Non-GAAP Diluted EPS from Continuing
Operations of $0.37
GAAP Diluted EPS from Continuing Operations
of $0.10
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
first quarter (“Q1 FY16”) ended May 2, 2015 as compared to the
first quarter (“Q1 FY15”) ended May 3, 2014. During the quarter, as
announced on March 28, 2015, the company consolidated the Future
Shop and Best Buy brands in Canada under the Best Buy brand. This
consolidation is expected to have a material impact on all of the
Canadian retail stores and the website on a year-over-year basis.
As such, all Canadian revenue has been removed from the comparable
sales base and International no longer has a comparable metric.
Therefore, Enterprise comparable sales will be equal to Domestic
comparable sales until International revenue is again comparable on
a year-over-year basis.
Q1 FY16
Q1 FY15 Enterprise Revenue ($ in millions)
$ 8,558 $ 8,639 Domestic segment
$ 7,890 $ 7,781 International segment $
668 $ 858
Enterprise Comparable Sales %
Change: Excluding the estimated
benefit of installment billing1,2 (0.7 %)
(1.8 %)3 Estimated benefit of installment billing2
1.3 % --- Comparable sales % change1
0.6 %
(1.8 %)3
Domestic Comparable Sales %
Change: Excluding the estimated
benefit of installment billing1,2 (0.7 %)
(1.3 %) Estimated benefit of installment billing2
1.3 % --- Comparable sales % change1
0.6 %
(1.3 %) Comparable online sales % change1
5.3 % 29.2 %
Q1 FY16 Q1 FY15
Operating Income:
GAAP operating income as a % of
revenue
1.0 % 2.4 % Non-GAAP operating income
as a % of revenue4 2.6 % 2.6 %
Diluted Earnings per Share (EPS):
GAAP diluted EPS from continuing operations $ 0.10
$ 1.33 Impact of cathode ray tube (CRT)
settlements5 ($0.12 ) $ 0.00 Impact of
non-restructuring SG&A charges6 $ 0.03 $
0.02
Impact of restructuring charges6
$ 0.36 $ 0.01 Impact of European legal
entity reorganization $ 0.00 ($1.01 )
Non-GAAP diluted EPS from continuing operations4 $ 0.37
$ 0.35
Hubert Joly, Best Buy president and CEO, commented, “Enterprise
revenue of $8.6 billion, in addition to our non-GAAP operating
income rate and non-GAAP diluted EPS, all exceeded our expectations
during the quarter due to a stronger-than-expected performance in
the Domestic business. Our non-GAAP operating income rate of 2.6%
was flat to last year, including approximately 35 basis points of
increased costs to support our investments in future growth
initiatives, and our non-GAAP diluted EPS of $0.37 was up 6%. In
the Domestic business, against a backdrop where the NPD-reported
consumer electronics categories, which represent approximately 65%
of our revenue, were down 5.3%7, our comparable sales, excluding
the impact of installment billing, declined only 0.7% as we
continued to take advantage of strong product cycles in large
screen televisions and iconic mobile phones and continued growth in
the major appliance category.”
Joly continued, “Throughout the quarter, our strategy of
delivering ‘Advice, Service and Convenience at Competitive Prices’
continued to resonate with our customers. While merchandising,
marketing and operational execution were the tactical drivers of
our better-than-expected first quarter financial results,
strategically, we believe the cumulative impact of the progress we
have made to improve our multi-channel customer experience is what
has allowed us to consistently outperform the market. We have made
real progress and it is showing up in our results. I therefore want
to thank our teams across all functions for delivering this
progress and these results. Let me be clear though, all of us know
that we have significant opportunities and work ahead of us.”
Joly concluded, “While the Consumer Electronics industry is
subject to product cycles, we are excited about the role that
technology plays in people’s lives and the opportunities that this
creates. We are also confident that we are executing against the
right investment strategy that will allow us to capitalize on key
technology waves and customer-experience opportunities to build
sustainable long-term shareholder value.”
Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “Our
outlook for Q2 FY16 is based on the following assumptions: (1) in
the Domestic business, a flat to positive low-single digit revenue
growth rate; (2) higher year-over-year non-GAAP Domestic SG&A
dollars due to increased investments in future growth initiatives
and SG&A inflation; (3) in International, a revenue decline of
30% to 35% due to store closures and overall disruption from the
Canadian brand consolidation in addition to the ongoing negative
impact of foreign exchange rates; and (4) an International non-GAAP
operating income rate in the range of negative 3.5% to negative
5.0%, reflecting the near-term impacts of the Canadian brand
consolidation that we have already discussed.
“With these assumptions, our Enterprise outlook for Q2 FY16
includes (1) a flat to negative low-single digit revenue growth
rate and (2) a year-over-year non-GAAP operating income rate
decline in the range of negative 30 to 50 basis points, which is
in-line with our previous outlook. This outlook, however, now
assumes a strengthening in our Domestic business versus our
previous outlook, offset by the near-term impacts of the Canadian
brand consolidation. Additionally, we expect the non-GAAP
continuing operations effective income tax rate to be in the range
of 38 to 40%.”
