Domestic Segment Comparable Sales Increased
1.8%
GAAP Diluted EPS Increased 62% to
$0.60
Non-GAAP Diluted EPS Increased 51% to
$0.62
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
third quarter ended October 29, 2016 (“Q3 FY17”), as compared to
the third quarter ended October 31, 2015 (“Q3 FY16”). The company
reported GAAP diluted earnings per share from continuing operations
of $0.60, an increase of 62% from $0.37 in Q3 FY16. Non-GAAP
diluted earnings per share from continuing operations were $0.62,
an increase of 51% from $0.41 in Q3 FY16.
Q3 FY17 Q3 FY16 Revenue ($ in
millions)1
Enterprise $8,945 $8,819 Domestic
segment $8,192 $8,090 International
segment $753 $729 Enterprise comparable
sales % change 1.8% 0.8% Domestic
comparable sales % change 1.8% 0.8%
Domestic comparable online sales % change 24.1%
18.3% International revenue % change
3.3% (29.9%) International revenue % change on a
constant currency basis2 4.0% (16.2%)
Operating Income:
GAAP operating income as a % of revenue 3.5%
2.6% Non-GAAP operating income as a % of revenue
3.6% 2.8%
Diluted Earnings per Share
(EPS): GAAP diluted
EPS from continuing operations $0.60
$0.37 Non-GAAP diluted EPS from continuing operations
$0.62 $0.41
For GAAP to non-GAAP reconciliations,
please refer to the attached supporting schedule titled
“Reconciliation of non-GAAP Financial Measures.”
“We are pleased to report today growth on both our top and
bottom lines,” said Best Buy Chairman and CEO Hubert Joly. “We are
excited by the continued product innovation we are seeing, the role
we play for customers, the growth opportunities in front of us, the
quality of our execution and the strength of our financial
performance.”
Joly concluded, “Looking ahead, our teams are ready to execute
our plan for the holiday season. As our marketing tagline, Holiday
Gifting Made Easy, states, our goal is to make holiday shopping
effortless for customers. To win holiday and deliver on this
promise, we have created an exciting assortment of great and
competitively priced products, and we have mobilized our assets,
including our leading-edge digital capabilities, fast and free
shipping across the entire site during holiday, and of course our
knowledgeable Blue Shirts and Geek Squad agents who are here to
provide compelling in-store experiences and in-home services.”
Corie Barry, Best Buy CFO, commented,“As we enter the fourth
quarter and execute against our holiday plan, which includes a
disciplined promotional strategy, we expect to deliver non-GAAP
diluted earnings per share in the range of $1.62 to $1.67 compared
to $1.53 last year. This outlook assumes a diluted weighted average
share count of approximately 315 million and a non-GAAP effective
income tax rate in the range of 35.0% to 35.5%. This fourth quarter
outlook implies full year non-GAAP diluted EPS in the range of
$3.25 to $3.30, growth of 17% to 19% versus last year.3”
Barry continued, “From a revenue standpoint, we are excited by
the rate of technology innovation, the quality of our assortment
and our ability to execute. That being said, we have updated our
original expectations to incorporate the impact of recent product
recalls and the fact that certain products will simply not be
available for sale during our fourth quarter. The expected impact
of these recalls on our fourth quarter Domestic revenue is
approximately $200 million. With that incorporated, our fourth
quarter Enterprise revenue guidance is $13.4 to $13.6 billion.”
Domestic Segment Third Quarter
Results
Domestic RevenueDomestic revenue of $8.2 billion
increased 1.3% versus last year driven by comparable sales growth
of 1.8%, partially offset by the loss of revenue from 14 large
format and 23 Best Buy Mobile store closures. Industry revenue in
the NPD-tracked categories declined 3.1%.4
From a merchandising perspective, comparable sales growth in
home theater, mobile phones, wearables and connected home was
partially offset by declines in gaming.
Domestic online revenue of $881 million increased 24.1% on a
comparable basis primarily due to increased traffic, higher average
order values and higher conversion rates. As a percentage of total
Domestic revenue, online revenue increased 200 basis points to
10.8% versus 8.8% last year.
Domestic Gross Profit RateDomestic GAAP and non-GAAP
gross profit rate was 24.7% versus 24.1% last year. The 60-basis
point increase was primarily due to improved margin rates in the
computing and home theater categories, which were partially offset
by the mobile category.
