Domestic Revenue Decreased 0.8%
Repurchased $203 million in Stock for a
Year-to-Date Total of $588 million
Improving the Fourth Quarter Operating
Margin Outlook
Best Buy Co., Inc. (NYSE:BBY) today announced revenue results
for the nine weeks ended January 2, 2016 as compared to the nine
weeks ended January 3, 2015.
Fiscal 2016
Holiday Revenue Summary
9 weeks endedJanuary 2,
2016
9 weeks endedJanuary 3,
2015
Enterprise Revenue ($ in millions)1 $10,961
$11,366 Domestic segment $10,050
$10,132 Domestic segment year-over-year revenue change
(0.8%) 4.1% International segment1
$911 $1,233
Enterprise Comparable
Sales % Change:
Excluding the estimated benefit of installment billing2,3
(1.4%) 1.8%4 Estimated benefit of installment
billing3 0.2% 0.7% Comparable sales %
change2
(1.2%)
2.5%4
Domestic Comparable Sales % Change:
Excluding the estimated benefit of installment
billing2,3 (1.4%) 2.6% Estimated
benefit of installment billing3 0.2%
0.8% Comparable sales % change2
(1.2%)
3.4%
Comparable online sales % change2 12.6%
13.4%
Hubert Joly, Best Buy chairman and CEO, commented, “During the
holiday period, Domestic revenue declined 0.8% against a backdrop
where the NPD-reported categories were down a greater-than-expected
4.8%5. The Domestic decline was primarily driven by the mobile
phone category, which was softer than both our expectations and the
prior year. Excluding mobile phones, Domestic revenue increased
year over year due to our strong performance in health &
wearables, home theater and appliances. Online revenue increased
12.6% on top of a 13.4% increase last year. In addition, we saw a
significant improvement in our Net Promoter Score. From a financial
perspective, despite a slightly softer-than-expected topline, we
are improving our fourth quarter operating income rate outlook as a
result of our continuing conviction to a disciplined promotional
strategy and strong expense management.”
Joly concluded, “These results and our outlook are driven by the
solid execution of our holiday strategy and the leveraging of
investments in our merchandise assortment, digital capabilities,
higher in-stocks, Blue Shirt and Geek Squad expertise and faster
shipping. Ultimately, this performance is the result of the hard
work, dedication and customer focus on the part of all of our
associates.”
Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “Based on
the holiday results Hubert just discussed, we are updating our
fourth quarter outlook as follows. In the Domestic business, we are
expecting (1) a revenue decline of near 1.5% versus our previous
expectation of near flat due to softer consumer demand in mobile
phones and greater-than-expected declines in the NPD-reported
categories; and (2) a non-GAAP operating income rate decline of 10
to 15 basis points versus our previous expectation of a rate
decline of 20 to 35 basis points. As a reminder, the shift of the
Super Bowl into Q1 FY17 is driving an expected 40 basis points of
pressure on this quarter’s revenue.
“In the International business, our outlook has not changed. We
continue to expect (1) an International revenue decline of
approximately 30% due to the ongoing impacts of the Canadian brand
consolidation, foreign currency fluctuations and softness in the
Canadian market; and (2) an International non-GAAP operating income
rate in the range of positive 2.0% to 3.0%.
“Based on the above, our Enterprise outlook includes (1) a
revenue decline of near 4% versus our previous expectation of a low
single-digit decline; and (2) a non-GAAP operating income rate
decline of approximately 15 to 30 basis points versus our previous
expectation of a rate decline of 25 to 45 basis points. From a tax
rate perspective, we now expect the non-GAAP effective income tax
rate from continuing operations to be in the range of 34.5% to 35%,
versus 34.2% last year, which is expected to result in a negative
$0.01 to negative $0.03 year-over-year non-GAAP diluted EPS impact
in Q4 FY16.”
Share Repurchases Reach $588
million
On March 3, 2015, the company announced the intent to repurchase
$1 billion worth of its shares over a three-year period. On a
year-to-date basis, the company has already repurchased 17.8
million shares for a total of $588 million – of which 6.6 million
shares, or $203 million, were repurchased in the nine-week period
ended January 2, 2016. The company intends to continue to
repurchase shares through the end of the fourth quarter.
Domestic Segment Holiday Revenue
Results
Domestic revenue of $10.1 billion decreased 0.8% versus last
year. This decrease was primarily driven by a comparable sales
decline of 1.4%, excluding the estimated 20-basis point benefit
associated with the classification of revenue for the mobile
carrier installment billing plans3 and the loss of revenue from
closed stores. These declines were partially offset by an estimated
20-basis point benefit associated with installment billing3 and an
approximate 95-basis point periodic profit sharing benefit from our
externally-managed extended service plan portfolio.
