Enterprise Comparable Sales Increased
23%
Domestic Comparable Online Sales Increased
174%
GAAP Diluted EPS Increased 35% to
$1.48
Non-GAAP Diluted EPS Increased 82% to
$2.06
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
13-week third quarter ended October 31, 2020 (“Q3 FY21”), as
compared to the 13-week third quarter ended November 2, 2019 (“Q3
FY20”).
Q3 FY21
Q3 FY20
Revenue ($ in millions)
Enterprise
$
11,853
$
9,764
Domestic segment
$
10,850
$
8,964
International segment
$
1,003
$
800
Enterprise comparable sales % change1
23.0
%
1.7
%
Domestic comparable sales % change1
22.6
%
2.0
%
Domestic comparable online sales %
change1
173.7
%
15.0
%
International comparable sales %
change1
27.3
%
(1.9)
%
Operating Income
GAAP operating income as a % of
revenue
4.7
%
4.0
%
Non-GAAP operating income as a % of
revenue
6.1
%
4.2
%
Diluted Earnings per Share
("EPS")
GAAP diluted EPS
$
1.48
$
1.10
Non-GAAP diluted EPS
$
2.06
$
1.13
For GAAP to non-GAAP reconciliations of the measures referred to
in the above table, please refer to the attached supporting
schedule.
“Today, we are once again reporting strong quarterly results in
the midst of unprecedented times,” said Corie Barry, Best Buy CEO.
“Our comparable sales grew a remarkable 23% as we leveraged our
unique capabilities, including our supply chain expertise, flexible
store operating model and ability to shift quickly to digital, to
meet what is clearly elevated demand for products that help
customers work, learn, cook, entertain and connect in their homes.
The current environment has underscored our purpose to enrich lives
through technology, and the capabilities we are flexing and
strengthening now will benefit us going forward as we execute our
strategy.”
Barry continued, “Our teams showed empathy, ingenuity and
extraordinary execution throughout the quarter. I am very proud of
the way our teammates are helping not only our customers, but each
other and their communities.”
“From a profitability standpoint, our better-than-expected sales
resulted in significant operating income rate expansion and
earnings growth,” Barry continued. “This strong financial
performance is allowing us to share our success with the community,
our shareholders, and, importantly, our employees. We recently made
a $40 million donation to the Best Buy Foundation to accelerate the
progress towards our goal to reach 100 Teen Tech Centers across the
U.S. In addition, we plan on resuming our share repurchase program
during Q4 of this fiscal year.”
Barry continued, “For our employees, we raised our starting wage
to $15 per hour, paid recognition bonuses to field employees and
reinstated our short-term incentive compensation. In the early days
of the pandemic, we established an employee hardship fund that
continues to provide emergency funds to our employees who are sick,
have loved ones who are sick or are experiencing financial
hardship. In addition, in recent weeks, we have resumed our 401(k)
employer match and invested significantly in our employee
well-being benefits.”
Best Buy CFO Matt Bilunas said, “While the demand for the
products and services we sell remains at elevated levels as we
start the fourth quarter, it is very difficult for us to predict
how sustainable these trends will be due to the significant
uncertainty related to the various impacts of the pandemic. Thus,
similar to the last two quarters, we are not providing financial
guidance today.”
Domestic Segment Q3 FY21
Results
Domestic Revenue
Domestic revenue of $10.85 billion increased 21.0% versus last
year. The increase was primarily driven by comparable sales growth
of 22.6%, which was partially offset by the loss of revenue from
permanent store closures in the past year.
From a merchandising perspective, the company generated
comparable sales growth across most of its categories, with the
largest drivers being computing, home theater and appliances. These
growth drivers were partially offset by a decline in mobile phone
sales.
Domestic online revenue of $3.82 billion increased 173.7% on a
comparable basis, and as a percentage of total Domestic revenue,
online revenue increased to approximately 35.2% versus 15.6% last
year.
Domestic Gross Profit Rate
Domestic gross profit rate was 24.0% versus 24.3% last year. The
gross profit rate decrease of approximately 30 basis points was
primarily driven by higher supply chain costs as a result of the
increased mix of online revenue and lower profit-sharing revenue
from the company’s private-label and co-branded credit card
arrangement. These pressures were partially offset by a more
favorable promotional environment.
