Best Buy Reports Third Quarter Results

November 24, 2020

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

MINNEAPOLIS--(BUSINESS WIRE)-- 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 salesgrowth 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.

 

Investor Contact:
Mollie O'Brien
mollie.obrien@bestbuy.com

Media Contact:
Carly Charlson
carly.charlson@bestbuy.com

Source: Best Buy Co., Inc.

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