Domestic Segment Comparable Sales Increased
0.8%
GAAP Diluted EPS Increased 22% to
$0.56
Non-GAAP Diluted EPS Increased 16% to
$0.57
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
second quarter ended July 30, 2016 (“Q2 FY17”), as compared to the
second quarter ended August 1, 2015 (“Q2 FY16”). The company
reported GAAP diluted earnings per share from continuing operations
of $0.56, an increase of 22% from $0.46 in Q2 FY16. Non-GAAP
diluted earnings per share from continuing operations were $0.57,
an increase of 16% from $0.49 in Q2 FY16.
Q2 FY17
Q2 FY16 Revenue ($ in millions)1
Enterprise
$ 8,533 $ 8,528 Domestic segment
$ 7,889 $ 7,878 International
segment $ 644 $ 650
Enterprise comparable sales % change 0.8 %
3.8 % Domestic comparable sales % change
0.8 % 3.8 % Domestic
comparable online sales % change 23.7 %
17.0 % International revenue % change
(1.0 %) (25.6 %) International revenue
% change on a constant currency basis2 4.1 %
(14.0 %)
Operating Income: GAAP
operating income as a % of revenue 3.4 %
3.4 % Non-GAAP operating income as a % of
revenue 3.4 % 3.4 %
Diluted Earnings per Share (EPS): GAAP diluted EPS from
continuing operations $ 0.56 $
0.46 Non-GAAP diluted EPS from continuing operations
$ 0.57 $ 0.49
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 second quarter, with
better-than-expected revenue and profitability in both our Domestic
and International businesses,” said Best Buy Chairman and CEO
Hubert Joly. “In our Domestic business, we are reporting comparable
sales growth of 0.8% versus guidance of approximately flat. This is
on top of comparable sales growth of 3.8% last year. We saw
continued positive momentum in our online sales – delivering a
second straight quarter of nearly 24% growth. We also continued to
deliver cost savings and drive efficiencies in the business, a
discipline that is critical to our ability to invest in our
future.”
Joly continued, “We are encouraged by the quality of our
execution, the momentum in our business and the strength of our
first half financial results. We are excited by our mission to help
customers live their lives and pursue their passions with the help
of technology and the growth opportunities this mission creates for
us. I want to thank our associates across the company for their
focus and work to deliver every day on this mission.”
Corie Barry, Best Buy CFO, commented, “For our Q3 FY17 guidance,
we are expecting Enterprise revenue in the range of $8.8 billion to
$8.9 billion, or flat to 1% growth. We anticipate both Enterprise
and Domestic comparable sales growth of approximately 1%. We expect
International revenue to be approximately flat to down 5% on a
reported basis and to be approximately flat on a constant currency
basis. We anticipate our Q3 non-GAAP diluted earnings per share to
be in the range of $0.43 to $0.47, assuming a diluted weighted
average share count of approximately 319 million shares and a
non-GAAP effective income tax rate in the range of 37.5% to
38.0%.3”
Barry continued, “As it relates to our full year financial
outlook, we are reaffirming our expectation of approximately flat
revenue and raising our full year non-GAAP operating income3
outlook. We continue to expect the slight revenue decline in the
first half to be offset by slight growth in the back half and in
light of our first half performance, we are now expecting a full
year non-GAAP operating income3 growth rate in the low-single
digits versus our previous expectation of approximately flat. This
includes lapping the significant periodic profit sharing benefits
from our services plan portfolio that we earned in fiscal 2016. As
we discussed on our previous earnings calls, our full year outlook
assumes (1) a relatively better mobile cycle; (2) a trend in the
NPD-tracked categories consistent with the last two quarters; and
(3) delivering our cost reduction and gross profit optimization
initiatives.”
Domestic Segment Second Quarter
Results
Domestic Revenue
Domestic revenue of $7.9 billion increased 0.1% versus last year
driven by comparable sales growth of 0.8%, partially offset by the
loss of revenue from 12 large format and 22 Best Buy Mobile store
closures. Industry revenue in the NPD-tracked categories declined
3.2%.4
From a merchandising perspective, comparable sales growth in
health & wearables, home theater, major appliances and
computing was partially offset by declines in mobile phones and
gaming.
Domestic online revenue of $835 million increased 23.7% on a
comparable basis primarily due to increased traffic, higher average
order values and higher conversion rates. As a percentage of total
Domestic revenue, online revenue increased 200 basis points to
10.6% versus 8.6% last year.
