Comparable Sales Declined 12.1% Compared to
19.6% Growth in Q2 FY22
GAAP Diluted EPS of $1.35
Non-GAAP Diluted EPS of $1.54
Best Buy Co., Inc. (NYSE: BBY) today announced results for the
13-week second quarter ended July 30, 2022 (“Q2 FY23”), as compared
to the 13-week second quarter ended July 31, 2021 (“Q2 FY22”).
Q2 FY23
Q2 FY22
Revenue ($ in millions)
Enterprise
$
10,329
$
11,849
Domestic segment
$
9,569
$
11,011
International segment
$
760
$
838
Enterprise comparable sales % change1
(12.1)
%
19.6
%
Domestic comparable sales % change1
(12.7)
%
20.8
%
Domestic comparable online sales %
change1
(14.7)
%
(28.1)
%
International comparable sales %
change1
(4.2)
%
5.0
%
Operating Income
GAAP operating income as a % of
revenue
3.6
%
6.7
%
Non-GAAP operating income as a % of
revenue
4.1
%
6.9
%
Diluted Earnings per Share
("EPS")
GAAP diluted EPS
$
1.35
$
2.90
Non-GAAP diluted EPS
$
1.54
$
2.98
For GAAP to non-GAAP reconciliations of the measures referred to
in the above table, please refer to the attached supporting
schedule.
“I am incredibly proud of our teams as they continue to rise to
the challenges of the past few years and I remain impressed with
their ability to lead through the rapidly shifting business
environment,” said Corie Barry, Best Buy CEO. “Our comparable sales
were down 12.1% as we lapped strong comparable sales growth last
year of 19.6%. Our online sales penetration, at 31% of our total
Domestic sales, is almost twice as high as pre-pandemic Q2 FY20
while our diluted EPS grew over 40% versus Q2 FY20.”
“We are clearly operating in an uneven sales environment,”
continued Barry. “As we entered the year, we expected the consumer
electronics industry to be softer than last year following two
years of elevated growth driven by unusually strong demand for
technology products and services and fueled partly by stimulus
dollars. The macro environment has been more challenged due to
several factors and that has put additional pressure on our
industry.”
Barry continued, “We are focused on balancing our near-term
response to difficult conditions and managing well what is in our
control, while also delivering on our strategic initiatives and
what will be important for our long-term growth. This includes
actively assessing further actions to evolve our operating model,
manage profitability and iterate on our growth initiatives. Our
strategy, and our confidence in it, remains unchanged. We have
exciting opportunities ahead of us in a world that is more reliant
on technology than ever. We are a financially strong company with a
resilient, world class team that will successfully navigate the
current environment.”
FY23 Financial Guidance
Matt Bilunas, Best Buy CFO, said, “Our current FY23 planning
assumptions for a comparable sales1 decline in a range around 11%
and a non-GAAP operating income rate2 of approximately 4% are
consistent with the update we provided in late July.”
Bilunas continued, “As it relates specifically to Q3 FY23, we
anticipate that our comparable sales will decline slightly more
than the 12.1% decline we reported for the second quarter. We
anticipate the year-over-year decline in our non-GAAP operating
income rate in Q3 FY23 will be very similar to, or slightly more
than, our Q2 FY23 year-over-year results.”
Domestic Segment Q2 FY23
Results
Domestic Revenue
Domestic revenue of $9.57 billion decreased 13.1% versus last
year primarily driven by a comparable sales decline of 12.7%.
From a merchandising perspective, the company had comparable
sales declines across almost all categories, with the largest
drivers on a weighted basis being computing and home theater.
Domestic online revenue of $2.97 billion decreased 14.7% on a
comparable basis, and as a percentage of total Domestic revenue,
online revenue was 31.0% versus 31.7% last year.
Domestic Gross Profit Rate
Domestic gross profit rate was 22.0% versus 23.7% last year. The
lower gross profit rate was primarily due to: (1) lower services
margin rates, including pressure associated with the Best Buy
Totaltech membership offering; (2) lower product margin rates,
including increased promotions; and (3) higher supply chain costs.
These pressures were partially offset by higher profit-sharing
revenue from the company’s private label and co-branded credit card
arrangement.