Domestic Segment First Quarter
Results
Domestic Revenue
Domestic revenue of $7.9 billion increased 1.4% versus last
year. This increase was primarily driven by (1) an estimated
130-basis point benefit associated with installment billing; and
(2) a $40 million, or 50-basis point, improvement in the
performance of the credit card portfolio. These increases were
partially offset by a comparable sales decline of 0.7%, excluding
the estimated 130-basis point benefit associated with the
classification of revenue for the mobile carrier installment
billing plans2. From an industry perspective, the NPD reported
consumer electronics categories, which represent approximately 65%
of revenue, declined 5.3%7.
From a merchandising perspective, comparable sales growth in
televisions, mobile phones (excluding the impact of installment
billing2) and major appliances was more than offset by declines in
tablets and computing. The company also saw continued revenue
declines in services.
Domestic online revenue of $673 million increased 5.3% on a
comparable basis primarily due to increased traffic and higher
conversion rates. This growth, however, was negatively impacted by
industry softness in tablets and computing, which both have high
online penetration.
Domestic Gross Profit Rate
Domestic gross profit rate was 23.9% versus 22.7% last year. On
a non-GAAP basis, gross profit rate was 22.9% versus 22.7% last
year. This 20-basis point increase was primarily due to (1) a
40-basis point benefit related to the credit card portfolio; (2) a
positive mix shift to higher-margin computing hardware; (3) an
additional positive mix shift due to significantly decreased
revenue in the lower-margin tablet category; and (4) the positive
impact of changes in our mobile warranty plans which resulted in
lower costs due to lower claim frequency. These increases were
partially offset by (1) increasing inventory reserves on non-iconic
phone inventory due to declining inventory valuations and (2) a
negative mix shift to certain lower-margin iconic phones.
Domestic Selling, General and Administrative Expenses
(“SG&A”)
Domestic SG&A expenses were $1.58 billion, or 20.1% of
revenue, versus $1.54 billion, or 19.7% of revenue, last year. On a
non-GAAP basis, SG&A expenses were $1.56 billion, or 19.8% of
revenue, versus $1.53 billion, or 19.6% of revenue, last year. This
$35 million, or 20 basis-point, increase in non-GAAP SG&A was
primarily driven by increased costs to support the investments in
future growth initiatives and higher incentive compensation. These
increases were partially offset by the realization of last year’s
annualized Renew Blue cost reduction initiatives and a discrete
benefit from an operating tax settlement.
International Segment First Quarter
Results
International Revenue
International revenue of $668 million declined 22.1% versus last
year. This decline was primarily driven by (1) a negative foreign
currency impact of 1,000 basis points; (2) the loss of revenue from
the Canadian brand consolidation; and (3) ongoing softness in the
Canadian consumer electronics industry.
International Gross Profit Rate
International gross profit rate was 21.6% versus 23.8% last
year. On a non-GAAP basis, gross profit rate was 22.8% versus 23.8%
last year. This 100-basis point decline was primarily due to the
disruptive impacts from the Canadian brand consolidation and
increased promotional activity in Canada.
International SG&A
International SG&A expenses were $182 million, or 27.2% of
revenue, versus $220 million, or 25.6% of revenue, last year. On a
non-GAAP basis, SG&A expenses were $179 million, or 26.8% of
revenue, versus $219 million, or 25.5% of revenue, last year. In
dollars, non-GAAP SG&A decreased $40 million primarily driven
by the positive impact of foreign exchange rates and the
elimination of expenses associated with closed stores as part of
the Canadian brand consolidation. The 130-basis point rate increase
is driven by year-over-year sales deleverage.
Income Taxes
In Q1 FY16, the non-GAAP continuing operations effective income
tax rate decreased 230 basis points to 36.4% versus 38.7% last year
driven by a discrete income tax benefit in the quarter.
For Q2 FY16, the non-GAAP continuing operations effective income
tax rate is expected to be in the range of 38% to 40%.
Canadian Brand
Consolidation
During the quarter, as announced on March 28, 2015, the company
consolidated the Future Shop and Best Buy stores and websites in
Canada under the Best Buy brand. This resulted in the permanent
closure of 66 Future Shop stores and the conversion of the
remaining 65 Future Shop stores to the Best Buy brand. The costs of
implementing these changes primarily consist of lease exit costs,
employee severance and asset impairments. In Q1 FY16, we incurred
total pre-tax restructuring charges and other Canadian brand
consolidation charges of $191 million out of the previously
communicated expectation of approximately $200 million to $280
million related to the actions. The company expects to incur the
additional charges of $10 million to $90 million in future periods
primarily related to non-restructuring asset impairments as it
continues to invest in the Canadian transformation.