Domestic Selling, General and Administrative Expenses
(“SG&A”)
Domestic GAAP SG&A was $1.95 billion, or 18.0% of revenue,
versus $1.80 billion, or 20.1% of revenue, last year. On a non-GAAP
basis, SG&A was $1.93 billion, or 17.8% of revenue, versus
$1.78 billion, or 19.9% of revenue, last year. Both GAAP and
non-GAAP SG&A increased primarily due to: (1) increased
incentive compensation expense; (2) increased variable expense
related to the higher sales growth, including items such as credit
card processing fees; and (3) a $40 million donation to the Best
Buy Foundation. These items were partially offset by lower store
payroll expense.
International Segment Q3 FY21
Results
International Revenue
International revenue of $1.0 billion increased 25.4% versus
last year. This increase was primarily driven by comparable sales
growth of 27.3%, which was partially offset by the impact of
approximately 140 basis points of negative foreign currency
exchange rates.
International Gross Profit Rate
International GAAP gross profit rate was 19.0% versus 22.5% last
year. On a non-GAAP basis, the gross profit rate was 22.6% versus
22.5% last year. The lower GAAP gross profit was primarily due to
$36 million of inventory markdowns associated with the company’s
decision to exit its operations in Mexico.
International SG&A
International SG&A was $175 million, or 17.4% of revenue,
versus $173 million, or 21.6% of revenue, last year. SG&A
increased primarily due to higher incentive compensation in
Canada.
Restructuring Charges
Restructuring charges of $111 million in Q3 FY21 primarily
related to charges associated with the company’s decision this
quarter to exit operations in Mexico and actions to better align
its organizational structure with its strategic focus.
Dividends and Share
Repurchases
In Q3 FY21, the company returned a total of $142 million to
shareholders through dividends. On a year-to-date basis, the
company has returned a total of $488 million to shareholders
through dividends of $426 million and share repurchases of $62
million. The company suspended share repurchases last March in
order to conserve liquidity in light of the COVID-related
uncertainties and plans to resume share repurchases during Q4
FY21.
Today, the company announced its board of directors has
authorized the payment of a regular quarterly cash dividend of
$0.55 per common share. The quarterly dividend is payable on
January 5, 2021, to shareholders of record as of the close of
business on December 15, 2020.
Bond Offering
In Q3 FY21, the company completed a public bond offering for
$650 million in 1.95% notes due in October 2030. The net proceeds
from the sale will be used to replace the $650 million in 5.5%
notes that mature in March 2021, which the company expects to
retire during Q4 FY21 by exercising its option to redeem the 5.5%
notes at par.
Conference Call
Best Buy is scheduled to conduct an earnings conference call at
8:00 a.m. Eastern Time (7:00 a.m. Central Time) on November 24,
2020. A webcast of the call is expected to be available at
www.investors.bestbuy.com, both live and after the call.
Notes:
(1) Comparable sales include revenue from all stores that were
temporarily closed or operating an enhanced curbside-only operating
model in Q3 FY21 as a result of COVID-19. The method of calculating
comparable sales varies across the retail industry, including the
treatment of store closures as a result of COVID-19. As a result,
our method of calculating comparable sales may not be the same as
other retailers’ methods. For additional information on comparable
sales, please see our most recent Annual Report on Form 10-K, and
any subsequent Quarterly Reports on Form 10-Q, filed with the
Securities and Exchange Commission, and available at
www.investors.bestbuy.com.
