Enterprise Comparable Sales Increased
4.4%
Diluted EPS of $0.78 Increased 30%
Raising FY18 Financial Outlook
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
third quarter ended October 28, 2017 (“Q3 FY18”), as compared to
the third quarter ended October 29, 2016 (“Q3 FY17”). The company
reported diluted earnings per share from continuing operations of
$0.78, an increase of 30% from $0.60 in Q3 FY17.
Q3 FY18 Q3 FY171 Revenue ($
in millions)2
Enterprise $9,320 $8,945 Domestic
segment $8,491 $8,192 International
segment $829 $753 Enterprise comparable
sales % change 4.4% 1.8% Domestic
comparable sales % change 4.5% 1.8%
Domestic comparable online sales % change 22.3%
24.1% International comparable sales % change
3.8% N/A
Operating Income:
GAAP operating income as a % of
revenue 3.8% 3.5% Non-GAAP operating
income as a % of revenue 3.7% 3.5%
Diluted Earnings per Share (EPS):
GAAP diluted EPS from continuing operations
$0.78 $0.60 Non-GAAP diluted EPS from
continuing operations $0.78 $0.60
For GAAP to non-GAAP reconciliations,
please refer to the attached supporting schedule titled
“Reconciliation of non-GAAP Financial Measures”.
“In the third quarter, we delivered strong top and bottom line
results with 4.4% comparable sales growth and 30% EPS growth,” said
Hubert Joly, Best Buy chairman and CEO. “Technology innovation is
fueling demand and our strategy is resonating with our customers.
We are also making significant progress against our Best Buy 2020
strategy and are excited about the opportunities for long-term
value creation. And while we are investing in key initiatives and
capabilities, we are also able to generate significant returns for
our shareholders through the growth of our EPS and our capital
allocation strategy.”
Joly continued, “Our Q3 results include the negative impact of
two significant factors. First, despite our moderate expectations
for mobile phone launches in the quarter, revenue in the mobile
category was materially lower than expected. This was due to the
fact that a major new phone did not launch until November, which is
in our Q4. The related revenue impact in the quarter was more than
$100 million. Second, like most retailers, we felt the impact of
the natural disasters in south Texas, Florida, Puerto Rico and
Mexico. We estimate the loss of revenue impacted our Enterprise
comparable sales by 15 to 20 basis points, and that the related
costs negatively impacted our EPS by approximately $0.03.”
Joly concluded, “Looking ahead, we are very excited about our
plans for holiday, including a curated assortment of great new
technology products, free shipping with no minimums, and a range of
new capabilities such as our new in-home advisor program, an
updated gift center, and same-day delivery in 40 cities. We believe
we are well positioned for a successful season and therefore, we
are raising our financial outlook for the fourth quarter and for
the year. I would like to thank all of our associates for their
work this last quarter, and for what they will do this holiday
season.”
Best Buy CFO Corie Barry commented, “Today we are raising our
full year revenue growth outlook to 4.0% to 4.8% versus our
previous outlook of approximately 4.0% and raising our non-GAAP
operating income growth outlook to 7.0% to 9.5%3 versus our
previous outlook of 4.0% to 9.0%.”
Barry continued, “As a result, we are raising our Q4 outlook
versus what was implied in the expectations provided on our last
earnings call. Our Q4 guidance reflects a number of factors. First,
as we discussed last quarter, we made strategic decisions to
proactively make additional investments in the back half of the
year to continue to drive the Best Buy 2020 strategy forward. Those
additional investments are in areas such as customer choice in
shipping, eCommerce and our long-term strategic vision for supply
chain. Second, the outlook includes approximately $20 million, or
$0.04 per share, of lower profit sharing benefit than we received
in Q4 FY17. Third, our fourth quarter and full year performance is
expected to result in higher incentive compensation expenses in the
fourth quarter compared to last Q4. This higher incentive
compensation is due to both better performance this year, and the
fact that we are lapping a reversal of incentive compensation
expense in Q4 FY17 that adjusted accruals from earlier quarters of
the year. Fourth, the extra week in the quarter adds approximately
$100 million of additional SG&A expense.”
Barry concluded, “So far this year we have returned $1.45
billion in cash to our shareholders, including $1.14 billion in
share repurchases and $310 million in dividends. We are pleased to
announce that we are planning to spend approximately $2 billion on
share repurchases this fiscal year, versus our original expectation
of $1.5 billion.”