Classification of Revenue for the
Mobile Carrier Installment Billing Plans
In April of 2014, Best Buy began offering mobile carrier
installment billing plans to its Domestic customers in addition to
two-year contract plans. While the two types of contracts have
broadly similar overall economics, installment billing plans
typically generate higher revenues due to higher proceeds for
devices and higher cost of sales due to lower device subsidies. As
the mix of installment billing plans increases, there is an
associated increase in revenue and cost of goods sold, and a
decrease in gross profit rate, with gross profit dollars relatively
unaffected. The company estimates that its Q1 FY16 Enterprise and
Domestic comparable sales of 0.6% include approximately 130 basis
points of impact from this classification difference. The impact on
the gross profit rate at the Enterprise and Domestic levels for the
quarter was immaterial.
Dividends
On April 14, 2015, the company paid a quarterly dividend of
$0.23 per common share outstanding, or $81 million, and a special,
one-time dividend of $0.51 per common share outstanding, or $180
million.
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 21, 2015. A
webcast of the call is expected to be available at
www.investors.bestbuy.com both live and after the call.
(1) Best Buy’s comparable sales is comprised of revenue at
stores, websites and call centers operating for at least 14 full
months, as well as revenue related to certain other comparable
sales channels. Relocated stores, as well as remodeled, expanded
and downsized stores closed more than 14 days, are excluded from
the comparable sales calculation until at least 14 full months
after reopening. Acquisitions are included in the comparable sales
calculation beginning with the first full quarter following the
first anniversary of the date of the acquisition. The calculation
of comparable sales excludes the impact of revenue from
discontinued operations. The Canadian brand consolidation, which
includes the permanent closure of 66 Future Shop stores, the
conversion of 65 Future Shop stores to Best Buy stores and the
elimination of the Future Shop website, is expected to have a
material impact on a year-over-year basis on the Canadian retail
stores and the website. As such, all store and website revenue has
been removed from the comparable sales base and International
(comprised of Canada and Mexico) no longer has a comparable metric.
Therefore, Enterprise comparable sales will be equal to Domestic
comparable sales until International revenue is again comparable on
a year-over-year basis.
(2) In April of 2014, Best Buy began offering mobile carrier
installment billing plans to its Domestic customers in addition to
two-year contract plans. While the two types of contracts have
broadly similar overall economics, installment billing plans
typically generate higher revenues due to higher proceeds for
devices and higher cost of sales due to lower device subsidies. As
the mix of installment billing plans increases, there is an
associated increase in revenue and cost of goods sold, and a
decrease in gross profit rate, with gross profit dollars relatively
unaffected. The company estimates that its Q1 FY16 Enterprise and
Domestic comparable sales of 0.6% include approximately 130 basis
points of impact from this classification difference. The impact on
our gross profit rate at the Enterprise and Domestic levels for the
quarter was immaterial. The company believes that providing
information regarding this impact of installment billing and an
estimate of the company’s comparable sales absent this impact
assists investors in understanding the company’s underlying
operating performance in relation to periods prior to the
introduction of installment billing.
(3) Enterprise comparable sales for Q1 FY15 include revenue from
continuing operations in the International segment. Excluding the
International segment, Enterprise comparable sales for Q1 FY15
would have been negative 1.3%, or equal to Domestic comparable
sales, for the same period.
(4) The company defines non-GAAP gross profit, non-GAAP
SG&A, non-GAAP operating income, non-GAAP net earnings and
non-GAAP diluted earnings per share for the periods presented as
its gross profit, SG&A, operating income, net earnings and
diluted earnings per share for those periods calculated in
accordance with accounting principles generally accepted in the
U.S. (“GAAP”), adjusted to exclude CRT Litigation settlements,
restructuring charges, non-restructuring asset impairments, other
Canadian brand consolidation charges, gains on investments and the
acceleration of a non-cash tax benefit as a result of reorganizing
certain European legal entities.
These non-GAAP financial measures provide investors with an
understanding of the company’s financial performance adjusted to
exclude the effect of the items described above. These non-GAAP
financial measures assist investors in making a ready comparison of
the company’s financial results for its fiscal quarter ended May 2,
2015, against the company’s results for the respective prior-year
periods and against third-party estimates of the company’s
financial results for those periods that may not have included the
effect of such items. Additionally, management uses these non-GAAP
financial measures as an internal measure to analyze trends,
allocate resources and analyze underlying operating performance.
These non-GAAP financial measures should not be considered superior
to, as a substitute for, or as an alternative to, and should be
considered in conjunction with, GAAP financial measures and may
differ from similar measures used by other companies. Please see
the table titled “Reconciliation of Non-GAAP Financial Measures” at
the end of this release for more detail.