Domestic Selling, General and Administrative Expenses
(“SG&A”)Domestic SG&A expenses were $1.72 billion, or
21.0% of revenue, versus $1.70 billion, or 21.0% of revenue, last
year. On a non-GAAP basis, SG&A expenses were $1.71 billion, or
20.9% of revenue, versus $1.69 billion, or 20.9% of revenue, last
year. For both GAAP and non-GAAP SG&A, the increase was
primarily driven by the timing of previously outlined
investments.
International Segment Third Quarter
Results
International RevenueInternational revenue of $753
million increased 3.3% driven by growth in Canada and Mexico which
was partially offset by approximately 70 basis points of negative
foreign currency impact. On a constant currency basis,
International revenue increased 4.0%.2
International Gross Profit RateInternational gross profit
rate was 24.3% versus 22.5% last year. On a non-GAAP basis, gross
profit rate was 24.3% versus 22.4% last year. For both the GAAP and
non-GAAP gross profit rate, the improvement was primarily driven by
a higher year-over-year gross profit rate in Canada due to a more
favorable product mix and lapping the disruption and corresponding
increased promotional activity last year related to the brand
consolidation.
International SG&AInternational SG&A expenses
were $170 million, or 22.6% of revenue, versus $172 million, or
23.6% of revenue, last year. On a non-GAAP basis, SG&A expenses
were $169 million, or 22.4% of revenue, versus $171 million, or
23.5% of revenue, last year. For both GAAP and non-GAAP SG&A,
the decrease was primarily driven by the positive impact of foreign
exchange rates. The GAAP and non-GAAP rate decreases were primarily
driven by sales leverage.
Share Repurchases and
DividendsDuring Q3 FY17, the company returned a total of
$290 million to shareholders through share repurchases and
dividends. On a year-to-date basis, the company has returned a
total of $931 million to shareholders through share repurchases and
dividends.
On February 25, 2016, the company announced the intent to
repurchase $1 billion of its shares over a two-year period. In Q3
FY17, the company repurchased 5.4 million shares for a total of
$201 million. On a year-to-date basis, the company has repurchased
15.7 million shares for a total of $517 million. The company’s
cumulative share repurchases, net of dilution from equity based
awards, positively benefitted GAAP and non-GAAP diluted EPS by
$0.05 in Q3 FY17.
On October 4, 2016, the company paid a quarterly dividend of
$0.28 per common share outstanding, or $89 million. On a
year-to-date basis, the company has paid $414 million in regular
and special dividends.
Q4 FY17 Financial
Guidance
Best Buy is providing the following Q4 FY17 financial
guidance:
- Enterprise revenue in the range of
$13.4 billion to $13.6 billion
- Enterprise comparable sales change in
the range of (1.0%) to 1.0%
- Domestic comparable sales change in the
range of (1.0%) to 1.0%
- International comparable sales change
in the range of (2.0%) to 2.0%
- Non-GAAP effective income tax rate of
35.0% to 35.5%3
- Diluted weighted average share count of
approximately 315 million
- Non-GAAP diluted EPS of $1.62 to
$1.673
Note: In Q4 FY17, International revenue is expected to once
again be comparable on a year-over-year basis and therefore the
company is now guiding Enterprise, Domestic and International
comparable sales.5
Reminder: Discontinuation of Holiday
Sales Press Release in FY17Beginning in January FY17,
the company will no longer issue an interim Holiday press release
due to the increasing significance of the month of January to the
company’s overall fourth quarter financial results.
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 November 17, 2016. A
webcast of the call is expected to be available at
www.investors.bestbuy.com both live and after the call.
(1) On March 28, 2015, the company consolidated the Future Shop
and Best Buy stores and websites in Canada under the Best Buy
brand. This resulted in the permanent closure of 66 Future Shop
stores, the conversion of 65 Future Shop stores to Best Buy stores
and the elimination of the Future Shop website. The Canadian brand
consolidation 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.
Additionally, the company is no longer reporting comparable
sales excluding the impact of installment billing as the mix of
installment billing plans is comparable on a year-over-year
basis.
(2) The term constant currency represents results adjusted to
exclude foreign currency impacts. Foreign currency impact
represents the difference in results that is attributable to
fluctuations in currency exchange rates the company uses to convert
the results of its International segment where the functional
currency is not the U.S. dollar. The company calculates the impact
as the difference between the current period results translated
using the current period currency exchange rates and using the
comparable prior period’s currency exchange rates. The company
believes the disclosure of revenue changes in constant currency
provides useful supplementary information to investors in light of
significant fluctuations in currency rates and ongoing inability to
report comparable store sales for the International segment as a
result of the Canadian brand consolidation. On a constant currency
basis, revenue for the International segment was $753 million in Q3
FY17 and $724 million in Q3 FY16 reflecting a foreign currency
impact of negative $5 million on Q3 FY16.
