Domestic Segment Revenue Increased
3.9%
Non-GAAP Diluted EPS from Continuing
Operations Increased 17% to $0.49
GAAP Diluted EPS from Continuing Operations
Increased 18% to $0.46
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
second quarter (“Q2 FY16”) ended August 1, 2015 as compared to the
second quarter (“Q2 FY15”) ended August 2, 2014.
Q2 FY16
Q2 FY15 Enterprise Revenue ($ in millions)1
$8,528 $8,459 Domestic segment $7,878
$7,585 International segment1 $650 $874
Enterprise
Comparable Sales % Change:
Excluding the estimated benefit of installment billing2,3
2.7% (2.2%)4 Estimated benefit of installment billing3
1.1% --- Comparable sales % change2
3.8%
(2.2%)4
Domestic Comparable Sales % Change:
Excluding the estimated benefit of installment billing2,3
2.7% (2.0%) Estimated benefit of installment billing3
1.1% --- Comparable sales % change2
3.8%
(2.0%)
Comparable online sales % change2 17.0% 22.0%
Q2 FY16
Q2 FY15 Operating Income:
GAAP operating income as a % of revenue 3.4% 2.7%
Non-GAAP operating income as a % of
revenue5
3.4% 2.9%
Diluted Earnings per Share (EPS):
GAAP diluted EPS from continuing
operations $0.46 $0.39 Impact of cathode ray tube
(CRT) settlements6 ($0.03) $0.00 Impact of
non-restructuring SG&A charges7 $0.03 $0.02
Impact of restructuring charges7 $0.03 $0.01 Non-GAAP
diluted EPS from continuing operations5 $0.49 $0.42
Hubert Joly, Best Buy chairman and CEO, commented, “We believe
these better-than-expected second quarter results are affirmation
that our strategy of offering advice, service and convenience at
competitive prices is paying off. Enterprise revenue grew 0.8% to
$8.5 billion driven by a 3.9% increase in the Domestic segment,
partially offset by the impact of the Canadian brand consolidation
and 120 basis points of pressure from foreign currency. Better
year-over-year performance in the Domestic segment drove a 50-basis
point increase in the Enterprise non-GAAP operating income rate to
3.4% and a 17% increase in non-GAAP diluted EPS to $0.49. We also
returned $321 million in cash to shareholders through share
repurchases in addition to $81 million in regular dividends.”
Joly continued, “In the Domestic business, our comparable sales
increased 2.7%, excluding the impact of installment billing3,
driven by continued strong performance in major appliances, large
screen televisions and mobile phones. Online comparable sales
increased 17.0% as our investments in new capabilities continued to
drive increased traffic and higher conversion rates. We also saw
industry revenue in the NPD-tracked categories, representing 65% of
our revenue, improve from a decline of 5.3% in Q1 to a decline of
1.3%8 in Q2.”
Joly concluded, “As we look forward, while we are cognizant of
the recent financial market turbulence, we believe the combination
of an opportunity-rich environment and the strength of our
competitive advantages leads us to have a positive outlook about
our future prospects, starting with the important back-to-school
third quarter. We would like to thank all of our associates for
their hard work and contributions to our success. The opportunities
we have before us today are possible because of the talent and
engagement of our entire team – and I am extremely proud of their
performance and ability to win.”
Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “As
Hubert said, our competitive advantages and strong execution
provide us a positive outlook on our Domestic performance versus
the industry, which bodes well for us as we enter the third
quarter. It is difficult to know, though, if the recent volatility
in the financial markets will affect overall consumer spending. To
date, however, we have not seen a measurable impact versus our
original expectations. As such, our outlook assumes there will be
no material changes in consumer spending in the third quarter. With
that said, our year-over-year non-GAAP outlook for Q3 FY16 is as
follows. In the Domestic business we are expecting (1) flat to
low-single digit revenue growth; and (2) an approximately flat
operating income rate change driven by a higher gross profit rate
offset by increased SG&A due to inflation and growth-related
investments. In the International business, due to the ongoing
impacts of the Canadian brand consolidation and foreign currency,
we are expecting (1) an International revenue decline of
approximately 30% and (2) an International non-GAAP operating
income rate in the range of negative 2.5% to negative 3.5%.