(5) On November 14, 2011, Best Buy filed a lawsuit captioned In
re Cathode Ray Tube Antitrust Litigation in the United States
District
Court for the Northern District of California (“CRT
Litigation”). The company alleges that the defendants engaged in
price fixing in violation of antitrust regulations relating to
cathode ray tubes for the time period between March 1, 1995 and
November 25, 2007. No trial date has been set. In connection with
this action, the company received settlement proceeds net of legal
expenses and costs in the amount of $67 million in Q1 FY16. Best
Buy will continue to litigate against the remaining defendants and
expect further settlement discussions as this matter proceeds;
however, it is uncertain whether the company will recover
additional settlement sums or a favorable verdict at trial.
(6) The company has consolidated certain line items from the
Reconciliation of Non-GAAP Measures schedule included at the back
of this earnings release. The impact of non-restructuring SG&A
charges line includes (1) non-restructuring asset impairments and
(2) other Canadian brand consolidation charges. The impact of
restructuring charges line includes (1) restructuring charges and
(2) restructuring charges – COGS.
(7) According to The NPD Group’s Weekly Tracking Service as
published May 11, 2015, revenue for the CE (Consumer Electronics)
industry declined 5.3% during the 13 weeks ended May 2,
2015 compared to the 13 weeks ended May 3, 2014. The CE
industry, as defined by The NPD Group, includes TVs, desktop and
notebook computers, tablets not including Kindle, digital imaging
and other categories. Sales of these products represent
approximately 65% of the company’s Domestic revenue. The CE
industry, as defined by The NPD Group, does not include mobile
phones, gaming, movies, music, appliances or services.
Forward-Looking and Cautionary Statements:
This earnings release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
as contained in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 that reflect
management’s current views and estimates regarding future market
conditions, company performance and financial results, business
prospects, new strategies, the competitive environment and other
events. You can identify these statements by the fact that they use
words such as “anticipate,” “believe,” ”assume,” “estimate,”
“expect,” “intend,” “project,” “guidance,” “plan,” “outlook,” and
other words and terms of similar meaning. These statements involve
a number of risks and uncertainties that could cause actual results
to differ materially from the potential results discussed in the
forward-looking statements. Among the factors that could cause
actual results and outcomes to differ materially from those
contained in such forward-looking statements are the following:
macro-economic conditions (including fluctuations in housing
prices, oil markets and jobless rates), conditions in the
industries and categories in which we operate, changes in consumer
preferences, changes in consumer confidence, consumer spending and
debt levels, online sales levels and trends, average ticket size,
the mix of products and services offered for sale in our physical
stores and online, credit market changes and constraints, product
availability, competitive initiatives of competitors (including
pricing actions and promotional activities of competitors),
strategic and business decisions of our vendors (including actions
that could impact product margin or supply), the success of new
product launches, the impact of pricing investments and promotional
activity, weather, natural or man-made disasters, attacks on our
data systems, the company’s ability to prevent or react to a
disaster recovery situation, changes in law or regulations, changes
in tax rates, changes in taxable income in each jurisdiction, tax
audit developments and resolution of other discrete tax matters,
foreign currency fluctuation, availability of suitable real estate
locations, the company’s ability to manage its property portfolio,
the impact of labor markets, the company’s ability to retain
qualified employees, failure to achieve anticipated expense and
cost reductions from operational and restructuring changes,
disruptions in our supply chain, the costs of procuring goods the
company sells, failure to achieve anticipated revenue and
profitability increases from operational and restructuring changes
(including investments in our multi-channel capabilities and brand
consolidations), failure to accurately predict the duration over
which we will incur costs, acquisitions and development of new
businesses, divestitures of existing businesses, failure to
complete or achieve anticipated benefits of announced transactions,
integration challenges relating to new ventures, and our ability to
protect information relating to our employees and customers. A
further list and description of these risks, uncertainties and
other matters can be found in the company’s annual report and other
reports filed from time to time with the Securities and Exchange
Commission (“SEC”), including, but not limited to, Best Buy’s
Report on Form 10-K filed with the SEC on March 31, 2015. Best Buy
cautions that the foregoing list of important factors is not
complete, and any forward-looking statements speak only as of the
date they are made, and Best Buy assumes no obligation to update
any forward-looking statement that it may make.
BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF
EARNINGS ($ in millions, except per share amounts) (Unaudited
and subject to reclassification)
Three Months Ended May 2, 2015 May 3, 2014
Revenue $ 8,558 $ 8,639 Cost of goods sold 6,520 6,672
Restructuring charges - cost of goods sold 8 -
Gross profit 2,030 1,967 Gross profit % 23.7 % 22.8 %
Selling, general and administrative expenses 1,766 1,755 SG&A %
20.6 % 20.3 % Restructuring charges 178 2
Operating income 86 210 Operating income % 1.0 % 2.4 % Other
income (expense): Gain on sale of investments 2 - Investment income
and other 7 4 Interest expense (20 ) (23 ) Earnings
from continuing operations before income tax (benefit) expense 75
191 Income tax (benefit) expense 38 (278 ) Effective tax rate
50.3 % (145.9 %) Net earnings from continuing
operations 37 469 Earnings (loss) from discontinued operations, net
of tax 92 (8 ) Net earnings attributable to
Best Buy Co., Inc. shareholders $ 129 $ 461
Basic earnings (loss) per share attributable to Best Buy Co., Inc.