(3) A reconciliation of the projected non-GAAP effective tax
rate and non-GAAP diluted EPS, which are forward-looking non-GAAP
financial measures, to the most directly comparable GAAP financial
measures, is not provided because the company is unable to provide
such reconciliation without unreasonable effort. The inability to
provide a reconciliation is due to the uncertainty and inherent
difficulty predicting the occurrence, the financial impact and the
periods in which the non-GAAP adjustments may be recognized. These
GAAP measures may include the impact of such items as restructuring
charges; litigation settlements; asset impairments, gains and
losses; and the tax effect of all such items. Historically, the
company has excluded these items from non-GAAP financial measures.
The company currently expects to continue to exclude these items in
future disclosures of non-GAAP financial measures and may also
exclude other items that may arise (collectively, “non-GAAP
adjustments”). The decisions and events that typically lead to the
recognition of non-GAAP adjustments, such as a decision to exit
part of the business, the early retirement of an asset or reaching
settlement of a legal dispute, are inherently unpredictable as to
if or when they may occur. For the same reasons, the company is
unable to address the probable significance of the unavailable
information, which could be material to future results.
(4) According to The NPD Group’s Weekly Retail Tracking Service
as published November 7, 2016, revenue for the CE (Consumer
Electronics) industry declined 3.1% during the 13 weeks ended
October 29, 2016 compared to the 13 weeks ended October 31,
2015. The categories tracked by The NPD Group include TVs, desktop
and notebook computers, tablets, digital imaging and other
categories. Sales of these products represent approximately 63% of
Domestic revenue. It does not include mobile phones, appliances,
services, gaming, Apple Watch, movies, music or Amazon-branded
products.
(5) Beginning in Q4 FY17, the company believes International
revenue will once again be comparable on a year-over-year basis and
expects to report comparable sales for the International segment on
a go-forward basis. At that time, Enterprise comparable sales will
cease being equal to Domestic comparable sales and instead will
equal the sum of Domestic and International comparable sales as
they were before the Canadian brand consolidation in Q1 FY16. As
such, the company’s Q4 FY17 guidance now includes comparable sales
metrics for Enterprise, Domestic and International.
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 and changes in senior
management, 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 23, 2016. Best Buy cautions that
the foregoing list of important factors is not complete, and any
forward-looking statements speak only as of the date they are made,
and Best Buy assumes no obligation to update any forward-looking
statement that it may make.
BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF
EARNINGS ($ in millions, except per share amounts) (Unaudited
and subject to reclassification)
Three Months Ended Nine Months Ended
October 29, October 31, October 29, October
31, 2016 2015 2016 2015 Revenue $
8,945 $ 8,819 $ 25,921 $ 25,905 Cost of goods sold 6,742 6,708
19,511 19,661 Restructuring charges - cost of goods sold -
(1 ) - 4 Gross profit
2,203 2,112 6,410 6,240 Gross profit % 24.6 % 23.9 % 24.7 % 24.1 %
Selling, general and administrative expenses 1,890 1,874 5,407
5,451 SG&A % 21.1 % 21.2 % 20.9 % 21.0 % Restructuring charges
1 8 30 185
Operating income 312 230 973 604 Operating income % 3.5 % 2.6 % 3.8
% 2.3 % Other income (expense): Gain on sale of investments - - 2 2
Investment income and other 8 3 22 14 Interest expense (16 )
(20 ) (54 ) (60 ) Earnings from continuing
operations before income tax expense 304 213 943 560 Income tax
expense 112 84 343 230 Effective tax rate 36.7 % 39.4
% 36.4 % 41.1 % Net earnings from continuing
operations 192 129 600 330 Earnings (loss) from discontinued
operations, net of tax 2 (4 ) 21
88 Net earnings $ 194 $ 125 $ 621
$ 418 Basic earnings (loss) per share
Continuing operations $ 0.61 $ 0.37 $ 1.87 $ 0.95 Discontinued
