Enterprise Comparable Sales Increased
1.6%
Diluted EPS of $0.60
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
first quarter ended April 29, 2017 (“Q1 FY18”), as compared to the
first quarter ended April 30, 2016 (“Q1 FY17”). The company
reported GAAP diluted earnings per share from continuing operations
of $0.60, a decrease of 13% from $0.69 in Q1 FY17, entirely driven
by the large CRT settlement proceeds received last year which did
not recur in Q1 FY18. Non-GAAP diluted earnings per share from
continuing operations were $0.60, an increase of 40% from $0.43 in
Q1 FY17.
Q1 FY18 Q1 FY171 Revenue ($
in millions)2
Enterprise $8,528 $8,443 Domestic
segment $7,912 $7,829 International
segment $616 $614 Enterprise comparable
sales % change 1.6% (0.1%) Domestic
comparable sales % change 1.4% (0.1%)
Domestic comparable online sales % change 22.5%
23.9% International comparable sales % change
4.0% N/A
Operating Income: GAAP
operating income as a % of revenue 3.5%
4.4% Non-GAAP operating income as a % of revenue 3.5%
2.8%
Diluted Earnings per Share (EPS): GAAP
diluted EPS from continuing operations $0.60
$0.69 Non-GAAP diluted EPS from continuing operations
$0.60 $0.43
For GAAP to non-GAAP reconciliations,
please refer to the attached supporting schedule titled
“Reconciliation of non-GAAP Financial Measures”.
“We are pleased today to report strong top and bottom line
results for the first quarter of fiscal 2018,” said Hubert Joly,
Best Buy chairman and CEO. “Our Q1 performance reflects the
strength of our customer value proposition and continued momentum
in the execution of our strategy. I want to thank all our
associates across the company for their hard work in delivering
these results.”
Joly continued, “We grew our Enterprise comparable sales by 1.6%
during the quarter, driven by growth in both the Domestic and
International segments. We also continued to drive significant
growth in the online channel – with Domestic online comparable
sales increasing 22.5%. On the profitability side, at the
Enterprise level, we continued to optimize merchandise margins and
exercise good expense management.”
Joly continued, “Compared to our expectations going into the
quarter, our revenue was higher due to strong performance in
gaming, a better-than-expected result in mobile, and the
improvement of overall sales trends due to the arrival of delayed
federal tax refund checks.”
Joly concluded, “We are energized about our opportunities and
the strategy we are pursuing. We believe we are uniquely positioned
to help our customers in a meaningful way with our combination of
multi-channel assets – including our online, store and in-home
capabilities, and I love how our teams are mobilized to deliver on
our mission and Build the New Blue.”
Best Buy CFO Corie Barry commented, “Our second quarter guidance
reflects the continuation of much of the positive category momentum
we saw in the first quarter, as well as the increased level of
growth investments included in our initial annual guidance. For the
second quarter, we expect Enterprise comparable sales growth in the
range of 1.5% to 2.5% and non-GAAP diluted EPS in the range of
$0.57 to $0.62.3”
Barry continued, “For the full year, which as a reminder has an
extra week, we are updating our topline guidance to reflect the
better-than-expected first quarter results and our second quarter
guidance. We are now expecting revenue growth of approximately 2.5%
versus our original guidance of approximately 1.5%. Before I
discuss our non-GAAP operating income growth guidance, I would like
to note that due to a change in the non-GAAP treatment of
non-restructuring property and equipment impairments, we have
recast last year’s FY17 non-GAAP results.1 Therefore, our updated
full-year non-GAAP operating income growth guidance is based on the
recast FY17 non-GAAP operating income, which is $26 million, or
1.5%, lower than originally reported. In that context, we are
expecting full year non-GAAP operating income growth of 3.5% to
8.5% versus our original guidance of 1% to 3% growth.3 We recognize
it is early in the year and that historically the first quarter
represents approximately 15% of our annual operating income. As
such, this outlook range allows for a level of flexibility as we
strategically balance our pace of investments, returns from new
initiatives, ongoing cost reductions and efficiencies, and ongoing
pressures in the business including approximately $60 million of
lower profit share revenue.”