Forward-Looking and Cautionary Statements:
This release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 as
contained in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934 that reflect
management’s current views and estimates regarding future market
conditions, company performance and financial results, operational
investments, business prospects, new strategies, the competitive
environment and other events. You can identify these statements by
the fact that they use words such as “anticipate,” “believe,”
“assume,” “estimate,” “expect,” “intend,” “foresee,” “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: the duration and
scope of the COVID-19 pandemic and its resurgence and the impact on
demand for our products and services, levels of consumer confidence
and our supply chain; the effects and duration of steps we have
taken and will continue to take in response to the pandemic,
including the implementation of our interim and evolving operating
model; actions governments, businesses and individuals have taken
and will continue to take in response to the pandemic and their
impact on economic activity and consumer spending; the pace of
recovery when the COVID-19 pandemic subsides; general economic
uncertainty in key global markets and a worsening of global
economic conditions or low levels of economic growth; competition
(including from multi-channel retailers, e-commerce business,
technology service providers, traditional store-based retailers,
vendors and mobile network carriers), our expansion strategies, our
focus on services as a strategic priority, our reliance on key
vendors and mobile network carriers, our ability to attract and
retain qualified employees, changes in market compensation rates,
risks arising from statutory, regulatory and legal developments,
macroeconomic pressures in the markets in which we operate, failure
to effectively manage our costs, our reliance on our information
technology systems, our ability to prevent or effectively respond
to a privacy or security breach, our ability to effectively manage
strategic ventures, alliances or acquisitions, our dependence on
cash flows and net earnings generated during the fourth fiscal
quarter, susceptibility of our products to technological
advancements, product life cycle preferences and changes in
consumer preferences, economic or regulatory developments that
might affect our ability to provide attractive promotional
financing, interruptions and other supply chain issues,
catastrophic events, health crises, pandemics, our ability to
maintain positive brand perception and recognition, product safety
and quality concerns, changes to labor or employment laws or
regulations, our ability to effectively manage our real estate
portfolio, constraints in the capital markets or our vendor credit
terms, changes in our credit ratings, any material disruption in
our relationship with or the services of third-party vendors, risks
related to our exclusive brand products and risks associated with
vendors that source products outside of the U.S., including trade
restrictions or changes in the costs of imports (including existing
or new tariffs or duties and changes in the amount of any such
tariffs or duties) and risks arising from our international
activities.
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
Annual Report on Form 10-K filed with the SEC on March 23, 2020 and
its Quarterly Reports on Form 10-Q filed with the SEC on May 27,
2020 and August 31, 2020. 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.
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
($ and shares in millions, except
per share amounts)
(Unaudited and subject to
reclassification)
Three Months Ended
Nine Months Ended
October 31, 2020
November 2, 2019
October 31, 2020
November 2, 2019
Revenue
$
11,853
$
9,764
$
30,325
$
28,442
Cost of sales
9,058
7,403
23,295
21,629
Gross profit
2,795
2,361
7,030
6,813
Gross profit %
23.6
%
24.2
%
23.2
%
24.0
%
Selling, general and administrative
expenses
2,123
1,973
5,560
5,730
SG&A %
17.9
%
20.2
%
18.3
%
20.1
%
Restructuring charges
111
(7
)
112
41
Operating income
561
395
1,358
1,042
Operating income %
4.7
%
4.0
%
4.5
%
3.7
%
Other income (expense)
Gain on sale of investments
-
1
-
1
Investment income and other
5
9
19
33
Interest expense
(11
)
(16
)
(43
)
(50
)
Earnings before income tax expense
555
389
1,334
1,026
Income tax expense
164
96
352
230
Effective tax rate
29.6
%
24.8
%
26.4
%
22.5
%
Net earnings
$
391
$
293
$
982
$
796
Basic earnings per share
$
1.50
$
1.11
$
3.79
$
2.99
Diluted earnings per share
$
1.48
$
1.10
$
3.74
$
2.96
Weighted-average common shares
outstanding
Basic