Domestic Selling, General and Administrative Expenses
(“SG&A”)
Domestic GAAP SG&A was $1.73 billion, or 18.1% of revenue,
versus $1.85 billion, or 16.8% of revenue, last year. On a non-GAAP
basis, SG&A was $1.71 billion, or 17.9% of revenue, versus
$1.83 billion, or 16.6% of revenue, last year. Both GAAP and
non-GAAP SG&A decreased primarily due to lower incentive
compensation.
International Segment Q2 FY23
Results
International Revenue
International revenue of $760 million decreased 9.3% versus last
year. This decrease was primarily driven by a comparable sales
decline of 4.2% in Canada and the negative impact of approximately
420 basis points from foreign currency exchange rates.
International Gross Profit Rate
International gross profit rate was 23.4% versus 24.3% last
year. The lower gross profit rate was primarily driven by lower
product margin rates.
International SG&A
International SG&A was $150 million, or 19.7% of revenue,
versus $160 million, or 19.1% of revenue, last year. SG&A
decreased primarily due to lower incentive compensation and the
favorable impact of foreign currency exchange rates, which were
partially offset by higher store payroll expense.
Restructuring Charges
In light of ongoing changes in business trends, during Q2 FY23
the company commenced an enterprise-wide restructuring initiative
to better align its spending with critical strategies and
operations, as well as to optimize its cost structure. The company
incurred $34 million of such restructuring costs in Q2 FY23,
primarily related to termination benefits. The company currently
expects to incur additional charges through the remainder of FY23
for this initiative. Consistent with prior practice, restructuring
costs related to this initiative are excluded from the company’s
non-GAAP results.
Income Taxes
The Q2 FY23 GAAP effective tax rate was 15.6% versus 8.0% last
year. On a non-GAAP basis, the effective tax rate was 16.7% versus
8.4% last year. The lower GAAP and non-GAAP effective tax rates
last year were primarily due to a multi-jurisdiction, multi-year
non-cash benefit from the resolution of certain discrete tax
matters.
Share Repurchases and
Dividends
In Q2 FY23, the company returned a total of $208 million to
shareholders through share repurchases of $10 million and dividends
of $198 million. On a year-to-date basis, the company has returned
a total of $862 million to shareholders through share repurchases
of $465 million and dividends of $397 million. The company paused
share repurchases during Q2 FY23.
Today, the company announced its board of directors has
authorized the payment of its regular quarterly cash dividend of
$0.88 per common share. The quarterly dividend is payable on
October 11, 2022, to shareholders of record as of the close of
business on September 20, 2022.
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 August 30, 2022.
A webcast of the call is expected to be available at www.investors.bestbuy.com, both live and
after the call.
Notes:
(1) The method of calculating comparable sales varies across the
retail industry. 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 our subsequent Quarterly
Reports on Form 10-Q, filed with the Securities and Exchange
Commission (“SEC”), and available at www.investors.bestbuy.com.
(2) A reconciliation of the projected non-GAAP operating income
and non-GAAP operating income rate, 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; price-fixing settlements; goodwill
impairments; gains and losses on investments; intangible asset
amortization; certain acquisition-related costs; 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 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.
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," "assume,"
"believe," "estimate," "expect," "guidance," "intend," "outlook,"
"plan," "project" and other words and terms of similar meaning.
