Comparable Sales Declined 10.4%
GAAP Diluted EPS of $1.22
Non-GAAP Diluted EPS of $1.38
Raises Full-Year Guidance
Resumes Share Repurchases
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
13-week third quarter ended October 29, 2022 (“Q3 FY23”), as
compared to the 13-week third quarter ended October 30, 2021 (“Q3
FY22”).
Q3 FY23
Q3 FY22
Revenue ($ in millions)
Enterprise
$
10,587
$
11,910
Domestic segment
$
9,800
$
10,985
International segment
$
787
$
925
Enterprise comparable sales % change1
(10.4
)%
1.6
%
Domestic comparable sales % change1
(10.5
)%
2.0
%
Domestic comparable online sales %
change1
(11.6
)%
(10.1
)%
International comparable sales %
change1
(9.3
)%
(3.0
)%
Operating Income
GAAP operating income as a % of
revenue
3.4
%
5.6
%
Non-GAAP operating income as a % of
revenue
3.9
%
5.8
%
Diluted Earnings per Share
("EPS")
GAAP diluted EPS
$
1.22
$
2.00
Non-GAAP diluted EPS
$
1.38
$
2.08
For GAAP to non-GAAP reconciliations of the measures referred to
in the above table, please refer to the attached supporting
schedule.
“I am proud of our team’s execution and their relentless focus
on providing amazing service to our customers during what is
clearly a challenging environment for our industry,” said Corie
Barry, Best Buy CEO. “Throughout the quarter, we were committed to
balancing our near-term response to current conditions and managing
well what is in our control, while also advancing our strategic
initiatives and investing in areas important for our long-term
growth. As a result, we delivered Q3 results ahead of our
expectations coming into the quarter.”
“The holiday shopping season has begun, and now, more than ever,
our customers are looking to bring joy back into their
celebrations,” continued Barry. “We have strategically and
effectively managed our inventory flow based on a shopping pattern
that we believe looks more similar to historical holiday periods,
with customer shopping activity concentrated on Black Friday week,
Cyber Monday and the two weeks leading up to December 25. We are
excited about the promotions and values we have planned, including
special offers available to Totaltech and MyBestBuy members, and
have tailored our offerings to delight our customers, whatever
their budget.”
FY23 Financial Guidance
“We are updating our FY23 outlook to flow through our
better-than-expected Q3 results while keeping our Q4 expectations
unchanged,” said Matt Bilunas, Best Buy CFO. “We now expect
comparable sales to decline approximately 10% and our non-GAAP
operating income rate2 to be slightly higher than 4.0%.”
Bilunas added, “From a capital allocation perspective, we
resumed share repurchases in November after pausing during Q2 and
now expect to spend approximately $1 billion in share repurchases
this year.”
Merchandise Inventories
At the end of Q3 FY23, merchandise inventories of $7.3 billion
declined 14.7% compared to last year. The lower inventory balance
was primarily driven by a year-over-year decline in revenue, both
in Q3 and in anticipation of the expected decline in Q4. The
decline in inventory was also impacted by the timing of inventory
receipts, reflecting an earlier build of inventory in the prior
year that was driven by a more uncertain supply chain environment
and the anticipated phasing of holiday sales.
Domestic Segment Q3 FY23
Results
Domestic Revenue
Domestic revenue of $9.80 billion decreased 10.8% versus last
year primarily driven by a comparable sales decline of 10.5%.
From a merchandising perspective, the company had comparable
sales declines across almost all categories, with the largest
drivers on a weighted basis being computing and home theater.
Domestic online revenue of $3.04 billion decreased 11.6% on a
comparable basis, and as a percentage of total Domestic revenue,
online revenue was 31.0% versus 31.3% last year.
Domestic Gross Profit Rate
Domestic gross profit rate was 21.9% versus 23.4% last year. The
lower gross profit rate was primarily due to: (1) lower product
margin rates, including increased promotions; (2) lower services
margin rates, including pressure associated with the Best Buy
Totaltech membership offering; and (3) higher supply chain costs.
These pressures were partially offset by higher profit-sharing
revenue from the company’s private label and co-branded credit card
arrangement.