259.8
263.2
259.3
266.0
Diluted
263.7
265.2
262.5
269.1
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
($ in millions)
(Unaudited and subject to
reclassification)
October 31, 2020
November 2, 2019
Assets
Current assets
Cash and cash equivalents
$
5,136
$
1,205
Short-term investments
545
-
Receivables, net
1,028
1,056
Merchandise inventories
7,459
7,569
Other current assets
383
345
Total current assets
14,551
10,175
Property and equipment, net
2,265
2,359
Operating lease assets
2,692
2,751
Goodwill
986
982
Other assets
708
659
Total assets
$
21,202
$
16,926
Liabilities and equity
Current liabilities
Accounts payable
$
9,110
$
7,232
Unredeemed gift card liabilities
278
271
Deferred revenue
788
445
Accrued compensation and related
expenses
446
351
Accrued liabilities
968
769
Current portion of operating lease
liabilities
685
644
Current portion of long-term debt
670
14
Total current liabilities
12,945
9,726
Long-term operating lease liabilities
2,117
2,200
Long-term liabilities
798
636
Long-term debt
1,256
1,239
Equity
4,086
3,125
Total liabilities and equity
$
21,202
$
16,926
BEST BUY CO., INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited and subject to
reclassification)
Nine Months Ended
October 31, 2020
November 2, 2019
Operating activities
Net earnings
$
982
$
796
Adjustments to reconcile net earnings to
total cash provided by operating activities:
Depreciation and amortization
628
607
Restructuring charges
112
41
Stock-based compensation
107
109
Deferred income taxes
19
20
Other, net
10
16
Changes in operating assets and
liabilities, net of acquired assets and liabilities:
Receivables
106
(36
)
Merchandise inventories
(2,300
)
(2,159
)
Other assets
(60
)
(2
)
Accounts payable
3,824
1,984
Income taxes
121
(147
)
Other liabilities
358
(292
)
Total cash provided by operating
activities
3,907
937
Investing activities
Additions to property and equipment
(534
)
(586
)
Purchases of investments
(620
)
(319
)
Sales of investments
-
322
Acquisitions, net of cash acquired
-
(145
)
Other, net
1
1
Total cash used in investing
activities
(1,153
)
(727
)
Financing activities
Repurchase of common stock
(62
)
(696
)
Issuance of common stock
28
45
Dividends paid
(426
)
(398
)
Borrowings of debt
1,892
-
Repayments of debt
(1,261
)
(11
)
Other, net
(1
)
-
Total cash provided by (used in) financing
activities
170
(1,060
)
Effect of exchange rate changes on cash
and cash equivalents
(8
)
(2
)
Increase (decrease) in cash, cash
equivalents and restricted cash
2,916
(852
)
Cash, cash equivalents and restricted
cash at beginning of period
2,355
2,184
Cash, cash equivalents and restricted
cash at end of period
$
5,271
$
1,332
BEST BUY CO., INC.
SEGMENT INFORMATION
($ in millions)
(Unaudited and subject to
reclassification)
Three Months Ended
Nine Months Ended
Domestic Segment Results
October 31, 2020
November 2, 2019
October 31, 2020
November 2, 2019
Revenue
$
10,850
$
8,964
$
27,893
$
26,266
Comparable sales % change
22.6
%
2.0
%
7.5
%
1.8
%
Comparable online sales % change
173.7
%
15.0
%
191.4
%
15.6
%
Gross profit
$
2,604
$
2,181
$
6,509
$
6,303
Gross profit as a % of revenue
24.0
%
24.3
%
23.3
%
24.0
%
SG&A
$
1,948
$
1,800
$
5,087
$
5,233
SG&A as a % of revenue
18.0
%
20.1
%
18.2
%
19.9
%
Operating income
$
612
$
388
$
1,377
$
1,029
Operating income as a % of revenue
5.6
%
4.3
%
4.9
%
3.9
%
Domestic Segment Non-GAAP
Results1
Gross profit
$
2,604
$
2,181
$
6,509
$
6,303
Gross profit as a % of revenue
24.0
%
24.3
%
23.3
%
24.0
%
SG&A
$
1,928
$
1,782
$
5,027
$
5,177
SG&A as a % of revenue
17.8
%
19.9
%
18.0
%
19.7
%
Operating income
$
676
$
399
$
1,482
$
1,126
Operating income as a % of revenue
6.2
%
4.5
%
5.3
%
4.3
%
Three Months Ended
Nine Months Ended
International Segment Results
October 31, 2020
November 2, 2019
October 31, 2020
November 2, 2019
Revenue
$
1,003
$
800
$
2,432
$
2,176
Comparable sales % change
27.3
%
(1.9
)%
15.1
%
(1.7
)%
Gross profit
$
191
$
180
$
521
$
510
Gross profit as a % of revenue
19.0
%
22.5
%
21.4
%
23.4
%
SG&A
$
175
$
173
$
473
$
497
SG&A as a % of revenue
17.4
%
21.6
%
19.4
%
22.8
%
Operating income (loss)
$
(51
)
$
7
$
(19
)
$
13
Operating income (loss) as a % of
revenue
(5.1
)%
0.9
%
(0.8
)%
0.6
%
International Segment Non-GAAP
Results1
Gross profit
$
227
$
180
$
557
$
510
Gross profit as a % of revenue
22.6
%
22.5
%
22.9
%
23.4
%
SG&A
$
175
$
173
$
473
$
497
SG&A as a % of revenue
17.4
%
21.6
%
19.4
%
22.8
%
Operating income
$
52
$
7
$
84
$
13
Operating income as a % of revenue
5.2
%
0.9
%
3.5
%
0.6
%
(1)
For GAAP to non-GAAP reconciliations,
please refer to the attached supporting schedule titled
Reconciliation of Non-GAAP Financial Measures.
