GAAP Diluted EPS of $0.69
Non-GAAP Diluted EPS Increased 19% to
$0.44
Domestic Segment Comparable Sales
Essentially Flat
Best Buy Co., Inc. (NYSE:BBY) today announced results for the
first quarter ended April 30, 2016 (“Q1 FY17”), as compared to the
first quarter ended May 2, 2015 (“Q1 FY16”). The company reported
GAAP diluted earnings from continuing operations of $0.69, an
increase from $0.10 in Q1 FY16. Non-GAAP diluted earnings per share
from continuing operations were $0.44, an increase of 19% from
$0.37 in Q1 FY16.
Q1 FY17 Q1 FY16 Revenue ($ in
millions)1
Enterprise $8,443 $8,558 Domestic
segment $7,829 $7,890 International
segment $614 $668 Enterprise comparable
sales % change (0.1%) 0.6% Domestic
comparable sales % change (0.1%) 0.6%
Domestic comparable online sales % change 23.9%
5.3% International revenue % change
(8.1%) (22.1%) International revenue % change on a
constant currency basis (1.2%) (12.1%)
Operating Income:
GAAP operating income as a % of revenue 4.4%
1.0% Non-GAAP operating income as a % of revenue
2.9% 2.6%
Diluted Earnings per Share
(EPS): GAAP diluted
EPS from continuing operations $0.69
$0.10 Non-GAAP diluted EPS from continuing operations
$0.44 $0.37
For GAAP to non-GAAP reconciliations,
please refer to the attached supporting schedule titled
“Reconciliation of non-GAAP Financial Measures.”
“Our teams delivered a strong first quarter, with
better-than-expected revenue, improved profitability and progress
against our fiscal 2017 initiatives,” said Best Buy Chairman and
CEO Hubert Joly. “We are reaffirming our previously provided full
year financial outlook which includes approximately flat revenue
and non-GAAP operating income, with non-GAAP EPS growth driven by
share repurchases. Although we are reporting better-than-expected
results today, we are not raising our full year outlook as the
first quarter represents less than 15% of full year earnings and at
this stage we have no new material information as it relates to
product launches throughout the year.”
Joly continued, “In our Domestic business, we are reporting
essentially flat comparable sales versus guidance of a 1% to 2%
decline driven by strong year-over-year sales growth in health
& wearables, home theater and appliances offset by continued
softness in mobile phones and tablets. Contributing to these
better-than-expected results was the strong performance in our
online channel, which grew 24% in the quarter.”
Joly concluded, “As we look forward, we remain focused on our
FY17 priorities. These priorities are (1) to build on our strong
industry position and multi-channel capabilities to drive the
existing business; (2) to drive cost reductions and efficiencies;
and (3) to advance key initiatives to drive future growth and
differentiation. We are investing to make it easy for customers to
learn about and enjoy the latest technology as they pursue their
passions and take care of what is important to them in their lives.
With our combination of digital, store and in-home assets, we feel
we have a great opportunity to address key customer pain points,
build stronger ongoing relationships with our customers and unleash
growth opportunities.”
Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “As
Hubert said, we are reaffirming our previously provided full year
financial outlook of approximately flat revenue and non-GAAP
operating income, including lapping the significant periodic profit
sharing benefits from our services plan portfolio that we earned in
FY16. A key element to achieve this will be the delivery of our
cost reduction and gross profit optimization initiatives. Based on
current industry dynamics and how we see the various product cycles
playing out, we are expecting slight declines in revenue in the
first half followed by growth in the back half. As discussed in our
last earnings release, we recognize this will be challenging
without a strong mobile cycle and improvements in the NPD-reported
categories overall.”
McCollam continued, “For Q2 FY17, our guidance is Enterprise
revenue in the range of $8.35 billion to $8.45 billion and both
Enterprise and Domestic comparable sales of approximately flat. We
expect our Q2 non-GAAP diluted earnings per share to be in the
range of $0.38 to $0.42, assuming a diluted weighted average share
count of approximately 325 million and a non-GAAP effective income
tax rate in the range of 36.0% to 36.5%.”