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 Q4 FY18 financial
outlook:
- Enterprise revenue of $14.2 billion to
$14.5 billion
- Enterprise comparable sales growth of
1.0% to 3.0%
- Domestic comparable sales growth of
1.0% to 3.0%
- International comparable sales change
of flat to 3.0%
- Non-GAAP effective income tax rate of
36.0% to 36.5%3
- Diluted weighted average share count of
approximately 296 million
- Non-GAAP diluted EPS of $1.89 to
$1.993
Best Buy is raising its full year FY18 financial outlook to the
following:
- Enterprise revenue of $41.0 billion to
$41.3 billion, or growth of 4.0% to 4.8%
- Enterprise non-GAAP operating income
growth rate of 7.0% to 9.5%3
- Enterprise non-GAAP effective income
tax rate of approximately 34.5%3
- On a 52-week basis, Enterprise revenue
growth of approximately 3.0%
- On a 52-week basis, Enterprise non-GAAP
operating income growth rate of 3.0% to 6.5%3
Domestic Segment Third Quarter
Results
Domestic RevenueDomestic revenue of $8.5 billion
increased 3.6% versus last year driven by comparable sales growth
of 4.5%, partially offset by the loss of revenue from 10 large
format and 44 Best Buy Mobile store closures.
From a merchandising perspective, the company generated growth
across almost all of its categories, with the largest drivers of
comparable sales being appliances, computing and smart home.
Domestic online revenue of $1.1 billion increased 22.3% on a
comparable basis primarily due to higher conversion rates and
higher average order values. As a percentage of total Domestic
revenue, online revenue increased 190 basis points to 12.7% versus
10.8% last year.
Domestic Gross Profit RateDomestic gross profit rate was
flat versus last year at 24.7%. Improved margin rates across
multiple categories were offset by an approximately 25-basis point
negative impact from lapping the $25 million Q3 FY17 periodic
profit sharing benefit from the company’s service plan
portfolio.4
Domestic Selling, General and Administrative Expenses
(“SG&A”)Domestic SG&A expenses were $1.75 billion, or
20.6% of revenue, versus $1.72 billion, or 21.0% of revenue, last
year. SG&A increased $31 million primarily due to (1) expected
increases in growth investments; (2) higher advertising expenses;
and (3) higher variable costs due to increased revenue. These
increases were partially offset by the flow-through of cost
reductions. The rate decrease was driven by sales leverage.
International Segment Third Quarter
Results
International RevenueInternational revenue of $829
million increased 10.1%. This increase was primarily driven by (1)
approximately 530 basis points of positive foreign currency impact;
and (2) comparable sales growth of 3.8% due to growth in both
Canada and Mexico.
International Gross Profit RateInternational gross profit
rate was 22.2% versus 24.3% last year. The 210-basis point decline
was primarily driven by a lower year-over-year gross profit rate in
Canada due to lower sales in the higher-margin services category
primarily driven by the launch of Canada’s total tech support
offer, a long-term recurring revenue model.
International SG&AInternational SG&A expenses
were $181 million, or 21.8% of revenue, versus $170 million, or
22.6% of revenue, last year. The increase of $11 million was
primarily driven by the negative impact of foreign exchange rates.
The rate decrease was primarily driven by sales leverage.
Share Repurchases and
Dividends
During Q3 FY18, the company returned a total of $469 million to
shareholders through share repurchases and dividends. On a
year-to-date basis, the company has returned a total of $1.45
billion to shareholders through share repurchases and
dividends.
On March 1, 2017, the company announced the intent to spend $3
billion on share repurchases over a two-year period. In Q3 FY18,
the company repurchased 6.4 million shares for a total of $367
million. On a year-to-date basis, the company has repurchased 21.8
million shares for a total of $1.14 billion. The company’s
cumulative share repurchases, net of dilution from equity based
awards, positively benefitted diluted EPS by approximately $0.04 in
Q3 FY18.
On October 10, 2017, the company paid a quarterly dividend of
$0.34 per common share outstanding, or $102 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 Q3 FY18 was a benefit of
approximately $14 million, or $0.05 of GAAP and non-GAAP diluted
EPS. The year-to-date benefit is approximately $19 million, or
$0.06 of GAAP and 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.