shareholders Continuing operations $ 0.11 $ 1.35 Discontinued
operations 0.26 (0.02 ) Basic earnings per
share $ 0.37 $ 1.33 Diluted earnings (loss)
per share attributable to Best Buy Co., Inc. shareholders
Continuing operations $ 0.10 $ 1.33 Discontinued operations
0.26 (0.02 ) Diluted earnings per share $ 0.36
$ 1.31 Dividends declared per common share $ 0.74 $
0.17 Weighted average common shares outstanding (in
millions) Basic 352.4 347.4 Diluted 357.6 350.4
BEST BUY CO., INC. CONDENSED CONSOLIDATED BALANCE
SHEETS ($ in millions) (Unaudited and subject to
reclassification)
Excluding Five Star May 2, 2015 May 3,
2014 May 3, 20141 ASSETS Current assets
Cash and cash equivalents $ 2,173 $ 2,569 $ 2,354 Short-term
investments 1,566 497 497 Receivables, net 995 871 841 Merchandise
inventories 4,930 5,255 4,986 Other current assets 732 926 736
Current assets held for sale - - 704 Total
current assets 10,396 10,118 10,118 Property and equipment, net
2,244 2,525 2,394 Goodwill 425 425 425 Intangibles, net 18 100 64
Other assets 603 743 743 Noncurrent assets held for sale 33
- 167
TOTAL ASSETS $ 13,719
$ 13,911 $ 13,911 LIABILITIES
& EQUITY Current liabilities Accounts payable $ 4,584 $
4,952 $ 4,465 Unredeemed gift card liabilities 385 362 361 Deferred
revenue 304 394 337 Accrued compensation and related expenses 277
350 339 Accrued liabilities 743 731 683 Accrued income taxes 45 47
46 Current portion of long-term debt 383 44 44 Current liabilities
held for sale - - 605 Total current
liabilities 6,721 6,880 6,880 Long-term liabilities 906 1,003 984
Long-term debt 1,224 1,604 1,604 Long-term liabilities held for
sale - - 19 Equity 4,868 4,424 4,424
TOTAL
LIABILITIES & EQUITY $ 13,719 $
13,911 $ 13,911 (1) Represents
Condensed Consolidated Balance Sheet as of May 3, 2014, recast to
present China as held for sale.
BEST BUY CO.,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($
in millions) (Unaudited and subject to reclassification)
Three Months Ended May 2, 2015
May 3, 2014 OPERATING ACTIVITIES Net earnings $ 129 $
461
Adjustments to reconcile net earnings to
total cash provided by (used in) operating activities:
Depreciation 163 161 Restructuring charges 186 3 (Gain) loss on
sale of business, net (99 ) - Stock-based compensation 27 23
Deferred income taxes (25 ) (401 ) Other, net 3 3 Changes in
operating assets and liabilities: Receivables 302 436 Merchandise
inventories 261 121 Other assets 4 7 Accounts payable (446 ) (144 )
Other liabilities (309 ) (312 ) Income taxes (206 )
(50 ) Total cash provided by (used in) operating activities (10 )
308
INVESTING ACTIVITIES Additions to property and
equipment (124 ) (111 ) Purchases of investments, net (107 ) (272 )
Proceeds from sale of business, net of cash transferred upon sale
48 - Change in restricted assets (36 ) 21 Settlement of net
investment hedges 5 - Total cash
used in investing activities (214 ) (362 )
FINANCING
ACTIVITIES Repayments of debt, net (8 ) (6 ) Dividends paid
(261 ) (59 ) Issuance of common stock 25 9 Other, net 6
3 Total cash used in financing activities (238
) (53 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH
9 (2 )
DECREASE IN CASH AND CASH
EQUIVALENTS (453 ) (109 )
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD EXCLUDING HELD FOR SALE
2,432
2,678
CASH AND CASH EQUIVALENTS HELD FOR SALE AT BEGINNING OF
PERIOD
194
-
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,173
$ 2,569
BEST BUY CO., INC.