operations - (0.01 ) 0.07
0.25 Basic earnings per share $ 0.61 $ 0.36 $
1.94 $ 1.20 Diluted earnings (loss) per share
Continuing operations $ 0.60 $ 0.37 $ 1.85 $ 0.93 Discontinued
operations 0.01 (0.01 ) 0.07
0.25 Diluted earnings per share $ 0.61 $ 0.36
$ 1.92 $ 1.18 Dividends declared per
common share $ 0.28 $ 0.23 $ 1.29 $ 1.20 Weighted average
common shares outstanding Basic 316.2 344.7 320.2 348.9 Diluted
320.0 349.0 323.6 353.6
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS ($ in millions)
(Unaudited and subject to reclassification)
October 29, 2016 October 31, 2015
ASSETS Current assets Cash and cash equivalents $ 1,341 $
1,697 Short-term investments 1,777 1,650 Receivables, net 1,174
1,061 Merchandise inventories 6,331 6,651 Other current assets
398 409 Total current assets 11,021 11,468 Property
and equipment, net 2,298 2,329 Goodwill 425 425 Intangibles, net 18
18 Other assets 780 897 Non-current assets held for sale -
32
TOTAL ASSETS $ 14,542 $
15,169 LIABILITIES & EQUITY Current
liabilities Accounts payable $ 6,233 $ 6,184 Unredeemed gift card
liabilities 377 379 Deferred revenue 380 330 Accrued compensation
and related expenses 308 306 Accrued liabilities 782 790 Accrued
income taxes 43 23 Current portion of long-term debt 43
383 Total current liabilities 8,166 8,395 Long-term
liabilities 791 874 Long-term debt 1,324 1,250 Equity 4,261
4,650
TOTAL LIABILITIES & EQUITY $
14,542 $ 15,169 BEST BUY CO.,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($
in millions) (Unaudited and subject to reclassification)
Nine Months Ended October 29,
October 31, 2016 2015 OPERATING
ACTIVITIES Net earnings $ 621 $ 418
Adjustments to reconcile net earnings to
total cash provided by operating activities:
Depreciation 491 494 Restructuring charges 30 189 Gain on sale of
business, net - (99 ) Stock-based compensation 82 80 Deferred
income taxes 28 (43 ) Other, net (34 ) 3 Changes in operating
assets and liabilities: Receivables 80 229 Merchandise inventories
(1,370 ) (1,494 ) Other assets (18 ) 20 Accounts payable 1,801
1,152 Other liabilities (192 ) (271 ) Income taxes (124 )
(215 ) Total cash provided by operating activities 1,395 463
INVESTING ACTIVITIES Additions to property and
equipment (445 ) (493 ) Purchases of investments, net (464 ) (196 )
Proceeds from sale of business, net of cash transferred upon sale -
102 Proceeds from property disposition 56 - Change in restricted
assets (8 ) (45 ) Settlement of net investment hedges 5
14 Total cash used in investing activities
(856 ) (618 )
FINANCING ACTIVITIES Repurchase of
common stock (472 ) (385 ) Repayments of debt (384 ) (18 )
Dividends paid (417 ) (421 ) Issuance of common stock 66 44 Other,
net 20 19 Total cash used in financing
activities (1,187 ) (761 )
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 13 (13 )
DECREASE IN
CASH AND CASH EQUIVALENTS (635 ) (929 )
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD 1,976 2,432
CASH AND CASH
EQUIVALENTS HELD FOR SALE AT BEGINNING OF PERIOD -
194
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,341 $ 1,697
BEST BUY CO.,
INC. SEGMENT INFORMATION ($ in millions) (Unaudited and
subject to reclassification)
Domestic Segment Performance Summary
Three Months Ended Nine Months Ended October
29, October 31, October 29, October 31,
2016 2015 2016 2015 Revenue $8,192
$8,090 $23,910 $23,858 Gross profit $2,020 $1,948 $5,901 $5,780
SG&A $1,720 $1,702 $4,915 $4,922 Operating income $298 $244
$959 $857
Key Metrics Comparable sales % change 1.8%
0.8% 0.8% 1.7% Comparable online sales % change 24.1% 18.3% 23.9%
13.3% Gross profit as a % of revenue 24.7% 24.1% 24.7% 24.2%
SG&A as a % of revenue 21.0% 21.0% 20.6% 20.6% Operating income
as a % of revenue 3.6% 3.0% 4.0% 3.6%
Non-GAAP
Results Gross profit $2,020 $1,948 $5,718 $5,692 Gross profit
as a % of revenue 24.7% 24.1% 23.9% 23.9% SG&A $1,713 $1,693
$4,879 $4,878 SG&A as a % of revenue 20.9% 20.9% 20.4% 20.4%
Operating income $307 $255 $839 $814 Operating income as a % of
revenue 3.7% 3.2% 3.5% 3.4%
International Segment
Performance Summary Three Months Ended Nine Months
Ended October 29, October 31, October 29,
October 31, 2016 2015 2016 2015