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 Q2 FY18 financial
outlook:
- Enterprise revenue in the range of $8.6
billion to $8.7 billion
- Enterprise comparable sales change in
the range of 1.5% to 2.5%
- Domestic comparable sales change in the
range of 1.5% to 2.5%
- International comparable sales change
in the range of flat to 3.0%
- Non-GAAP effective income tax rate of
36.5% to 37.0%3
- Diluted weighted average share count of
approximately 310 million
- Non-GAAP diluted EPS of $0.57 to
$0.623
Best Buy is updating its full year FY18 financial outlook to the
following:
- Enterprise revenue growth of
approximately 2.5%
- Enterprise non-GAAP operating income
growth rate in the range of 3.5% to 8.5%, based on the recast FY17
non-GAAP operating income of $1.733 billion as detailed in the note
below1,3
- Enterprise non-GAAP effective income
tax rate of approximately 35.5%3
- On a 52-week basis, Enterprise revenue
growth of approximately 1.0%
- On a 52-week basis, Enterprise non-GAAP
operating income growth rate in the range of 1.5% to 5.5%, based on
the recast FY17 non-GAAP operating income of $1.733 billion as
detailed in the note below1,3
Note: The company’s full year non-GAAP operating income growth
rate on both a 53-week and 52-week basis is based on a recast
fiscal 2017 non-GAAP operating income of $1.733 billion, which is
$26 million, or 1.5%, lower than originally reported. The recast
was done for comparability purposes as the company is no longer
excluding non-restructuring property and equipment impairment
charges from its non-GAAP results beginning in Q1 FY18. For
additional details on the recast financials, please refer to the
attached supporting schedule titled “FY16 and FY17 Recast Non-GAAP
Segment Information”.1
Domestic Segment First Quarter
Results
Domestic RevenueDomestic revenue of $7.9 billion
increased 1.1% versus last year driven by comparable sales growth
of 1.4%, partially offset by the loss of revenue from 12 large
format and 40 Best Buy Mobile store closures.
From a merchandising perspective, comparable sales growth in
computing, connected home and gaming was partially offset by
declines in tablets.
Domestic online revenue of $1.02 billion increased 22.5% on a
comparable basis primarily due to higher conversion rates and
increased traffic. As a percentage of total Domestic revenue,
online revenue increased 230 basis points to 12.9% versus 10.6%
last year.
Domestic Gross Profit RateDomestic gross profit rate was
23.6% versus 25.4% last year. On a non-GAAP basis, gross profit
rate was 23.6% versus 23.0% last year. Both the GAAP and non-GAAP
gross profit rates increased by approximately 60 basis points
primarily due to (1) improved margin rates across multiple
categories, particularly in appliances and home theater, and (2)
legal settlement proceeds of $8 million, or 10 basis points, in the
services category. These increases were partially offset by margin
pressure in the mobile category and the negative impact of higher
sales in the lower-margin gaming category. Additionally, the GAAP
gross profit rate in Q1 FY17 was inflated by approximately 240
basis points due to $183 million in CRT settlement proceeds that
did not recur in Q1 FY18.
Domestic Selling, General and Administrative Expenses
(“SG&A”)Domestic SG&A expenses were $1.57 billion, or
19.9% of revenue, versus $1.59 billion, or 20.3% of revenue, last
year. On a non-GAAP basis, SG&A expenses were $1.57 billion, or
19.9% of revenue, versus $1.57 billion, or 20.0% of revenue, last
year. GAAP and non-GAAP SG&A both increased $8 million
primarily due to slightly higher incentive compensation expenses.
Additionally, GAAP SG&A in Q1 FY17 was higher by $22 million
due to CRT settlement legal fees that did not recur this year.
International Segment First Quarter
Results
International RevenueInternational revenue of $616
million increased 0.3% driven primarily by comparable sales growth
of 4.0% due to growth in both Canada and Mexico. The comparable
sales growth was partially offset by an approximately 215-basis
point negative impact from lapping the $13 million Q1 FY17 periodic
profit sharing benefit from our services plan portfolio4 and
approximately 150 basis points of negative foreign currency
impact.
