MINNEAPOLIS--(BUSINESS WIRE)--Best Buy Co., Inc. (NYSE: BBY) today announced results for the second quarter ended August 4, 2018 (“Q2 FY19”), as compared to the second quarter ended July 29, 2017 (“Q2 FY18”). The company reported Q2 FY19 GAAP diluted earnings per share of $0.86, an increase of 28% from $0.67 in Q2 FY18. Non-GAAP diluted earnings per share for Q2 FY19 were $0.91, an increase of 32% from $0.69 in Q2 FY18.
| Q2 FY19 | Q2 FY18 | |||
| Revenue ($ in millions): | ||||
| Enterprise | $9,379 | $8,940 | ||
| Domestic segment | $8,639 | $8,272 | ||
| International segment | $740 | $668 | ||
| Enterprise comparable sales % change | 6.2% | 5.4% | ||
| Domestic comparable sales % change | 6.0% | 5.4% | ||
| Domestic comparable online sales % change | 10.1% | 31.2% | ||
| International comparable sales % change | 7.6% | 4.7% | ||
| Operating Income: | ||||
| GAAP operating income as a % of revenue | 3.6% | 3.6% | ||
| Non-GAAP operating income as a % of revenue | 3.8% | 3.6% | ||
| Diluted Earnings per Share ("EPS"): | ||||
| GAAP diluted EPS | $0.86 | $0.67 | ||
| Non-GAAP diluted EPS | $0.91 | $0.69 | ||
For GAAP to non-GAAP reconciliations, please refer to the attached supporting schedule titled Reconciliation of Non-GAAP Financial Measures.
“We are happy to report strong top- and bottom-line results for the second quarter that exceeded our expectations,” said Hubert Joly, Best Buy’s chairman and CEO. “Our comparable sales growth was helped by the favorable environment in which we operate and driven by how customers are responding to the unique and elevated experience we are building. We are particularly encouraged with the continued progress of our Net Promoter Scores and our continued market share gains. We are excited about the progress we are making on the implementation of our Best Buy 2020 strategy and the opportunities in front of us.”
Joly continued, “As a result of the strong performance in the first half of the year and our updated expectations for the back half, we are raising our full-year sales and earnings guidance.”
Best Buy CFO Corie Barry said, “For the full year, we now expect FY19 comparable sales growth of 3.5% to 4.5% versus our original guidance of flat to growth of 2.0%, and we are raising our expectation for our non-GAAP diluted EPS to a range of $4.95 to $5.10 versus our original guidance of $4.80 to $5.00.”
Barry added, “We continue to expect a non-GAAP operating income rate of approximately 4.5% for the full year, which is flat to FY18 on a 52-week basis. As we invest in the implementation of our strategy, the profitability profile of our quarters is not completely linear on a year-over-year basis. For example, in the second quarter, we expanded our non-GAAP operating income rate 20 basis points. In the back half, consistent with our annual outlook when we entered the year, we are expecting a non-GAAP operating income rate decline in the third quarter followed by an increase in the fourth quarter to result in our expectation for an approximately flat rate to last year on a full-year basis. Similar to the past several years, we remain focused on managing the business for long-term success rather than ensuring a straight-line quarterly operating income rate performance.”
FY19 Financial Guidance
Note: FY19 has 52 weeks compared to 53 weeks in FY18. The extra week occurred in Q4 FY18 and was approximately $760 million in revenue and approximately $0.20 of non-GAAP diluted EPS.
Best Buy is raising its full-year FY19 financial outlook to the following:
- Enterprise revenue of $42.3 billion to $42.7 billion
- Enterprise comparable sales growth of 3.5% to 4.5%1 versus original guidance of flat to growth of 2.0%
- Enterprise non-GAAP operating income rate of approximately 4.5%2, flat to FY18 on a 52-week basis
- Non-GAAP effective income tax rate of approximately 24.5%2
- Non-GAAP diluted EPS of $4.95 to $5.102, growth of 12% to 15%, versus original guidance of $4.80 to $5.00
Best Buy is providing the following Q3 FY19 financial outlook:
- Enterprise revenue of $9.4 billion to $9.5 billion
- Enterprise comparable sales growth of 2.5% to 3.5%
- Domestic comparable sales growth of 2.5% to 3.5%
- International comparable sales growth of 2.0% to 4.0%
- Non-GAAP effective income tax rate of approximately 25.0%2
- Diluted weighted average share count of approximately 281 million
- Non-GAAP diluted EPS of $0.79 to $0.842, growth of 1% to 8%
Domestic Segment Q2 FY19 Results
Domestic Revenue
Domestic revenue of $8.64 billion increased
4.4% versus last year, driven by comparable sales growth of 6.0%,
partially offset by the loss of revenue from 292 Best Buy Mobile and 17
large-format store closures over the past year. The comparable sales
growth of 6.0% included an approximate 150-basis point benefit from a
calendar shift resulting from the extra week in FY18.