Domestic Gross Profit Rate
Domestic gross profit rate was 24.0% versus 24.7% last year. On
a non-GAAP basis, gross profit rate was 24.0% versus 24.6% last
year. The 60-basis point decline in the GAAP and non-GAAP gross
profit rate was primarily due to (1) the net negative impact of
approximately 20 basis points from lapping the periodic profit
sharing benefit from our services plan portfolio and an extended
warranty deferred revenue adjustment in Q2 FY16; (2) investments in
services pricing; and (3) the impact of inventory availability in
the high margin digital imaging category caused by the Japanese
earthquakes in April. Additionally, the GAAP gross profit rate
declined another 10 basis points driven by a prior-year CRT
settlement proceed which did not recur this year.
Domestic Selling, General and Administrative Expenses
(“SG&A”)
Domestic SG&A expenses were $1.61 billion, or 20.4% of
revenue, versus $1.64 billion, or 20.8% of revenue, last year. On a
non-GAAP basis, SG&A expenses were $1.61 billion, or 20.3% of
revenue, versus $1.62 billion, or 20.6% of revenue, last year. This
$18 million, or 30-basis point, decrease in GAAP and non-GAAP
SG&A was primarily driven by the flow through of cost
reductions which were partially offset by strategic investments.
Additionally, GAAP SG&A was impacted by a year-over-year
decline of $10 million primarily due to lower non-restructuring
asset impairments.
International Segment Second Quarter
Results
International Revenue
International revenue of $644 million declined 1.0%. This
decline was driven by approximately 510 basis points of negative
foreign currency impact. On a constant currency basis,
International revenue increased 4.1% driven by growth in both
Canada and Mexico.2
International Gross Profit Rate
International gross profit rate was 25.9% versus 23.4% last
year. On a non-GAAP basis, gross profit rate was 25.9% versus 22.9%
last year. Three hundred basis points of the GAAP and non-GAAP
gross profit rate improvement was primarily driven by a higher
year-over-year gross profit rate in Canada as the company lapped
the significant disruption and corresponding increased promotional
activity related to last year’s brand consolidation. The GAAP gross
profit rate increase was partially offset by 50 basis points due to
a prior-year restructuring charge adjustment which did not recur
this year.
International SG&A
International SG&A expenses were $165 million, or 25.6% of
revenue, versus $175 million, or 26.9% of revenue, last year. On a
non-GAAP basis, SG&A expenses were $164 million, or 25.5% of
revenue, versus $170 million, or 26.2% of revenue, last year. This
$6 million decrease in GAAP and non-GAAP SG&A was primarily
driven by the positive impact of foreign exchange rates.
Additionally, GAAP SG&A was impacted by a year-over-year
decline of $4 million primarily due to lower non-restructuring
asset impairments.
Share Repurchases and
Dividends
During Q2 FY17, the company returned a total of $309 million to
shareholders through share repurchases and dividends. On a
year-to-date basis, the company has returned a total of $641
million to shareholders through 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 Q2
FY17, the company repurchased 7.1 million shares for a total of
$219 million. On a year-to-date basis, the company has repurchased
10.3 million shares for a total of $316 million. The company’s
cumulative share repurchases, net of dilution from equity based
awards, positively benefitted GAAP and non-GAAP diluted EPS by
$0.05 in Q2 FY17.
On July 5, 2016, the company paid a quarterly dividend of $0.28
per common share outstanding, or $90 million. On a year-to-date
basis, the company has paid $325 million in regular and special
dividends.
Q3 FY17 Financial
Guidance
Best Buy is providing the following Q3 FY17 financial
guidance:
- Enterprise revenue in the range of $8.8
billion to $8.9 billion, a change of flat to 1% growth
- International revenue change of flat to
(5%)
- Enterprise and Domestic comparable
sales of approximately 1%
- Non-GAAP effective income tax rate of
approximately 37.5% to 38.0% versus 37.1% last year3
- Diluted weighted average share count of
319 million versus 349 million last year, resulting in a positive
$0.04 year-over-year non-GAAP EPS impact
- Non-GAAP diluted EPS of $0.43 to $0.47
versus $0.41 last year3
Note: Enterprise comparable sales are currently equal to
Domestic comparable sales due to the impacts of the Canadian brand
consolidation.1
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) on August 23, 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 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. 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.