International Gross Profit RateInternational GAAP and
non-GAAP gross profit rate was 24.5% versus 25.9% last year. The
140-basis point decline was primarily driven by a lower
year-over-year gross profit rate in Canada due to approximately 160
basis points of negative impact from lapping the $13 million Q1
FY17 periodic profit sharing benefit from our services plan
portfolio.4
International SG&AInternational GAAP and non-GAAP
SG&A expenses were $149 million, or 24.2% of revenue, versus
$157 million, or 25.6% of revenue, last year. For both GAAP and
non-GAAP SG&A, the $8 million decrease was primarily driven by
slightly lower administrative and payroll and benefits costs.
Share Repurchases and
Dividends
During Q1 FY18, the company returned a total of $478 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 Q1 FY18, the
company repurchased 8.1 million shares for a total of $373 million.
The company’s cumulative share repurchases, net of dilution from
equity based awards, positively benefitted GAAP and non-GAAP
diluted EPS by $0.02 in Q1 FY18.
On April 12, 2017, the company paid a quarterly dividend of
$0.34 per common share outstanding, or $105 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 Q1 FY18 was a benefit of
approximately $2 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 35.5% that the
company guided today, versus previous guidance of 36.5%.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 May 25, 2017. A
webcast of the call is expected to be available at
www.investors.bestbuy.com both live and after the call.
(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 no
longer plans to 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. For additional details on the recast
financials, please refer to the attached supporting schedule titled
“FY16 and FY17 Recast Non-GAAP Segment Information”. A complete
GAAP to non-GAAP reconciliation for FY16 and FY17, by quarter, is
also attached as Exhibit 99.2 in the company's 8-K filed on May 25,
2017 and 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 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 Q1 FY18, the International business did not record a
periodic profit sharing benefit from its services plan portfolio as
compared to a $13 million benefit recorded in Q1 FY17.
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 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.
BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF
EARNINGS ($ in millions, except per share amounts) (Unaudited
and subject to reclassification)
Three Months
Ended April 29, 2017 April 30, 2016
Revenue $ 8,528 $ 8,443 Cost of goods sold 6,506
6,298 Gross profit 2,022 2,145 Gross profit % 23.7 %
25.4 % Selling, general and administrative expenses 1,722 1,744
SG&A % 20.2 % 20.7 % Restructuring charges -
29 Operating income 300 372 Operating income % 3.5 %
4.4 % Other income (expense): Gain on sale of investments - 2
Investment income and other 11 6 Interest expense (19 )
(20 ) Earnings from continuing operations before income tax
expense 292 360 Income tax expense 104 134 Effective tax rate
35.6 % 37.3 % Net earnings from continuing operations
188 226 Gain from discontinued operations, net of tax -
3 Net earnings $ 188 $ 229
Basic earnings per share Continuing operations $ 0.61 $ 0.70
Discontinued operations - 0.01 Basic
earnings per share $ 0.61 $ 0.71 Diluted
earnings per share Continuing operations $ 0.60 $ 0.69 Discontinued
operations - 0.01 Diluted earnings per
share $ 0.60 $ 0.70 Dividends declared per
common share $ 0.34 $ 0.73 Weighted-average common shares
outstanding Basic 309.2 323.6 Diluted 315.0 326.7
BEST BUY CO., INC. CONDENSED CONSOLIDATED BALANCE
SHEETS ($ in millions) (Unaudited and subject to
reclassification)
April 29,
2017 April 30, 2016 ASSETS Current assets Cash
and cash equivalents $ 1,651 $ 1,845 Short-term investments 1,948
1,220 Receivables, net 1,011 1,097 Merchandise inventories 4,637
4,719 Other current assets 409 401 Total current
assets 9,656 9,282 Property and equipment, net 2,287 2,332 Goodwill
425 425 Other assets 587 831 Non-current assets held for sale
- 31
TOTAL ASSETS $ 12,955
$ 12,901 LIABILITIES & EQUITY
Current liabilities Accounts payable $ 4,599 $ 4,397 Unredeemed
gift card liabilities 389 379 Deferred revenue 371 349 Accrued
compensation and related expenses 274 277 Accrued liabilities 699
791 Accrued income taxes 93 97 Current portion of long-term debt
45 44 Total current liabilities 6,470 6,334 Long-term
liabilities 684 807 Long-term debt 1,302 1,334 Equity 4,499