Conference Call
Best Buy is scheduled to conduct an earnings conference call at
8:00 a.m. Eastern Time (7:00 a.m. Central Time) on November 16,
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 is no longer excluding
non-restructuring property and equipment impairment charges from
its non-GAAP financial metrics. When the company began to execute
its Renew Blue transformation in Q4 FY13, it adopted a change to
non-GAAP reporting to exclude non-restructuring property and
equipment impairment charges from non-GAAP results. From that
point, until Q4 FY17, the company believed that reporting non-GAAP
results that excluded these charges provided a supplemental view of
the company's ongoing performance that was useful and relevant to
its investors. Now that Renew Blue has ended and Best Buy 2020:
Building The New Blue has officially launched, the company believes
it is no longer necessary to adjust for non-restructuring property
and equipment impairments in its non-GAAP reporting. The company
believes that future such impairments will predominantly be
immaterial and incurred in the ordinary scope of ongoing
operations. Accordingly, commencing in Q1 FY18, the company began
to no longer adjust for non-restructuring property and equipment
impairments. Prior-period financial information included herein has
been recast to conform with this presentation, including applicable
income tax effects. A complete GAAP to non-GAAP reconciliation for
FY16 and FY17, by quarter, is available on the company's investor
relations website at www.investors.bestbuy.com.
(2) On March 28, 2015, the company consolidated the Future Shop
and Best Buy stores and websites in Canada under the Best Buy
brand. This resulted in the permanent closure of 66 Future Shop
stores, the conversion of 65 Future Shop stores to Best Buy stores
and the elimination of the Future Shop website. The Canadian brand
consolidation had a material impact on a year-over-year basis on
the Canadian retail stores and the website and, as such, all store
and website revenue was removed from the comparable sales base and
International (comprised of Canada and Mexico) did not have a
comparable metric from Q1 FY16 through Q3 FY17. From Q1 FY16
through Q3 FY17 Enterprise comparable sales were equal to Domestic
comparable sales.
Beginning in Q4 FY17, the company resumed reporting
International comparable sales and as such, Enterprise comparable
sales are once again equal to the aggregation of Domestic and
International comparable sales.
(3) A reconciliation of the projected non-GAAP operating income,
non-GAAP effective tax rate and non-GAAP diluted EPS, which are
forward-looking non-GAAP financial measures, to the most directly
comparable GAAP financial measures, is not provided because the
company is unable to provide such reconciliation without
unreasonable effort. The inability to provide a reconciliation is
due to the uncertainty and inherent difficulty predicting the
occurrence, the financial impact and the periods in which the
non-GAAP adjustments may be recognized. These GAAP measures may
include the impact of such items as restructuring charges;
litigation settlements; goodwill impairments; gains and losses on
investments; and the tax effect of all such items. Historically,
the company has excluded these items from non-GAAP financial
measures. The company currently expects to continue to exclude
these items in future disclosures of non-GAAP financial measures
and may also exclude other items that may arise (collectively,
“non-GAAP adjustments”). The decisions and events that typically
lead to the recognition of non-GAAP adjustments, such as a decision
to exit part of the business or reaching settlement of a legal
dispute, are inherently unpredictable as to if or when they may
occur. For the same reasons, the company is unable to address the
probable significance of the unavailable information, which could
be material to future results.
(4) In Q3 FY17, the Domestic business recorded a $25 million
periodic profit sharing benefit from its services plan portfolio.
In Q3 FY18, there was no profit sharing benefit recorded.
