Best Buy Reports Better-Than-Expected Q4 FY20 Results

Company News

February 27, 2020

Best BuyStaff Writer

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Enterprise Comparable Sales Increased 3.2%

GAAP Diluted EPS Increased 6% to $2.84

Non-GAAP Diluted EPS Increased 7% to $2.90

Announces FY21 Non-GAAP Diluted EPS Guidance of $6.10 to $6.30

Increases Quarterly Dividend 10% to $0.55 per Share

MINNEAPOLIS, February 27, 2020 — Best Buy Co., Inc. (NYSE: BBY) today announced results for the 13-week fourth quarter ended February 1, 2020 (“Q4 FY20”), as compared to the 13-week fourth quarter ended February 2, 2019 (“Q4 FY19”).

(Click here for a PDF version. Click here to view full release and statements.)

Q4 FY20Q4 FY19FY20FY19Revenue ($ in millions) Enterprise $15,196 $14,801 $43,638 $42,879 Domestic segment $13,848 $13,497 $40,114 $39,304 International segment $1,348 $1,304 $3,524 $3,575 Enterprise comparable sales % change13.2% 3.0% 2.1% 4.8% Domestic comparable sales % change13.4%3.0% 2.3% 4.8% Domestic comparable online sales % change118.7% 9.3% 17.0% 10.5% International comparable sales % change11.6% 2.5% (0.5)% 4.6% Operating Income GAAP operating income as a % of revenue 6.4% 6.6% 4.6% 4.4% Non-GAAP operating income as a % of revenue 6.5% 6.7% 4.9% 4.6% Diluted Earnings per Share (“EPS”) GAAP diluted EPS $2.84 $2.69 $5.75 $5.20 Non-GAAP diluted EPS $2.90 $2.72 $6.07 $5.32

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 posting our 12th straight quarter of comparable sales growth and showing our strength as a successful multi-channel retailer who can meet customers when and where they want,” said Corie Barry, Best Buy CEO. “We offered compelling holiday deals that resonated with customers and provided a seamless shopping experience, great inventory availability and fast and free delivery. Across online, home and stores, we are fulfilling our purpose to help enrich people’s lives through technology while also helping technology companies commercialize their product innovations.”

Best Buy CFO Matt Bilunas commented, “As weenter FY21, we are closely monitoring the developments related to thecoronavirus outbreak. Thisis a very fluid situation, which makes it difficult to determine exactfinancial impacts from disruptions in supply chain. Based on what we know today, we haveassumed the majority of the impacts occur in the first half of the year.Therefore, we view this as a relatively short-term disruption that does notimpact our long-term strategy and initiatives. Our guidance ranges for both Q1and the full year reflect our best estimates of the impacts at this time.”

Bilunascontinued, “For FY21, we expect to deliver full-year comparable salesgrowth in the range of flat to 2% while continuing to invest in those areasnecessary to make strategic progress and deliver enhanced employee and customerexperiences, as well as continuing to drive cost savings and efficiencies. Weexpect our gross profit rate to be approximately flat and our SG&A rate tobe up slightly compared to FY20, resulting in a full-year non-GAAP operatingincome rate of approximately 4.8%. We are confident that our FY21 plan moves usalong the path to achieve our FY25 targets, specifically the financial targetsof $50 billion in revenue and a 5% non-GAAP operating income rate.”

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FY21Financial Guidance

Best Buy is providing the following full-year FY21 financial outlook:

  • Enterprise revenue of $43.3 billion to $44.3 billion
  • Enterprise comparable sales growth of flat to 2.0%
  • Enterprise non-GAAP operating income rate of approximately 4.8%2
  • Non-GAAP effective income tax rate of approximately 23.0%2
  • Non-GAAP diluted EPS of $6.10 to $6.302

Best Buy is providing the following Q1 FY21financial outlook:

  • Enterprise revenue of $9.1 billion to $9.2 billion
  • Enterprise comparable sales growth of flat to 1.0%
  • Non-GAAP effective income tax rate of approximately 22.5%2
  • Diluted weighted average share count of approximately 260 million
  • Non-GAAP diluted EPS of $1.00 to $1.052

Domestic Segment Q4 FY20 Results

Domestic Revenue

Domesticrevenue of $13.85 billion increased 2.6% versus last year. The increase wasdriven by comparable sales growth of 3.4%, partially offset by the loss ofrevenue from store closures in the past year.

The largest comparable sales growth drivers were headphones, computing, appliances, mobile phones and tablets. These drivers were partially offset by declines in the gaming category.

Domesticonline revenue of $3.52 billion increased 18.7% on a comparable basis due tohigher average order values, increased traffic and higher conversion rates. Asa percentage of total Domestic revenue, online revenue increased approximately350 basis points to 25.4% versus 21.9% last year.

Domestic Gross Profit Rate

Domesticgross profit rate was 21.2% versus 22.1% last year. The gross profit ratedecrease of approximately 90 basis points was primarily driven by mix intolower-margin products, a lower gross profit rate in the services category andthe impacts associated with tariffs on goods imported from China.

Domestic Selling, General and Administrative Expenses(“SG&A”)

DomesticGAAP SG&A was $2.05 billion, or 14.8% of revenue, versus $2.10 billion, or15.6% of revenue, last year. On a non-GAAP basis, SG&A was $2.03 billion,or 14.7% of revenue, versus $2.08 billion, or 15.4% of revenue, last year. BothGAAP and non-GAAP SG&A decreased primarily due to lower incentivecompensation expense, which was partially offset primarily by higher variablecosts due to increased revenue and higher advertising expense.