Revenue $753 $729 $2,011 $2,047 Gross profit $183 $164 $509 $460
SG&A $170 $172 $492 $529 Operating income (loss) $14 ($14) $14
($253)
Key Metrics Comparable sales % change1 N/A N/A
N/A N/A Gross profit as a % of revenue 24.3% 22.5% 25.3% 22.5%
SG&A as a % of revenue 22.6% 23.6% 24.5% 25.8% Operating income
(loss) as a % of revenue 1.9% (1.9%) 0.7% (12.4%)
Non-GAAP Results Gross profit $183 $163 $509 $464 Gross
profit as a % of revenue 24.3% 22.4% 25.3% 22.7% SG&A $169 $171
$489 $520 SG&A as a % of revenue 22.4% 23.5% 24.3% 25.4%
Operating income (loss) $14 ($8) $20 ($56) Operating income (loss)
as a % of revenue 1.9% (1.1%) 1.0% (2.7%) (1) On March 28,
2015, the company consolidated the Future Shop and Best Buy stores
and websites in Canada under the Best Buy brand. This resulted in
the permanent closure of 66 Future Shop stores, the conversion of
65 Future Shop stores to Best Buy stores and the elimination of the
Future Shop website. The Canadian brand consolidation 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.
BEST BUY CO., INC. REVENUE CATEGORY
SUMMARY (Unaudited and subject to reclassification)
Revenue Mix Summary
Comparable Sales Three Months Ended Three Months
Ended October 29, October 31,
October 29, October 31, Domestic
Segment 2016 2015 2016 2015
Consumer Electronics 31% 30% 4.9% 3.0% Computing and Mobile Phones
49% 49% 1.6% (0.9%) Entertainment 6% 6% (9.4%) (6.0%) Appliances 9%
9% 3.0% 16.4% Services 5% 5% (1.8%) (11.1%) Other 0% 1% N/A N/A
Total 100% 100% 1.8% 0.8%
Revenue Mix Summary
Three Months Ended October 29, October 31,
International Segment(1) 2016 2015 Consumer
Electronics 28% 27% Computing and Mobile Phones 54% 55%
Entertainment 6% 8% Appliances 5% 4% Services 6% 5% Other 1% 1%
Total 100% 100% (1) On March 28, 2015, the company
consolidated the Future Shop and Best Buy stores and websites in
Canada under the Best Buy brand. This resulted in the permanent
closure of 66 Future Shop stores, the conversion of 65 Future Shop
stores to Best Buy stores and the elimination of the Future Shop
website. The Canadian brand consolidation 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.
BEST BUY CO., INC. RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES CONTINUING OPERATIONS ($ in
millions, except per share amounts) (Unaudited and subject to
reclassification)
The following information provides
reconciliations of the most comparable financial measures from
continuing operations calculated and presented in accordance with
accounting principles generally accepted in the U.S. (“GAAP”) to
presented non-GAAP financial measures. The company believes that
non-GAAP financial measures, when reviewed in conjunction with GAAP
financial measures, can provide more information to assist
investors in evaluating current period performance and in assessing
future performance. For these reasons, internal management
reporting also includes non-GAAP measures. Generally, presented
non-GAAP measures include adjustments for items such as
restructuring charges, goodwill impairments, non-restructuring
asset impairments and gains or losses on investments. In addition,
certain other items may be excluded from non-GAAP financial
measures when the company believes this provides greater clarity to
management and investors. These non-GAAP financial measures should
be considered in addition to, and not superior to or as a
substitute for the GAAP financial measures presented in this
earnings release and the company’s financial statements and other
publicly filed reports. Non-GAAP measures as presented herein may
not be comparable to similarly titled measures used by other
companies.
The following tables reconcile gross
profit, SG&A, operating income, effective tax rate, net
earnings and diluted earnings per share for the periods presented
for continuing operations (GAAP financial measures) to non-GAAP
gross profit, non-GAAP SG&A, non-GAAP operating income,
non-GAAP effective tax rate, non-GAAP net earnings and non-GAAP
diluted earnings per share for continuing operations (non-GAAP
financial measures) for the periods presented.
Three Months Ended Three Months Ended
October 29, 2016 October 31, 2015 $ % of
Rev. $ % of Rev.