“With these expectations, which assume continued strength in our
Domestic business offset by the near-term impacts of Canada, at the
Enterprise level we expect (1) a flat to negative low-single digit
revenue growth rate and (2) an operating income rate growth of flat
to negative 20 basis points. Additionally, we expect the non-GAAP
continuing operations effective income tax rate to be in the range
of 39% to 40%, versus 38.1% last year, which could result in a
negative $0.01 year-over-year non-GAAP diluted EPS impact in Q3
FY16.”
Domestic Segment Second Quarter
Results
Domestic RevenueDomestic revenue of $7.9 billion
increased 3.9% versus last year. This increase was primarily driven
by (1) a comparable sales increase of 2.7%, excluding the estimated
110-basis point benefit associated with the classification of
revenue for the mobile carrier installment billing plans3; (2) an
estimated 110-basis point benefit associated with installment
billing3; and (3) a 30-basis point impact from a periodic profit
sharing payment based on the performance of the company’s
externally managed extended service plan portfolio and an extended
warranty deferred revenue adjustment.
From a merchandising perspective, comparable sales growth in
major appliances, televisions, mobile phones (excluding the impact
of installment billing3) and health and fitness was partially
offset by a decline in tablets. The growth in mobile phones was
primarily driven by higher year-over-year selling prices. The
company also saw continued revenue declines in services. This
decline of 13.1% was primarily driven by the reduction of frequency
and severity of claims on extended warranties, which has reduced
repair revenue, and to a much lesser extent, declining attach
rates.
Domestic online revenue of $676 million increased 17.0% on a
comparable basis primarily due to increased traffic and higher
conversion rates. As a percentage of total Domestic revenue, online
revenue increased 90 basis points to 8.6% versus 7.7% last
year.
Domestic Gross Profit RateDomestic gross profit rate was
24.7% versus 23.4% last year. On a non-GAAP basis, gross profit
rate was 24.6% versus 23.4% last year. This 120-basis point
increase was primarily due to (1) the positive impact of changes in
mobile warranty plans which resulted in lower costs due to lower
claim frequency and severity; (2) rate improvements in computing
hardware; (3) an increased mix of higher-margin large screen
televisions; (4) a 25-basis point impact from a periodic profit
sharing payment based on the performance of the company’s
externally managed extended service plan portfolio and an extended
warranty deferred revenue adjustment; and (5) an additional
positive mix shift due to significantly decreased revenue in the
lower-margin tablet category. These increases were partially offset
by a lower rate in the mobile category driven by increased sales of
higher priced iconic mobile phones, which have higher gross profit
dollars but carry a lower gross profit rate.
Domestic Selling, General and Administrative Expenses
(“SG&A”)Domestic SG&A expenses were $1.64 billion, or
20.8% of revenue, versus $1.52 billion, or 20.1% of revenue, last
year. On a non-GAAP basis, SG&A expenses were $1.62 billion, or
20.6% of revenue, versus $1.51 billion, or 19.9% of revenue, last
year. This $114 million, or 70 basis-point, increase in non-GAAP
SG&A was primarily driven by investments in future growth
initiatives, SG&A inflation and higher incentive
compensation.
International Segment Second Quarter
Results
International RevenueInternational revenue of $650
million declined 25.6% versus last year. This decline was primarily
driven by (1) the loss of revenue associated with closed stores as
part of the Canadian brand consolidation; (2) a negative foreign
currency impact of approximately 1,200 basis points; and (3)
ongoing softness in the Canadian consumer electronics industry.
International Gross Profit RateInternational gross profit
rate was 23.4% versus 22.9% last year. On a non-GAAP basis, gross
profit rate was flat year-over-year at 22.9%.