From a merchandising perspective, the company generated comparable sales growth across multiple categories, with the largest drivers being home theater, computing, appliances, gaming, mobile phones and smart home. These positive drivers were partially offset by declines in digital imaging and tablets.
Domestic online revenue of $1.21 billion increased 10.1% on a comparable basis, primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 80 basis points to 14.0% versus 13.2% last year.
Domestic Gross Profit Rate
Domestic gross profit rate was
23.8% versus 24.0% last year. The gross profit rate decline of
approximately 20 basis points was driven primarily by higher supply
chain costs, including both investments and higher transportation costs,
and the national rollout of the Total Tech Support offer. These
pressures were partially offset by improved product margin rates, which
include the benefit of gross profit optimization initiatives.
Domestic Selling, General and Administrative Expenses (“SG&A”)
Domestic
SG&A was $1.71 billion, or 19.8% of revenue, versus $1.67 billion, or
20.2% of revenue, last year. SG&A increased primarily due to growth
investments and higher variable costs associated with increased revenue.
These increases were partially offset by cost reductions and lower
incentive compensation.
International Segment Q2 FY19 Results
International Revenue
International revenue of $740 million
increased 10.8% versus last year. This increase was primarily driven by
comparable sales growth of 7.6%, due to both Canada and Mexico, sales
from six new store locations opened in Mexico in the past year and
approximately 60 basis points of positive foreign currency impact.
International Gross Profit Rate
International gross profit
rate was 23.1% versus 25.1% last year. The gross profit rate decrease of
approximately 200 basis points was mainly due to a lower year-over-year
gross profit rate in Canada, which was primarily driven by lower rates
in the home theater and mobile phone categories.
International SG&A
International SG&A was $165 million,
or 22.3% of revenue, versus $161 million, or 24.1% of revenue, last
year. SG&A increased primarily due to higher variable costs associated
with increased revenue and the negative impact of foreign exchange rates.
Dividends and Share Repurchases
In Q2 FY19, the company returned a total of $499 million to shareholders through dividends of $125 million and share repurchases of $374 million, or 5.0 million shares. On a year-to-date basis, the company has returned a total of $1.03 billion to shareholders through dividends of $253 million and share repurchases of $774 million, or 10.6 million shares. On March 1, 2018, the company announced the intent to spend $1.5 billion on share repurchases during FY19.
Income Taxes
In Q2 FY19, the GAAP effective tax rate was 25.7% versus 32.6% last year. On a non-GAAP basis, the effective tax rate was 25.4% versus 32.6% last year. The lower GAAP and non-GAAP effective tax rates were primarily due to the impacts from the Tax Cuts and Jobs Act of 2017, which included a reduction in the U.S. statutory corporate tax rate.
GreatCall Acquisition
On August 15, 2018, the company announced that it signed a definitive agreement to acquire GreatCall, Inc. for $800 million in cash. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close by the end of Best Buy's Q3 FY19. The company expects the impact of the acquisition on its non-GAAP earnings to be neutral in FY19 and FY20 and accretive by FY21.3 The expected impact from the acquisition is not currently reflected in the company’s financial guidance.
Conference Call
Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on August 28, 2018. A webcast of the call is expected to be available at www.investors.bestbuy.com, both live and after the call.
Notes:
(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) 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; 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.
(3) Non-GAAP earnings exclude the impact of purchase accounting and acquisition-related transaction costs.
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, 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
announced transactions (including with respect to the GreatCall
transaction, the risks that conditions to the completion of the
transaction may not be satisfied, closing of the transaction may not
occur or may be delayed, revenues following the transaction 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 company may assume unexpected risks and
liabilities from the transaction), 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.