4,426
TOTAL LIABILITIES & EQUITY $
12,955 $ 12,901 BEST BUY CO.,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($
in millions) (Unaudited and subject to reclassification)
Three Months Ended April 29,
2017 April 30, 20161 OPERATING ACTIVITIES
Net earnings $ 188 $ 229
Adjustments to reconcile net earnings to
total cash provided by operating activities:
Depreciation 161 162 Restructuring charges - 29 Stock-based
compensation 31 31 Deferred income taxes 12 8 Other, net (1 ) (3 )
Changes in operating assets and liabilities: Receivables 333 73
Merchandise inventories 223 365 Other assets (25 ) (30 ) Accounts
payable (382 ) (73 ) Other liabilities (364 ) (211 ) Income taxes
67 (88 ) Total cash provided by operating
activities 243 492
INVESTING ACTIVITIES Additions to
property and equipment (153 ) (136 ) Purchases of investments
(1,134 ) (591 ) Sales of investments 863 683 Other, net 1
4 Total cash used in investing activities (423
) (40 )
FINANCING ACTIVITIES Repurchase of common
stock (373 ) (52 ) Issuance of common stock 75 21 Dividends paid
(105 ) (238 ) Repayments of debt (10 ) (362 ) Other, net -
10 Total cash used in financing activities
(413 ) (621 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(6 ) 40
DECREASE IN CASH, CASH EQUIVALENTS
AND RESTRICTED CASH (599 ) (129 )
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH AT BEGINNING OF PERIOD2
2,433 2,161
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH AT END OF PERIOD2
$
1,834
$
2,032
(1) Represents Condensed Consolidated Statement of
Cash Flow as of April 30, 2016, recast to present the company’s
retrospective adoption of Accounting Standards Update (ASU)
2016-09, Compensation-Stock Compensation: Improvements to Employee
Share-Based Payment Accounting, ASU 2016-15, Statement of Cash
Flows: Classifications of Certain Cash Receipts and Cash Payments
and ASU 2016-18, Statement of Cash Flows: Restricted Cash. The
adoption of the standards drove a $9 million increase to cash
provided by operating activities, a $2 million decrease in cash
used in investing activities, a $9 million increase in cash used in
financing activities, a $185 million increase to the beginning cash
balance and a $187 million increase to the ending cash balance.
(2) The beginning and ending cash, cash
equivalents and restricted cash balances are different than the
cash and cash equivalents balance on the Condensed Consolidated
Balance Sheet due to the adoption of ASU 2016-18 described above.
For FY17, the impact is a $185 million increase in the beginning
balance and a $187 million increase in the ending balance. For
FY18, the impact is a $193 million increase in the beginning
balance and a $183 million increase in the ending balance.
Restricted cash is recorded in Other Assets on the Condensed
Consolidated Balance Sheet.
BEST BUY CO., INC. SEGMENT INFORMATION
($ in millions) (Unaudited and subject to reclassification)
Domestic Segment Performance Summary Three Months
Ended April 29, 2017 April 30,
20161 Revenue $ 7,912 $ 7,829 Gross profit $ 1,871 $
1,986 SG&A $ 1,573 $ 1,587 Operating income $ 298 $ 372
Key Metrics Comparable sales % change 1.4 % (0.1 %)
Comparable online sales % change 22.5 % 23.9 % Gross profit as a %
of revenue 23.6 % 25.4 % SG&A as a % of revenue 19.9 % 20.3 %
Operating income as a % of revenue 3.8 % 4.8 %
Non-GAAP
Results Gross profit $ 1,871 $ 1,803 Gross profit as a % of
revenue 23.6 % 23.0 % SG&A $ 1,573 $ 1,565 SG&A as a % of
revenue 19.9 % 20.0 % Operating income $ 298 $ 238 Operating income
as a % of revenue 3.8 % 3.0 %
International Segment
Performance Summary Three Months Ended April 29,
2017 April 30, 2016 Revenue $ 616 $ 614 Gross profit $
151 $ 159 SG&A $ 149 $ 157 Operating income $ 2 $ 0
Key Metrics Comparable sales % change1 4.0 % N/A Gross
profit as a % of revenue 24.5 % 25.9 % SG&A as a % of revenue
24.2 % 25.6 % Operating income as a % of revenue 0.3 % 0.0 %
Non-GAAP Results Gross profit $ 151 $ 159 Gross profit as a
% of revenue 24.5 % 25.9 % SG&A $ 149 $ 157 SG&A as a % of
revenue 24.2 % 25.6 % Operating income $ 2 $ 2 Operating income as
a % of revenue 0.3 % 0.3 %
(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. To ensure its financial results are
comparable, the company has recast FY16 and FY17, by quarter, to
reflect the previously excluded impairments now being included in
non-GAAP SG&A. For additional details, please refer to the
attached supporting schedule titled “FY16 and FY17 Recast Non-GAAP
Segment Information”.