BEST BUY CO., INC.
REVENUE CATEGORY
SUMMARY
(Unaudited and subject to
reclassification)
Revenue Mix
Comparable Sales
Three Months Ended
Three Months Ended
Domestic Segment
October 31, 2020
November 2, 2019
October 31, 2020
November 2, 2019
Computing and Mobile Phones
47
%
47
%
21.5
%
3.0
%
Consumer Electronics
29
%
30
%
21.1
%
-
%
Appliances
14
%
12
%
39.3
%
12.5
%
Entertainment
5
%
5
%
17.5
%
(20.8
)%
Services
5
%
6
%
12.7
%
12.9
%
Other
-
%
-
%
N/A
N/A
Total
100
%
100
%
22.6
%
2.0
%
Revenue Mix
Comparable Sales
Three Months Ended
Three Months Ended
International Segment
October 31, 2020
November 2, 2019
October 31, 2020
November 2, 2019
Computing and Mobile Phones
53
%
51
%
35.7
%
(0.3
)%
Consumer Electronics
27
%
29
%
13.3
%
1.2
%
Appliances
9
%
8
%
40.1
%
(1.5
)%
Entertainment
5
%
5
%
35.6
%
(31.1
)%
Services
5
%
6
%
4.3
%
11.5
%
Other
1
%
1
%
22.0
%
(28.2
)%
Total
100
%
100
%
27.3
%
(1.9
)%
BEST BUY CO., INC. RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES ($ in millions, except per share
amounts) (Unaudited and subject to reclassification)
The following information provides reconciliations of the most
comparable financial measures presented in accordance with
accounting principles generally accepted in the U.S. (GAAP
financial measures) to presented non-GAAP financial measures. The
company believes that non-GAAP financial measures, when reviewed in
conjunction with GAAP financial measures, can provide more
information to assist investors in evaluating current period
performance and in assessing future performance. For these reasons,
internal management reporting also includes non-GAAP financial
measures. Generally, presented non-GAAP financial measures include
adjustments for items such as restructuring charges, goodwill
impairments, gains and losses on investments, intangible asset
amortization, certain acquisition-related costs and the tax effect
of all such items. In addition, certain other items may be excluded
from non-GAAP financial measures when the company believes this
provides greater clarity to management and investors. These
non-GAAP financial measures should be considered in addition to,
and not superior to or as a substitute for, the GAAP financial
measures presented in this earnings release and the company’s
financial statements and other publicly filed reports. Non-GAAP
financial measures as presented herein may not be comparable to
similarly titled measures used by other companies.
Three Months Ended
Three Months Ended
October 31, 2020
November 2, 2019
Domestic
International
Consolidated
Domestic
International
Consolidated
Gross profit
$
2,604
$
191
$
2,795
$
2,181
$
180
$
2,361
% of revenue
24.0
%
19.0
%
23.6
%
24.3
%
22.5
%
24.2
%
Restructuring - inventory markdowns1
-
36
36
-
-
-
Non-GAAP gross profit
$
2,604
$
227
$
2,831
$
2,181
$
180
$
2,361
% of revenue
24.0
%
22.6
%
23.9
%
24.3
%
22.5
%
24.2
%
SG&A
$
1,948
$
175
$
2,123
$
1,800
$
173
$
1,973
% of revenue
18.0
%
17.4
%
17.9
%
20.1
%
21.6
%
20.2
%
Intangible asset amortization2
(20
)
-
(20
)
(18
)
-
(18
)
Non-GAAP SG&A
$
1,928
$
175
$
2,103
$
1,782
$
173
$
1,955
% of revenue
17.8
%
17.4
%
17.7
%
19.9
%
21.6
%
20.0
%
Operating income (loss)
$
612
$
(51
)
$
561
$
388
$
7
$
395
% of revenue
5.6
%
(5.1
)%
4.7
%
4.3
%
0.9
%
4.0
%
Restructuring - inventory markdowns1
-
36
36
-
-
-
Intangible asset amortization2
20
-
20
18
-
18
Restructuring charges3