(2) 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. On a
constant currency basis, revenue for the International segment was
$644 million in Q2 FY17 and $618 million in Q2 FY16.
(3) A reconciliation of the projected non-GAAP effective tax
rate, non-GAAP diluted EPS and non-GAAP operating income, 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 regarding 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.
(4) According to The NPD Group’s Weekly Retail Tracking Service
as published August 8, 2016, revenue for the CE (Consumer
Electronics) industry declined 3.2% during the 13 weeks ended
July 30, 2016 compared to the 13 weeks ended August 1, 2015.
The categories tracked by The NPD Group include TVs, desktop and
notebook computers, tablets, digital imaging and other categories.
Sales of these products represent approximately 64% of Domestic
revenue. NPD does not track mobile phones, appliances, services,
gaming, Apple Watch, movies, music or Amazon-branded products.
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.
BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF
EARNINGS ($ in millions, except per share amounts) (Unaudited
and subject to reclassification)
Three Months Ended Six Months Ended
July 30,2016
August 1,2015
July 30,2016
August 1,2015
Revenue $ 8,533 $ 8,528 $ 16,976 $ 17,086 Cost of goods sold 6,471
6,433 12,769 12,953 Restructuring charges - cost of goods sold
- (3 ) - 5 Gross
profit 2,062 2,098 4,207 4,128 Gross profit % 24.2 % 24.6 % 24.8 %
24.2 % Selling, general and administrative expenses 1,773 1,811
3,517 3,577 SG&A % 20.8 % 21.2 % 20.7 % 20.9 % Restructuring
charges - (1 ) 29 177
Operating income 289 288 661 374 Operating income % 3.4 %
3.4 % 3.9 % 2.2 % Other income (expense): Gain on sale of
investments - - 2 2 Investment income and other 8 4 14 11 Interest
expense (18 ) (20 ) (38 ) (40 )
Earnings from continuing operations before income tax expense 279
272 639 347 Income tax expense 97 108 231 146 Effective tax rate
34.8 % 39.8 % 36.2 % 42.1 % Net
earnings from continuing operations 182 164 408 201 Earnings from
discontinued operations, net of tax 16 -
19 92 Net earnings $ 198
$ 164 $ 427 $ 293 Basic earnings per
share Continuing operations $ 0.57 $ 0.47 $ 1.27 $ 0.57
Discontinued operations 0.05 -
0.06 0.26 Basic earnings per share $ 0.62
$ 0.47 $ 1.33 $ 0.83 Diluted
earnings per share Continuing operations $ 0.56 $ 0.46 $ 1.26 $
0.57 Discontinued operations 0.05 -
0.05 0.25 Diluted earnings per share $
0.61 $ 0.46 $ 1.31 $ 0.82
Dividends declared per common share $ 0.28 $ 0.23 $ 1.01 $ 0.97
Weighted average common shares outstanding (in millions)
Basic 320.8 349.6 322.2 351.0 Diluted 322.9 353.9 324.8 355.8
BEST BUY CO., INC. CONDENSED CONSOLIDATED
BALANCE SHEETS ($ in millions) (Unaudited and subject to
reclassification)
July 30,
2016 August 1, 2015 ASSETS Current assets Cash
and cash equivalents $ 1,861 $ 1,800 Short-term investments 1,590
1,695 Receivables, net 926 1,025 Merchandise inventories 4,908
4,995 Other current assets 409 465 Total current
assets 9,694 9,980 Property and equipment, net 2,295 2,235 Goodwill
425 425 Intangibles, net 18 18 Other assets 822 868 Noncurrent
assets held for sale - 33
TOTAL ASSETS
$ 13,254 $ 13,559 LIABILITIES
& EQUITY Current liabilities Accounts payable $ 4,800 $
4,680 Unredeemed gift card liabilities 369 371 Deferred revenue 380
316 Accrued compensation and related expenses 272 285 Accrued
liabilities 840 778 Accrued income taxes 96 26 Current portion of
long-term debt 43 382 Total current liabilities 6,800
6,838 Long-term liabilities 794 879 Long-term debt 1,341 1,220
Equity 4,319 4,622
TOTAL LIABILITIES &