Domestic Selling, General and Administrative Expenses
(“SG&A”)
Domestic GAAP SG&A was $1.79 billion, or 18.3% of revenue,
versus $1.96 billion, or 17.9% of revenue, last year. On a non-GAAP
basis, SG&A was $1.77 billion, or 18.1% of revenue, versus
$1.94 billion, or 17.6% of revenue, last year. Both GAAP and
non-GAAP SG&A decreased primarily due to lower incentive
compensation and store payroll expense.
International Segment Q3 FY23
Results
International Revenue
International revenue of $787 million decreased 14.9% versus
last year. This decrease was primarily driven by a comparable sales
decline of 9.3% and the negative impact of approximately 480 basis
points from foreign currency exchange rates.
International Gross Profit Rate
International gross profit rate was 23.4% versus 25.0% last
year. The lower gross profit rate was primarily driven by lower
product margin rates and higher supply chain costs.
International SG&A
International SG&A was $150 million, or 19.1% of revenue,
versus $171 million, or 18.5% of revenue, last year. SG&A
decreased primarily due to lower incentive compensation and the
favorable impact of foreign currency exchange rates.
Restructuring Charges
The company incurred $26 million of restructuring costs in Q3
FY23, primarily related to employee termination benefits associated
with an enterprise-wide restructuring initiative that commenced in
Q2 FY23 to better align its spending with critical strategies and
operations, as well as to optimize its cost structure. The company
currently expects to incur additional charges through the remainder
of FY23 for this initiative. Consistent with prior practice,
restructuring costs are excluded from the company’s non-GAAP
results.
Share Repurchases and
Dividends
In Q3 FY23, the company returned a total of $198 million to
shareholders through dividends. On a year-to-date basis, the
company has returned a total of $1.06 billion to shareholders
through dividends of $595 million and share repurchases of $465
million.
Today, the company announced its board of directors has
authorized the payment of its regular quarterly cash dividend of
$0.88 per common share. The quarterly dividend is payable on
January 3, 2023, to shareholders of record as of the close of
business on December 13, 2022.
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 22,
2022. A webcast of the call is expected to be available at
www.investors.bestbuy.com, both live and after the call.
Notes:
(1) The method of calculating comparable sales varies across the
retail industry. As a result, our method of calculating comparable
sales may not be the same as other retailers’ methods. For
additional information on comparable sales, please see our most
recent Annual Report on Form 10-K, and our subsequent Quarterly
Reports on Form 10-Q, filed with the Securities and Exchange
Commission (“SEC”), and available at www.investors.bestbuy.com.
(2) A reconciliation of the projected non-GAAP operating income
rate, which is a forward-looking non-GAAP financial measure, to the
most directly comparable GAAP financial measure, is not provided
because the company is unable to provide such reconciliation
without unreasonable effort. The inability to provide a
reconciliation is due to the uncertainty and inherent difficulty
predicting the occurrence, the financial impact and the periods in
which the non-GAAP adjustments may be recognized. These GAAP
measures may include the impact of such items as restructuring
charges; price-fixing settlements; goodwill impairments; gains and
losses on investments; intangible asset amortization; certain
acquisition-related costs; 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.
Forward-Looking and Cautionary Statements:
This 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, operational
investments, 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," "assume,"
"believe," "estimate," "expect," "guidance," "intend," "outlook,"
"plan," "project" and other words and terms of similar meaning.