44
67
111
(7
)
-
(7
)
Non-GAAP operating income
$
676
$
52
$
728
$
399
$
7
$
406
% of revenue
6.2
%
5.2
%
6.1
%
4.5
%
0.9
%
4.2
%
Effective tax rate
29.6
%
24.8
%
Intangible asset amortization2
(1.5
)%
0.1
%
Restructuring charges3
(3.2
)%
(0.1
)%
Non-GAAP effective tax rate
24.9
%
24.8
%
Three Months Ended
Three Months Ended
October 31, 2020
November 2, 2019
Pretax Earnings
Net of Tax4
Per Share
Pretax Earnings
Net of Tax4
Per Share
GAAP diluted EPS
$
1.48
$
1.10
Restructuring - inventory markdowns1
$
36
$
36
0.14
$
-
$
-
-
Intangible asset amortization2
20
15
0.06
18
14
0.05
Restructuring charges3
111
100
0.38
(7
)
(5
)
(0.02
)
Gain on investments, net
-
-
-
(1
)
(1
)
-
Non-GAAP diluted EPS
$
2.06
$
1.13
Nine Months Ended
Nine Months Ended
October 31, 2020
November 2, 2019
Domestic
International
Consolidated
Domestic
International
Consolidated
Gross profit
$
6,509
$
521
$
7,030
$
6,303
$
510
$
6,813
% of revenue
23.3
%
21.4
%
23.2
%
24.0
%
23.4
%
24.0
%
Restructuring - inventory markdowns1
-
36
36
-
-
-
Non-GAAP gross profit
$
6,509
$
557
$
7,066
$
6,303
$
510
$
6,813
% of revenue
23.3
%
22.9
%
23.3
%
24.0
%
23.4
%
24.0
%
SG&A
$
5,087
$
473
$
5,560
$
5,233
$
497
$
5,730
% of revenue
18.2
%
19.4
%
18.3
%
19.9
%
22.8
%
20.1
%
Intangible asset amortization2
(60
)
-
(60
)
(53
)
-
(53
)
Acquisition-related transaction costs2
-
-
-
(3
)
-
(3
)
Non-GAAP SG&A
$
5,027
$
473
$
5,500
$
5,177
$
497
$
5,674
% of revenue
18.0
%
19.4
%
18.1
%
19.7
%
22.8
%
19.9
%
Operating income (loss)
$
1,377
$
(19
)
$
1,358
$
1,029
$
13
$
1,042
% of revenue
4.9
%
(0.8
)%
4.5
%
3.9
%
0.6
%
3.7
%
Restructuring - inventory markdowns1
-
36
36
-
-
-
Intangible asset amortization2
60
-
60
53
-
53
Acquisition-related transaction costs2
-
-
-
3
-
3
Restructuring charges3
45
67
112
41
-
41
Non-GAAP operating income
$
1,482
$
84
$
1,566
$
1,126
$
13
$
1,139
% of revenue
5.3
%
3.5
%
5.2
%
4.3
%
0.6
%
4.0
%
Effective tax rate
26.4
%
22.5
%
Intangible asset amortization2
(1.1
)%
0.1
%
Restructuring charges3
(0.8
)%
-
%
Non-GAAP effective tax rate
24.5
%
22.6
%
Nine Months Ended
Nine Months Ended
October 31, 2020
November 2, 2019
Pretax Earnings
Net of Tax4
Per Share
Pretax Earnings
Net of Tax4
Per Share
GAAP diluted EPS
$
3.74
$
2.96
Restructuring - inventory markdowns1
$
36
$
36
0.13
$
-
$
-
-
Intangible asset amortization2
60
45
0.17
53
40
0.15
Acquisition-related transaction costs2
-
-
-
3
2
-
Restructuring charges3
112
101
0.39
41
32
0.12
Gain on investments, net
-
-
-
(1
)
(1
)
-
Non-GAAP diluted EPS
$
4.43
$
3.23
(1)
Represents inventory markdowns recorded
within cost of sales associated with the decision to exit
operations in Mexico.
(2)
Represents charges associated with
acquisitions, including: (1) the non-cash amortization of
definite-lived intangible assets, including customer relationships,
tradenames and developed technology; and (2) acquisition-related
transaction costs primarily comprised of professional fees.
(3)
Represents charges related to asset
impairments and termination benefits associated with the decision
to exit operations in Mexico and other actions to better align the
company’s organizational structure with its strategic focus for the
periods ended October 31, 2020, and charges and subsequent
adjustments related to termination benefits associated with U.S.
retail operating model changes for the periods ended November 2,
2019.