Forward-Looking and Cautionary Statements:This earnings
release contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 as contained
in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that reflect management’s current
views and estimates regarding future market conditions, company
performance and financial results, business prospects, new
strategies, the competitive environment and other events. You can
identify these statements by the fact that they use words such as
“anticipate,” “believe,” “assume,” “estimate,” “expect,” “intend,”
“project,” “guidance,” “plan,” “outlook,” and other words and terms
of similar meaning. These statements involve a number of risks and
uncertainties that could cause actual results to differ materially
from the potential results discussed in the forward-looking
statements. Among the factors that could cause actual results and
outcomes to differ materially from those contained in such
forward-looking statements are the following: macro-economic
conditions (including fluctuations in housing prices, oil markets
and jobless rates), conditions in the industries and categories in
which the company operates, changes in consumer preferences or
confidence, changes in consumer spending and debt levels, the mix
of products and services offered for sale in our physical stores
and online, credit market changes and constraints, product
availability, trade restrictions or changes in the costs of
imports, competitive initiatives of competitors (including pricing
actions and promotional activities), strategic and business
decisions of our vendors (including actions that could impact
promotional support, product margin and/or supply), the success of
new product launches, the impact of pricing investments and
promotional activity, weather, natural or man-made disasters,
attacks on our data systems, the company’s ability to prevent or
react to a disaster recovery situation, changes in law or
regulations, changes in tax rates, changes in taxable income in
each jurisdiction, tax audit developments and resolution of other
discrete tax matters, foreign currency fluctuation, the company’s
ability to manage its property portfolio, the impact of labor
markets, the company’s ability to retain qualified employees and
management, failure to achieve anticipated expense and cost
reductions, disruptions in our supply chain, the costs of procuring
goods the company sells, failure to achieve anticipated revenue and
profitability increases from operational and restructuring changes
(including investments in our multi-channel capabilities),
inability to secure or maintain favorable vendor terms, failure to
accurately predict the duration over which the company will incur
costs, development of new businesses, failure to complete or
achieve anticipated benefits of announced transactions, and our
ability to protect information relating to our employees and
customers. A further list and description of these risks,
uncertainties and other matters can be found in the company’s
annual report and other reports filed from time to time with the
Securities and Exchange Commission (“SEC”), including, but not
limited to, Best Buy’s Report on Form 10-K filed with the SEC on
March 24, 2017. Best Buy cautions that the foregoing list of
important factors is not complete, and any forward-looking
statements speak only as of the date they are made, and Best Buy
assumes no obligation to update any forward-looking statement that
it may make.
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 28,2017
October 29,2016
October 28,2017
October 29,2016
Revenue $ 9,320 $ 8,945 $ 26,788 $ 25,921 Cost of goods sold
7,040 6,742 20,333 19,511
Gross profit 2,280 2,203 6,455 6,410 Gross profit % 24.5 %
24.6 % 24.1 % 24.7 % Selling, general and administrative expenses
1,932 1,890 5,484 5,407 SG&A % 20.7 % 21.1 % 20.5 % 20.9 %
Restructuring charges (2 ) 1 -
30 Operating income 350 312 971 973 Operating income
% 3.8 % 3.5 % 3.6 % 3.8 % Other income (expense): Gain on sale of
investments - - - 2 Investment income and other 12 8 30 22 Interest
expense (20 ) (16 ) (57 ) (54 )
Earnings from continuing operations before income tax expense 342
304 944 943 Income tax expense 104 112 309 343 Effective tax rate
30.4 % 36.7 % 32.7 % 36.4 % Net
earnings from continuing operations 238 192 635 600 Gain from
discontinued operations, net of tax 1 2
1 21 Net earnings $ 239 $ 194
$ 636 $ 621 Basic earnings per share
Continuing operations $ 0.80 $ 0.61 $ 2.09 $ 1.87 Discontinued
operations - - -
0.07 Basic earnings per share $ 0.80 $ 0.61 $
2.09 $ 1.94 Diluted earnings per share
Continuing operations $ 0.78 $ 0.60 $ 2.05 $ 1.85 Discontinued
operations - 0.01 -
0.07 Diluted earnings per share $ 0.78 $ 0.61
$ 2.05 $ 1.92 Dividends declared per
common share $ 0.34 $ 0.28 $ 1.02 $ 1.29 Weighted-average
common shares outstanding Basic 299.1 316.2 304.1 320.2 Diluted
305.4 320.0 310.6 323.6
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS ($ in millions)
(Unaudited and subject to reclassification)
October 28, 2017 October 29, 2016