International SG&AInternational SG&A expenses
were $175 million, or 26.9% of revenue, versus $227 million, or
26.0% of revenue, last year. On a non-GAAP basis, SG&A expenses
were $170 million, or 26.2% of revenue, versus $227 million, or
26.0% of revenue, last year. In dollars, non-GAAP SG&A
decreased $57 million primarily driven by the elimination of
expenses associated with closed stores as part of the Canadian
brand consolidation and the positive impact of foreign exchange
rates. From a rate perspective, non-GAAP SG&A increased 20
basis point driven by year-over-year sales deleverage.
Income TaxesIn Q2 FY16, the
non-GAAP continuing operations effective income tax rate increased
250 basis points to 37.1% versus 34.6% last year due to a discrete
income tax benefit recognized in Q2 FY15.
For Q3 FY16, the non-GAAP continuing operations effective income
tax rate is expected to be in the range of 39% to 40%, versus 38.1%
last year, which could result in a negative $0.01 year-over-year
non-GAAP diluted EPS impact in Q3 FY16.
Dividends and Share
RepurchasesOn July 2, 2015, the company paid a quarterly
dividend of $0.23 per common share outstanding, or $81 million.
On March 3, 2015, the company announced the intent to repurchase
$1 billion worth of its shares over a three-year period. Under this
program, the company repurchased a total of 9.4 million shares of
its common stock for $321 million during Q2 FY16.
Conference CallBest Buy is
scheduled to conduct an earnings conference call at 8:00 a.m.
Eastern Time (7:00 a.m. Central Time) on August 25, 2015. A webcast
of the call is expected to be available at
www.investors.bestbuy.com both live and after the call.
(1) On February 13, 2015, Best Buy completed the sale of its
Five Star business in China and as a result Five Star’s Q2 FY15
financial results are reflected in discontinued operations. Q2 FY15
Enterprise revenue and International revenue, respectively, as
reported on August 26, 2014, was $8.90 billion and $1.31 billion.
Additionally, 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.
(2) 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.
(3) 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 Q2 FY16 Enterprise and
Domestic comparable sales of 3.8% include approximately 110 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. 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.
(4) Enterprise comparable sales for Q2 FY15 include revenue from
continuing operations in the International segment. Excluding the
International segment, Enterprise comparable sales for Q2 FY15
would have been negative 2.0%, or equal to Domestic comparable
sales, for the same period.
(5) 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 August
1, 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.
(6) 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 $8 million in Q2 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.
(7) The company has consolidated certain line items from the
Reconciliation of Non-GAAP Financial 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.
(8) According to The NPD Group’s Weekly Tracking Service as
published August 10, 2015, revenue for the CE (Consumer
Electronics) industry declined 1.3% during the 13 weeks ended
August 1, 2015 compared to the 13 weeks ended August 2, 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 Six Months Ended August
1, 2015 August 2, 2014 August 1, 2015 August
2, 2014 Revenue $ 8,528 $ 8,459 $ 17,086 $ 17,098 Cost of goods
sold 6,433 6,481 12,953 13,153 Restructuring charges - cost of
goods sold (3 ) - 5 -
Gross profit 2,098 1,978 4,128 3,945 Gross profit % 24.6 %
23.4 % 24.2 % 23.1 % Selling, general and administrative expenses
1,811 1,748 3,577 3,503 SG&A % 21.2 % 20.7 % 20.9 % 20.5 %
Restructuring charges (1 ) 5 177
7 Operating income 288 225 374 435 Operating income %
3.4 % 2.7 % 2.2 % 2.5 % Other income (expense): Gain on sale of
investments - 2 2 2 Investment income and other 4 6 11 10 Interest
expense (20 ) (23 ) (40 ) (46 )
Earnings from continuing operations before income tax (benefit)
expense 272 210 347 401 Income tax (benefit) expense 108 73 146
(205 ) Effective tax rate 39.8 % 34.8 % 42.1 %
(51.3 %) Net earnings from continuing operations 164 137 201
606 Earnings from discontinued operations, net of tax -
10 92 2 Net
earnings including noncontrolling interest 164 147 293 608 Net
earnings from discontinued operations attributable to
noncontrolling interests - (1 ) -
(1 ) Net earnings attributable to Best Buy Co., Inc.