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BEST BUY CO., INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS |
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($ and shares in millions, except per share amounts) |
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(Unaudited and subject to reclassification) |
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| Three Months Ended | Six Months Ended | |||||||||||||||
| August 4, | July 29, | August 4, | July 29, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenue | $ | 9,379 | $ | 8,940 | $ | 18,488 | $ | 17,468 | ||||||||
| Cost of goods sold | 7,150 | 6,787 | 14,134 | 13,293 | ||||||||||||
| Gross profit | 2,229 | 2,153 | 4,354 | 4,175 | ||||||||||||
| Gross profit % | 23.8 | % | 24.1 | % | 23.6 | % | 23.9 | % | ||||||||
| Selling, general and administrative expenses | 1,877 | 1,830 | 3,707 | 3,552 | ||||||||||||
| SG&A % | 20.0 | % | 20.5 | % | 20.1 | % | 20.3 | % | ||||||||
| Restructuring charges | 17 | 2 | 47 | 2 | ||||||||||||
| Operating income | 335 | 321 | 600 | 621 | ||||||||||||
| Operating income % | 3.6 | % | 3.6 | % | 3.2 | % | 3.6 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Investment income and other | 13 | 7 | 24 | 18 | ||||||||||||
| Interest expense | (19 | ) | (18 | ) | (38 | ) | (37 | ) | ||||||||
| Earnings before income tax expense | 329 | 310 | 586 | 602 | ||||||||||||
| Income tax expense | 85 | 101 | 134 | 205 | ||||||||||||
| Effective tax rate | 25.7 | % | 32.6 | % | 22.8 | % | 34.1 | % | ||||||||
| Net earnings | $ | 244 | $ | 209 | $ | 452 | $ | 397 | ||||||||
| Basic earnings per share | $ | 0.88 | $ | 0.69 | $ | 1.61 | $ | 1.29 | ||||||||
| Diluted earnings per share | $ | 0.86 | $ | 0.67 | $ | 1.58 | $ | 1.27 | ||||||||
| Dividends declared per common share | $ | 0.45 | $ | 0.34 | $ | 0.90 | $ | 0.68 | ||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Basic | 279.0 | 304.1 | 280.8 | 306.7 | ||||||||||||
| Diluted | 283.7 | 310.8 | 286.0 | 313.0 | ||||||||||||
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BEST BUY CO., INC. |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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($ in millions) |
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(Unaudited and subject to reclassification) |
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| August 4, 2018 | July 29, 2017 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 1,865 | $ | 1,365 | |||
| Short-term investments | 465 | 2,125 | |||||
| Receivables, net | 915 | 965 | |||||
| Merchandise inventories | 5,016 | 5,167 | |||||
| Other current assets | 510 | 456 | |||||
| Total current assets | 8,771 | 10,078 | |||||
| Property and equipment, net | 2,432 | 2,327 | |||||
| Goodwill | 425 | 425 | |||||
| Other assets | 365 | 614 | |||||
| Total assets | $ | 11,993 | $ | 13,444 | |||
| Liabilities and equity | |||||||
| Current liabilities | |||||||
| Accounts payable | $ | 5,338 | $ | 5,072 | |||
| Unredeemed gift card liabilities | 275 | 383 | |||||
| Deferred revenue | 438 | 427 | |||||
| Accrued compensation and related expenses | 318 | 309 | |||||
| Accrued liabilities | 801 | 787 | |||||
| Accrued income taxes | 12 | 83 | |||||
| Current portion of long-term debt | 47 | 44 | |||||
| Total current liabilities | 7,229 | 7,105 | |||||
| Long-term liabilities | 777 | 682 | |||||
| Long-term debt | 801 | 1,310 | |||||
| Equity | 3,186 | 4,347 | |||||
| Total liabilities and equity | $ | 11,993 | $ | 13,444 | |||
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BEST BUY CO., INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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($ in millions) |
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(Unaudited and subject to reclassification) |