McCollam concluded, “In line with our original expectations,
there are two factors impacting our year-over-year non-GAAP EPS
guidance for the second quarter. First, we are expecting an
approximate $0.03 net negative impact from the lapping of the
periodic profit sharing benefit from our services plan portfolio
that we received in the second quarter of last year. Second, we are
expecting an approximate $0.06 negative impact from the carryover
of last September’s services pricing investment. In addition, in
digital imaging, we are now expecting an approximate $0.03 to $0.04
negative impact due to the April 2016 earthquake in Japan, which is
impacting inventory availability in this high-margin category.
Combined, these are putting $0.12 to $0.13 of pressure on Q2 FY17,
which will be partially offset by an approximate $0.04 benefit from
share repurchases.”
Domestic Segment First Quarter
Results
Domestic Revenue
Domestic revenue of $7.8 billion decreased 0.8% versus last
year. This decrease was primarily driven by the loss of revenue
from 13 large format and 24 Best Buy Mobile store closures.
Comparable sales were essentially flat against a backdrop where the
NPD-reported categories were down 1.9%.2
From a merchandising perspective, comparable sales growth in
health & wearables, home theater, major appliances and
computing was offset by declines in mobile phones, tablets and
gaming. As expected, television sales related to the shift of the
Super Bowl into Q1 FY17 positively impacted the Domestic segment by
approximately 70 basis points. The company also saw continued
revenue declines in services due to investments in services pricing
and the reduction of frequency of claims on extended warranties
which has reduced repair revenue.
Domestic online revenue of $832 million increased 23.9% on a
comparable basis primarily due to higher conversion rates and
increased traffic. As a percentage of total Domestic revenue,
online revenue increased 210 basis points to 10.6% versus 8.5% last
year.
Domestic Gross Profit RateDomestic gross profit rate was
25.4% versus 23.9% last year. On a non-GAAP basis, gross profit
rate was 23.0% versus 22.9% last year. Both the GAAP and non-GAAP
gross profit rates increased 10 basis points primarily due to (1) a
prior-year reserve on non-iconic phone inventory which did not
recur this year; and (2) improved rates primarily driven by our
more disciplined promotional strategy across product categories.
These increases were partially offset by our investments in
services pricing. The GAAP gross profit rate was also positively
impacted by $183 million in CRT settlement proceeds.
Domestic Selling, General and Administrative Expenses
(“SG&A”)Domestic SG&A expenses were $1.59 billion, or
20.3% of revenue, versus $1.58 billion, or 20.1% of revenue, last
year. On a non-GAAP basis, SG&A expenses were $1.56 billion, or
19.9% of revenue, versus $1.56 billion, or 19.8% of revenue, last
year. Non-GAAP SG&A was flat as investments in the business
were offset by the flow-through of Renew Blue Phase 2 cost
reductions. GAAP SG&A increased year over year due primarily to
$22 million in legal fees and costs associated with the CRT
settlement proceeds.
International Segment First Quarter
Results
International RevenueInternational revenue of $614
million declined 8.1%. This decline was primarily driven by (1)
approximately 690 basis points of negative foreign currency impact;
and (2) the loss of revenue associated with closed stores as part
of the Canadian brand consolidation. On a constant currency basis,
International revenue declined 1.2%.
International Gross Profit RateInternational gross profit
rate was 25.9% versus 21.6% last year. On a non-GAAP basis, gross
profit rate was 25.9% versus 22.8% last year. Both the GAAP and
non-GAAP gross profit rates increased 310 basis points primarily
driven by a higher year-over-year gross profit rate in Canada as
the company (1) lapped the significant disruption and corresponding
increased promotional activity related to the brand consolidation
in Q1 FY16; and (2) received a higher periodic profit sharing
payment in the services business. The GAAP gross profit rate
increase was also impacted by the prior year impact of COGS
restructuring charges.