Such statements reflect our current views and estimates with
respect to future market conditions, company performance and
financial results, operational investments, business prospects, new
strategies, the competitive environment and other events. These
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from the potential
results discussed in such forward-looking statements. Readers
should review Item 1A, Risk Factors, of our Annual Report on Form
10-K for the fiscal year ended January 29, 2022, for a description
of important factors that could cause our actual results to differ
materially from those contemplated by the forward-looking
statements made in this release. Among the factors that could cause
actual results and outcomes to differ materially from those
contained in such forward-looking statements are the following: the
duration and scope of the COVID-19 pandemic and its resurgences and
the impact on demand for our products and services; levels of
consumer confidence; supply chain issues; any material disruption
in our relationship with or the services of third-party vendors,
risks related to our exclusive brand products and risks associated
with vendors that source products outside of the U.S.;
macroeconomic pressures in the markets in which we operate
(including but not limited to the effects of COVID-19, increased
levels of inventory loss due to organized crime, petty theft or
otherwise, fluctuations in housing prices, energy markets, and
jobless rates and those related to the conflict in Ukraine); future
outbreaks, catastrophic events, health crises and pandemics;
susceptibility of our products to technological advancements,
product life cycles and launches; conditions in the industries and
categories in which we operate; changes in consumer preferences,
spending and debt; competition (including from multi-channel
retailers, e-commerce business, technology service providers,
traditional store-based retailers, vendors and mobile network
carriers); our ability to attract and retain qualified employees;
changes in market compensation rates; our expansion strategies; our
focus on services as a strategic priority; our reliance on key
vendors and mobile network carriers (including product
availability); our ability to maintain positive brand perception
and recognition; our company transformation; our mix of products
and services; our ability to effectively manage strategic ventures,
alliances or acquisitions; our ability to effectively manage our
real estate portfolio; trade restrictions or changes in the costs
of imports (including existing or new tariffs or duties and changes
in the amount of any such tariffs or duties); our reliance on our
information technology systems; our dependence on internet and
telecommunications access and capabilities; our ability to prevent
or effectively respond to a cyber-attack, privacy or security
breach; product safety and quality concerns; changes to labor or
employment laws or regulations; risks arising from statutory,
regulatory and legal developments (including tax statutes and
regulations); risks arising from our international activities
(including those related to the conflict in Ukraine); failure to
effectively manage our costs; our dependence on cash flows and net
earnings generated during the fourth fiscal quarter; pricing
investments and promotional activity; economic or regulatory
developments that might affect our ability to provide attractive
promotional financing; constraints in the capital markets; changes
to our vendor credit terms; changes in our credit ratings; and
general economic uncertainty in key global markets and worsening of
global economic conditions or low levels of economic growth. We
caution that the foregoing list of important factors is not
complete. Any forward-looking statements speak only as of the date
they are made and we assume no obligation to update any
forward-looking statement that we may make.
BEST BUY CO., INC.
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
($ and shares in millions, except
per share amounts)
(Unaudited and subject to
reclassification)
Three Months Ended
Nine Months Ended
October 29, 2022
October 30, 2021
October 29, 2022
October 30, 2021
Revenue
$
10,587
$
11,910
$
31,563
$
35,396
Cost of sales
8,255
9,108
24,591
27,069
Gross profit
2,332
2,802
6,972
8,327
Gross profit %
22.0
%
23.5
%
22.1
%
23.5
%
Selling, general and administrative
expenses
1,941
2,133
5,713
6,130
SG&A %
18.3
%
17.9
%
18.1
%
17.3
%
Restructuring charges
26
(1
)
61
(39
)
Operating income
365
670
1,198
2,236
Operating income %
3.4
%
5.6
%
3.8
%
6.3
%
Other income (expense):
Investment income and other
4
1
2
7
Interest expense
(10
)
(7
)
(23
)
(19
)
Earnings before income tax expense and
equity in income (loss) of affiliates
359
664
1,177
2,224
Income tax expense
84
166
252
402