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| Six Months Ended | ||||||||
| August 4, 2018 | July 29, 2017 | |||||||
| Operating activities | ||||||||
| Net earnings | $ | 452 | $ | 397 | ||||
| Adjustments to reconcile net earnings to total cash provided by operating activities: | ||||||||
| Depreciation | 358 | 329 | ||||||
| Restructuring charges | 47 | 2 | ||||||
| Stock-based compensation | 63 | 67 | ||||||
| Deferred income taxes | 5 | 9 | ||||||
| Other, net | — | (2 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | 120 | 401 | ||||||
| Merchandise inventories | 187 | (285 | ) | |||||
| Other assets | (53 | ) | (45 | ) | ||||
| Accounts payable | 485 | 15 | ||||||
| Other liabilities | (430 | ) | (237 | ) | ||||
| Income taxes | (126 | ) | 41 | |||||
| Total cash provided by operating activities | 1,108 | 692 | ||||||
| Investing activities | ||||||||
| Additions to property and equipment | (375 | ) | (296 | ) | ||||
| Purchases of investments | — | (2,221 | ) | |||||
| Sales of investments | 1,565 | 1,806 | ||||||
| Proceeds from property disposition | — | 2 | ||||||
| Other, net | 10 | 1 | ||||||
| Total cash provided by (used in) investing activities | 1,200 | (708 | ) | |||||
| Financing activities | ||||||||
| Repurchase of common stock | (774 | ) | (771 | ) | ||||
| Issuance of common stock | 29 | 125 | ||||||
| Dividends paid | (253 | ) | (208 | ) | ||||
| Repayments of debt | (523 | ) | (19 | ) | ||||
| Other, net | (3 | ) | (1 | ) | ||||
| Total cash used in financing activities | (1,524 | ) | (874 | ) | ||||
| Effect of exchange rate changes on cash | (16 | ) | 18 | |||||
| Increase (decrease) in cash, cash equivalents and restricted cash | 768 | (872 | ) | |||||
| Cash, cash equivalents and restricted cash at beginning of period1 | 1,300 | 2,433 | ||||||
| Cash, cash equivalents and restricted cash at end of period1 | $ | 2,068 | $ | 1,561 | ||||
| (1) | Included within the beginning and ending cash, cash equivalents and restricted cash balances is restricted cash recorded within Other current assets on the Condensed Consolidated Balance Sheets. For the six months ended July 29, 2017, the impact is a $193 million increase in the beginning balance and a $196 million increase in the ending balance. For the six months ended August 4, 2018, the impact is a $199 million increase in the beginning balance and a $203 million increase in the ending balance. | |
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BEST BUY CO., INC. |
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SEGMENT INFORMATION |
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($ in millions) |
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(Unaudited and subject to reclassification) |
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| Three Months Ended | Six Months Ended | |||||||||||||||
| Domestic Segment Results | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||||||||||
| Revenue | $ | 8,639 | $ | 8,272 | $ | 17,051 | $ | 16,184 | ||||||||
| Comparable sales % change | 6.0 | % | 5.4 | % | 6.6 | % | 3.4 | % | ||||||||
| Comparable online sales % change | 10.1 | % | 31.2 | % | 11.0 | % | 26.8 | % | ||||||||
| Gross profit | $ | 2,058 | $ | 1,985 | $ | 4,020 | $ | 3,856 | ||||||||
| Gross profit as a % of revenue | 23.8 | % | 24.0 | % | 23.6 | % | 23.8 | % | ||||||||
| SG&A | $ | 1,712 | $ | 1,669 | $ | 3,377 | $ | 3,242 | ||||||||
| SG&A as a % of revenue | 19.8 | % | 20.2 | % | 19.8 | % | 20.0 | % | ||||||||
| Operating income | $ | 329 | $ | 316 | $ | 596 | $ | 614 | ||||||||
| Operating income as a % of revenue | 3.8 | % | 3.8 | % | 3.5 | % | 3.8 | % | ||||||||
| Domestic Segment Non-GAAP Results1 | ||||||||||||||||
| Gross profit | $ | 2,058 | $ | 1,985 | $ | 4,020 | $ | 3,856 | ||||||||
| Gross profit as a % of revenue | 23.8 | % | 24.0 | % | 23.6 | % | 23.8 | % | ||||||||