International SG&AInternational SG&A expenses
were $157 million, or 25.6% of revenue, versus $182 million, or
27.2% of revenue, last year. On a non-GAAP basis, SG&A expenses
were $156 million, or 25.4% of revenue, versus $179 million, or
26.8% of revenue, last year. This $23 million, or 140-basis point,
decrease in GAAP and non-GAAP SG&A was primarily driven by the
elimination of expenses associated with closed stores as part of
the Canadian brand consolidation and the positive impact of foreign
exchange rates. GAAP SG&A decreased an additional $2 million
due primarily to lower Canadian brand consolidation charges.
Income TaxesIn Q1 FY17, the
GAAP continuing operations effective income tax rate decreased
1,300 basis points to 37.3% versus 50.3% last year. On a non-GAAP
basis, the continuing operations effective income tax rate
increased 130 basis points to 37.7% versus 36.4% last year.
Q2 FY17 Financial
GuidanceBest Buy is providing the following Q2 FY17
financial guidance:
- Enterprise revenue in the range of
$8.35 to $8.45 billion, a decline of (2.1%) to (0.9%)
- International revenue decline of (5%)
to (10%)
- Enterprise and Domestic comparable
sales of approximately flat
- Non-GAAP effective income tax rate of
approximately 36.0% to 36.5% versus 37.1% last year
- Diluted weighted average share count of
325 million versus 354 million last year, resulting in a positive
$0.04 year-over-year non-GAAP EPS impact
- Non-GAAP diluted EPS of $0.38 to $0.42
versus $0.49 last year
Note: Enterprise comparable sales are currently equal to
Domestic comparable sales due to the impacts of the Canadian brand
consolidation.1 The company’s non-GAAP financial guidance does not
reflect the potential impact of non-GAAP adjustments, which include
(but, in future periods, may not be limited to) restructuring
charges, CRT and LCD settlements, asset impairments, gains and
losses on investments, other brand consolidation costs and the tax
effect of such items. The company cannot reliably predict or
estimate if and when these types of transactions or adjustments may
occur or their impact to its financial statements.
Share Repurchases and
DividendsOn February 25, 2016, the company announced the
intent to repurchase $1 billion of its shares over a two-year
period. In Q1 FY17, the company repurchased 3.2 million shares for
a total of $97 million. The company’s cumulative share repurchases
positively benefitted non-GAAP diluted EPS by $0.04 in Q1 FY17.
On April 07, 2016, the company paid a quarterly dividend of
$0.28 per common share outstanding, or $90 million, and a special
one-time dividend of $0.45 per common share outstanding, or $145
million.
Restructuring ChargesDuring
Q1 FY17, the company made decisions to cease certain operations and
restructure certain teams. As such, restructuring charges of $29
million were recorded primarily relating to asset impairments and
severance. In Q1 FY16, restructuring charges of $186 million were
recorded primarily in relation to the Canadian brand
consolidation.
Reminder: Discontinuation of Holiday
Sales Press Release in FY17Beginning in January FY17,
the company will no longer issue an interim Holiday press release
due to the increasing significance of the month of January to the
company’s overall fourth quarter financial results.
Conference CallBest Buy is
scheduled to conduct an earnings conference call at 8:00 a.m.
Eastern Time (7:00 a.m. Central Time) on May 24, 2016. A webcast of
the call is expected to be available at www.investors.bestbuy.com
both live and after the call.
(1) On March 28, 2015, the company consolidated the Future Shop
and Best Buy stores and websites in Canada under the Best Buy
brand. This resulted in the permanent closure of 66 Future Shop
stores, the conversion of 65 Future Shop stores to Best Buy stores
and the elimination of the Future Shop website. The Canadian brand
consolidation has a material impact on a year-over-year basis on
the Canadian retail stores and the website. As such, all store and
website revenue has been removed from the comparable sales base and
International (comprised of Canada and Mexico) no longer has a
comparable metric until International revenue is comparable on a
year-over-year basis. Therefore, Enterprise comparable sales will
be equal to Domestic comparable sales until International revenue
is again comparable on a year-over-year basis. Additionally, the
company is no longer reporting comparable sales excluding the
impact of installment billing as the mix of installment billing
plans is comparable on a year-over-year basis.