ASSETS Current assets Cash and cash equivalents $ 1,103 $
1,341 Short-term investments 2,237 1,777 Receivables, net 971 1,174
Merchandise inventories 6,663 6,331 Other current assets 431
398 Total current assets 11,405 11,021 Property and
equipment, net 2,352 2,298 Goodwill 425 425 Other assets 603
798
TOTAL ASSETS $ 14,785 $
14,542 LIABILITIES & EQUITY Current
liabilities Accounts payable $ 6,587 $ 6,233 Unredeemed gift card
liabilities 375 377 Deferred revenue 426 380 Accrued compensation
and related expenses 331 308 Accrued liabilities 808 782 Accrued
income taxes 80 43 Current portion of long-term debt 545
43 Total current liabilities 9,152 8,166 Long-term
liabilities 697 791 Long-term debt 784 1,324 Equity 4,152
4,261
TOTAL LIABILITIES & EQUITY $
14,785 $ 14,542 BEST BUY CO.,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($
in millions) (Unaudited and subject to reclassification)
Nine Months Ended October 28,
2017 October 29, 20161 OPERATING
ACTIVITIES Net earnings $ 636 $ 621
Adjustments to reconcile net earnings to
total cash provided by operating activities:
Depreciation 500 491 Restructuring charges - 30 Stock-based
compensation 97 82 Deferred income taxes 4 28 Other, net (5 ) (22 )
Changes in operating assets and liabilities: Receivables 413 79
Merchandise inventories (1,811 ) (1,369 ) Other assets (36 ) (18 )
Accounts payable 1,530 1,801 Other liabilities (187 ) (192 ) Income
taxes 62 (124 ) Total cash provided by
operating activities 1,203 1,407
INVESTING ACTIVITIES
Additions to property and equipment (489 ) (445 ) Purchases of
investments (4,047 ) (2,149 ) Sales of investments 3,518 1,685
Proceeds from property disposition 2 56 Other, net -
5 Total cash used in investing activities (1,016 )
(848 )
FINANCING ACTIVITIES Repurchase of common
stock (1,138 ) (472 ) Issuance of common stock 145 66 Dividends
paid (310 ) (417 ) Repayments of debt (31 ) (384 ) Other, net
(1 ) 8 Total cash used in financing activities
(1,335 ) (1,199 )
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 15 13
DECREASE IN CASH,
CASH EQUIVALENTS AND RESTRICTED CASH (1,133 ) (627 )
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF
PERIOD2 2,433 2,161
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD2
$
1,300
$
1,534
(1) Represents Condensed Consolidated
Statement of Cash Flows as of October 29, 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 $12 million increase to cash
provided by operating activities, an $8 million decrease in cash
used in investing activities, a $12 million increase in cash used
in financing activities, a $185 million increase to the beginning
cash balance and a $193 million increase to the ending cash
balance.
(2) The beginning and ending cash, cash
equivalents and restricted balances are different than the cash and
cash equivalents balance on the 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 $193 million
increase in the ending balance. For FY18, the impact is a $193
million increase in the beginning balance and a $197 million
increase in the ending balance. Restricted cash is recorded in
Other current assets on the Condensed Consolidated Balance
Sheets.
BEST BUY CO., INC.
SEGMENT INFORMATION ($ in millions) (Unaudited and subject
to reclassification)
Domestic Segment Performance Summary Three
Months Ended Nine Months Ended
October 28,2017
October 29,20161
October 28,2017
October 29,20161
Revenue $8,491 $8,192 $24,675 $23,910 Gross profit $2,096 $2,020
$5,952 $5,901 SG&A $1,751 $1,720 $4,993 $4,915 Operating income
$345 $298 $959 $959
Key Metrics Comparable sales %
change 4.5% 1.8% 3.8% 0.8% Comparable online sales % change 22.3%
24.1% 25.3% 23.9% Gross profit as a % of revenue 24.7% 24.7% 24.1%
24.7% SG&A as a % of revenue 20.6% 21.0% 20.2% 20.6% Operating
income as a % of revenue 4.1% 3.6% 3.9% 4.0%
Non-GAAP
Results Gross profit $2,096 $2,020 $5,952 $5,718 Gross profit
as a % of revenue 24.7% 24.7% 24.1% 23.9% SG&A $1,751 $1,720
$4,993 $4,893 SG&A as a % of revenue 20.6% 21.0% 20.2% 20.5%
Operating income $345 $300 $959 $825 Operating income as a % of
revenue 4.1% 3.7% 3.9% 3.5%
International Segment
Performance Summary Three Months Ended Nine Months
Ended
October 28,2017
October 29,20161
October 28,2017
October 29,20161
Revenue $829 $753 $2,113 $2,011 Gross profit $184 $183 $503 $509
SG&A $181 $170 $491 $492 Operating income $5 $14 $12 $14
Key Metrics Comparable sales % change2 3.8% N/A 4.2% N/A
Gross profit as a % of revenue 22.2% 24.3% 23.8% 25.3% SG&A as
a % of revenue 21.8% 22.6% 23.2% 24.5% Operating income as a % of
revenue 0.6% 1.9% 0.6% 0.7%
Non-GAAP Results Gross
profit $184 $183 $503 $509 Gross profit as a % of revenue 22.2%
24.3% 23.8% 25.3% SG&A $181 $170 $491 $491 SG&A as a % of
revenue 21.8% 22.6% 23.2% 24.4% Operating income $3 $13 $12 $18
Operating income as a % of revenue 0.4% 1.7% 0.6% 0.9%
(1) Beginning in Q1 FY18, the company is
no longer 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 GAAP to non-GAAP reconciliation for
FY16 and FY17, by quarter, which is available on the company's
investor relations website at www.investors.bestbuy.com.