(4)
The non-GAAP adjustments relate to the
U.S. and Mexico. As such, the income tax charge is calculated using
the statutory tax rate of 24.5% for all U.S. non-GAAP items for all
periods presented. There is no income tax charge for the Mexico
non-GAAP items, as there was no tax benefit recognized on these
expenses in the calculation of GAAP income tax expense.
Return on Assets and
Non-GAAP Return on Investment
The tables below provide calculations of return on assets
("ROA") (GAAP financial measure) and non-GAAP return on investment
(“ROI”) (non-GAAP financial measure) for the periods presented. The
company believes ROA is the most directly comparable financial
measure to ROI. Non-GAAP ROI is defined as non-GAAP adjusted
operating income after tax divided by average invested operating
assets. All periods presented below apply this methodology
consistently. The company believes non-GAAP ROI is a meaningful
metric for investors to evaluate capital efficiency because it
measures how key assets are deployed by adjusting operating income
and total assets for the items noted below. This method of
determining non-GAAP ROI may differ from other companies' methods
and therefore may not be comparable to those used by other
companies.
Return on Assets ("ROA")
October 31, 20201
November 2, 20191
Net earnings
$
1,727
$
1,531
Total assets
17,571
15,219
ROA
9.8
%
10.1
%
Non-GAAP Return on Investment
("ROI")
October 31, 20201
November 2, 20191
Numerator
Operating income - total operations
$
2,325
$
2,020
Add: Non-GAAP operating income
adjustments2
227
113
Add: Operating lease interest3
112
112
Less: Income taxes4
(653
)
(550
)
Add: Depreciation
754
757
Add: Operating lease amortization5
665
653
Adjusted operating income after
tax
$
3,430
$
3,105
Denominator
Total assets
$
17,571
$
15,219
Less: Excess cash6
(3,164
)
(855
)
Add: Capitalized operating lease
assets7
-
720
Add: Accumulated depreciation and
amortization8
7,056
6,640
Less: Adjusted current liabilities9
(8,724
)
(7,940
)
Average invested operating
assets
$
12,739
$
13,784
Non-GAAP ROI
26.9
%
22.5
%
(1)
Income statement accounts represent the
activity for the trailing 12 months ended as of each of the balance
sheet dates. Balance sheet accounts represent the average account
balances for the trailing 12 months ended as of each of the balance
sheet dates.
(2)
Non-GAAP operating income adjustments
include continuing operations adjustments for restructuring
charges, intangible asset amortization and acquisition-related
transaction costs. Additional details regarding these adjustments
are included in the Reconciliation of Non-GAAP Financial Measures
schedule within the company's quarterly earnings releases.
(3)
Operating lease interest represents the
add-back to operating income to approximate the total interest
expense that the company would incur if its operating leases were
owned and financed by debt. For periods prior to FY20, the add-back
is approximated by using a multiple of 15% of total rent expense.
For periods beginning on or after FY20, the add-back is
approximated by multiplying average operating lease assets by 4%,
which approximates the interest rate on the company’s operating
lease liabilities.
(4)
Income taxes are approximated by using a
blended statutory rate at the Enterprise level based on statutory
rates from the countries in which the company does business, which
primarily consists of the U.S. with a statutory rate of 24.5% for
the periods presented.
(5)
Operating lease amortization represents
operating lease cost less operating lease interest. Operating lease
cost includes short-term leases, which are immaterial, and excludes
variable lease costs as these costs are not included in the
operating lease asset balance.
(6)
Excess cash represents the amount of cash,
cash equivalents and short-term investments greater than $1
billion, which approximates the amount of cash the company believes
is necessary to run the business and may fluctuate over time.
(7)
Capitalized operating lease assets
represent the estimated net assets that the company would record if
the company's operating leases were owned. For periods prior to
FY20, the asset is approximated by using a multiple of four times
total rent expense. For periods beginning on or after FY20,
capitalized operating lease assets are included within Total assets
and therefore no adjustment is necessary.
(8)
Accumulated depreciation and amortization
represents accumulated depreciation related to property and
equipment and accumulated amortization related to definite-lived
intangible assets.
(9)
Adjusted current liabilities represent
total current liabilities less short-term debt and the current
portions of operating lease liabilities and long-term debt.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201124005265/en/
Investor Contact: Mollie O'Brien
mollie.obrien@bestbuy.com
Media Contact: Carly Charlson
carly.charlson@bestbuy.com
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