February 27, 2019
Best BuyStaff Writer
Enterprise Comparable Sales Increased 3.0%
GAAP Diluted EPS Increased 119% to $2.69
Non-GAAP Diluted EPS Increased 12% to $2.72
Announces FY20 Non-GAAP Diluted EPS Guidance of $5.45 to $5.65
MINNEAPOLIS, February 27, 2019 — Best Buy Co., Inc. (NYSE: BBY) today announced results for the 13-week fourth quarter ended February 2, 2019 (“Q4 FY19”), as compared to the 14-week fourth quarter ended February 3, 2018 (“Q4 FY18”).
The company estimates the extra week in Q4 FY18 added approximately $760 million in revenue and approximately $0.20 in non-GAAP diluted EPS for the quarter and the year. The extra week was not included in comparable sales for the quarter or the year.
(Click here for a PDF version. Click here to view full release and statements.)
Revenue ($ in millions)Enterprise$14,801$15,363$42,879$42,151Domestic segment$13,497$13,987$39,304$38,662International segment$1,304$1,376$3,575$3,489Enterprise comparable sales growth13.0%9.0%4.8%5.6%Domestic comparable sales growth13.0%9.0%4.8%5.6%Domestic comparable online sales growth9.3%17.9%10.5%21.8%International comparable sales growth2.5%9.9%4.6%6.3%Operating IncomeGAAP operating income as a % of revenue6.6%5.7%4.4%4.4%Non-GAAP operating income as a % of revenue6.7%6.4%4.6%4.6%Diluted Earnings per Share (“EPS”)GAAP diluted EPS$2.69$1.23$5.20$3.26Non-GAAP diluted EPS$2.72$2.42$5.32$4.42
For GAAP to non-GAAP reconciliations of the measures referred to in the above table, please refer to the attached supporting schedule Reconciliation of Non-GAAP Financial Measures.
“We are very proud of the financial results we have just delivered,” said Hubert Joly, Best Buy chairman and CEO. “For the fourth quarter, we reported a 3.0% increase in our comparable sales, on top of 9.0% comparable sales growth last year. For the full year, our comparable sales grew 4.8% and our EPS increased more than 20%. In addition to these great financial results, we made significant progress implementing our Best Buy 2020 strategy to enrich lives through technology and further develop our competitive differentiation. We launched our Total Tech Support program, expanded our In-Home Advisor program and acquired GreatCall. I so appreciate the hard work of our associates, as well as our partners, in driving these terrific results.”
Best Buy’s CFO and Strategic Transformation Officer, Corie Barry, commented, “Going forward, our priority in fiscal 2020 is to continue to transform the company by bringing to market solutions that solve real customer needs and by building customer relationships. From a financial perspective, we expect to drive top-line growth while holding our non-GAAP operating income rate constant – reflecting our continued focus on balancing investments in our strategy, pressures in the business and cost takeout.”
FY20 Financial Guidance2
Best Buy is providing the following full-year FY20 financial outlook:
- Enterprise revenue of $42.9 billion to $43.9 billion
- Enterprise comparable sales growth of 0.5% to 2.5%
- Enterprise non-GAAP operating income rate of approximately 4.6%3, which is flat to FY19
- Non-GAAP effective income tax rate of approximately 24.5%3
- Non-GAAP diluted EPS of $5.45 to $5.653
Best Buy is providing the following Q1 FY20 financial outlook:
- Enterprise revenue of $9.05 billion to $9.15 billion
- Enterprise comparable sales growth of 0.0% to 1.0%
- Non-GAAP effective income tax rate of approximately 22.5%3
- Diluted weighted average share count of approximately 272 million
- Non-GAAP diluted EPS of $0.83 to $0.883
Domestic Segment Q4 FY19 Results
Domestic comparable sales increased 3.0% and revenue decreased 3.5% versus last year to $13.50 billion. The revenue decrease was largely due to the extra week of revenue totaling approximately $715 million in the fourth quarter of last year. It also included the loss of revenue from 257 Best Buy Mobile and 12 large format store closures in the past year. Additionally, the extra week last year resulted in a calendar shift that provided an approximate 50-basis point positive impact to the Q4 FY19 comparable sales increase of 3.0%.
From a merchandising perspective, the company generated comparable sales growth across multiple categories, with the largest drivers being wearables, appliances, smart home and gaming. These positive drivers were partially offset by a decline in the mobile phone category.
Domestic online revenue of $2.96 billion increased 9.3% on a comparable basis, primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 190 basis points to 21.9% versus 20.0% last year.
Domestic Gross Profit Rate
Domestic gross profit rate was 22.1% versus 22.3% last year. The gross profit rate decline of 20 basis points was driven primarily by an approximate 30-basis point negative impact from a lower periodic profit-sharing benefit4 from the company’s services plan portfolio and higher supply chain costs, including both investments and higher transportation costs. These pressures were partially offset by the higher gross profit rate of GreatCall, a refinement in the revenue recognition of the company’s Total Tech Support offer and improved product margin rates, which included the benefit of gross profit optimization initiatives.
Domestic Selling, General and Administrative Expenses (“SG&A”)
Domestic GAAP SG&A was $2.10 billion, or 15.6% of revenue, versus $2.31 billion, or 16.5% of revenue, last year. On a non-GAAP basis, SG&A was $2.08 billion, or 15.4% of revenue, versus $2.22 billion, or 15.8% of revenue, last year. Both GAAP and non-GAAP SG&A decreased primarily due to lapping the extra week last year and cost reductions. Additionally, GAAP SG&A in Q4 FY18 included an additional $95 million of expense related to The Tax Cuts and Jobs Act of 2017 (“tax reform”), which included $75 million of employee bonus expense and a $20 million charitable donation to the Best Buy Foundation. In Q4 FY19, GAAP SG&A included an additional $17 million of amortization on intangible assets associated with the acquisition of GreatCall.
