and short-term
investments are capped at the greater of 1% of revenue or actual
amounts on hand. The cash and cash equivalents and short-term
investments in excess of the cap are subtracted from our
calculation of average invested capital to show their exclusion
from total assets.(7) The multiple of eight times annual rental
expense in the calculation of our capitalized operating lease
obligations is the multiple used for the retail sector by one of
the nationally recognized credit rating agencies that rates our
creditworthiness, and we consider it to be an appropriate multiple
for our lease portfolio.(8) Debt includes short-term debt, current
portion of long-term debt and long-term debt and is added back to
our calculation of average invested capital to show its exclusion
from total liabilities.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151119005336/en/
Best Buy Co., Inc.Investor Contact:Mollie O’Brien,
612-291-7735Investor Relationsmollie.obrien@bestbuy.comorMedia
ContactsAmy von Walter, 612-437-5956Public
Relationsamy.vonwalter@bestbuy.comorJeff Shelman,
612-291-6114Public Relationsjeffrey.shelman@bestbuy.com
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