Such statements reflect our current views and estimates with
respect to future market conditions, company performance and
financial results, operational investments, business prospects, new
strategies, the competitive environment and other events. These
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from the potential
results discussed in such forward-looking statements. Readers
should review Item 1A, Risk Factors, of our Annual Report on Form
10-K for the fiscal year ended January 29, 2022, for a description
of important factors that could cause our actual results to differ
materially from those contemplated by the forward-looking
statements made in this release. 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 resurgences and
the impact on demand for our products and services; levels of
consumer confidence; supply chain issues; 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.;
macroeconomic pressures in the markets in which we operate
(including but not limited to the effects of COVID-19, increased
levels of inventory loss due to organized crime, petty theft or
otherwise, fluctuations in housing prices, energy markets, and
jobless rates and those related to the conflict in Ukraine); future
outbreaks, catastrophic events, health crises and pandemics;
susceptibility of our products to technological advancements,
product life cycles and launches; conditions in the industries and
categories in which we operate; changes in consumer preferences,
spending and debt; competition (including from multi-channel
retailers, e-commerce business, technology service providers,
traditional store-based retailers, vendors and mobile network
carriers); our ability to attract and retain qualified employees;
changes in market compensation rates; our expansion strategies; our
focus on services as a strategic priority; our reliance on key
vendors and mobile network carriers (including product
availability); our ability to maintain positive brand perception
and recognition; our company transformation; our mix of products
and services; our ability to effectively manage strategic ventures,
alliances or acquisitions; our ability to effectively manage our
real estate portfolio; 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); our reliance on our
information technology systems; our dependence on internet and
telecommunications access and capabilities; our ability to prevent
or effectively respond to a cyber-attack, privacy or security
breach; product safety and quality concerns; changes to labor or
employment laws or regulations; risks arising from statutory,
regulatory and legal developments (including tax statutes and
regulations); risks arising from our international activities
(including those related to the conflict in Ukraine); failure to
effectively manage our costs; our dependence on cash flows and net
earnings generated during the fourth fiscal quarter; pricing
investments and promotional activity; economic or regulatory
developments that might affect our ability to provide attractive
promotional financing; constraints in the capital markets; changes
to our vendor credit terms; changes in our credit ratings; and
general economic uncertainty in key global markets and worsening of
global economic conditions or low levels of economic growth. We
caution that the foregoing list of important factors is not
complete. Any forward-looking statements speak only as of the date
they are made and we assume no obligation to update any
forward-looking statement that we 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
Six Months Ended
July 30, 2022
July 31, 2021
July 30, 2022
July 31, 2021
Revenue
$
10,329
$
11,849
$
20,976
$
23,486
Cost of sales
8,042
9,039
16,336
17,961
Gross profit
2,287
2,810
4,640
5,525
Gross profit %
22.1
%
23.7
%
22.1
%
23.5
%
Selling, general and administrative
expenses
1,882
2,009
3,772
3,997
SG&A %
18.2
%
17.0
%
18.0
%
17.0
%