Effective tax rate
23.6
%
25.1
%
21.4
%
18.1
%
Equity in income (loss) of affiliates
2
1
(1
)
6
Net earnings
$
277
$
499
$
924
$
1,828
Basic earnings per share
$
1.23
$
2.02
$
4.09
$
7.31
Diluted earnings per share
$
1.22
$
2.00
$
4.07
$
7.23
Weighted-average common shares
outstanding:
Basic
225.5
246.4
225.9
249.9
Diluted
226.2
249.1
226.9
252.9
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
($ in millions)
(Unaudited and subject to
reclassification)
October 29, 2022
October 30, 2021
Assets
Current assets:
Cash and cash equivalents
$
932
$
3,465
Receivables, net
1,050
1,016
Merchandise inventories
7,294
8,553
Other current assets
646
486
Total current assets
9,922
13,520
Property and equipment, net
2,373
2,256
Operating lease assets
2,799
2,688
Goodwill
1,383
986
Other assets
544
652
Total assets
$
17,021
$
20,102
Liabilities and equity
Current liabilities:
Accounts payable
$
7,056
$
8,405
Unredeemed gift card liabilities
273
306
Deferred revenue
1,080
977
Accrued compensation and related
expenses
363
703
Accrued liabilities
744
895
Current portion of operating lease
liabilities
638
645
Current portion of long-term debt
16
15
Total current liabilities
10,170
11,946
Long-term operating lease liabilities
2,216
2,102
Long-term liabilities
500
553
Long-term debt
1,142
1,223
Equity
2,993
4,278
Total liabilities and equity
$
17,021
$
20,102
BEST BUY CO., INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited and subject to
reclassification)
Nine Months Ended
October 29, 2022
October 30, 2021
Operating activities
Net earnings
$
924
$
1,828
Adjustments to reconcile net earnings to
total cash provided by (used in) operating activities:
Depreciation and amortization
679
644
Restructuring charges
61
(39
)
Stock-based compensation
98
105
Deferred income taxes
10
(16
)
Other, net
9
3
Changes in operating assets and
liabilities, net of acquired assets and liabilities:
Receivables
(14
)
43
Merchandise inventories
(1,365
)
(2,924
)
Other assets
(1
)
(12
)
Accounts payable
224
1,387
Income taxes
28
(172
)
Other liabilities
(761
)
214
Total cash provided by (used in) operating
activities
(108
)
1,061
Investing activities
Additions to property and equipment
(696
)
(548
)
Purchases of investments
(46
)
(221
)
Sales of investments
5
64
Other, net
1
(2
)
Total cash used in investing
activities
(736
)
(707
)
Financing activities
Repurchase of common stock
(465
)
(1,728
)
Issuance of common stock
15
28
Dividends paid
(595
)
(522
)
Repayments of debt
(13
)
(123
)
Other, net
-
(2
)
Total cash used in financing
activities
(1,058
)
(2,347
)
Effect of exchange rate changes on cash
and cash equivalents
(10
)
6
Decrease in cash, cash equivalents and
restricted cash
(1,912
)
(1,987
)
Cash, cash equivalents and restricted
cash at beginning of period
3,205
5,625
Cash, cash equivalents and restricted
cash at end of period
$
1,293
$
3,638
BEST BUY CO., INC.
SEGMENT INFORMATION
($ in millions)
(Unaudited and subject to
reclassification)
Three Months Ended
Nine Months Ended
Domestic Segment Results
October 29, 2022
October 30, 2021
October 29, 2022
October 30, 2021
Revenue
$
9,800
$
10,985
$
29,263
$
32,837
Comparable sales % change
(10.5
)%
2.0
%
(10.6
)%
18.3
%
Comparable online sales % change
(11.6
)%
(10.1
)%
(13.8
)%
(12.5
)%
Gross profit
$
2,148
$
2,571
$
6,427
$
7,703
Gross profit as a % of revenue
21.9
%
23.4
%
22.0
%
23.5
%
SG&A
$
1,791
$
1,962
$
5,264
$
5,647
SG&A as a % of revenue
18.3
%
17.9
%
18.0
%
17.2
%
Operating income
$
332
$
609
$
1,104
$
2,100
Operating income as a % of revenue
3.4
%
5.5
%
3.8
%
6.4
%
Domestic Segment Non-GAAP
Results1
Gross profit
$
2,148
$
2,571
$
6,427
$
7,703
Gross profit as a % of revenue
21.9
%
23.4
%
22.0
%
23.5
%
SG&A
$
1,770
$
1,937
$
5,199
$
5,582
SG&A as a % of revenue
18.1
%
17.6
%
17.8
%
17.0
%
Operating income
$
378
$
634
$
1,228
$
2,121
Operating income as a % of revenue
3.9
%
5.8
%
4.2
%
6.5
%
Three Months Ended
Nine Months Ended
International Segment Results
October 29, 2022
October 30, 2021
October 29, 2022
October 30, 2021
Revenue
$
787
$
925
$
2,300
$
2,559
Comparable sales % change
(9.3
)%
(3.0
)%
(5.2
)%
7.7
%
Gross profit
$
184
$
231
$
545
$
624
Gross profit as a % of revenue
23.4
%
25.0
%
23.7
%
24.4
%
SG&A
$
150
$
171
$
449
$
483
SG&A as a % of revenue
19.1
%
18.5
%
19.5
%
18.9
%
Operating income
$
33
$
61
$
94
$
136
Operating income as a % of revenue
4.2
%
6.6
%
4.1
%
5.3
%
International Segment Non-GAAP
Results1
Gross profit
$
184
$
231
$
545
$
618
Gross profit as a % of revenue
23.4
%
25.0
%
23.7
%
24.2
%
SG&A
$
150
$
171
$
449
$
483
SG&A as a % of revenue
19.1
%
18.5
%
19.5
%
18.9
%
Operating income
$
34
$
60
$
96
$
135
Operating income as a % of revenue
4.3
%
6.5
%
4.2
%
5.3
%
(1)
For GAAP to non-GAAP reconciliations,
please refer to the attached supporting schedule titled
Reconciliation of Non-GAAP Financial Measures.