International Segment Q4 FY19 Results
International comparable sales increased 2.5% and revenue decreased 5.2% versus last year to $1.30 billion. The revenue decrease was largely due to the extra week of revenue totaling approximately $45 million in the fourth quarter of last year and approximately 470 basis points of negative foreign currency impact.
International Gross Profit Rate
International gross profit rate was 22.9% versus 22.4% last year. The gross profit rate increase of 50 basis points was primarily due to a higher year-over-year gross profit rate in Canada, which was driven by improved gross profit rates in several product categories and increased revenue in the higher margin rate services category. These improvements were partially offset by an approximate 30-basis point negative impact from a lower periodic profit-sharing benefit.4
International GAAP SG&A was $207 million, or 15.9% of revenue, versus $228 million, or 16.6% of revenue, last year. On a non-GAAP basis, SG&A was $207 million, or 15.9% of revenue, versus $223 million, or 16.2% of revenue, last year. Both GAAP and non-GAAP SG&A decreased due to the favorable impact of foreign exchange rates and lapping the impact of the extra week last year. Additionally, GAAP SG&A in Q4 FY18 included $5 million of employee bonus expense related to tax reform.
In Q4 FY19, the company returned a total of $482 million to shareholders through share repurchases of $361 million and dividends of $121 million. In FY19, the company returned a total of $2.0 billion to shareholders through share repurchases of $1.5 billion and dividends of $497 million.
Today, the company announced its board of directors approved an 11% increase in the regular quarterly dividend to $0.50 per share, effective immediately. This is the sixth consecutive year the company has increased the dividend.
The regular quarterly dividend will be payable on April 10, 2019, to shareholders of record as of the close of business on March 20, 2019. This is the 61st consecutive quarter the company has paid a regular dividend.
The board of directors approved a new $3 billion share repurchase authorization for the company’s common stock, replacing the existing authorization dated February 2017, which had $1.5 billion in purchases remaining.
The company plans to spend between $750 million and $1.0 billion on share repurchases in FY20.
In Q4 FY19, the GAAP effective tax rate was 24.3% versus 58.2% last year. Tax reform reduced the U.S. statutory corporate tax rate from 35% to 21% effective January 1, 2018, broadened the tax base, and, among other things, introduced a one-time mandatory repatriation tax on unremitted earnings of foreign subsidiaries. As a result, the company recorded a provisional income tax expense of $283 million during Q4 FY18. The provisional amount included $209 million related to the repatriation tax and $74 million due to the revaluation of the company’s deferred tax balances at the lower tax rate.
On a non-GAAP basis, the effective tax rate was 24.6% versus 27.0% last year. The non-GAAP effective tax rate was lower due to the impacts from tax reform, partially offset by reduced benefits from the resolution of discrete tax matters and a decrease in excess tax benefits associated with stock-based compensation as compared to Q4 FY18.
Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on February 27, 2019. A webcast of the call is expected to be available at www.investors.bestbuy.com, both live and after the call.
(1) On March 1, 2018, the company announced its intent to close all of the remaining 257 Best Buy Mobile stand-alone stores in the U.S. As a result, all revenue related to these stores has been excluded from the comparable sales calculation beginning in March 2018.
(2) In Q1 FY20, the company will adopt Accounting Standards Update (ASU) 2016-02, Leases, which will require the recognition of right-of-use assets and lease liabilities on the balance sheet and will expand disclosure requirements. The adoption of the new standard will materially increase our assets and liabilities and will have an immaterial impact on our net earnings and cash flows. Forward-looking guidance provided incorporates changes resulting from the new standard.
(3) A reconciliation of the projected non-GAAP operating income, non-GAAP effective income tax rate and non-GAAP diluted EPS, which are forward-looking non-GAAP financial measures, to the most directly comparable GAAP financial measures, is not provided because the company is unable to provide such reconciliation without unreasonable effort. The inability to provide a reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. These GAAP measures may include the impact of such items as restructuring charges; litigation settlements; goodwill impairments; gains and losses on investments; 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.
(4) In Q4 FY19, the Domestic segment recorded a $7 million periodic profit-sharing benefit from its services plan portfolio versus a Q4 FY18 benefit of $59 million. The International segment recorded a Q4 FY19 benefit of $3 million compared to a $8 million benefit in Q4 FY18.
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, 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,” “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 the company operates, changes in consumer preferences or confidence, changes in consumer spending and debt levels, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, 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), competitive initiatives of competitors (including pricing actions and promotional activities), 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, the effects of tax reform, foreign currency fluctuation, the company’s ability to manage its property portfolio, the impact of labor markets, the company’s ability to retain qualified employees and management, failure to achieve anticipated expense and cost reductions, 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), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which the company will incur costs, development of new businesses, failure to complete or achieve anticipated benefits of acquisitions or other transactions (including our recent acquisition of GreatCall), including, with respect to such transactions, the risks that revenues following the transactions may be lower than expected, operating costs, customer loss, and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, and suppliers) may be greater than expected and the risk that the company may assume unexpected risks and liabilities, 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 April 2, 2018. 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.