SEGMENT INFORMATION ($ in millions) (Unaudited and subject
to reclassification)
Domestic
Segment Performance Summary Three Months Ended May 2,
2015 May 3, 2014 Revenue $7,890 $7,781 Gross profit
$1,886 $1,763 SG&A $1,584 $1,535 Operating income $304 $226
Key Metrics Comparable sales % change1 0.6% (1.3%)
Comparable sales % change, excluding installment billing2 (0.7%)
(1.3%) Comparable online sales % change1 5.3% 29.2% Gross profit as
a % of revenue 23.9% 22.7% SG&A as a % of revenue 20.1% 19.7%
Operating income as a % of revenue 3.9% 2.9%
Non-GAAP Results3
Gross profit $1,808 $1,763 Gross profit as a % of revenue 22.9%
22.7% SG&A $1,562 $1,527 SG&A as a % of revenue 19.8% 19.6%
Operating income $246 $236 Operating income as a % of revenue 3.1%
3.0%
International Segment Performance Summary
Three Months Ended May 2, 2015 May 3, 2014
Revenue $668 $858 Gross profit $144 $204 SG&A $182 $220
Operating loss ($218) ($16)
Key Metrics Comparable
sales % change1 N/A (6.6%) Gross profit as a % of revenue 21.6%
23.8% SG&A as a % of revenue 27.2% 25.6% Operating loss as a %
of revenue (32.6%) (1.9%)
Non-GAAP Results3
Gross profit $152 $204 Gross profit as a % of revenue 22.8% 23.8%
SG&A $179 $219 SG&A as a % of revenue 26.8% 25.5% Operating
loss ($27) ($15) Operating loss as a % of revenue (4.0%) (1.7%)
(1) Best Buy’s comparable sales is
comprised of revenue at stores, websites and call centers operating
for at least 14 full months, as well as revenue related to certain
other comparable sales channels. Relocated stores, as well as
remodeled, expanded and downsized stores closed more than 14 days,
are excluded from the comparable sales calculation until at least
14 full months after reopening. Acquisitions are included in the
comparable sales calculation beginning with the first full quarter
following the first anniversary of the date of the acquisition. The
calculation of comparable sales excludes the impact of revenue from
discontinued operations. The Canadian brand consolidation, which
includes the permanent closure of 66 Future Shop stores, the
conversion of 65 Future Shop stores to Best Buy stores and the
elimination of the Future Shop website, is expected to have a
material impact on a year-over-year basis on the Canadian retail
stores and the website. As such, all store and website revenue has
been removed from the comparable sales base and International no
longer has a comparable metric. Therefore, Enterprise comparable
sales will be equal to Domestic comparable sales until
International revenue is again comparable on a year-over-year
basis.
(2) In April of 2014, Best Buy began
offering mobile carrier installment billing plans to its Domestic
customers in addition to two-year contract plans. While the two
types of contracts have broadly similar overall economics,
installment billing plans typically generate higher revenues due to
higher proceeds for devices and higher cost of sales due to lower
device subsidies. As the mix of installment billing plans
increases, there is an associated increase in revenue and cost of
goods sold, and a decrease in gross profit rate, with gross profit
dollars relatively unaffected.
(3) Please see table titled
“Reconciliation of Non-GAAP Financial Measures” at the back of this
release.
BEST BUY CO., INC. REVENUE CATEGORY
SUMMARY (Unaudited and subject to reclassification)
Excluding the estimated benefit of mobile phone
installment billing1 Revenue Mix Summary
Comparable Sales
Three Months Ended Three Months Ended Domestic
Segment May 2, 2015 May 3, 2014
May 2, 2015 May 3, 2014 Consumer
Electronics 32% 29% 7.6% (4.1%) Computing and Mobile Phones 46% 49%
(4.7%) 0.6% Entertainment 7% 8% (11.0%) 1.5% Appliances 8% 7% 12.3%
9.1% Services2 5% 6% (10.3%) (13.5%) Other 2% 1% n/a n/a Total 100%
100% (0.7%) (1.3%)
Including the estimated benefit of mobile
phone installment billing1 Revenue Mix Summary
Comparable Sales
Three Months Ended Three Months Ended Domestic
Segment May 2, 2015 May 3, 2014 May 2,
2015 May 3, 2014 Consumer Electronics 31% 29% 7.6%
(4.1%) Computing and Mobile Phones 47% 49% (2.2%) 0.6%
Entertainment 7% 8% (11.0%) 1.5% Appliances 8% 7% 12.3% 9.1%
Services2 5% 6% (10.3%) (13.5%) Other 2% 1% n/a n/a Total 100% 100%
0.6% (1.3%)
Revenue Mix Summary Three
Months Ended International Segment3 May 2,
2015 May 3, 2014 Consumer Electronics 30% 27% Computing
and Mobile Phones 49% 51% Entertainment 8% 9% Appliances 5% 5%
Services2 7% 7% Other 1% 1% Total 100% 100%
(1) The company now offers mobile carrier
installment billing plans to its customers as well as two-year
contract plans. While the two types of contracts have broadly
similar overall economics, installment billing plans typically
generate higher revenues due to higher proceeds for devices and
higher cost of sales due to lower device subsidies. As the company
increases its mix of installment billing plans, there is an
associated increase in revenue and cost of goods sold, and a
decrease in gross profit rate, with gross profit dollars relatively
unaffected.
(2) The "Services" revenue category
consists primarily of service contracts, extended warranties,
computer related services, product repair and delivery and
installation for home theater, mobile audio and appliances.
(3) The Canadian brand consolidation is expected to have a
material impact on all of the Canadian retail stores and the
website on a year-over-year basis. As such, all Canadian revenue
has been removed from the comparable sales base and International
no longer has a comparable metric.