Domestic -
Continuing Operations
SG&A $1,720 21.0% $1,702 21.0% Non-restructuring asset
impairments - SG&A (7) (0.1%) (9) (0.1%) Non-GAAP SG&A
$1,713 20.9% $1,693 20.9% Operating income $298 3.6% $244
3.0% Non-restructuring asset impairments - SG&A 7 0.1% 9 0.1%
Restructuring charges 2 0.0% 2 0.0% Non-GAAP operating income $307
3.7% $255 3.2%
International -
Continuing Operations
Gross profit $183 24.3% $164 22.5% Restructuring charges - COGS 0
0.0% (1) (0.1%) Non-GAAP gross profit $183 24.3% $163 22.4%
SG&A $170 22.6% $172 23.6% Other Canada brand consolidation
charges - SG&A1 0 0.0% (1) (0.1%) Non-restructuring asset
impairments - SG&A (1) (0.1%) 0 0.0% Non-GAAP SG&A $169
22.4% $171 23.5% Operating Income (loss) $14 1.9% ($14)
(1.9%) Restructuring charges - COGS 0 0.0% (1) (0.1%) Other Canada
brand consolidation charges - SG&A1 0 0.0% 1 0.1%
Non-restructuring asset impairments - SG&A 1 0.1% 0 0.0%
Restructuring charges (1) (0.1%) 6 0.8% Non-GAAP operating income
(loss) $14 1.9% ($8) (1.1%)
Consolidated -
Continuing Operations
Gross profit $2,203 24.6% $2,112 23.9% Restructuring charges - COGS
0 0.0% (1) (0.0%) Non-GAAP gross profit $2,203 24.6% $2,111 23.9%
SG&A $1,890 21.1% $1,874 21.2% Other Canada brand
consolidation charges - SG&A1 0 0.0% (1) (0.0%)
Non-restructuring asset impairments - SG&A (8) (0.1%) (9)
(0.1%) Non-GAAP SG&A $1,882 21.0% $1,864 21.1% Operating
income $312 3.5% $230 2.6% Restructuring charges - COGS 0 0.0% (1)
(0.0%) Other Canada brand consolidation charges - SG&A1 0 0.0%
1 0.0% Non-restructuring asset impairments - SG&A 8 0.1% 9 0.1%
Restructuring charges 1 0.0% 8 0.1% Non-GAAP operating income $321
3.6% $247 2.8% Income tax expense $112 $84 Effective tax
rate 36.7% 39.4% Income tax impact of non-GAAP adjustments2 3 2
Non-GAAP income tax expense $115 $86 Non-GAAP effective tax rate
36.6% 37.1% Net earnings $192 $129 Restructuring charges -
COGS 0 (1) Other Canada brand consolidation charges - SG&A1 0 1
Non-restructuring asset impairments - SG&A 8 9 Restructuring
charges 1 8 Income tax impact of non-GAAP adjustments2 (3) (2)
Non-GAAP net earnings $198 $144 Diluted EPS $0.60 $0.37 Per
share impact of restructuring charges - COGS 0.00 0.00 Per share
impact of other Canada brand consolidation charges - SG&A1 0.00
0.00 Per share impact of non-restructuring asset impairments -
SG&A 0.03 0.02 Per share impact of restructuring charges 0.00
0.02 Per share income tax impact of non-GAAP adjustments2 (0.01)
0.00 Non-GAAP diluted EPS $0.62 $0.41
Nine Months
Ended Nine Months Ended October 29, 2016
October 31, 2015 $ % of Rev. $ % of
Rev.