International Segment Q4 FY20Results

International Revenue

International revenue of $1.35 billion increased 3.4% versus last year. This increase was primarily driven by the impact of approximately 160 basis points of favorable foreign currency exchange rates and comparable sales growth of 1.6%, which was driven by Canada.

International Gross Profit Rate

Internationalgross profit rate was 22.6% versus 22.9% last year. The gross profit ratedecrease of approximately 30 basis points was primarily due to Canada, whichwas largely driven by a by mix into lower-margin products.

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International SG&A

International SG&A was $215 million, or15.9% of revenue, versus $207 million, or 15.9% of revenue, last year. SG&Aincreased primarily due to the negative impact of foreign exchange rates andexpense associated with new stores in Mexico opened in the past year.

Dividendsand Share Repurchases

In Q4 FY20, the company returned a total of $436 million to shareholders through share repurchases of $307 million and dividends of $129 million. For the full year, the company returned a total of $1.53 billion to shareholders through share repurchases of $1.0 billion and dividends of $527 million.

Today, the company announced its board ofdirectors approved a 10% increase in the regular quarterly dividend to $0.55per share, effective immediately. The regular quarterly dividend will bepayable on April 9, 2020, to shareholders of record as of the close of businesson March 19, 2020.

The company plans to spend between $750 millionand $1.0 billion on share repurchases in FY21.

Conference Call

Best Buy is scheduled to conduct an earningsconference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on February27, 2020. A webcast of the call is expected to be available at www.investors.bestbuy.com, both live and after the call.

Notes:

(1) In Q1 FY20, thecompany refined its methodology for calculating comparable sales. It nowreflects certain revenue streams previously excluded from the comparable salescalculation, such as credit card revenue, gift card breakage, commercial salesand sales of merchandise to wholesalers and dealers, as applicable. The impactof adopting these changes is immaterial to all periods presented, and thereforeprior-period comparable sales disclosures have not been restated.

(2) A reconciliationof the projected non-GAAP operating income, non-GAAP effective income tax rateand non-GAAP diluted EPS, which are forward-looking non-GAAP financialmeasures, to the most directly comparable GAAP financial measures, is notprovided because the company is unable to provide such reconciliation withoutunreasonable effort. The inability to provide a reconciliation is due to theuncertainty and inherent difficulty predicting the occurrence, the financialimpact and the periods in which the non-GAAP adjustments may be recognized.These GAAP measures may include the impact of such items as restructuringcharges; goodwill impairments; gains and losses on investments; intangibleasset amortization; certain acquisition-related costs; and the tax effect ofall such items. Historically, the company has excluded these items fromnon-GAAP financial measures. The company currently expects to continue toexclude these items in future disclosures of non-GAAP financial measures andmay also exclude other items that may arise (collectively, “non-GAAPadjustments”). The decisions and events that typically lead to the recognitionof non-GAAP adjustments, such as a decision to exit part of the business orreaching settlement of a legal dispute, are inherently unpredictable as to ifor when they may occur. For the same reasons, the company is unable to addressthe probable significance of the unavailable information, which could bematerial to future results.

Forward-Lookingand Cautionary Statements:

This earnings release contains forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995 as contained in Section 27A of the Securities Act of 1933 and Section21E of the Securities Exchange Act of 1934 that reflect management’s currentviews and estimates regarding future market conditions, company performance andfinancial results, operational investments, business prospects, new strategies,the competitive environment and other events. You can identify these statementsby 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 statementsinvolve a number of risks and uncertainties that could cause actual results todiffer materially from the potential results discussed in the forward-lookingstatements. Among the factors that could cause actual results and outcomes todiffer materially from those contained in such forward-looking statements arethe following: competition (including from multi-channel retailers, e-commercebusiness, technology service providers, traditional store-based retailers,vendors and mobile network carriers), our expansion strategies, our focus on servicesas a strategic priority, our reliance on key vendors and mobile networkcarriers, our ability to attract and retain qualified employees, changes inmarket compensation rates, risks arising from statutory, regulatory and legaldevelopments, macroeconomic pressures in the markets in which we operate,failure to effectively manage our costs, our reliance on our informationtechnology systems, our ability to prevent or effectively respond to a privacyor security breach, our ability to effectively manage strategic ventures,alliances or acquisitions, our dependence on cash flows and net earningsgenerated during the fourth fiscal quarter, susceptibility of our products totechnological advancements, product life cycle preferences and changes inconsumer preferences, economic or regulatory developments that might affect ourability to provide attractive promotional financing, interruptions and othersupply chain issues, catastrophic events, health crises, pandemics, our abilityto maintain positive brand perception and recognition, product safety andquality concerns, changes to labor or employment laws or regulations, ourability to effectively manage our real estate portfolio, constraints in thecapital markets or our vendor credit terms, changes in our credit ratings, anymaterial disruption in our relationship with or the services of third-partyvendors, risks related to our exclusive brand products and risks associatedwith vendors that source products outside of the U.S., including traderestrictions or changes in the costs of imports (including existing or newtariffs or duties and changes in the amount of any such tariffs or duties) andrisks arising from our international activities.

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A further list and description of these risks,uncertainties and other matters can be found in the company’s annual report andother reports filed from time to time with the Securities and ExchangeCommission (“SEC”), including, but not limited to, Best Buy’s Annual Report onForm 10-K filed with the SEC on March 28, 2019. Best Buy cautions that theforegoing list of important factors is not complete, and any forward-lookingstatements speak only as of the date they are made, and Best Buy assumes noobligation to update any forward-looking statement that it may make.

Investor Contact:Media Contact:Mollie O’Brien Jeff Shelman (612) 291-7735 or [email protected] (612) 291-6114 or [email protected]