Domestic Revenue Decreased 0.8%
Repurchased $203 million in Stock for a Year-to-Date Total of $588
million
Improving the Fourth Quarter Operating Margin Outlook
MINNEAPOLIS--(BUSINESS WIRE)--
Best Buy Co., Inc. (NYSE:BBY) today announced revenue results for the
nine weeks ended January 2, 2016 as compared to the nine weeks ended
January 3, 2015.
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Fiscal 2016 Holiday Revenue Summary
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9 weeks ended January 2, 2016
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9 weeks ended January 3, 2015
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Enterprise Revenue ($ in millions)1
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$10,961
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$11,366
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Domestic segment
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$10,050
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$10,132
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Domestic segment year-over-year revenue change
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(0.8%)
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4.1%
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International segment1
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$911
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$1,233
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Enterprise Comparable Sales % Change:
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Excluding the estimated benefit of installment billing2,3
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(1.4%)
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1.8%4
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Estimated benefit of installment billing3
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0.2%
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0.7%
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Comparable sales % change2
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(1.2%)
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2.5%4
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Domestic Comparable Sales % Change:
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Excluding the estimated benefit of installment billing2,3
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(1.4%)
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2.6%
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Estimated benefit of installment billing3
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0.2%
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0.8%
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Comparable sales % change2
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(1.2%)
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3.4%
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Comparable online sales % change2
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12.6%
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13.4%
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Hubert Joly, Best Buy chairman and CEO, commented, “During the holiday
period, Domestic revenue declined 0.8% against a backdrop where the
NPD-reported categories were down a greater-than-expected 4.8%5.
The Domestic decline was primarily driven by the mobile phone category,
which was softer than both our expectations and the prior year.
Excluding mobile phones, Domestic revenue increased year over year due
to our strong performance in health & wearables, home theater and
appliances. Online revenue increased 12.6% on top of a 13.4% increase
last year. In addition, we saw a significant improvement in our Net
Promoter Score. From a financial perspective, despite a slightly
softer-than-expected topline, we are improving our fourth quarter
operating income rate outlook as a result of our continuing conviction
to a disciplined promotional strategy and strong expense management.”
Joly concluded, “These results and our outlook are driven by the solid
execution of our holiday strategy and the leveraging of investments in
our merchandise assortment, digital capabilities, higher in-stocks, Blue
Shirt and Geek Squad expertise and faster shipping. Ultimately, this
performance is the result of the hard work, dedication and customer
focus on the part of all of our associates.”
Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “Based on the
holiday results Hubert just discussed, we are updating our fourth
quarter outlook as follows. In the Domestic business, we are expecting
(1) a revenue decline of near 1.5% versus our previous expectation of
near flat due to softer consumer demand in mobile phones and
greater-than-expected declines in the NPD-reported categories; and (2) a
non-GAAP operating income rate decline of 10 to 15 basis points versus
our previous expectation of a rate decline of 20 to 35 basis points. As
a reminder, the shift of the Super Bowl into Q1 FY17 is driving an
expected 40 basis points of pressure on this quarter’s revenue.
“In the International business, our outlook has not changed. We continue
to expect (1) an International revenue decline of approximately 30% due
to the ongoing impacts of the Canadian brand consolidation, foreign
currency fluctuations and softness in the Canadian market; and (2) an
International non-GAAP operating income rate in the range of positive
2.0% to 3.0%.
“Based on the above, our Enterprise outlook includes (1) a revenue
decline of near 4% versus our previous expectation of a low single-digit
decline; and (2) a non-GAAP operating income rate decline of
approximately 15 to 30 basis points versus our previous expectation of a
rate decline of 25 to 45 basis points. From a tax rate perspective, we
now expect the non-GAAP effective income tax rate from continuing
operations to be in the range of 34.5% to 35%, versus 34.2% last year,
which is expected to result in a negative $0.01 to negative $0.03
year-over-year non-GAAP diluted EPS impact in Q4 FY16.”
Share Repurchases Reach $588 million
On March 3, 2015, the company announced the intent to repurchase $1
billion worth of its shares over a three-year period. On a year-to-date
basis, the company has already repurchased 17.8 million shares for a
total of $588 million – of which 6.6 million shares, or $203 million,
were repurchased in the nine-week period ended January 2, 2016. The
company intends to continue to repurchase shares through the end of the
fourth quarter.
Domestic Segment Holiday Revenue Results
Domestic revenue of $10.1 billion decreased 0.8% versus last year. This
decrease was primarily driven by a comparable sales decline of 1.4%,
excluding the estimated 20-basis point benefit associated with the
classification of revenue for the mobile carrier installment billing
plans3 and the loss of revenue from closed stores. These
declines were partially offset by an estimated 20-basis point benefit
associated with installment billing3 and an approximate
95-basis point periodic profit sharing benefit from our
externally-managed extended service plan portfolio.