shareholders $ 164 $ 146 $ 293 $ 607
Amounts attributable to Best Buy Co., Inc. shareholders Net
earnings from continuing operations $ 164 $ 137 $ 201 $ 606 Net
earnings from discontinued operations - 9
92 1 Net earnings
attributable to Best Buy Co., Inc. shareholders $ 164 $ 146
$ 293 $ 607 Basic earnings per share
attributable to Best Buy Co., Inc. shareholders Continuing
operations $ 0.47 $ 0.39 $ 0.57 $ 1.74 Discontinued operations
- 0.03 0.26 -
Basic earnings per share $ 0.47 $ 0.42 $ 0.83
$ 1.74 Diluted earnings per share attributable
to Best Buy Co., Inc. shareholders Continuing operations $ 0.46 $
0.39 $ 0.57 $ 1.73 Discontinued operations -
0.03 0.25 - Diluted earnings per
share $ 0.46 $ 0.42 $ 0.82 $ 1.73
Dividends declared per common share $ 0.23 $ 0.17 $ 0.97 $
0.34 Weighted average common shares outstanding (in
millions) Basic 349.6 349.3 351.0 348.4 Diluted 353.9 352.2 355.8
351.6
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS ($ in millions)
(Unaudited and subject to reclassification)
Excluding
Five Star August 1, 2015 August 2, 2014
August 2, 20141 ASSETS Current assets Cash and
cash equivalents $ 1,800 $ 2,141 $ 1,929 Short-term investments
1,695 939 907 Receivables, net 1,025 1,005 975 Merchandise
inventories 4,995 5,583 5,296 Other current assets 730 943 779
Current assets held for sale - - 725 Total
current assets 10,245 10,611 10,611 Property and equipment, net
2,235 2,532 2,400 Goodwill 425 425 425 Intangibles, net 18 100 64
Other assets 610 681 681 Noncurrent assets held for sale 33
- 168
TOTAL ASSETS $ 13,566
$ 14,349 $ 14,349 LIABILITIES
& EQUITY Current liabilities Accounts payable $ 4,680 $
5,244 $ 4,755 Unredeemed gift card liabilities 371 371 370 Deferred
revenue 316 442 369 Accrued compensation and related expenses 285
287 276 Accrued liabilities 778 796 754 Accrued income taxes 26 68
64 Current portion of long-term debt 382 43 43 Current liabilities
held for sale - - 620 Total current
liabilities 6,838 7,251 7,251 Long-term liabilities 879 976 959
Long-term debt 1,227 1,592 1,592 Long-term liabilities held for
sale - - 17 Equity 4,622 4,530 4,530
TOTAL
LIABILITIES & EQUITY $ 13,566 $
14,349 $ 14,349
(1) Represents Condensed Consolidated
Balance Sheet as of August 2, 2014, recast to present the Five Star
business in China as held for sale.