Domestic -
Continuing Operations
Gross profit $5,901 24.7% $5,780 24.2% CRT settlements3 (183)
(0.8%) (88) (0.4%) Non-GAAP gross profit $5,718 23.9% $5,692 23.9%
SG&A $4,915 20.6% $4,922 20.6% CRT settlements legal fees and
costs3 (22) (0.1%) (13) (0.1%) Non-restructuring asset impairments
- SG&A (14) (0.1%) (31) (0.1%) Non-GAAP SG&A $4,879 20.4%
$4,878 20.4% Operating income $959 4.0% $857 3.6% Net CRT
settlements3 (161) (0.7%) (75) (0.3%) Non-restructuring asset
impairments - SG&A 14 0.1% 31 0.1% Restructuring charges 27
0.1% 1 0.0% Non-GAAP operating income $839 3.5% $814 3.4%
International -
Continuing Operations
Gross profit $509 25.3% $460 22.5% Restructuring charges - COGS 0
0.0% 4 0.2% Non-GAAP gross profit $509 25.3% $464 22.7%
SG&A $492 24.5% $529 25.8% Other Canada brand consolidation
charges - SG&A1 (1) (0.0%) (6) (0.3%) Non-restructuring asset
impairments - SG&A (2) (0.1%) (3) (0.1%) Non-GAAP SG&A $489
24.3% $520 25.4% Operating income (loss) $14 0.7% ($253)
(12.4%) Restructuring charges - COGS 0 0.0% 4 0.2% Other Canada
brand consolidation charges - SG&A1 1 0.0% 6 0.3%
Non-restructuring asset impairments - SG&A 2 0.1% 3 0.1%
Restructuring charges 3 0.1% 184 9.0% Non-GAAP operating income
(loss) $20 1.0% ($56) (2.7%)
Consolidated -
Continuing Operations
Gross profit $6,410 24.7% $6,240 24.1% CRT settlements3 (183)
(0.7%) (88) (0.3%) Restructuring charges - COGS 0 0.0% 4 0.0%
Non-GAAP gross profit $6,227 24.0% $6,156 23.8% SG&A
$5,407 20.9% $5,451 21.0% CRT settlements legal fees and costs3
(22) (0.1%) (13) (0.1%) Other Canada brand consolidation charges -
SG&A1 (1) (0.0%) (6) (0.0%) Non-restructuring asset impairments
- SG&A (16) (0.1%) (34) (0.1%) Non-GAAP SG&A $5,368 20.7%
$5,398 20.8% Operating income $973 3.8% $604 2.3% Net CRT
settlements3 (161) (0.6%) (75) (0.3%) Restructuring charges - COGS
0 0.0% 4 0.0% Other Canada brand consolidation charges - SG&A1
1 0.0% 6 0.0% Non-restructuring asset impairments - SG&A 16
0.1% 34 0.1% Restructuring charges 30 0.1% 185 0.7% Non-GAAP
operating income $859 3.3% $758 2.9%
Income tax expense $343 $230 Effective tax rate 36.4% 41.1% Income
tax impact of non-GAAP adjustments2 (43) 33 Non-GAAP income tax
expense $300 $263 Non-GAAP effective tax rate 36.3% 36.9%
Net earnings $600 $330 Net CRT settlements3 (161) (75)
Restructuring charges - COGS 0 4 Other Canada brand consolidation
charges - SG&A1 1 6 Non-restructuring asset impairments -
SG&A 16 34 Restructuring charges 30 185 Gain on investments (2)
(2) Income tax impact of non-GAAP adjustments2 43 (33) Non-GAAP net
earnings $527 $449 Diluted EPS $1.85 $0.93 Per share impact
of net CRT settlements3 (0.50) (0.21) Per share impact of
restructuring charges - COGS 0.00 0.01 Per share impact of other
Canada brand consolidation charges - SG&A1 0.01 0.02 Per share
impact of non-restructuring asset impairments - SG&A 0.05 0.10
Per share impact of restructuring charges 0.09 0.52 Per share
impact of gain on investments (0.01) (0.01) Per share income tax
impact of non-GAAP adjustments2 0.14 (0.09) Non-GAAP diluted EPS
$1.63 $1.27
(1) Represents charges related to the
Canadian brand consolidation initiated in Q1 FY16, primarily due to
retention bonuses and other store-related costs that were a direct
result of the consolidation but did not qualify as restructuring
charges.
(2) Income tax impact of non-GAAP
adjustments is the summation of the calculated income tax charge
related to each non-GAAP non-income tax adjustment. The non-GAAP
adjustments relate primarily to adjustments in the United States
and Canada. As such, the income tax charge is calculated using the
statutory tax rates of 38% for the United States and 26.4% for
Canada, applied to the non-GAAP adjustments of each country, which
are detailed in the Domestic and International segment
reconciliations above, respectively.
(3) Represents cathode ray tube (CRT)
litigation settlements reached, net of related legal fees and
costs. Settlements relate to products purchased and sold in prior
fiscal years. Refer to Note 12, Contingencies and Commitments, in
the Notes to Consolidated Financial Statements included in the
company’s Annual Report on Form 10-K for the fiscal year ended
January 30, 2016, for additional information.
Return on Assets
and Non-GAAP Return on Invested Capital
The following table includes a
reconciliation to the calculation of return on total assets ("ROA")
(GAAP financial measure), along with the calculation of non-GAAP
return on invested capital (“ROIC”) for total operations, which
includes both continuing and discontinued operations (non-GAAP
financial measure) for the periods presented.