Restructuring charges
34
4
35
(38)
Operating income
371
797
833
1,566
Operating income %
3.6
%
6.7
%
4.0
%
6.7
%
Other income (expense):
Investment income (expense) and other
3
3
(2)
6
Interest expense
(7)
(6)
(13)
(12)
Earnings before income tax expense and
equity in income (loss) of affiliates
367
794
818
1,560
Income tax expense
58
64
168
236
Effective tax rate
15.6
%
8.0
%
20.5
%
15.1
%
Equity in income (loss) of affiliates
(3)
4
(3)
5
Net earnings
$
306
$
734
$
647
$
1,329
Basic earnings per share
$
1.36
$
2.93
$
2.86
$
5.28
Diluted earnings per share
$
1.35
$
2.90
$
2.85
$
5.22
Weighted-average common shares
outstanding:
Basic
225.4
250.2
226.1
251.7
Diluted
226.1
252.8
227.2
254.7
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
($ in millions)
(Unaudited and subject to
reclassification)
July 30, 2022
July 31, 2021
Assets
Current assets:
Cash and cash equivalents
$
840
$
4,340
Receivables, net
840
883
Merchandise inventories
6,043
6,417
Other current assets
621
400
Total current assets
8,344
12,040
Property and equipment, net
2,319
2,226
Operating lease assets
2,796
2,670
Goodwill
1,385
986
Other assets
575
657
Total assets
$
15,419
$
18,579
Liabilities and equity
Current liabilities:
Accounts payable
$
5,406
$
6,946
Unredeemed gift card liabilities
273
293
Deferred revenue
1,133
854
Accrued compensation and related
expenses
374
605
Accrued liabilities
820
892
Short-term debt
-
110
Current portion of operating lease
liabilities
629
643
Current portion of long-term debt
15
14
Total current liabilities
8,650
10,357
Long-term operating lease liabilities
2,221
2,090
Long-term liabilities
472
554
Long-term debt
1,184
1,243
Equity
2,892
4,335
Total liabilities and equity
$
15,419
$
18,579
BEST BUY CO., INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited and subject to
reclassification)
Six Months Ended
July 30, 2022
July 31, 2021
Operating activities
Net earnings
$
647
$
1,329
Adjustments to reconcile net earnings to
total cash provided by (used in) operating activities:
Depreciation and amortization
453
430
Restructuring charges
35
(38)
Stock-based compensation
65
71
Other, net
19
2
Changes in operating assets and
liabilities, net of acquired assets and liabilities:
Receivables
201
175
Merchandise inventories
(79)
(794)
Other assets
(13)
(19)
Accounts payable
(1,434)
(58)
Income taxes
42
(162)
Other liabilities
(645)
(72)
Total cash provided by (used in) operating
activities
(709)
864
Investing activities
Additions to property and equipment
(441)
(323)
Purchases of investments
(46)
(93)
Sales of investments
2
60
Other, net
1
(2)
Total cash used in investing
activities
(484)
(358)
Financing activities
Repurchase of common stock
(465)
(1,323)
Dividends paid
(397)
(350)
Other, net
1
11
Total cash used in financing
activities
(861)
(1,662)
Effect of exchange rate changes on cash
and cash equivalents
1
5
Decrease in cash, cash equivalents and
restricted cash
(2,053)
(1,151)
Cash, cash equivalents and restricted
cash at beginning of period
3,205
5,625
Cash, cash equivalents and restricted
cash at end of period
$
1,152
$
4,474
BEST BUY CO., INC.
SEGMENT INFORMATION
($ in millions)
(Unaudited and subject to
reclassification)
Three Months Ended
Six Months Ended
Domestic Segment Results
July 30, 2022
July 31, 2021
July 30, 2022
July 31, 2021
Revenue
$
9,569
$
11,011
$
19,463
$
21,852
Comparable sales % change
(12.7)
%
20.8
%
(10.6)
%
28.7
%
Comparable online sales % change
(14.7)
%
(28.1)
%
(14.8)
%
(13.5)
%
Gross profit
$
2,109
$
2,606
$
4,279
$
5,132
Gross profit as a % of revenue
22.0
%
23.7
%
22.0
%
23.5
%
SG&A
$
1,732
$
1,849
$
3,473
$
3,685
SG&A as a % of revenue
18.1
%
16.8
%
17.8
%
16.9
%
Operating income
$
343
$
757
$
772
$
1,491
Operating income as a % of revenue
3.6
%
6.9
%
4.0
%
6.8
%
Domestic Segment Non-GAAP
Results1
Gross profit
$
2,109
$
2,606
$
4,279
$
5,132
Gross profit as a % of revenue
22.0
%
23.7
%
22.0
%
23.5
%
SG&A
$
1,710
$
1,829
$