(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 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.
BEST BUY CO., INC. REVENUE CATEGORY
SUMMARY (Unaudited and subject to reclassification)
Revenue Mix Summary
Comparable Sales Three Months Ended Three Months
Ended Domestic Segment April 29, 2017
April 30, 2016 April 29, 2017
April 30, 2016 Consumer Electronics 33 % 33 % 0.7 % 5.6 %
Computing and Mobile Phones 45 % 47 % (0.3 %) (3.5 %) Entertainment
7 % 6 % 11.3 % (11.6 %) Appliances 10 % 9 % 4.6 % 14.3 % Services 5
% 5 % 4.2 % (10.7 %) Other 0 % 0 % n/a n/a Total 100 % 100 % 1.4 %
(0.1 %)
Revenue Mix Summary Comparable Sales
Three Months Ended Three Months Ended
International Segment1 April 29, 2017 April
30, 2016 April 29, 2017 April 30, 2016 Consumer
Electronics 29 % 29 % 3.0 % n/a Computing and Mobile Phones 48 % 50
% (1.5 %) n/a Entertainment 7 % 6 % 14.8 % n/a Appliances 7 % 5 %
37.9 % n/a Services 7 % 8 % 11.1 % n/a Other 2 % 2 % n/a n/a Total
100 % 100 % 4.0 % n/a (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 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 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.
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 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 April 29, 2017
April 30, 20161 $ % of Rev. $
% of Rev.
Domestic -
Continuing Operations
Gross Profit $ 1,871 23.6 % $ 1,986 25.4 % CRT/LCD settlements2
0 0.0 % (183 ) (2.3 %) Non-GAAP gross profit $
1,871 23.6 % $ 1,803 23.0 % SG&A $ 1,573
19.9 % $ 1,587 20.3 % CRT/LCD settlement legal fees and costs2
0 0.0 % (22 ) (0.3 %) Non-GAAP SG&A $
1,573 19.9 % $ 1,565 20.0 % Operating income $
298 3.8 % $ 372 4.8 % Net CRT/LCD settlements2 0 0.0 % (161 ) (2.1
%) Restructuring charges 0 0.0 % 27 0.3
% Non-GAAP operating income $ 298 3.8 % $ 238 3.0 %
International -
Continuing Operations
Operating income $ 2 0.3 % $ 0 0.0 % Restructuring charges 0
0.0 % 2 0.3 % Non-GAAP operating income $ 2
0.3 % $ 2 0.3 %
Consolidated -
Continuing Operations
Gross profit $ 2,022 23.7 % $ 2,145 25.4 % CRT/LCD settlements2
0 0.0 % (183 ) (2.2 %) Non-GAAP gross profit $
2,022 23.7 % $ 1,962 23.2 % SG&A $ 1,722
20.2 % $ 1,744 20.7 % CRT/LCD settlement legal fees and costs2
0 0.0 % ($22 ) (0.3 %) Non-GAAP SG&A $
1,722 20.2 % $ 1,722 20.4 % Operating income $
300 3.5 % $ 372 4.4 % Net CRT/LCD settlements2 0 0.0 % (161 ) (1.9
%) Restructuring charges 0 0.0 % 29 0.3
% Non-GAAP operating income $ 300 3.5 % $ 240 2.8 %
Income tax expense $ 104 $ 134 Effective tax rate 35.6 %
37.3 % Income tax impact of non-GAAP adjustments3 -
(49 ) Non-GAAP income tax expense $ 104 $ 85
Non-GAAP effective tax rate 35.6 % 37.7 % Net earnings $ 188
$ 226 Net CRT/LCD settlements2 0 (161 ) Restructuring charges 0 29
Gain on investments, net 0 (2 ) Income tax impact of non-GAAP
adjustments3 0 49 Non-GAAP net earnings
$ 188 $ 141 Diluted EPS $ 0.60 $ 0.69 Per
share impact of net CRT/LCD settlements2 0.00 (0.49 ) Per share
impact of restructuring charges 0.00 0.09 Per share impact of gain
on investments, net 0.00 (0.01 ) Per share income tax impact of
non-GAAP adjustments3 0.00 0.15
Non-GAAP diluted EPS $ 0.60 $ 0.43 (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. To ensure its financial results are
comparable, the company has recast FY16 and FY17, by quarter, to
reflect the previously excluded impairments now being included in
non-GAAP SG&A. For additional details, please refer to the
attached supporting schedule titled “FY16 and FY17 Recast Non-GAAP
Segment Information”.