EQUITY $ 13,254 $ 13,559
BEST BUY CO., INC. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS ($ in millions) (Unaudited and subject
to reclassification)
Six Months
Ended
July 30,2016
August 1,2015
OPERATING ACTIVITIES Net earnings $ 427 $ 293 Adjustments to
reconcile net earnings to total cash provided by
operating activities:
Depreciation 327 326 Restructuring charges 29 182 Gain on sale of
business, net - (99 ) Stock-based compensation 57 55 Deferred
income taxes - (41 ) Other, net (38 ) 10 Changes in
operating assets and liabilities: Receivables 240 268 Merchandise
inventories 160 168 Other assets (29 ) (9 ) Accounts payable 355
(335 ) Other liabilities (159 ) (284 ) Income taxes (81 )
(226 ) Total cash provided by operating activities 1,288 308
INVESTING ACTIVITIES Additions to property and
equipment (276 ) (293 ) Purchases of investments, net (276 ) (239 )
Proceeds from sale of business, net of cash transferred upon sale -
92 Proceeds from property disposition 56 - Change in restricted
assets (4 ) (46 ) Settlement of net investment hedges 5
8 Total cash used in investing activities (495
) (478 )
FINANCING ACTIVITIES Repurchase of common
stock (271 ) (321 ) Repayments of debt (374 ) (13 ) Dividends paid
(328 ) (341 ) Issuance of common stock 23 28 Other, net 17
7 Total cash used in financing activities (933
) (640 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH
25 (16 )
DECREASE IN CASH AND CASH
EQUIVALENTS (115 ) (826 )
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,976 2,432
CASH AND CASH EQUIVALENTS
HELD FOR SALE AT BEGINNING OF PERIOD
-
194
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,861
$ 1,800
BEST BUY CO., INC.
SEGMENT INFORMATION ($ in millions) (Unaudited and subject
to reclassification)
Domestic Segment Performance Summary Three
Months Ended Six Months Ended July 30, 2016
August 1, 2015 July 30, 2016 August 1, 2015
Revenue $ 7,889 $ 7,878 $ 15,718 $ 15,768 Gross profit $ 1,895 $
1,946 $ 3,881 $ 3,832 SG&A $ 1,608 $ 1,636 $ 3,195 $ 3,220
Operating income $ 289 $ 309 $ 661 $ 613
Key Metrics
Comparable sales % change 0.8 % 3.8 % 0.4 % 2.2 % Comparable online
sales % change 23.7 % 17.0 % 23.8 % 10.8 % Gross profit as a % of
revenue 24.0 % 24.7 % 24.7 % 24.3 % SG&A as a % of revenue 20.4
% 20.8 % 20.3 % 20.4 % Operating income as a % of revenue 3.7 % 3.9
% 4.2 % 3.9 %
Non-GAAP Results Gross profit $ 1,895 $
1,936 $ 3,698 $ 3,744 Gross profit as a % of revenue 24.0 % 24.6 %
23.5 % 23.7 % SG&A $ 1,605 $ 1,623 $ 3,166 $ 3,185 SG&A as
a % of revenue 20.3 % 20.6 % 20.1 % 20.2 % Operating income $ 290 $
313 $ 532 $ 559 Operating income as a % of revenue 3.7 % 4.0 % 3.4
% 3.5 %
International Segment Performance Summary
Three Months Ended Six Months Ended July 30,
2016 August 1, 2015 July 30, 2016 August 1,
2015 Revenue $ 644 $ 650 $ 1,258 $ 1,318 Gross profit $ 167 $
152 $ 326 $ 296 SG&A $ 165 $ 175 $ 322 $ 357 Operating income
(loss) $ 0 ($21 ) $ 0 ($239 )
Key Metrics Comparable
sales % change1 N/A N/A N/A N/A Gross profit as a % of revenue 25.9
% 23.4 % 25.9 % 22.5 % SG&A as a % of revenue 25.6 % 26.9 %
25.6 % 27.1 % Operating income (loss) as a % of revenue 0.0 % (3.2
%) 0.0 % (18.1 %)
Non-GAAP Results Gross profit $ 167
$ 149 $ 326 $ 301 Gross profit as a % of revenue 25.9 % 22.9 % 25.9
% 22.8 % SG&A $ 164 $ 170 $ 320 $ 349 SG&A as a % of
revenue 25.5 % 26.2 % 25.4 % 26.5 % Operating income (loss) $ 3
($21 ) $ 6 ($48 ) Operating income (loss) as a % of revenue 0.5 %
(3.2 %) 0.5 % (3.6 %)
(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 and Mexico) no longer has a
comparable metric until International revenue is comparable on a
year-over-year basis.