(2) On March 28, 2015, the company
consolidated the Future Shop and Best Buy stores and websites in
Canada under the Best Buy brand. This resulted in the permanent
closure of 66 Future Shop stores, the conversion of 65 Future Shop
stores to Best Buy stores and the elimination of the Future Shop
website. The Canadian brand consolidation had a material impact on
a year-over-year basis on the Canadian retail stores and the
website and as such, all store and website revenue was removed from
the comparable sales base and International (comprised of Canada
and Mexico) did not have a comparable metric from Q1 FY16 through
Q3 FY17. From Q1 FY16 through Q3 FY17 Enterprise comparable sales
were equal to Domestic comparable sales. Beginning in Q4 FY17, the
company resumed reporting International comparable sales as revenue
in the International segment was once again determined to be
comparable 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
October 28,2017
October 29,2016
October 28,2017
October 29,2016
Consumer Electronics 31% 31% 3.5% 4.9% Computing and Mobile Phones
48% 49% 3.5% 1.6% Entertainment 6% 6% 4.1% (9.4%) Appliances 10% 9%
13.5% 3.0% Services 5% 5% 3.2% (1.8%) Other 0% 0% n/a n/a Total
100% 100% 4.5% 1.8%
Revenue Mix Summary Comparable
Sales Three Months Ended Three Months Ended
International Segment1
October 28,2017
October 29,2016
October 28,2017
October 29,2016
Consumer Electronics 27% 28% 4.5% n/a Computing and Mobile Phones
52% 54% 0.6% n/a Entertainment 6% 6% 7.8% n/a Appliances 8% 5%
49.0% n/a Services 5% 6% (15.1%) n/a Other 2% 1% n/a n/a Total 100%
100% 3.8% 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 from Q1 FY16
through Q3 FY17. From Q1 FY16 through Q3 FY17, Enterprise
comparable sales were equal to Domestic comparable sales. Beginning
in Q4 FY17, the company resumed reporting International comparable
sales and, as such, Enterprise comparable sales are once again
equal to the aggregation of Domestic and International comparable
sales.
BEST BUY CO., INC. RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES CONTINUING 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 October 28, 2017 October 29,
20161 $
% ofRev.
$
% ofRev.
Domestic -
Continuing Operations
Operating income $345 4.1% $298 3.6% Restructuring charges 0 0.0% 2
0.0% Non-GAAP operating income $345 4.1% $300 3.7%
International -
Continuing Operations
Operating income $5 0.6% $14 1.9% Restructuring charges (2) (0.2%)
(1) (0.1%) Non-GAAP operating income $3 0.4% $13 1.7%
Consolidated -
Continuing Operations
Operating income $350 3.8% $312 3.5% Restructuring charges (2)
(0.0%) 1 0.0% Non-GAAP operating income $348 3.7% $313 3.5%
Income tax expense $104 $112 Effective tax rate 30.4% 36.7% Income
tax impact of non-GAAP adjustments2 0 0 Non-GAAP income tax expense
$104 $112 Non-GAAP effective tax rate 30.4% 36.6% Net
earnings $238 $192 Restructuring charges (2) 1 Loss on investments,
net 1 0 Non-GAAP net earnings $237 $193 Diluted EPS $0.78
$0.60 Non-GAAP diluted EPS $0.78 $0.60
Nine Months
Ended Nine Months Ended October 28, 2017
October 29, 20161 $
% ofRev.
$
% ofRev.