Domestic online revenue of $1.7 billion increased 12.6% on a comparable
basis primarily due to a higher conversion rate. As a percentage of
total Domestic revenue, online revenue increased 200 basis points to
16.7% from 14.7% last year.
From a merchandising perspective, comparable sales growth in health &
wearables, home theater and major appliances was more than offset by
significant declines in mobile phones, tablets and digital imaging. The
company also saw continued revenue declines in services due to
investments in services pricing, declining attach rates of traditional
warranty plans and, to a lesser extent, the reduction of frequency and
severity of claims on extended warranties which has reduced repair
revenue.
International Segment Holiday Revenue Results
International revenue of $911 million declined 26.1% versus last year.
This decline was primarily driven by (1) a negative foreign currency
impact of approximately 1,350 basis points; (2) the loss of revenue
associated with closed stores as part of the Canadian brand
consolidation; and (3) ongoing softness in the Canadian economy and
consumer electronics industry.
(1) On March 28, 2015, the company consolidated the Future Shop and Best
Buy stores and websites in Canada under the Best Buy brand. This
resulted in the permanent closure of 66 Future Shop stores and the
conversion of the remaining 65 Future Shop stores to the Best Buy brand.
(2) Best Buy’s comparable sales is comprised of revenue at stores,
websites and call centers operating for at least 14 full months, as well
as revenue related to certain other comparable sales channels. Relocated
stores, as well as remodeled, expanded and downsized stores closed more
than 14 days, are excluded from the comparable sales calculation until
at least 14 full months after reopening. Acquisitions are included in
the comparable sales calculation beginning with the first full quarter
following the first anniversary of the date of the acquisition. The
calculation of comparable sales excludes the impact of revenue from
discontinued operations.
The Canadian brand consolidation, which includes the permanent closure
of 66 Future Shop stores, the conversion of 65 Future Shop stores to
Best Buy stores and the elimination of the Future Shop website, has a
material impact on a year-over-year basis on the Canadian retail stores
and the website. As such, all store and website revenue has been removed
from the comparable sales base and International (comprised of Canada
and Mexico) no longer has a comparable metric until International
revenue is comparable on a year-over-year basis. Therefore, Enterprise
comparable sales will be equal to Domestic comparable sales until
International revenue is again comparable on a year-over-year basis.
(3) In April of 2014, Best Buy began offering mobile carrier installment
billing plans to its Domestic customers in addition to two-year contract
plans. While the two types of contracts have broadly similar overall
economics, installment billing plans typically generate higher revenues
due to higher proceeds for devices and higher cost of sales due to lower
device subsidies. As the mix of installment billing plans increases,
there is an associated increase in revenue and cost of goods sold, and a
decrease in gross profit rate, with gross profit dollars relatively
unaffected. The company estimates that its nine week ending January 2,
2016 Enterprise and Domestic comparable sales of 1.2% include
approximately 20 basis points of impact from this classification
difference. The impact on the gross profit rate at the Enterprise and
Domestic levels for the quarter was immaterial. The company believes
that providing information regarding this impact of installment billing
and an estimate of the company’s comparable sales absent this impact
assists investors in understanding the company’s underlying operating
performance in relation to prior periods when the mix of installment
billing plans was lower.
(4) Enterprise comparable sales for the nine weeks ending January 3,
2015 include revenue from continuing operations in the International
segment. Excluding the International segment, Enterprise comparable
sales for the nine weeks ending January 3, 2015, excluding the impact of
installment billing, would have been 2.6%, or equal to Domestic
comparable sales excluding the impact of installment billing, for the
same period.
(5) According to The NPD Group’s Weekly Tracking Service as published
January 11, 2016, revenue for the CE (Consumer Electronics) industry
declined 4.8% during the 9 weeks ended January 2, 2016 compared to the 9
weeks ended January 3, 2015. The CE industry, as defined by The NPD
Group, includes TVs, desktop and notebook computers, tablets not
including Kindle, digital imaging and other categories. Sales of these
products represent approximately 65% of the company’s Domestic revenue.
The CE industry, as defined by The NPD Group, does not include mobile
phones, appliances, services, gaming, Apple Watch, movies or music.