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 non-GAAP financial measures from continuing
operations to the most comparable financial measures calculated and
presented in accordance with accounting principles generally
accepted in the U.S. (“GAAP”). The company has provided non-GAAP
financial measures, which are not calculated or presented in
accordance with GAAP, as information supplemental and in addition
to the financial measures presented in the accompanying news
release that are calculated and presented in accordance with GAAP.
Such non-GAAP financial measures should not be considered superior
to, as a substitute for, or as an alternative to, and should be
considered in conjunction with, the GAAP financial measures
presented in the news release. The non-GAAP financial measures in
the accompanying news release may differ from similar measures used
by other companies.
The following tables reconcile gross
profit, SG&A, operating income, net earnings and diluted
earnings per share for the periods presented for continuing
operations (GAAP financial measures) to non-GAAP gross profit,
non-GAAP SG&A, non-GAAP operating income, non-GAAP net earnings
and non-GAAP diluted earnings per share for continuing operations
(non-GAAP financial measures) for the periods presented.
Three Months Ended Three
Months Ended May 2, 2015 May 3, 2014 $
% of Rev. $ % of
Rev.
Domestic -
Continuing Operations
Gross profit $1,886 23.9% $1,763 22.7% CRT settlements1 (78) (1.0%)
0 0.0% Non-GAAP gross profit $1,808 22.9% $1,763 22.7%
SG&A $1,584 20.1% $1,535 19.7% CRT settlement legal fees and
costs1 (11) (0.1%) 0 0.0% Non-restructuring asset impairments -
SG&A (11) (0.1%) (8) (0.1%) Non-GAAP SG&A $1,562 19.8%
$1,527 19.6% Operating income $304 3.9% $226 2.9% Net CRT
settlements1 (67) (0.8%) 0 0.0% Non-restructuring asset impairments
- SG&A 11 0.1% 8 0.1% Restructuring charges (2) (0.0%) 2 0.0%
Non-GAAP operating income $246 3.1% $236 3.0%
International -
Continuing Operations
Gross profit $144 21.6% $204 23.8% Restructuring charges - COGS 8
1.2% 0 0.0% Non-GAAP gross profit $152 22.8% $204 23.8%
SG&A $182 27.2% $220 25.6% Other Canadian brand consolidation
charges - SG&A2 (3) (0.4%) 0 0.0% Non-restructuring asset
impairments - SG&A 0 0.0% (1) (0.1%) Non-GAAP SG&A $179
26.8% $219 25.5% Operating loss ($218) (32.6%) ($16) (1.9%)
Restructuring charges - COGS 8 1.2% 0 0.0% Other Canadian brand
consolidation charges - SG&A2 3 0.4% 0 0.0% Non-restructuring
asset impairments - SG&A 0 0.0% 1 0.1% Restructuring charges
180 26.9% 0 0.0% Non-GAAP operating loss ($27) (4.0%) ($15) (1.7%)
Consolidated -
Continuing Operations
Gross profit $2,030 23.7% $1,967 22.8% CRT settlements1 (78) (0.9%)
0 0.0% Restructuring charges - COGS 8 0.1% 0 0.0% Non-GAAP gross
profit $1,960 22.9% $1,967 22.8% SG&A $1,766 20.6%
$1,755 20.3% CRT settlement legal fees and costs1 (11) (0.1%) 0
0.0% Other Canadian brand consolidation charges - SG&A2 (3)
(0.0%) 0 0.0% Non-restructuring asset impairments - SG&A (11)
(0.1%) (9) (0.1%) Non-GAAP SG&A $1,741 20.3% $1,746 20.2%
Operating income $86 1.0% $210 2.4% Net CRT settlements1
(67) (0.8%) 0 0.0% Restructuring charges – COGS 8 0.1% 0 0.0% Other
Canadian brand consolidation charges - SG&A2 3 0.0% 0 0.0%
Non-restructuring asset impairments - SG&A 11 0.1% 9 0.1%
Restructuring charges 178 2.1% 2 0.0% Non-GAAP operating income
$219 2.6% $221 2.6% Net earnings $37 $469 After-tax impact
of net CRT settlements (44) 0 After-tax impact of restructuring
charges - COGS 5 0
After-tax impact of other Canadian brand
consolidation charges - SG&A2
2
0
After-tax impact of non-restructuring asset impairments - SG&A
7 6 After-tax impact of restructuring charges 125 1 After-tax
impact of gain on investments, net (1) 0 Income tax impact of
Europe legal entity reorganization3 0 (353) Non-GAAP net earnings
$131 $123 Diluted EPS $0.10 $1.33 Per share impact of net
CRT settlements1 (0.12) 0.00 Per share impact of restructuring
charges - COGS 0.01 0.00
Per share impact of other Canadian brand
consolidation charges - SG&A2
0.01
0.00
Per share impact of non-restructuring asset impairments - SG&A
0.02 0.02 Per share impact of restructuring charges 0.35 0.01 Per
share impact of gain on investments, net 0.00 0.00
Per share impact of income tax effect of
Europe legal entity3 reorganization
0.00
(1.01)
Non-GAAP diluted EPS $0.37 $0.35 (1) Represents CRT
Litigation settlements reached in Q1 FY16 net of related legal fees
and costs. (2) Represents charges related to the Canadian
brand consolidation, primarily retention bonuses and other
store-related costs that did not qualify as restructuring charges.