Domestic -
Continuing Operations
Gross Profit $5,952 24.1% $5,901 24.7% CRT/LCD settlements3 0 0.0%
(183) (0.8%) Non-GAAP gross profit $5,952 24.1% $5,718 23.9%
SG&A $4,993 20.2% $4,915 20.6% CRT/LCD settlement legal fees
and costs3 0 0.0% (22) (0.1%) Non-GAAP SG&A $4,993 20.2% $4,893
20.5% Operating Income $959 3.9% $959 4.0% Net CRT/LCD
settlements3 0 0.0% (161) (0.7%) Restructuring charges 0 0.0% 27
0.1% Non-GAAP operating income $959 3.9% $825 3.5%
International -
Continuing Operations
SG&A $491 23.2% $492 24.5% Other Canada brand consolidation
charges - SG&A4 0 0.0% (1) (0.0%) Non-GAAP SG&A $491 23.2%
$491 24.4% Operating Income $12 0.6% $14 0.7% Other Canada
brand consolidation charges - SG&A4 0 0.0% 1 0.0% Restructuring
charges 0 0.0% 3 0.1% Non-GAAP operating income $12 0.6% $18 0.9%
Consolidated -
Continuing Operations
Gross Profit $6,455 24.1% $6,410 24.7% CRT/LCD settlements3 0 0.0%
(183) (0.7%) Non-GAAP gross profit $6,455 24.1% $6,227 24.0%
SG&A $5,484 20.5% $5,407 20.9% CRT/LCD settlement legal fees
and costs3 0 0.0% (22) (0.1%) Other Canada brand consolidation
charges - SG&A4 0 0.0% (1) (0.0%) Non-GAAP SG&A $5,484
20.5% $5,384 20.8% Operating income $971 3.6% $973 3.8% Net
CRT/LCD settlements3 0 0.0% (161) (0.6%) Other Canada brand
consolidation charges - SG&A4 0 0.0% 1 0.0% Restructuring
charges 0 0.0% 30 0.1% Non-GAAP operating income $971 3.6% $843
3.3% Income tax expense $309 $343 Effective tax rate 32.7%
36.4% Income tax impact of non-GAAP adjustments2 2 (49) Non-GAAP
income tax expense $311 $294 Non-GAAP effective tax rate 32.8%
36.3% Net earnings $635 $600 Net CRT/LCD settlements3 0
(161) Other Canada brand consolidation charges - SG&A4 0 1
Restructuring charges 0 30 (Gain) loss on investments, net 6 (2)
Income tax impact of non-GAAP adjustments2 (2) 49 Non-GAAP net
earnings $639 $517 Diluted EPS $2.05 $1.85 Per share impact
of net CRT/LCD settlements3 0.00 (0.50)
Per share impact of other Canada brand
consolidation charges - SG&A4
0.00
0.01
Per share impact of restructuring charges 0.00 0.09 Per share
impact of (gain) loss on investments, net 0.02 (0.01) Per share
income tax impact of non-GAAP adjustments2 (0.01) 0.16 Non-GAAP
diluted EPS $2.06 $1.60
(1) Beginning in Q1 FY18, the
company is no longer 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 GAAP to non-GAAP
reconciliation for FY16 and FY17, by quarter, which is available on
the company's investor relations website at
www.investors.bestbuy.com.
(2) 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.
(3) 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.
(4) 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.
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")
October 28, 20171 October 29,
20161 Net earnings $ 1,243 $ 1,100 Total assets
13,760 13,554
ROA 9.0%
8.1% Calculation of Non-GAAP Return on Invested
Capital ("ROIC") October 28, 20171 October 29,
20161
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,852 $ 1,744 Operating
income - discontinued operations 1 33 Total operating
income 1,853 1,777 Add: Operating lease interest2 235 230 Add:
Non-GAAP operating income adjustments3 9 (146) Add: Investment
income 46 28 Less: Income taxes4 (802) (711)
Non-GAAP NOPAT $ 1,341 $ 1,178
Average Invested
Capital
Total assets $ 13,760 $ 13,554 Less: Excess cash5 (3,185) (2,834)
Add: Capitalized operating lease obligations6 3,910 3,834 Total
liabilities (9,334) (9,208) Exclude: Debt7 1,349
1,466
Average invested capital $ 6,500
$ 6,812 Non-GAAP ROIC
20.6% 17.3%
(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 29, 2017. Beginning in Q1 FY18, the
company is no longer 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 the prior period calculations to reflect the previously
excluded impairments now being included in non-GAAP NOPAT. For
additional details, please refer to the GAAP to non-GAAP
reconciliation for FY16 and FY17, by quarter, which is available on
the company's investor relations website at
www.investors.bestbuy.com.
(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/20171116005293/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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