REVENUE CATEGORY SUMMARY (Unaudited and subject to
reclassification)
Revenue Mix Summary
Comparable Sales Three Months Ended
Three Months Ended Domestic Segment July 30,
2016 August 1, 2015 July 30, 2016
August 1, 2015 Consumer Electronics 33 % 32 %
4.0 % 7.3 % Computing and Mobile Phones 46 % 47 % 0.3 % 1.5 %
Entertainment 5 % 6 % (18.0 %) (2.0 %) Appliances 11 % 10 % 8.2 %
20.7 % Services 5 % 5 % (7.2 %) (13.1 %) Other 0 % 0 % n/a n/a
Total 100 % 100 % 0.8 % 3.8 %
Revenue Mix Summary
Three Months Ended International Segment1
July 30, 2016 August 1, 2015 Consumer Electronics 29
% 31 % Computing and Mobile Phones 48 % 48 % Entertainment 6 % 7 %
Appliances 7 % 7 % Services 8 % 6 % Other 2 % 1 % Total 100 % 100 %
(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 and Mexico) 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 the most
comparable financial measures from continuing operations calculated
and presented in accordance with accounting principles generally
accepted in the U.S. (“GAAP”) to presented non-GAAP financial
measures. The company believes that non-GAAP financial measures,
when reviewed in conjunction with GAAP financial measures, can
provide more information to assist investors in evaluating current
period performance and in assessing future performance. For these
reasons, internal management reporting also includes non-GAAP
measures. Generally, presented non-GAAP measures include
adjustments for items such as restructuring charges, goodwill
impairments, non-restructuring asset impairments and gains or
losses on investments. In addition, certain other items may be
excluded from non-GAAP financial measures when the company believes
this provides greater clarity to management and investors. These
non-GAAP financial measures should be considered in addition to,
and not superior to or as a substitute for the GAAP financial
measures presented in this earnings release and the company’s
financial statements and other publicly filed reports. Non-GAAP
measures as presented herein may not be comparable to similarly
titled measures used by other companies.
The following tables reconcile gross profit, SG&A, operating
income, effective tax rate, 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 effective tax rate, 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 July 30, 2016 August 1, 2015
$ % of Rev. $ %
of Rev.
Domestic -
Continuing Operations
Gross profit $ 1,895 24.0 % $ 1,946 24.7 % CRT settlements1
0 0.0 % (10 ) (0.1 %) Non-GAAP gross profit $ 1,895
24.0 % $ 1,936 24.6 % SG&A $ 1,608 20.4 %
$ 1,636 20.8 % CRT settlement legal fees and costs1 0 0.0 % (2 )
(0.0 %) Non-restructuring asset impairments - SG&A (3 )
(0.0 %) (11 ) (0.1 %) Non-GAAP SG&A $ 1,605 20.3
% $ 1,623 20.6 % Operating income $ 289 3.7 % $ 309
3.9 % Net CRT settlements1 0 0.0 % (8 ) (0.1 %) Non-restructuring
asset impairments - SG&A 3 0.0 % 11 0.1 % Restructuring charges
(2 ) (0.0 %) 1 0.0 % Non-GAAP operating income
$ 290 3.7 % $ 313 4.0 %
International -
Continuing Operations
Gross profit $ 167 25.9 % $ 152 23.4 % Restructuring charges - COGS
0 0.0 % (3 ) (0.5 %) Non-GAAP gross profit $
167 25.9 % $ 149 22.9 % SG&A $ 165 25.6 %
$ 175 26.9 % Other Canada brand consolidation charges - SG&A2