BEST BUY CO., INC. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in millions)
(Unaudited and subject to reclassification)
Six Months
Ended August 1, 2015 August 2, 2014 OPERATING
ACTIVITIES Net earnings $ 293 $ 608 Adjustments to reconcile
net earnings to total cash provided by (used in) operating
activities: Depreciation 326 319 Restructuring charges 182 8 Gain
on sale of business, net (99 ) (1 ) Stock-based compensation 55 40
Deferred income taxes (41 ) (394 ) Other, net 10 8 Changes
in operating assets and liabilities: Receivables 268 301
Merchandise inventories 168 (205 ) Other assets (9 ) 17 Accounts
payable (335 ) 120 Other liabilities (284 ) (270 ) Income taxes
(226 ) (64 ) Total cash provided by operating
activities 308 487
INVESTING ACTIVITIES Additions to
property and equipment (293 ) (258 ) Purchases of investments, net
(239 ) (715 ) Proceeds from sale of business, net of cash
transferred upon sale 92 37 Change in restricted assets (46 ) 26
Settlement of net investment hedges 8 - Other, net -
3 Total cash used in investing activities (478 ) (907
)
FINANCING ACTIVITIES Repurchase of common stock
(321 ) - Repayments of debt, net (13 ) (12 ) Dividends paid (341 )
(118 ) Issuance of common stock 28 17 Other, net 7
(1 ) Total cash used in financing activities (640 ) (114 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH (16 )
(3 )
DECREASE IN CASH AND CASH EQUIVALENTS (826 )
(537 )
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 $ 1,800 $ 2,141
BEST BUY CO., INC. SEGMENT INFORMATION
($ in millions) (Unaudited and subject to reclassification)
Domestic Segment Performance Summary Three Months
Ended Six Months Ended August 1, 2015 August
2, 2014 August 1, 2015 August 2, 2014 Revenue $
7,878 $ 7,585 $ 15,768 $ 15,366 Gross profit $ 1,946 $ 1,778 $
3,832 $ 3,541 SG&A $ 1,636 $ 1,521 $ 3,220 $ 3,056 Operating
income $ 309 $ 258 $ 613 $ 484
Key Metrics Comparable
sales % change1 3.8 % (2.0 %) 2.2 % (1.6 %) Comparable sales %
change, excluding installment billing2 2.7 % (2.0 %) 1.0 % (1.6 %)
Comparable online sales % change1 17.0 % 22.0 % 10.8 % 25.7 % Gross
profit as a % of revenue 24.7 % 23.4 % 24.3 % 23.0 % SG&A as a
% of revenue 20.8 % 20.1 % 20.4 % 19.9 % Operating income as a % of
revenue 3.9 % 3.4 % 3.9 % 3.1 %
Non-GAAP Results3
Gross profit $ 1,936 $ 1,778 $ 3,744 $ 3,541 Gross profit as a % of
revenue 24.6 % 23.4 % 23.7 % 23.0 % SG&A $ 1,623 $ 1,509 $
3,185 $ 3,036 SG&A as a % of revenue 20.6 % 19.9 % 20.2 % 19.8
% Operating income $ 313 $ 269 $ 559 $ 505 Operating income as a %
of revenue 4.0 % 3.5 % 3.5 % 3.3 %
International
Segment Performance Summary Three Months Ended Six
Months Ended August 1, 2015 August 2, 2014
August 1, 2015 August 2, 2014 Revenue $ 650 $ 874 $
1,318 $ 1,732 Gross profit $ 152 $ 200 $ 296 $ 404 SG&A $ 175 $
227 $ 357 $ 447 Operating loss ($21 ) ($33 ) ($239 ) ($49 )
Key Metrics Comparable sales % change1 N/A (3.8 %) N/A (5.2
%) Gross profit as a % of revenue 23.4 % 22.9 % 22.5 % 23.3 %
SG&A as a % of revenue 26.9 % 26.0 % 27.1 % 25.8 % Operating
loss as a % of revenue (3.2 %) (3.8 %) (18.1 %) (2.8 %)
Non-GAAP Results3 Gross profit $ 149 $ 200 $ 301 $ 404 Gross
profit as a % of revenue 22.9 % 22.9 % 22.8 % 23.3 % SG&A $ 170
$ 227 $ 349 $ 446 SG&A as a % of revenue 26.2 % 26.0 % 26.5 %
25.8 % Operating loss ($21 ) ($27 ) ($48 ) ($42 ) Operating loss as
a % of revenue (3.2 %) (3.1 %) (3.6 %) (2.4 %)
(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 Bust 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.