| SG&A | $ | 1,712 | $ | 1,669 | $ | 3,371 | $ | 3,242 | ||||||||
| SG&A as a % of revenue | 19.8 | % | 20.2 | % | 19.8 | % | 20.0 | % | ||||||||
| Operating income | $ | 346 | $ | 316 | $ | 649 | $ | 614 | ||||||||
| Operating income as a % of revenue | 4.0 | % | 3.8 | % | 3.8 | % | 3.8 | % | ||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| International Segment Results | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||||||||||
| Revenue | $ | 740 | $ | 668 | $ | 1,437 | $ | 1,284 | ||||||||
| Comparable sales % change | 7.6 | % | 4.7 | % | 7.0 | % | 4.4 | % | ||||||||
| Gross profit | $ | 171 | $ | 168 | $ | 334 | $ | 319 | ||||||||
| Gross profit as a % of revenue | 23.1 | % | 25.1 | % | 23.2 | % | 24.8 | % | ||||||||
| SG&A | $ | 165 | $ | 161 | $ | 330 | $ | 310 | ||||||||
| SG&A as a % of revenue | 22.3 | % | 24.1 | % | 23.0 | % | 24.1 | % | ||||||||
| Operating income | $ | 6 | $ | 5 | $ | 4 | $ | 7 | ||||||||
| Operating income as a % of revenue | 0.8 | % | 0.7 | % | 0.3 | % | 0.5 | % | ||||||||
| International Segment Non-GAAP Results1 | ||||||||||||||||
| Gross profit | $ | 171 | $ | 168 | $ | 334 | $ | 319 | ||||||||
| Gross profit as a % of revenue | 23.1 | % | 25.1 | % | 23.2 | % | 24.8 | % | ||||||||
| SG&A | $ | 165 | $ | 161 | $ | 329 | $ | 310 | ||||||||
| SG&A as a % of revenue | 22.3 | % | 24.1 | % | 22.9 | % | 24.1 | % | ||||||||
| Operating income | $ | 6 | $ | 7 | $ | 5 | $ | 9 | ||||||||
| Operating income as a % of revenue | 0.8 | % | 1.0 | % | 0.3 | % | 0.7 | % | ||||||||
| (1) | For GAAP to non-GAAP reconciliations, please refer to the attached supporting schedule titled Reconciliation of Non-GAAP Financial Measures. | |
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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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| Revenue Mix Summary | Comparable Sales | |||||||
| Three Months Ended | Three Months Ended | |||||||
| Domestic Segment | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||
| Consumer Electronics | 32% | 32% | 6.8% |
2.5 % |
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| Computing and Mobile Phones | 45% | 47% | 4.2% |
6.7 % |
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| Entertainment | 7% | 6% | 8.5% |
15.4 % |
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| Appliances | 12% | 11% | 10.3% |
5.8 % |
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| Services | 4% | 4% | 6.6% |
1.5 % |
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| Other | —% | —% | N/A | N/A | ||||
| Total | 100% | 100% | 6.0% |
5.4 % |
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| Revenue Mix Summary | Comparable Sales | |||||||
| Three Months Ended | Three Months Ended | |||||||
| International Segment | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||
| Consumer Electronics | 29% | 31% | 0.3% |
7.3 % |
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| Computing and Mobile Phones | 45% | 47% | 4.5% |
0.3 % |
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| Entertainment | 6% | 5% | 14.3% |
0.5 % |
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| Appliances | 12% | 9% | 35.7% |
30.8 % |
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| Services | 6% | 6% | 11.3% |
(1.3)% |
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| Other | 2% | 2% | 51.4% | N/A | ||||
| Total | 100% | 100% | 7.6% |
4.7 % |
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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 measures. Generally, presented non-GAAP measures include adjustments for items such as restructuring charges, goodwill impairments and gains or losses on investments. 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 measures as presented herein may not be comparable to similarly titled measures used by other companies.