(2) Represents cathode ray tube (CRT) and
LCD 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 28, 2017, for additional information.
(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 38.0% for the United States and 26.6% for
Canada, applied to the non-GAAP adjustments of each country, which
are detailed in the Domestic and International segment
reconciliations above, respectively.
BEST BUY CO., INC.FY16 AND FY17
RECAST NON-GAAP SEGMENT INFORMATIONCONTINUING
OPERATIONS($ in millions, except per share amounts)(Unaudited
and subject to reclassification)
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 no
longer plans to adjust for non-restructuring property and equipment
impairments.
The following tables provide the recast non-GAAP financial
information to conform with this presentation, including applicable
income tax effects, at the Enterprise, the Domestic segment and the
International segment levels for FY16 and FY17, by quarter. Note
there were no changes to the company's previously reported GAAP
financial information and a complete GAAP to non-GAAP
reconciliation for FY16 and FY17, by quarter, is also attached as
Exhibit 99.2 in the company's 8-K filed on May 25, 2017 and is
available on the company's investor relations website at
www.investors.bestbuy.com.
Enterprise - Non-GAAP Continuing Operations
Q1 FY16 Q2 FY16
Q3 FY16 Q4 FY16
FY16 Q1 FY17 Q2
FY17 Q3 FY17 Q4 FY17
FY17 Revenue $ 8,558 $ 8,528
$ 8,819 $ 13,623 $ 39,528
$ 8,443 $ 8,533 $ 8,945 $
13,482 $ 39,403 Recast change H / (L) - - - - - - - -
- - Gross Profit 1,960 2,085 2,111 2,948 9,104 1,962 2,062 2,203
3,030 9,257 Recast change H / (L) - - - - - - - - - - SG&A
1,752 1,807 1,873 2,167 7,599 1,722 1,772 1,890 2,140 7,524 Recast
change H / (L) 11 14 9 27 61 5 3 8 10 26 Operating Income 208 278
238 781 1,505 240 290 313 890 1,733 Recast change H / (L) (11 ) (14
) (9 ) (27 ) (61 ) (5 ) (3 ) (8 ) (10 ) (26 ) Income tax expense 71
97 83 259 510 85 97 112 267 561 Recast change H / (L) (4 ) (5 ) (3
) (11 ) (23 ) (2 ) (1 ) (3 ) (4 ) (10 ) Net Earnings 124 165 138
508 935 141 183 193 615 1,132 Recast change H / (L) (7 ) (9 ) (6 )
(16 ) (38 ) (3 ) (2 ) (5 ) (6 ) (16 ) Diluted EPS $ 0.35 $ 0.47 $
0.40 $ 1.48 $ 2.67 $ 0.43 $ 0.57 $ 0.60 $ 1.93 $ 3.51 Recast change
H / (L) $ (0.02 ) $ (0.02 ) $ (0.01 ) $ (0.05 ) $ (0.11 ) $ (0.01 )
$ 0.00 $ (0.02 ) $ (0.02 ) $ (0.05 )
Domestic
Segment - Non-GAAP Continuing Operations Q1 FY16
Q2 FY16 Q3 FY16
Q4 FY16 FY16 Q1 FY17
Q2 FY17 Q3 FY17
Q4 FY17 FY17 Revenue $ 7,890 $ 7,878 $
8,090 $ 12,507 $ 36,365 $ 7,829 $ 7,889 $ 8,192 $ 12,338 $ 36,248
Recast change H / (L) - - - - - - - - - - Gross Profit 1,808 1,936
1,948 2,704 8,396 1,803 1,895 2,020 2,749 8,467 Recast change H /
(L) - - - - - - - - - - SG&A 1,573 1,634 1,702 1,975 6,884
1,565 1,608 1,720 1,940 6,833 Recast change H / (L) 11 11 9 27 58 4
3 7 10 24 Operating Income 235 302 246 729 1,512 238 287 300 809
1,634 Recast change H / (L) (11 ) (11 ) (9 ) (27 ) (58 ) (4 ) (3 )
(7 ) (10 ) (24 )
International Segment - Non-GAAP
Continuing Operations Q1 FY16 Q2