BEST BUY CO., INC.
REVENUE CATEGORY
SUMMARY
(Unaudited and subject to
reclassification)
Revenue Mix
Comparable Sales
Three Months Ended
Three Months Ended
Domestic Segment
October 29, 2022
October 30, 2021
October 29, 2022
October 30, 2021
Computing and Mobile Phones
44
%
45
%
(11.4
)%
(2.4
)%
Consumer Electronics
30
%
30
%
(12.8
)%
5.5
%
Appliances
15
%
15
%
(9.6
)%
10.9
%
Entertainment
5
%
5
%
(4.6
)%
4.1
%
Services
5
%
5
%
(0.9
)%
(5.6
)%
Other
1
%
-
%
39.8
%
N/A
Total
100
%
100
%
(10.5
)%
2.0
%
Revenue Mix
Comparable Sales
Three Months Ended
Three Months Ended
International Segment
October 29, 2022
October 30, 2021
October 29, 2022
October 30, 2021
Computing and Mobile Phones
49
%
50
%
(9.9
)%
(6.7
)%
Consumer Electronics
28
%
27
%
(7.4
)%
(0.8
)%
Appliances
9
%
9
%
(10.2
)%
(1.8
)%
Entertainment
6
%
6
%
(8.4
)%
15.0
%
Services
6
%
6
%
(15.2
)%
(2.2
)%
Other
2
%
2
%
3.6
%
17.0
%
Total
100
%
100
%
(9.3
)%
(3.0
)%
BEST BUY CO., INC. RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES ($ in millions, except per share
amounts) (Unaudited and subject to reclassification)
The following information provides reconciliations of the most
comparable financial measures presented in accordance with
accounting principles generally accepted in the U.S. (GAAP
financial measures) 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 financial
measures. Generally, presented non-GAAP financial measures include
adjustments for items such as restructuring charges, price-fixing
settlements, goodwill impairments, gains and losses on investments,
intangible asset amortization, certain acquisition-related costs
and the tax effect of all such items. 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 financial measures as presented herein may not be
comparable to similarly titled measures used by other
companies.