(3) Represents the acceleration of a non-cash tax benefit of
$353 million as a result of reorganizing certain European legal
entities to simplify our overall structure in Q1 FY15.
BEST BUY CO., INC. RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES ($ in millions) (Unaudited and subject to
reclassification)
The following information provides a
reconciliation of a non-GAAP financial measure to the most
comparable financial measure calculated and presented in accordance
with GAAP. The company has provided the non-GAAP financial measure,
which is not calculated or presented in accordance with GAAP, as
information supplemental and in addition to the financial measure
that is calculated and presented in accordance with GAAP. Such
non-GAAP financial measure should not be considered superior to, as
a substitute for, or as an alternative to, and should be considered
in conjunction with, the GAAP financial measure. The non-GAAP
financial measure in the accompanying news release may differ from
similar measures used by other companies.
The following table includes the
calculation of Non-GAAP ROIC for total operations, which includes
both continuing and discontinued operations (non-GAAP financial
measures), along with a reconciliation to the calculation of return
on total assets ("ROA") (GAAP financial measure) for the periods
presented.
Calculation of Return on Invested Capital1
May 2, 20152 May 3,
20142
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,326 $ 1,167 Operating
income (loss) - discontinued operations 83 (47
) Total operating income 1,409 1,120 Add: Operating lease interest3
446 489 Add: Investment income 26 31 Less: Net (earnings) loss
attributable to noncontrolling interest (NCI) (2 ) 17 Less: Income
taxes4 (759 ) (616 )
NOPAT $
1,120 $ 1,041 Add: Restructuring charges and
impairments5 187 47 Add: NCI impact of restructuring charges and
impairments - (26 )
Non-GAAP NOPAT
$ 1,307 $ 1,062
Average Invested
Capital
Total assets $ 14,771 $ 14,069 Less: Excess cash6 (3,093 ) (2,077 )
Add: Capitalized operating lease obligations7 7,140 7,819 Total
liabilities (10,029 ) (10,129 ) Exclude: Debt8 1,625 1,663 Less:
Noncontrolling interests (3 ) (3 )
Average
invested capital $ 10,411 $
11,342 Non-GAAP return on invested capital
(ROIC) 12.6 % 9.4 %
Calculation of Return on Assets1 May 2,
20152 May 3, 20142 Net earnings including
noncontrolling interests $ 903 $ 1,057 Total assets 14,771
14,069
Return on assets (ROA)
6.1 % 7.5 % (1)
The calculations of Return on Invested Capital and Return on Assets
use total operations, which includes both continuing and
discontinued operations.
(2) Income statement accounts represent
the activity for the 12 months ended as of each of the balance
sheet dates. Balance sheet accounts represent the average account
balances for the 4 quarters ended as of each of the balance sheet
dates.
(3) Operating lease interest represents
the add-back to operating income driven by the capitalization of
our lease obligations using the multiple of eight times annual rent
expense and represents 50 percent of our annual rental expense,
which we consider to be appropriate for our lease portfolio.
(4) Income taxes are calculated using a
blended statutory rate at the enterprise level based on statutory
rates from the countries we do business in.
(5) Includes all restructuring charges in
costs of goods sold and operating expenses, tradename impairments
and non-restructuring impairments.
(6) Cash and cash equivalents and
short-term investments are capped at the greater of 1% of revenue
or actual amounts on hand. The cash and cash equivalents and
short-term investments in excess of the cap are subtracted from our
calculation of average invested capital to show their exclusion
from total assets.
(7) The multiple of eight times annual
rental expense in the calculation of our capitalized operating
lease obligations is the multiple used for the retail sector by one
of the nationally recognized credit rating agencies that rates our
creditworthiness, and we consider it to be an appropriate multiple
for our lease portfolio.
(8) Debt includes short-term debt, current
portion of long-term debt and long-term debt and is added back to
our calculation of average invested capital to show its exclusion
from total liabilities.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150521005321/en/
Best Buy Co., Inc.Investor Contact:Mollie O’Brien,
612-291-7735Investor Relationsmollie.obrien@bestbuy.comorMedia
Contact:Amy von Walter, 612-291-4490Public
Relationsamy.vonwalter@bestbuy.com
Best Buy (NYSE:BBY)
Historical Stock Chart
From Aug 2024 to Sep 2024
Best Buy (NYSE:BBY)
Historical Stock Chart
From Sep 2023 to Sep 2024