(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 August 1, 2015 August 2, 2014
August 1, 2015 August 2, 2014 Consumer Electronics
32% 31% 7.3% 0.2% Computing and Mobile Phones 46% 47% (0.8%) (5.9%)
Entertainment 6% 6% (2.0%) 16.1% Appliances 10% 9% 20.7% 8.2%
Services2 5% 6%
(13.1%)
(8.9%) Other 1% 1% n/a n/a Total 100% 100% 2.7% (2.0%)
Including the
estimated benefit of mobile phone installment billing1
Revenue Mix Summary Comparable Sales Three Months
Ended Three Months Ended Domestic Segment
August 1, 2015 August 2, 2014 August 1, 2015
August 2, 2014 Consumer Electronics 32% 31% 7.3% 0.2%
Computing and Mobile Phones 47% 47% 1.5% (5.9%) Entertainment 6% 6%
(2.0%) 16.1% Appliances 10% 9% 20.7% 8.2% Services2 5% 6%
(13.1%)
(8.9%) Other
<1%
1% n/a n/a Total 100% 100% 3.8% (2.0%)
Revenue Mix
Summary Three Months Ended International
Segment3 August 1, 2015 August 2, 2014
Consumer Electronics 31% 31% Computing and Mobile Phones 48% 49%
Entertainment 7% 7% Appliances 7% 6% Services2 6% 6% Other 1% 1%
Total 100% 100%
(1) 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.
(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
until International revenue is again comparable on a year-over-year
basis.
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 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. The non-GAAP financial measures 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
August 1, 2015 August 2, 2014 $ % of
Rev. $ % of Rev.
Domestic -
Continuing Operations
Gross profit $ 1,946 24.7% $ 1,778 23.4% CRT settlements1
(10 ) (0.1%) 0 0.0% Non-GAAP gross profit $ 1,936
24.6% $ 1,778 23.4% SG&A $ 1,636 20.8% $
1,521 20.1% CRT settlement legal fees and costs1 (2 ) (0.0%) 0 0.0%
Non-restructuring asset impairments - SG&A (11 ) (0.1%)
(12 ) (0.2%) Non-GAAP SG&A $ 1,623 20.6% $ 1,509
19.9% Operating income $ 309 3.9% $ 258 3.4% Net CRT
settlements1 (8 ) (0.1%) 0 0.0% Non-restructuring asset impairments
- SG&A 11 0.1% 12 0.2% Restructuring charges 1
0.0% (1 ) (0.0%) Non-GAAP operating income $ 313 4.0%
$ 269 3.5%
International -
Continuing Operations
Gross profit $ 152 23.4% $ 200 22.9% Restructuring charges - COGS
(3 ) (0.5%) 0 0.0% Non-GAAP gross profit $ 149
22.9% $ 200 22.9% SG&A $ 175 26.9% $ 227
26.0% Other Canada brand consolidation charges - SG&A2 (2 )
(0.3%) 0 0.0% Non-restructuring asset impairments - SG&A
(3 ) (0.5%) 0 0.0% Non-GAAP SG&A $ 170
26.2% $ 227 26.0% Operating loss ($21 ) (3.2%) ($33 )
(3.8%) Restructuring charges - COGS (3 ) (0.5%) 0 0.0% Other Canada
brand consolidation charges - SG&A2 2 0.3% 0 0.0%
Non-restructuring asset impairments - SG&A 3 0.5% 0 0.0%
Restructuring charges (2 ) (0.3%) 6 0.7%
Non-GAAP operating loss ($21 ) (3.2%) ($27 ) (3.1%)
Consolidated -
Continuing Operations
Gross profit $ 2,098 24.6% $ 1,978 23.4% CRT settlements1 (10 )
(0.1%) 0 0.0% Restructuring charges - COGS (3 ) (0.0%)
0 0.0% Non-GAAP gross profit $ 2,085 24.4% $
1,978 23.4% SG&A $ 1,811 21.2% $ 1,748 20.7% CRT
settlement legal fees and costs1 (2 ) (0.0%) 0 0.0% Other Canada