The company defines non-GAAP ROIC as
non-GAAP net operating profit after tax divided by average invested
capital using the trailing four-quarter average. The company
believes non-GAAP ROIC is a useful financial measure for investors
in evaluating the efficiency and effectiveness of the use of
capital and believes non-GAAP ROIC is an important component of
shareholders' return over the long term. This method of determining
non-GAAP ROIC may differ from other companies' methods and
therefore may not be comparable to those used by other
companies.
Calculation of Return on Assets ("ROA")
October 29, 20161
October 31, 20151
Net earnings including noncontrolling interests $ 1,100 $ 938 Total
assets 13,554 14,429
ROA 8.1%
6.5% Calculation of Non-GAAP Return on
Invested Capital ("ROIC") October 29, 20161
October 31, 20151
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,744 $ 1,414 Operating
income - discontinued operations 33 77 Total
operating income 1,777 1,491 Add: Operating lease interest2 230 247
Add: Non-GAAP operating income adjustments3 (103) 176 Add:
Investment income 28 21 Less: Net earnings attributable to
noncontrolling interest - (1) Less: Income taxes4 (729)
(725)
Non-GAAP NOPAT $ 1,203 $
1,209
Average Invested
Capital
Total assets $ 13,554 $ 14,429 Less: Excess cash5 (2,834) (3,259)
Add: Capitalized operating lease obligations6 3,834 4,113 Total
liabilities (9,208) (9,644) Exclude: Debt7 1,466 1,619 Less:
Noncontrolling interests - (1)
Average invested
capital $ 6,812 $ 7,257
Non-GAAP ROIC 17.7% 16.7%
(1) Income statement accounts represent
the activity for the trailing 12-months ended as of each of the
balance sheet dates. Balance sheet accounts represent the average
account balances for the four-quarters ended as of each of the
balance sheet dates.
(2) Operating lease interest represents
the add-back to operating income to properly reflect the total
interest expense that the company would incur, if its operating
leases were capitalized or owned. The add-back is calculated by
multiplying the trailing 12-month total rent expense by 30%. This
multiple is used for the retail sector by one of the nationally
recognized credit rating agencies that rates the company's credit
worthiness, and the company considers it to be an appropriate
multiple for its lease portfolio. Historically, the company has
used an add-back multiple of 50%; however, due to changes in the
average remaining lease life of the company's operating leases, the
company has lowered its multiple. The prior period calculations
have been updated to reflect the updated multiple.
(3) Includes continuing operations
adjustments for net CRT settlements, restructuring charges, other
Canada brand consolidation charges in SG&A and
non-restructuring asset impairments in SG&A and a discontinued
operations adjustment for a gain on a property sale. Additional
details regarding the non-GAAP operating income from continuing
operations adjustments are included in the "Reconciliation of
Non-GAAP Financial Measures" schedule. For additional details on
the operating income from discontinued operations adjustment, refer
to Note 2, Discontinued Operations, in the Notes to Consolidated
Financial Statements included in the company’s Form 10-Q for the
fiscal quarter ended July 30, 2016.
(4) Income taxes are calculated using a
blended statutory rate at the Enterprise level based on statutory
rates from the countries in which the company does business, which
is primarily made up of a 38% rate in the United States and a 26.4%
rate in Canada.
(5) Cash and cash equivalents and
short-term investments are capped at the greater of 1% of revenue
or actual amounts on hand. The cash and cash equivalents and
short-term investments in excess of the cap are subtracted from the
company’s calculation of average invested capital to show their
exclusion from total assets.
(6) Capitalized operating lease
obligations represent the estimated assets that we would record, if
the company's operating leases were capitalized or owned. The
obligation is calculated by multiplying the trailing 12-month total
rent expense by the multiple of five. This multiple is used for the
retail sector by one of the nationally recognized credit rating
agencies that rates the company's credit worthiness, and the
company considers it to be an appropriate multiple for its lease
portfolio. Historically, the company has used a capitalized lease
obligation multiple of eight; however, due to changes in the
average remaining lease life of the company's operating leases, the
company has lowered its multiples. The prior period calculations
have been updated to reflect the updated multiple.
(7) Debt includes short-term debt, current
portion of long-term debt and long-term debt and is added back to
the company’s calculation of average invested capital to show its
exclusion from total liabilities.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161117005271/en/
Best Buy Co., Inc.Investor Contact:Mollie O'Brien,
612-291-7735mollie.obrien@bestbuy.comorMedia Contact:Jeff
Shelman, 612-291-6114Jeffrey.shelman@bestbuy.com
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