Domestic online revenue of $1.7 billion increased 12.6% on a
comparable basis primarily due to a higher conversion rate. As
a percentage of total Domestic revenue, online revenue
increased 200 basis points to 16.7% from 14.7% last year.
From a merchandising perspective, comparable sales growth in
health & wearables, home theater and major appliances was more
than offset by significant declines in mobile phones, tablets and
digital imaging. The company also saw continued revenue declines in
services due to investments in services pricing, declining attach
rates of traditional warranty plans and, to a lesser extent, the
reduction of frequency and severity of claims on extended
warranties which has reduced repair revenue.
International Segment Holiday Revenue
Results
International revenue of $911 million declined 26.1% versus last
year. This decline was primarily driven by (1) a negative foreign
currency impact of approximately 1,350 basis points; (2) the loss
of revenue associated with closed stores as part of the Canadian
brand consolidation; and (3) ongoing softness in the Canadian
economy and consumer electronics industry.
(1) On March 28, 2015, the company consolidated the Future Shop
and Best Buy stores and websites in Canada under the Best Buy
brand. This resulted in the permanent closure of 66 Future Shop
stores 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, has 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 until International revenue is comparable on a
year-over-year basis. 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 nine week ending January
2, 2016 Enterprise and Domestic comparable sales of 1.2% include
approximately 20 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 prior
periods when the mix of installment billing plans was lower.
(4) Enterprise comparable sales for the nine weeks ending
January 3, 2015 include revenue from continuing operations in the
International segment. Excluding the International segment,
Enterprise comparable sales for the nine weeks ending January 3,
2015, excluding the impact of installment billing, would have been
2.6%, or equal to Domestic comparable sales excluding the impact of
installment billing, for the same period.
(5) According to The NPD Group’s Weekly Tracking Service as
published January 11, 2016, revenue for the CE (Consumer
Electronics) industry declined 4.8% during the 9 weeks ended
January 2, 2016 compared to the 9 weeks ended January 3, 2015. 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, appliances, services, gaming, Apple Watch, movies or
music.
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
promotional support, product margin and/or supply), the success of
new product launches, the impact of pricing investments and
promotional activity, weather, natural or man-made disasters,
attacks on our data systems, the company’s ability to prevent or
react to a disaster recovery situation, changes in law or
regulations, changes in tax rates, changes in taxable income in
each jurisdiction, tax audit developments and resolution of other
discrete tax matters, foreign currency fluctuation, 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), inability to
secure or maintain favorable vendor terms, 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. REVENUE CATEGORY SUMMARY
(Unaudited and subject to reclassification)
Domestic Segment Summary -
Excluding the estimated benefit of mobile phone installment
billing1 Revenue Mix Summary Comparable Store
Sales Nine Weeks Ended Nine Weeks Ended Jan 2,
2016 Jan 3, 2015 Jan 2, 2016 Jan 3, 2015
Consumer Electronics 36% 34% 4.3% 11.1% Computing and Mobile Phones
42% 44% (7.2%) (1.8%) Entertainment 12% 12% 0.5% 0.4% Appliances 6%
5% 13.4% 9.9% Services2 4% 4% (13.7%) (13.6%) Other 0% 1% n/a n/a
Total 100% 100% (1.4%) 2.6%
Domestic Segment Summary -
Including the estimated benefit of mobile phone installment
billing1 Revenue Mix Summary Comparable Store
Sales Nine Weeks Ended Nine Weeks Ended Jan 2,
2016 Jan 3, 2015 Jan 2, 2016 Jan 3, 2015
Consumer Electronics 36% 34% 4.3% 11.1% Computing and Mobile Phones
42% 45% (6.7%) 0.0% Entertainment 12% 12% 0.5% 0.4% Appliances 6%
5% 13.4% 9.9% Services2 4% 3% (13.7%) (13.6%) Other 0% 1% n/a n/a
Total 100% 100% (1.2%) 3.4%
International Segment
Summary3 Revenue Mix Summary Nine Weeks
Ended Jan 2, 2016 Jan 3, 2015 Consumer
Electronics 34% 33% Computing and Mobile Phones 44% 45%
Entertainment 13% 13% Appliances 4% 4% Services2 4% 4% 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 has 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 comparable
on a year-over-year basis.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160114005254/en/
Best Buy Co., Inc.Investor Contact:Mollie O'Brien,
612-291-7735Investor Relationsmollie.obrien@bestbuy.comorMedia
ContactsAmy von Walter, 612-437-5956Public
Relationsamy.vonwalter@bestbuy.comorJeff Shelman,
612-291-6114Public Relationsjeffrey.shelman@bestbuy.com
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