Three Months Ended
Three Months Ended
October 29, 2022
October 30, 2021
Domestic
International
Consolidated
Domestic
International
Consolidated
SG&A
$
1,791
$
150
$
1,941
$
1,962
$
171
$
2,133
% of revenue
18.3
%
19.1
%
18.3
%
17.9
%
18.5
%
17.9
%
Intangible asset amortization1
(21
)
-
(21
)
(20
)
-
(20
)
Acquisition-related transaction costs2
-
-
-
(5
)
-
(5
)
Non-GAAP SG&A
$
1,770
$
150
$
1,920
$
1,937
$
171
$
2,108
% of revenue
18.1
%
19.1
%
18.1
%
17.6
%
18.5
%
17.7
%
Operating income
$
332
$
33
$
365
$
609
$
61
$
670
% of revenue
3.4
%
4.2
%
3.4
%
5.5
%
6.6
%
5.6
%
Intangible asset amortization1
21
-
21
20
-
20
Acquisition-related transaction costs2
-
-
-
5
-
5
Restructuring charges3
25
1
26
-
(1
)
(1
)
Non-GAAP operating income
$
378
$
34
$
412
$
634
$
60
$
694
% of revenue
3.9
%
4.3
%
3.9
%
5.8
%
6.5
%
5.8
%
Effective tax rate
23.6
%
25.1
%
Intangible asset amortization1
0.1
%
(0.1
)%
Restructuring charges3
0.1
%
-
%
Non-GAAP effective tax rate
23.8
%
25.0
%
Three Months Ended
Three Months Ended
October 29, 2022
October 30, 2021
Pretax Earnings
Net of Tax5
Per Share
Pretax Earnings
Net of Tax5
Per Share
Diluted EPS
$
1.22
$
2.00
Intangible asset amortization1
$
21
$
15
0.08
$
20
$
14
0.06
Acquisition-related transaction costs2
-
-
-
5
5
0.02
Restructuring charges3
26
19
0.08
(1
)
-
-
Non-GAAP diluted EPS
$
1.38
$
2.08
Nine Months Ended
Nine Months Ended
October 29, 2022
October 30, 2021
Domestic
International
Consolidated
Domestic
International
Consolidated
Gross profit
$
6,427
$
545
$
6,972
$
7,703
$
624
$
8,327
% of revenue
22.0
%
23.7
%
22.1
%
23.5
%
24.4
%
23.5
%
Restructuring - inventory markdowns4
-
-
-
-
(6
)
(6
)
Non-GAAP gross profit
$
6,427
$
545
$
6,972
$
7,703
$
618
$
8,321
% of revenue
22.0
%
23.7
%
22.1
%
23.5
%
24.2
%
23.5
%
SG&A
$
5,264
$
449
$
5,713
$
5,647
$
483
$
6,130
% of revenue
18.0
%
19.5
%
18.1
%
17.2
%
18.9
%
17.3
%
Intangible asset amortization1
(65
)
-
(65
)
(60
)
-
(60
)
Acquisition-related transaction costs2
-
-
-
(5
)
-
(5
)
Non-GAAP SG&A
$
5,199
$
449
$
5,648
$
5,582
$
483
$
6,065
% of revenue
17.8
%
19.5
%
17.9
%
17.0
%
18.9
%
17.1
%
Operating income
$
1,104
$
94
$
1,198
$
2,100
$
136
$
2,236
% of revenue
3.8
%
4.1
%
3.8
%
6.4
%
5.3
%
6.3
%
Intangible asset amortization1
65
-
65
60
-
60
Acquisition-related transaction costs2
-
-
-
5
-
5
Restructuring charges3
59
2
61
(44
)
5
(39
)
Restructuring - inventory markdowns4
-
-
-
-
(6
)
(6
)
Non-GAAP operating income
$
1,228
$
96
$
1,324
$
2,121
$
135
$
2,256
% of revenue
4.2
%
4.2
%
4.2
%
6.5
%
5.3
%
6.4
%
Effective tax rate
21.4
%
18.1
%
Intangible asset amortization1
0.2
%
0.1
%
Restructuring charges3
0.1
%
(0.1
)%
Non-GAAP effective tax rate
21.7
%
18.1
%
Nine Months Ended
Nine Months Ended
October 29, 2022
October 30, 2021
Pretax Earnings
Net of Tax5
Per Share
Pretax Earnings
Net of Tax5
Per Share
Diluted EPS
$
4.07
$
7.23
Intangible asset amortization1
$
65
$
49
0.22
$
60
$
44
0.17
Acquisition-related transaction costs2
-
-
-
5
5
0.02
Restructuring charges3
61
46
0.20
(39
)
(27
)
(0.11
)
Restructuring - inventory markdowns4
-
-
-
(6
)
(6
)
(0.02
)
Non-GAAP diluted EPS
$
4.49
$
7.29
(1)
Represents the non-cash amortization of
definite-lived intangible assets associated with acquisitions,
including customer relationships, tradenames and developed
technology assets.
(2)
Represents charges associated with
acquisition-related transaction and due diligence costs, primarily
comprised of professional fees.
(3)
Represents charges primarily related to
employee termination benefits in the Domestic segment associated
with an enterprise-wide initiative that commenced in Q2 FY23 to
better align the company’s spending with critical strategies and
operations, as well as to optimize its cost structure, for the
periods ended October 29, 2022. Represents adjustments to
previously planned organizational changes and higher-than-expected
retention rates in the Domestic segment, and charges and subsequent
adjustments associated with the exit from operations in Mexico in
the International segment, for the periods ended October 30,
2021.