3,429
$
3,645
SG&A as a % of revenue
17.9
%
16.6
%
17.6
%
16.7
%
Operating income
$
399
$
777
$
850
$
1,487
Operating income as a % of revenue
4.2
%
7.1
%
4.4
%
6.8
%
Three Months Ended
Six Months Ended
International Segment Results
July 30, 2022
July 31, 2021
July 30, 2022
July 31, 2021
Revenue
$
760
$
838
$
1,513
$
1,634
Comparable sales % change
(4.2)
%
5.0
%
(2.8)
%
15.0
%
Gross profit
$
178
$
204
$
361
$
393
Gross profit as a % of revenue
23.4
%
24.3
%
23.9
%
24.1
%
SG&A
$
150
$
160
$
299
$
312
SG&A as a % of revenue
19.7
%
19.1
%
19.8
%
19.1
%
Operating income
$
28
$
40
$
61
$
75
Operating income as a % of revenue
3.7
%
4.8
%
4.0
%
4.6
%
International Segment Non-GAAP
Results1
Gross profit
$
178
$
204
$
361
$
387
Gross profit as a % of revenue
23.4
%
24.3
%
23.9
%
23.7
%
SG&A
$
150
$
160
$
299
$
312
SG&A as a % of revenue
19.7
%
19.1
%
19.8
%
19.1
%
Operating income
$
28
$
44
$
62
$
75
Operating income as a % of revenue
3.7
%
5.3
%
4.1
%
4.6
%
(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
July 30, 2022
July 31, 2021
July 30, 2022
July 31, 2021
Computing and Mobile Phones
42
%
43
%
(16.6)
%
11.4
%
Consumer Electronics
30
%
31
%
(14.7)
%
27.4
%
Appliances
17
%
16
%
(1.2)
%
31.1
%
Entertainment
5
%
5
%
(9.2)
%
36.4
%
Services
5
%
5
%
(8.5)
%
23.6
%
Other
1
%
-
%
15.6
%
N/A
Total
100
%
100
%
(12.7)
%
20.8
%
Revenue Mix
Comparable Sales
Three Months Ended
Three Months Ended
International Segment
July 30, 2022
July 31, 2021
July 30, 2022
July 31, 2021
Computing and Mobile Phones
43
%
44
%
(7.6)
%
(1.6)
%
Consumer Electronics
29
%
30
%
(4.8)
%
11.8
%
Appliances
14
%
12
%
6.8
%
11.6
%
Entertainment
7
%
7
%
(5.8)
%
13.7
%
Services
5
%
5
%
(0.4)
%
2.2
%
Other
2
%
2
%
12.6
%
10.8
%
Total
100
%
100
%
(4.2)
%
5.0
%
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, provide
additional useful information for evaluating current period
performance and assessing future performance. For these reasons,
internal management reporting, internal budgets and forecasts, and
financial targets used for short-term incentives are based on
non-GAAP financial measures. Generally, non-GAAP financial measures
include adjustments for items such as restructuring charges,
price-fixing settlements, 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 it provides greater
clarity to management and investors. The reconciliations that
follow enable investors to understand the adjustments made in
arriving at the non-GAAP financial measures and to evaluate
performance using the same metrics as management. 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 may be calculated differently to similarly titled measures
used by other companies, thereby limiting their usefulness for
comparative purposes.
Three Months Ended
Three Months Ended
July 30, 2022
July 31, 2021
Domestic
International
Consolidated
Domestic
International
Consolidated
SG&A
$
1,732
$
150
$
1,882
$
1,849
$
160
$
2,009
% of revenue
18.1
%
19.7
%
18.2
%
16.8
%
19.1
%
17.0
%
Intangible asset amortization1
(22)
-
(22)
(20)
-
(20)
Non-GAAP SG&A
$
1,710
$
150
$
1,860
$
1,829
$
160
$
1,989
% of revenue
17.9
%
19.7
%
18.0
%
16.6
%
19.1
%
16.8
%
Operating income
$
343
$
28
$
371
$
757
$
40
$
797
% of revenue
3.6
%
3.7
%
3.6
%
6.9
%
4.8
%
6.7
%
Intangible asset amortization1
22
-
22
20
-
20
Restructuring charges2
34
-
34
-
4
4
Non-GAAP operating income
$
399
$
28
$
427
$
777
$
44
$
821
% of revenue
4.2
%
3.7
%
4.1
%
7.1
%
5.3
%
6.9
%
Effective tax rate
15.6
%
8.0
%
Intangible asset amortization1
0.4
%
0.4
%
Restructuring charges2
0.7
%
-
%
Non-GAAP effective tax rate
16.7
%
8.4
%
Three Months Ended
Three Months Ended
July 30, 2022
July 31, 2021
Pretax Earnings
Net of Tax4
Per Share
Pretax Earnings
Net of Tax4
Per Share
Diluted EPS
$
1.35
$
2.90
Intangible asset amortization1
$
22
$
17
0.07
$
20
$
15
0.06
Restructuring charges2
34
26
0.12
4
4
0.02
Non-GAAP diluted EPS
$
1.54
$
2.98
Six Months Ended
Six Months Ended