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||
| August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||
| Domestic | International | Consolidated | Domestic | International | Consolidated | |||||||||||||||||||
| Operating income | $ | 329 | $ | 6 | $ | 335 | $ | 316 | $ | 5 | $ | 321 | ||||||||||||
| % of revenue | 3.8 | % | 0.8 | % | 3.6 | % | 3.8 | % | 0.7 | % | 3.6 | % | ||||||||||||
| Restructuring charges1 | 17 | — | 17 | — | 2 | 2 | ||||||||||||||||||
| Non-GAAP operating income | $ | 346 | $ | 6 | $ | 352 | $ | 316 | $ | 7 | $ | 323 | ||||||||||||
| % of revenue | 4.0 | % | 0.8 | % | 3.8 | % | 3.8 | % | 1.0 | % | 3.6 | % | ||||||||||||
| Effective tax rate | 25.7 | % | 32.6 | % | ||||||||||||||||||||
| Restructuring charges1 | (0.3 | )% | — | % | ||||||||||||||||||||
| Non-GAAP effective tax rate | 25.4 | % | 32.6 | % | ||||||||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||
| August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||
| Pretax | Pretax | |||||||||||||||||||||||
| Earnings | Net of Tax(2) | Per Share | Earnings | Net of Tax(2) | Per Share | |||||||||||||||||||
| GAAP diluted EPS | $ | 0.86 | $ | 0.67 | ||||||||||||||||||||
| Restructuring charges1 | 17 | 13 | 0.05 | 2 | 2 | 0.01 | ||||||||||||||||||
| Loss on investments, net | — | — | — | 5 | 3 | 0.01 | ||||||||||||||||||
| Non-GAAP diluted EPS | $ | 0.91 | $ | 0.69 | ||||||||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||||||||||
| August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||
| Domestic | International | Consolidated | Domestic | International | Consolidated | |||||||||||||||||||
| SG&A | $ | 3,377 | $ | 330 | $ | 3,707 | $ | 3,242 | $ | 310 | $ | 3,552 | ||||||||||||
| % of revenue | 19.8 | % | 23.0 | % | 20.1 | % | 20.0 | % | 24.1 | % | 20.3 | % | ||||||||||||
| Tax reform-related item - employee bonus3 | (6 | ) | (1 | ) | (7 | ) | — | — | — | |||||||||||||||
| Non-GAAP SG&A | $ | 3,371 | $ | 329 | $ | 3,700 | $ | 3,242 | $ | 310 | $ | 3,552 | ||||||||||||
| % of revenue | 19.8 | % | 22.9 | % | 20.0 | % | 20.0 | % | 24.1 | % | 20.3 | % | ||||||||||||
| Operating income | $ | 596 | $ | 4 | $ | 600 | $ | 614 | $ | 7 | $ | 621 | ||||||||||||
| % of revenue | 3.5 | % | 0.3 | % | 3.2 | % | 3.8 | % | 0.5 | % | 3.6 | % | ||||||||||||
| Restructuring charges1 | 47 | — | 47 | — | 2 | 2 | ||||||||||||||||||
| Tax reform-related item - employee bonus3 | 6 | 1 | 7 | — | — | — | ||||||||||||||||||
| Non-GAAP operating income | $ | 649 | $ | 5 | $ | 654 | $ | 614 | $ | 9 | $ | 623 | ||||||||||||
| % of revenue | 3.8 | % | 0.3 | % | 3.5 | % | 3.8 | % | 0.7 | % | 3.6 | % | ||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||||||||||
| August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||
| Consolidated | Consolidated | |||||||||||||||||||||||
| Effective tax rate | 22.8 | % | 34.1 | % | ||||||||||||||||||||
| Restructuring charges1 | 0.1 | % | — | % | ||||||||||||||||||||
| Non-GAAP effective tax rate | 22.9 | % | 34.1 | % | ||||||||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||||||||||
| August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||
| Pretax | Pretax | |||||||||||||||||||||||
| Earnings | Net of Tax(2) | Per Share | Earnings | Net of Tax(2) | Per Share | |||||||||||||||||||
| GAAP diluted EPS | $ | 1.58 | $ | 1.27 | ||||||||||||||||||||
| Restructuring charges1 | $ | 47 | $ | 36 | 0.12 | $ | 2 | $ | 1 | — | ||||||||||||||
| Tax reform-related item - employee bonus3 | 7 | 5 | 0.02 | — | — | — | ||||||||||||||||||
| Loss on investments, net | — | — | — | 5 | 3 | 0.01 | ||||||||||||||||||
| Non-GAAP diluted EPS | $ | 1.72 | $ | 1.28 | ||||||||||||||||||||
| (1) | Represents charges primarily associated with the closure of our Best Buy Mobile stand-alone stores in the U.S. | |
| (2) | The non-GAAP adjustments relate primarily to adjustments in the United States and Canada. As such, the income tax charge is calculated using the statutory tax rates for the United States (24.5% for the periods ended August 4, 2018, and 38.0% for the periods ended July 29, 2017) and Canada (26.9% for the periods ended August 4, 2018, and 26.6% for the periods ended July 29, 2017), applied to the non-GAAP adjustments of each country. | |
| (3) | Represents final adjustments for amounts paid and associated taxes related to a one-time bonus for certain employees announced in response to future tax savings created by the Tax Cuts and Jobs Act enacted into law in the fourth quarter of fiscal 2018. | |
Return on Assets and Non-GAAP Return on Invested Capital
The following table includes a reconciliation to the calculation of return on assets ("ROA") (GAAP financial measure), along with the calculation of non-GAAP return on invested capital (“ROIC”) for total operations, which includes both continuing and discontinued operations, (non-GAAP financial measure) for the periods presented.