(1 ) (0.2 %) (2 ) (0.3 %) Non-restructuring asset impairments -
SG&A 0 0.0 % (3 ) (0.5 %) Non-GAAP
SG&A $ 164 25.5 % $ 170 26.2 %
Operating income ( loss) $ 0 0.0 % ($21 ) (3.2 %) Restructuring
charges - COGS 0 0.0 % (3 ) (0.5 %) Other Canada brand
consolidation charges - SG&A2 1 0.2 % 2 0.3 % Non-restructuring
asset impairments - SG&A 0 0.0 % 3 0.5 % Restructuring charges
2 0.3 % (2 ) (0.3 %) Non-GAAP operating income
(loss) $ 3 0.5 % ($21 ) (3.2 %)
Consolidated -
Continuing Operations
Gross profit $ 2,062 24.2 % $ 2,098 24.6 % CRT settlements1 0 0.0 %
(10 ) (0.1 %) Restructuring charges – COGS 0 0.0 %
(3 ) (0.0 %) Non-GAAP gross profit $ 2,062 24.2 % $
2,085 24.4 % SG&A $ 1,773 20.8 % $ 1,811 21.2 %
CRT settlement legal fees and costs1 0 0.0 % (2 ) (0.0 %) Other
Canada brand consolidation charges - SG&A2 (1 ) (0.0 %) (2 )
(0.0 %) Non-restructuring asset impairments - SG&A (3 )
(0.0 %) (14 ) (0.2 %) Non-GAAP SG&A $ 1,769 20.7
% $ 1,793 21.0 % Operating income $ 289 3.4 % $ 288
3.4 % Net CRT settlements1 0 0.0 % (8 ) (0.1 %) Restructuring
charges - COGS 0 0.0 % (3 ) (0.0 %) Other Canada brand
consolidation charges - SG&A2 1 0.0 % 2 0.0 % Non-restructuring
asset impairments - SG&A 3 0.0 % 14 0.2 % Restructuring charges
0 0.0 % (1 ) (0.0 %) Non-GAAP operating income
$ 293 3.4 % $ 292 3.4 % Income tax expense $
97 $ 108 Effective tax rate 34.8 % 39.8 % Income tax impact of
non-GAAP adjustments3 $ 1 $ (6 ) Non-GAAP Income tax expense
$ 98 $ 102 Non-GAAP Effective tax rate 34.7 % 37.1 %
Net earnings $ 182 $ 164 Net CRT settlements1 0 (8 )
Restructuring charges - COGS 0 (3 ) Other Canada brand
consolidation charges - SG&A2 1 2 Non-restructuring asset
impairments - SG&A 3 14 Restructuring charges 0 (1 ) Income tax
impact of non-GAAP adjustments3 (1 ) 6
Non-GAAP net earnings $ 185 $ 174
Diluted EPS $ 0.56 $ 0.46 Per share impact of net CRT settlements1
0.00 (0.02 ) Per share impact of restructuring charges - COGS 0.00
(0.01 ) 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 0.01 0.04 Per share impact of
restructuring charges 0.00 0.00 Per share income tax impact of
non-GAAP adjustments3 0.00 0.02
Non-GAAP diluted EPS $ 0.57 $ 0.49
Six Months Ended Six Months Ended
July 30, 2016
August 1, 2015 $ % of Rev. $ % of
Rev.
Domestic -
Continuing Operations
Gross profit $ 3,881 24.7 % $ 3,832 24.3 % CRT settlements1
(183 ) (1.2 %) (88 ) (0.6 %) Non-GAAP gross profit $ 3,698
23.5 % $ 3,744 23.7 % SG&A $ 3,195 20.3 %
$ 3,220 20.4 % CRT settlement legal fees and costs1 (22 ) (0.1 %)
(13 ) (0.1 %) Non-restructuring asset impairments - SG&A
(7 ) (0.0 %) (22 ) (0.1 %) Non-GAAP SG&A $ 3,166
20.1 % $ 3,185 20.2 % Operating income $ 661 4.2 % $
613 3.9 % Net CRT settlements1 (161 ) (1.0 %) (75 ) (0.5 %)
Non-restructuring asset impairments - SG&A 7 0.0 % 22 0.1 %
Restructuring charges 25 0.2 % (1 ) (0.0 %)
Non-GAAP operating income $ 532 3.4 % $ 559 3.5 %
International -
Continuing Operations
Gross profit $ 326 25.9 % $ 296 22.5 % Restructuring charges - COGS
0 0.0 % 5 0.4 % Non-GAAP gross profit $
326 25.9 % $ 301 22.8 % SG&A $ 322 25.6 %
$ 357 27.1 % Other Canada brand consolidation charges - SG&A2
(1 ) (0.1 %) (5 ) (0.4 %) Non-restructuring asset impairments -
SG&A (1 ) (0.1 %) (3 ) (0.2 %) Non-GAAP SG&A
$ 320 25.4 % $ 349 26.5 % Operating income