brand consolidation charges - SG&A2 (2 ) (0.0%) 0 0.0%
Non-restructuring asset impairments - SG&A (14 ) (0.2%)
(12 ) (0.1%) Non-GAAP SG&A $ 1,793 21.0% $ 1,736
20.5% Operating income $ 288 3.4% $ 225 2.7% Net CRT
settlements1 (8 ) (0.1%) 0 0.0% Restructuring charges - COGS (3 )
(0.0%) 0 0.0% Other Canada brand consolidation charges - SG&A2
2 0.0% 0 0.0% Non-restructuring asset impairments - SG&A 14
0.2% 12 0.1% Restructuring charges (1 ) (0.0%) 5
0.1% Non-GAAP operating income $ 292 3.4% $ 242
2.9% Net earnings $ 164 $ 137 After-tax impact of net
CRT settlements1 (9 ) 0 After-tax impact of restructuring charges -
COGS (1 ) 0 After-tax impact of other Canada brand consolidation
charges - SG&A2 1 0 After-tax impact of non-restructuring asset
impairments - SG&A 11 8 After-tax impact of restructuring
charges 8 4 After-tax impact of gain on investments, net 0
(1 ) Non-GAAP net earnings $ 174 $ 148
Diluted EPS $ 0.46 $ 0.39 Per share impact of net CRT
settlements1 (0.03 ) 0.00 Per share impact of restructuring charges
- COGS 0.00 0.00 Per share impact of other Canada brand
consolidation charges - SG&A2 0.00 0.00 Per share impact of
non-restructuring asset impairments - SG&A 0.03 0.02 Per share
impact of restructuring charges 0.03 0.01 Per share impact of gain
on investments, net 0.00 0.00 Non-GAAP
diluted EPS $ 0.49 $ 0.42
Six Months
Ended Six Months Ended August 1, 2015 August
2, 2014 $ % of Rev. $ % of Rev.
Domestic -
Continuing Operations
Gross profit $ 3,832 24.3% $ 3,541 23.0% CRT settlements1
(88 ) (0.6%) 0 0.0% Non-GAAP gross profit $ 3,744
23.7% $ 3,541 23.0% SG&A $ 3,220 20.4% $
3,056 19.9% CRT settlement legal fees and costs1 (13 ) (0.1%) 0
0.0% Non-restructuring asset impairments - SG&A (22 )
(0.1%) (20 ) (0.1%) Non-GAAP SG&A $ 3,185 20.2% $
3,036 19.8% Operating income $ 613 3.9% $ 484 3.1%
Net CRT settlements1
(75 ) (0.5%) 0 0.0% Non-restructuring asset impairments - SG&A
22 0.1% 20 0.1% Restructuring charges (1 ) (0.0%) 1
0.0% Non-GAAP operating income $ 559 3.5% $ 505
3.3%
International -
Continuing Operations
Gross profit $ 296 22.5% $ 404 23.3% Restructuring charges - COGS
5 0.4% 0 0.0% Non-GAAP gross profit $
301 22.8% $ 404 23.3% SG&A $ 357 27.1% $
447 25.8% Other Canada brand consolidation charges - SG&A2 (5 )
(0.4%) 0 0.0% Non-restructuring asset impairments - SG&A
(3 ) (0.2%) (1 ) (0.1%) Non-GAAP SG&A $ 349 26.5%
$ 446 25.8% Operating loss ($239 ) (18.1%) ($49 )
(2.8%) Restructuring charges - COGS 5 0.4% 0 0.0% Other Canada
brand consolidation charges - SG&A2 5 0.4% 0 0.0%
Non-restructuring asset impairments - SG&A 3 0.2% 1 0.1%
Restructuring charges 178 13.5% 6 0.3%
Non-GAAP operating income ($48 ) (3.6%) ($42 ) (2.4%)
Consolidated -
Continuing Operations
Gross profit $ 4,128 24.2% $ 3,945 23.1% CRT settlements1 (88 )
(0.5%) 0 0.0% Restructuring charges - COGS 5 0.0%
0 0.0% Non-GAAP gross profit $ 4,045 23.7% $
3,945 23.1% SG&A $ 3,577 20.9% $ 3,503 20.5% CRT
settlement legal fees and costs1 (13 ) (0.1%) 0 0.0% Other Canada
brand consolidation charges - SG&A2 (5 ) (0.0%) 0 0.0%
Non-restructuring asset impairments - SG&A (25 ) (0.1%)