The company defines non-GAAP ROIC as non-GAAP net operating profit after tax divided by average invested capital using the trailing four-quarter average. The company believes non-GAAP ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of the use of capital and believes non-GAAP ROIC is an important component of shareholders' return over the long term. This method of determining non-GAAP ROIC may differ from other companies' methods and therefore may not be comparable to those used by other companies.
| Calculation of Return on Assets ("ROA") | August 4, 20181 | July 29, 20171 | ||||||
| Net earnings | $ | 1,055 | $ | 1,198 | ||||
| Total assets | 12,977 | 13,699 | ||||||
| ROA | 8.1 |
% |
8.7 |
% |
||||
| Calculation of Non-GAAP Return on Invested Capital ("ROIC") | August 4, 20181 | July 29, 20171 | ||||||
|
Net Operating Profit After Taxes ("NOPAT") |
||||||||
| Operating income - continuing operations | $ | 1,822 | $ | 1,814 | ||||
| Operating income - discontinued operations | 1 | 2 | ||||||
| Total operating income | 1,823 | 1,816 | ||||||
| Add: Operating lease interest2 | 234 | 233 | ||||||
| Add: Non-GAAP operating income adjustments3 | 163 | 12 | ||||||
| Add: Investment income | 56 | 41 | ||||||
| Less: Income taxes4 | (736 | ) | (786 | ) | ||||
| Non-GAAP NOPAT | $ | 1,540 | $ | 1,316 | ||||
|
Average Invested Capital |
||||||||
| Total assets | $ | 12,977 | $ | 13,699 | ||||
| Less: Excess cash5 | (2,427 | ) | (3,133 | ) | ||||
| Add: Capitalized operating lease obligations6 | 3,907 | 3,880 | ||||||
| Total liabilities | (9,385 | ) | (9,245 | ) | ||||
| Exclude: Debt7 | 1,219 | 1,358 | ||||||
| Average Invested Capital | $ | 6,291 | $ | 6,559 | ||||
| Non-GAAP ROIC | 24.5 |
% |
20.1 |
% |
||||
| (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 four quarters ended as of each of the balance sheet dates. | |
| (2) | Operating lease interest represents the add-back to operating income to properly reflect the total interest expense that the company would incur, if its operating leases were capitalized or owned. The add-back is calculated by multiplying the trailing 12-month total rent expense by 30%. This multiple is used for the retail sector by one of the nationally recognized credit rating agencies that rates the company's credit worthiness, and the company considers it to be an appropriate multiple for its lease portfolio. | |
| (3) | Includes continuing operations adjustments for tax reform-related items, restructuring charges and a discontinued operations adjustment for a gain on sale of property. Additional details regarding the non-GAAP operating income from continuing operations adjustments are included in the Reconciliation of Non-GAAP Financial Measures schedule within our quarterly earnings releases. For additional details on the operating income from discontinued operations adjustment, refer to Note 2, Discontinued Operations, in the Notes to Consolidated Financial Statements included in the company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018. | |
| (4) | Income taxes are calculated 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 ranging from 24.5% to 38.0% for the periods presented) and Canada (with a statutory rate ranging from 26.6% to 26.9% for the periods presented). | |
| (5) | Cash and cash equivalents and short-term investments are capped at the greater of 1% of revenue or actual amounts on hand. The cash and cash equivalents and short-term investments in excess of the cap are subtracted from the company’s calculation of average invested capital to show their exclusion from total assets. | |
| (6) | Capitalized operating lease obligations represent the estimated assets that the company would record, if the company's operating leases were capitalized or owned. The obligation is calculated by multiplying the trailing 12-month total rent expense by the multiple of five. This multiple is used for the retail sector by one of the nationally recognized credit rating agencies that rates the company's credit worthiness, and the company considers it to be an appropriate multiple for its lease portfolio. | |
| (7) | Debt includes short-term debt, current portion of long-term debt and long-term debt and is added back to the company’s calculation of average invested capital to show its exclusion from total liabilities. |