July 30, 2022
July 31, 2021
Domestic
International
Consolidated
Domestic
International
Consolidated
Gross profit
$
4,279
$
361
$
4,640
$
5,132
$
393
$
5,525
% of revenue
22.0
%
23.9
%
22.1
%
23.5
%
24.1
%
23.5
%
Restructuring - inventory markdowns3
-
-
-
-
(6)
(6)
Non-GAAP gross profit
$
4,279
$
361
$
4,640
$
5,132
$
387
$
5,519
% of revenue
22.0
%
23.9
%
22.1
%
23.5
%
23.7
%
23.5
%
SG&A
$
3,473
$
299
$
3,772
$
3,685
$
312
$
3,997
% of revenue
17.8
%
19.8
%
18.0
%
16.9
%
19.1
%
17.0
%
Intangible asset amortization1
(44)
-
(44)
(40)
-
(40)
Non-GAAP SG&A
$
3,429
$
299
$
3,728
$
3,645
$
312
$
3,957
% of revenue
17.6
%
19.8
%
17.8
%
16.7
%
19.1
%
16.8
%
Operating income
$
772
$
61
$
833
$
1,491
$
75
$
1,566
% of revenue
4.0
%
4.0
%
4.0
%
6.8
%
4.6
%
6.7
%
Intangible asset amortization1
44
-
44
40
-
40
Restructuring charges2
34
1
35
(44)
6
(38)
Restructuring - inventory markdowns3
-
-
-
-
(6)
(6)
Non-GAAP operating income
$
850
$
62
$
912
$
1,487
$
75
$
1,562
% of revenue
4.4
%
4.1
%
4.3
%
6.8
%
4.6
%
6.7
%
Effective tax rate
20.5
%
15.1
%
Intangible asset amortization1
0.2
%
0.3
%
Restructuring charges2
0.1
%
(0.3)
%
Non-GAAP effective tax rate
20.8
%
15.1
%
Six Months Ended
Six Months Ended
July 30, 2022
July 31, 2021
Pretax Earnings
Net of Tax4
Per Share
Pretax Earnings
Net of Tax4
Per Share
Diluted EPS
$
2.85
$
5.22
Intangible asset amortization1
$
44
$
34
0.14
$
40
$
30
0.12
Restructuring charges2
35
27
0.12
(38)
(27)
(0.11)
Restructuring - inventory markdowns3
-
-
-
(6)
(6)
(0.02)
Non-GAAP diluted EPS
$
3.11
$
5.21
(1)
Represents the non-cash amortization of
definite-lived intangible assets associated with acquisitions,
including customer relationships, tradenames and developed
technology assets.
(2)
Represents charges primarily related to
termination benefits in the Domestic segment associated with an
enterprise-wide initiative that commenced in Q2 FY23 to better
align the company’s spending with critical strategies and
operations, as well as to optimize its cost structure, for the
periods ended July 30, 2022. Represents adjustments to previously
planned organizational changes and higher-than-expected retention
rates in the Domestic segment and charges associated with the exit
from operations in Mexico in the International segment for the
periods ended July 31, 2021.
(3)
Represents inventory markdown adjustments
recorded within cost of sales associated with the exit from
operations in Mexico for the six months ended July 31, 2021.
(4)
The non-GAAP adjustments primarily relate
to the U.S., the UK 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 UK and 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")
July 30, 20221
July 31, 20211
Net earnings
$
1,772
$
2,536
Total assets
17,702
19,295
ROA
10.0
%
13.1
%
Non-GAAP Return on Investment
("ROI")
July 30, 20221
July 31, 20211
Numerator
Operating income
$
2,306
$
3,160
Add: Non-GAAP operating income
adjustments2
136
291
Add: Operating lease interest3
110
109
Less: Income taxes4
(625)
(872)
Add: Depreciation
806
775
Add: Operating lease amortization5
653
663
Adjusted operating income after
tax
$
3,386
$
4,126
Denominator
Total assets
$
17,702
$
19,295
Less: Excess cash6
(1,374)
(4,219)
Add: Accumulated depreciation and
amortization7
6,212
7,166
Less: Adjusted current liabilities8
(9,866)
(10,163)
Average invested operating
assets
$
12,674
$
12,079
Non-GAAP ROI
26.7
%
34.2
%
(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. 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)
Accumulated depreciation and amortization
represents accumulated depreciation related to property and
equipment and accumulated amortization related to definite-lived
intangible assets.
(8)
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/20220829005698/en/
Investor Contact: Mollie O'Brien
mollie.obrien@bestbuy.com
Media Contact: Carly Charlson
carly.charlson@bestbuy.com
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