(21 ) (0.1%) Non-GAAP SG&A $ 3,534 20.7% $ 3,482
20.4% Operating income $ 374 2.2% $ 435 2.5% Net CRT
settlements1 (75 ) (0.4%) 0 0.0% Restructuring charges - COGS 5
0.0% 0 0.0% Other Canada brand consolidation charges - SG&A2 5
0.0% 0 0.0% Non-restructuring asset impairments - SG&A 25 0.1%
21 0.1% Restructuring charges 177 1.0% 7
0.0% Non-GAAP operating income $ 511 3.0% $ 463
2.7% Net earnings $ 201 $ 606 After-tax impact of net
CRT settlements1 (53 ) 0 After-tax impact of restructuring charges
- COGS 4 0 After-tax impact of other Canada brand consolidation
charges - SG&A2 3 0 After-tax impact of non-restructuring asset
impairments - SG&A 18 14 After-tax impact of restructuring
charges 133 5 After-tax impact of gain on investments, net (1 ) (1
) Income tax impact of Europe legal entity reorganization3 0
(353 ) Non-GAAP net earnings $ 305 $ 271
Diluted EPS $ 0.57 $ 1.73 Per share impact of net CRT
settlements1 (0.15 ) 0.00 Per share impact of restructuring charges
- COGS 0.01 0.00 Per share impact of other Canada brand
consolidation charges - SG&A2 0.01 0.00 Per share impact of
non-restructuring asset impairments - SG&A 0.05 0.04 Per share
impact of restructuring charges 0.37 0.01 Per share impact of gain
on investments, net 0.00 0.00 Per share impact of income tax effect
of Europe legal entity reorganization3 0.00
(1.01 ) Non-GAAP diluted EPS $ 0.86 $ 0.77 (1)
Represents CRT Litigation settlements reached in each reported
period, net of related legal fees and costs. (2) Represents
charges related to the Canadian brand consolidation, primarily due
to 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 August 1, 20152 August 2,
20142
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,390 $ 987 Operating
income (loss) - discontinued operations 65 (13
) Total operating income 1,455 974 Add: Operating lease interest3
428 465 Add: Investment income 21 31 Less: Net (earnings) loss
attributable to noncontrolling interest (NCI) (1 ) (2 ) Less:
Income taxes4 (767 ) (633 )
NOPAT $
1,136
$
835
Add: Restructuring charges and impairments5 175
249
Non-GAAP NOPAT $
1,311
$
1,084
Average Invested
Capital
Total assets $ 14,575 $ 14,336 Less: Excess cash6 (3,201 ) (2,386 )
Add: Capitalized operating lease obligations7 6,855 7,440 Total
liabilities (9,810 ) (10,164 ) Exclude: Debt8 1,618 1,652 Less:
Noncontrolling interests (2 ) (3 )
Average
invested capital $ 10,035 $
10,875 Non-GAAP return on invested capital
(ROIC) 13.1 % 10.0 %
Calculation of Return on Assets1 August 1,
20152 August 2, 20142 Net earnings
including noncontrolling interests $ 919 $ 957 Total assets
14,575 14,336
Return on assets (ROA)
6.3 % 6.7 % (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/20150825005439/en/
Best Buy Co., Inc.Investor Contact:Mollie
O’Brien, 612-291-7735Investor
Relationsmollie.obrien@bestbuy.comorMedia Contacts:Amy von
Walter, 612-437-5956Public Relationsamy.vonwalter@bestbuy.comorJeff
Shelman, 612-291-6114Public
Relationsjeffrey.shelman@bestbuy.com
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