(loss) $ 0 0.0 % ($239 ) (18.1 %) Restructuring charges - COGS 0
0.0 % 5 0.4 % Other Canada brand consolidation charges - SG&A2
1 0.1 % 5 0.4 % Non-restructuring asset impairments - SG&A 1
0.1 % 3 0.2 % Restructuring charges 4 0.3 %
178 13.5 % Non-GAAP operating income (loss) $ 6 0.5 %
($48 ) (3.6 %)
Consolidated -
Continuing Operations
Gross profit $ 4,207 24.8 % $ 4,128 24.2 % CRT settlements1 (183 )
(1.1 %) (88 ) (0.5 %) Restructuring charges – COGS 0
0.0 % 5 0.0 % Non-GAAP gross profit $ 4,024
23.7 % $ 4,045 23.7 %
SG&A $ 3,517 20.7 % $ 3,577 20.9 % CRT settlement legal fees
and costs1 (22 ) (0.1 %) (13 ) (0.1 %) Other Canada brand
consolidation charges - SG&A2 (1 ) (0.0 %) (5 ) (0.0 %)
Non-restructuring asset impairments - SG&A (8 ) (0.0 %)
(25 ) (0.1 %) Non-GAAP SG&A $ 3,486 20.5 % $
3,534 20.7 % Operating income $ 661 3.9 % $ 374 2.2 %
Net CRT settlements1 (161 ) (0.9 %) (75 ) (0.4 %) Restructuring
charges – COGS 0 0.0 % 5 0.0 % Other Canada brand consolidation
charges - SG&A2 1 0.0 % 5 0.0 % Non-restructuring asset
impairments - SG&A 8 0.0 % 25 0.1 % Restructuring charges
29 0.2 % 177 1.0 % Non-GAAP operating
income $ 538 3.2 % $ 511 3.0 % Income tax
expense $ 231 $ 146 Effective tax rate 36.2 % 42.1 % Income tax
impact of non-GAAP adjustments3 $ (46 ) $ 31 Non-GAAP Income
tax expense $ 185 $ 177 Non-GAAP Effective tax rate
36.1 % 36.8 % Net earnings $ 408 $ 201 Net CRT settlements1
(161 ) (75 ) Restructuring charges - COGS 0 5 Other Canada brand
consolidation charges - SG&A2 1 5 Non-restructuring asset
impairments - SG&A 8 25 Restructuring charges 29 177 Gain on
investments (2 ) (2 ) Income tax impact of non-GAAP adjustments3
46 (31 ) Non-GAAP net earnings $ 329 $
305 Diluted EPS $ 1.26 $ 0.57 Per share impact of net
CRT settlements1 (0.50 ) (0.21 ) Per share impact of restructuring
charges - COGS 0.00 0.01 Per share impact of other Canada brand
consolidation charges - SG&A2 0.00 0.01 Per share impact of
non-restructuring asset impairments - SG&A 0.03 0.07 Per share
impact of restructuring charges 0.09 0.50 Per share impact of gain
on investments (0.01 ) 0.00 Per share income tax impact of non-GAAP
adjustments3 0.14 (0.09 ) Non-GAAP diluted EPS
$ 1.01 $ 0.86
(1) Represents cathode ray tube (CRT) litigation settlements
reached, net of related legal fees and costs. Settlements relate to
products purchased and sold in prior fiscal years. Refer to Note
12, Contingencies and Commitments, in the Notes to Consolidated
Financial Statements included in the company’s Annual Report on
Form 10-K for the fiscal year ended January 30, 2016, for
additional information.(2) Represents charges related to the
Canadian brand consolidation initiated in Q1 FY16, primarily due to
retention bonuses and other store-related costs that were a direct
result of the consolidation but did not qualify as restructuring
charges.(3) 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. The non-GAAP adjustments relate
primarily to adjustments in the United States and Canada. As such,
the income tax charge is calculated using the statutory tax rates
of 38% for the United States and 26.4% for Canada, applied to the
non-GAAP adjustments of each country, which are detailed in the
Domestic and International segment reconciliations above,
respectively.