Forward-Looking and Cautionary Statements:
This earnings
release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 as contained in Section
27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that reflect management’s current views and
estimates regarding future market conditions, company performance and
financial results, business prospects, new strategies, the competitive
environment and other events. You can identify these statements by the
fact that they use words such as “anticipate,” “believe,” ”assume,”
“estimate,” “expect,” “intend,” “project,” “guidance,” “plan,”
“outlook,” and other words and terms of similar meaning. These
statements involve a number of risks and uncertainties that could cause
actual results to differ materially from the potential results discussed
in the forward-looking statements. Among the factors that could cause
actual results and outcomes to differ materially from those contained in
such forward-looking statements are the following: macro-economic
conditions (including fluctuations in housing prices, oil markets and
jobless rates), conditions in the industries and categories in which we
operate, changes in consumer preferences, changes in consumer
confidence, consumer spending and debt levels, online sales levels and
trends, average ticket size, the mix of products and services offered
for sale in our physical stores and online, credit market changes and
constraints, product availability, competitive initiatives of
competitors (including pricing actions and promotional activities of
competitors), strategic and business decisions of our vendors (including
actions that could impact promotional support, product margin and/or
supply), the success of new product launches, the impact of pricing
investments and promotional activity, weather, natural or man-made
disasters, attacks on our data systems, the company’s ability to prevent
or react to a disaster recovery situation, changes in law or
regulations, changes in tax rates, changes in taxable income in each
jurisdiction, tax audit developments and resolution of other discrete
tax matters, foreign currency fluctuation, availability of suitable real
estate locations, the company’s ability to manage its property
portfolio, the impact of labor markets, the company’s ability to retain
qualified employees, failure to achieve anticipated expense and cost
reductions from operational and restructuring changes, disruptions in
our supply chain, the costs of procuring goods the company sells,
failure to achieve anticipated revenue and profitability increases from
operational and restructuring changes (including investments in our
multi-channel capabilities and brand consolidations), inability to
secure or maintain favorable vendor terms, failure to accurately predict
the duration over which we will incur costs, acquisitions and
development of new businesses, divestitures of existing businesses,
failure to complete or achieve anticipated benefits of announced
transactions, integration challenges relating to new ventures, and our
ability to protect information relating to our employees and customers.
A further list and description of these risks, uncertainties and other
matters can be found in the company’s annual report and other reports
filed from time to time with the Securities and Exchange Commission
(“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K
filed with the SEC on March 31, 2015. Best Buy cautions that the
foregoing list of important factors is not complete, and any
forward-looking statements speak only as of the date they are made, and
Best Buy assumes no obligation to update any forward-looking statement
that it may make.
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BEST BUY CO., INC.
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REVENUE CATEGORY SUMMARY
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(Unaudited and subject to reclassification)
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Domestic Segment Summary - Excluding the estimated benefit of
mobile phone installment billing1
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Revenue Mix Summary
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Comparable Store Sales
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Nine Weeks Ended
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Nine Weeks Ended
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Jan 2, 2016
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Jan 3, 2015
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Jan 2, 2016
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Jan 3, 2015
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Consumer Electronics
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36%
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34%
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4.3%
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11.1%
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Computing and Mobile Phones
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42%
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44%
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(7.2%)
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(1.8%)
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Entertainment
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12%
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12%
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0.5%
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0.4%
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Appliances
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6%
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5%
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13.4%
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9.9%
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Services2
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4%
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4%
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(13.7%)
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(13.6%)
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Other
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0%
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1%
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n/a
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n/a
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Total
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100%
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100%
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(1.4%)
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2.6%
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Domestic Segment Summary - Including the estimated benefit of
mobile phone installment billing1
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Revenue Mix Summary
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Comparable Store Sales
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Nine Weeks Ended
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Nine Weeks Ended
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Jan 2, 2016
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Jan 3, 2015
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Jan 2, 2016
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Jan 3, 2015
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Consumer Electronics
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36%
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34%
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4.3%
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11.1%
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Computing and Mobile Phones
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42%
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45%
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(6.7%)
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0.0%
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Entertainment
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12%
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12%
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0.5%
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0.4%
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Appliances
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6%
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5%
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13.4%
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9.9%
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Services2
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4%
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3%
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(13.7%)
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(13.6%)
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Other
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0%
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1%
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n/a
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n/a
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Total
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100%
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100%
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(1.2%)
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3.4%
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International Segment Summary3
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Revenue Mix Summary
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Nine Weeks Ended
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Jan 2, 2016
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Jan 3, 2015
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Consumer Electronics
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34%
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33%
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Computing and Mobile Phones
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44%
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45%
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Entertainment
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13%
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13%
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Appliances
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4%
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4%
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Services2
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4%
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4%
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Other
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1%
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1%
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Total
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100%
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100%
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(1) In April of 2014, Best Buy began offering mobile carrier installment
billing plans to its Domestic customers in addition to two-year contract
plans. While the two types of contracts have broadly similar overall
economics, installment billing plans typically generate higher revenues
due to higher proceeds for devices and higher cost of sales due to lower
device subsidies. As the mix of installment billing plans increases,
there is an associated increase in revenue and cost of goods sold and a
decrease in gross profit rate, with gross profit dollars relatively
unaffected.
(2) The "Services" revenue category consists primarily of service
contracts, extended warranties, computer related services, product
repair and delivery and installation for home theater, mobile audio and
appliances.
(3) The Canadian brand consolidation has a material impact on all of the
Canadian retail stores and the website on a year-over-year basis. As
such, all Canadian revenue has been removed from the comparable sales
base and International no longer has a comparable metric until
International revenue is comparable on a year-over-year basis.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160114005254/en/
Source: Best Buy Co., Inc.