(4)
Represents inventory markdown adjustments
recorded within cost of sales associated with the exit from
operations in Mexico for the nine months ended October 30,
2021.
(5)
The non-GAAP adjustments primarily relate
to the U.S. and Mexico. As such, the income tax charge is
calculated using the statutory tax rate of 24.5% for all U.S.
non-GAAP items for all periods presented. There is no income tax
charge for Mexico non-GAAP items, as there was no tax benefit
recognized on these expenses in the calculation of GAAP income tax
expense.
Return on Assets and
Non-GAAP Return on Investment
The tables below provide calculations of return on assets
("ROA") (GAAP financial measure) and non-GAAP return on investment
(“ROI”) (non-GAAP financial measure) for the periods presented. The
company believes ROA is the most directly comparable financial
measure to ROI. Non-GAAP ROI is defined as non-GAAP adjusted
operating income after tax divided by average invested operating
assets. All periods presented below apply this methodology
consistently. The company believes non-GAAP ROI is a meaningful
metric for investors to evaluate capital efficiency because it
measures how key assets are deployed by adjusting operating income
and total assets for the items noted below. This method of
determining non-GAAP ROI may differ from other companies' methods
and therefore may not be comparable to those used by other
companies.
Return on Assets ("ROA")
October 29, 20221
October 30, 20211
Net earnings
$
1,550
$
2,644
Total assets
17,005
19,125
ROA
9.1
%
13.8
%
Non-GAAP Return on Investment
("ROI")
October 29, 20221
October 30, 20211
Numerator
Operating income
$
2,001
$
3,269
Add: Non-GAAP operating income
adjustments2
159
148
Add: Operating lease interest3
112
108
Less: Income taxes4
(557
)
(864
)
Add: Depreciation
816
775
Add: Operating lease amortization5
652
661
Adjusted operating income after
tax
$
3,183
$
4,097
Denominator
Total assets
$
17,005
$
19,125
Less: Excess cash6
(692
)
(3,692
)
Add: Accumulated depreciation and
amortization7
5,800
7,090
Less: Adjusted current liabilities8
(9,525
)
(10,095
)
Average invested operating
assets
$
12,588
$
12,428
Non-GAAP ROI
25.3
%
33.0
%
(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 trailing 12 months ended as of each of the balance
sheet dates.
(2)
Non-GAAP operating income adjustments
include continuing operations adjustments for restructuring
charges, intangible asset amortization, acquisition-related
transaction costs and price-fixing settlements. Additional details
regarding these adjustments are included in the Reconciliation of
Non-GAAP Financial Measures schedule within the company's quarterly
earnings releases.
(3)
Operating lease interest represents the
add-back to operating income to approximate the total interest
expense that the company would incur if its operating leases were
owned and financed by debt. The add-back is approximated by
multiplying average operating lease assets by 4%, which
approximates the interest rate on the company’s operating lease
liabilities.
(4)
Income taxes are approximated by using a
blended statutory rate at the Enterprise level based on statutory
rates from the countries in which the company does business, which
primarily consists of the U.S. with a statutory rate of 24.5% for
the periods presented.
(5)
Operating lease amortization represents
operating lease cost less operating lease interest. Operating lease
cost includes short-term leases, which are immaterial, and excludes
variable lease costs as these costs are not included in the
operating lease asset balance.
(6)
Excess cash represents the amount of cash,
cash equivalents and short-term investments greater than $1
billion, which approximates the amount of cash the company believes
is necessary to run the business and may fluctuate over time.
(7)
Accumulated depreciation and amortization
represents accumulated depreciation related to property and
equipment and accumulated amortization related to definite-lived
intangible assets.
(8) Adjusted current liabilities represent total current
liabilities less short-term debt and the current portions of
operating lease liabilities and long-term debt.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221121005814/en/
Investor Contact: Mollie O'Brien
mollie.obrien@bestbuy.com
Media Contact: Carly Charlson
carly.charlson@bestbuy.com
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