FY16 Q3 FY16 Q4 FY16
FY16 Q1 FY17 Q2
FY17 Q3 FY17 Q4 FY17
FY17 Revenue $ 668 $ 650 $ 729 $ 1,116 $ 3,163
$ 614 $ 644 $ 753 $ 1,144 $ 3,155 Recast change H / (L) - - - - - -
- - - - Gross Profit 152 149 163 244 708 159 167 183 281 790 Recast
change H / (L) - - - - - - - - - - SG&A 179 173 171 192 715 157
164 170 200 691 Recast change H / (L) - 3 - - 3 1 - 1 - 2 Operating
Inc / (Loss) (27 ) (24 ) (8 ) 52 (7 ) 2 3 13 81 99 Recast change H
/ (L) - (3 ) - - (3 ) (1 ) - (1 ) - (2 )
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 measure) 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 four-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")
April 29, 20171 April 30,
20161 Net earnings $ 1,187 $ 997 Total assets
13,652 13,790
ROA 8.7
% 7.2 % Calculation of
Non-GAAP Return on Invested Capital ("ROIC") April 29,
20171 April 30, 20161
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,782 $ 1,661 Operating
income - discontinued operations 28 1
Total operating income 1,810 1,662 Add: Operating lease interest2
233 232 Add: Non-GAAP operating income adjustments3 (15 ) (122 )
Add: Investment income 37 11 Less: Income taxes4 (774 )
(679 )
Non-GAAP NOPAT $ 1,291 $
1,104
Average Invested
Capital
Total assets $ 13,652 $ 13,790 Less: Excess cash5 (3,128 ) (2,903 )
Add: Capitalized operating lease obligations6 3,879 3,869 Total
liabilities (9,205 ) (9,271 ) Exclude: Debt7 1,365
1,590
Average invested capital $
6,563 $ 7,075 Non-GAAP
ROIC 19.7 % 15.6 %
(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.
(3) Includes continuing operations
adjustments for net CRT/LCD settlements, restructuring charges and
other Canada brand consolidation charges in SG&A, and a
discontinued operations adjustment for a gain on a property sale.
Additional details regarding the non-GAAP operating income from
continuing operations adjustments are included in the
"Reconciliation of Non-GAAP Financial Measures" schedule within our
quarterly earnings releases. For additional details on the
operating income from discontinued operations adjustment, refer to
Note 2, Discontinued Operations, in the Notes to Consolidated
Financial Statements included in the company’s Form 10-Q for the
fiscal quarter ended July 30, 2016. Beginning Q1 FY18,
non-restructuring property and equipment impairments within
SG&A have been removed from the reconciliation of non-GAAP
financial measures. The prior period calculations have been updated
to reflect these changes. For additional details on the change,
refer to the "Reconciliation of Non-GAAP Financial Measures"
schedule within this earnings release.
(4) 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 38.0% rate in the United States and a
26.6% rate in Canada.
(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.
(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/20170525005291/en/
Best Buy Co., Inc.Investor Contact:Mollie O’Brien,
612-291-7735mollie.obrien@bestbuy.comorMedia Contact:Jeff
Shelman, 612-291-6114Jeffrey.shelman@bestbuy.com
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