Return on Assets and
Non-GAAP Return on Invested Capital
The following table includes a reconciliation to the calculation
of return on total assets ("ROA") (GAAP financial measure), along
with the calculation of non-GAAP return on invested capital
(“ROIC”) for total operations, which includes both continuing and
discontinued operations (non-GAAP financial measures) for the
periods presented.
The company defines non-GAAP ROIC as non-GAAP net operating
profit after tax divided by average invested capital using the
trailing 4-quarter average. The company believes non-GAAP ROIC is a
useful financial measure for investors in evaluating the efficiency
and effectiveness of the use of capital and believes non-GAAP ROIC
is an important component of shareholders' return over the long
term. This method of determining non-GAAP ROIC may differ from
other companies' methods and therefore may not be comparable to
those used by other companies.
Calculation of Return on Assets ("ROA")
July 30, 20161 August 1,
20151 Net earnings including noncontrolling interests $
1,031 $ 919 Total assets 13,723 14,575
ROA 7.5 % 6.3 %
Calculation of Non-GAAP Return on Invested Capital
("ROIC") July 30, 20161 August 1,
20151
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,662 $ 1,390 Operating
income - discontinued operations 28 65
Total operating income 1,690 1,455 Add: Operating lease interest2
231 257 Add: Investment income 15 21 Less: Net earnings
attributable to noncontrolling interest - (1 ) Less: Income taxes3
(700 ) (715 )
NOPAT $ 1,236
$ 1,017 Add: Restructuring charges and impairments4
(88 ) 175
Non-GAAP NOPAT $
1,148 $ 1,192 Average Invested
Capital Total assets $ 13,712 $ 14,575 Less: Excess
cash5 (2,892 ) (3,201 ) Add: Capitalized operating lease
obligations6 3,847 4,284 Total liabilities (9,269 ) (9,810 )
Exclude: Debt7 1,534 1,618 Less: Noncontrolling interests -
(2 )
Average invested
capital
$ 6,932 $ 7,464
Non-GAAP ROIC 16.6 % 16.0
%
(1) Income statement accounts represent the activity for the
trailing 12 months ended as of each of the balance sheet dates.
Balance sheet accounts represent the average account balances for
the four quarters ended as of each of the balance sheet dates.(2)
Operating lease interest represents the add-back to operating
income to properly reflect the total interest expense that the
company would incur if its operating leases were capitalized or
owned. The add-back is calculated by multiplying the trailing
12-month total rent expense by 30%. This multiple is used for the
retail sector by one of the nationally recognized credit rating
agencies that rates the company's credit worthiness, and the
company considers it to be an appropriate multiple for its lease
portfolio. Historically, the company has used an add-back multiple
of 50%; however, due to changes in the average remaining lease life
of the company's operating leases, the company has lowered its
multiple. The prior-period calculations have been updated to
reflect the updated multiple.(3) Income taxes are calculated using
a blended statutory rate at the Enterprise level based on statutory
rates from the countries in which the company does business, which
is primarily made up of a 38% rate in the United States and a 26.4%
rate in Canada(4) Includes all restructuring charges in costs of
goods sold and operating expenses, tradename impairments and
non-restructuring impairments.(5) 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 the
company’s calculation of average invested capital to show their
exclusion from total assets.(6) Capitalized operating lease
obligations represent the estimated assets that the company would
record if the company's operating leases were capitalized or owned.
The obligation is calculated by multiplying the trailing 12-month
total rent expense by the multiple of five. This multiple is used
for the retail sector by one of the nationally recognized credit
rating agencies that rates the company's credit worthiness, and the
company considers it to be an appropriate multiple for its lease
portfolio. Historically, the company has used a capitalized lease
obligation multiple of eight; however, due to changes in the
average remaining lease life of the company's operating leases, the
company has lowered its multiples. The prior-period calculations
have been updated to reflect the updated multiple.(7) Debt includes
short-term debt, current portion of long-term debt and long-term
debt and is added back to the company’s calculation of average
invested capital to show its exclusion from total liabilities.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160823005414/en/
Best Buy Co., Inc.Investors:Mollie O’Brien,
612-291-7735mollie.obrien@bestbuy.comorMedia:Jeff Shelman,
612-291-6114jeffrey.shelman@bestbuy.com
Best Buy (NYSE:BBY)
Historical Stock Chart
From Mar 2024 to Apr 2024
Best Buy (NYSE:BBY)
Historical Stock Chart
From Apr 2023 to Apr 2024