The term constant currency represents results adjusted to
exclude foreign currency impacts. Foreign currency impact
represents the difference in results that is attributable to
fluctuations in currency exchanges rates the company uses to
convert the results of its International segment where the
functional currency is not the U.S. dollar. The company calculates
the impact as the difference between the current period results
translated using the current period currency exchange rates and
using the comparable prior period’s currency exchange rates. The
company believes the disclosure of revenue changes in constant
currency provides useful supplementary information to investors in
light of significant fluctuations in currency rates and ongoing
inability to report comparable store sales for the International
segment as a result of the Canadian brand consolidation.
(2) According to The NPD Group’s Weekly Retail Tracking Service
as published May 9, 2016, revenue for the CE (Consumer Electronics)
industry declined 1.9% during the 13 weeks ended April 30,
2016 compared to the 13 weeks ended May 2, 2015. The CE
industry, as defined by The NPD Group, includes TVs, desktop and
notebook computers, tablets not including Kindle, digital imaging
and other categories. Sales of these products represent
approximately 65% of the company’s Domestic revenue. The CE
industry, as defined by The NPD Group, does not include mobile
phones, appliances, services, gaming, Apple Watch, movies or
music.
Forward-Looking and Cautionary Statements:This earnings
release contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 as contained
in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that reflect management’s current
views and estimates regarding future market conditions, company
performance and financial results, business prospects, new
strategies, the competitive environment and other events. You can
identify these statements by the fact that they use words such as
“anticipate,” “believe,” ”assume,” “estimate,” “expect,” “intend,”
“project,” “guidance,” “plan,” “outlook,” and other words and terms
of similar meaning. These statements involve a number of risks and
uncertainties that could cause actual results to differ materially
from the potential results discussed in the forward-looking
statements. Among the factors that could cause actual results and
outcomes to differ materially from those contained in such
forward-looking statements are the following: macro-economic
conditions (including fluctuations in housing prices, oil markets
and jobless rates), conditions in the industries and categories in
which we operate, changes in consumer preferences, changes in
consumer confidence, consumer spending and debt levels, online
sales levels and trends, average ticket size, the mix of products
and services offered for sale in our physical stores and online,
credit market changes and constraints, product availability,
competitive initiatives of competitors (including pricing actions
and promotional activities of competitors), strategic and business
decisions of our vendors (including actions that could impact
promotional support, product margin and/or supply), the success of
new product launches, the impact of pricing investments and
promotional activity, weather, natural or man-made disasters,
attacks on our data systems, the company’s ability to prevent or
react to a disaster recovery situation, changes in law or
regulations, changes in tax rates, changes in taxable income in
each jurisdiction, tax audit developments and resolution of other
discrete tax matters, foreign currency fluctuation, availability of
suitable real estate locations, the company’s ability to manage its
property portfolio, the impact of labor markets, the company’s
ability to retain qualified employees and changes in senior
management, failure to achieve anticipated expense and cost
reductions from operational and restructuring changes, disruptions
in our supply chain, the costs of procuring goods the company
sells, failure to achieve anticipated revenue and profitability
increases from operational and restructuring changes (including
investments in our multi-channel capabilities and brand
consolidations), inability to secure or maintain favorable vendor
terms, failure to accurately predict the duration over which we
will incur costs, acquisitions and development of new businesses,
divestitures of existing businesses, failure to complete or achieve
anticipated benefits of announced transactions, integration
challenges relating to new ventures, and our ability to protect
information relating to our employees and customers. A further list
and description of these risks, uncertainties and other matters can
be found in the company’s annual report and other reports filed
from time to time with the Securities and Exchange Commission
(“SEC”), including, but not limited to, Best Buy’s Report on Form
10-K filed with the SEC on March 23, 2016. 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. CONSOLIDATED STATEMENTS OF
EARNINGS ($ in millions, except per share amounts) (Unaudited
and subject to reclassification)
Three Months Ended April 30, 2016 May 2, 2015
Revenue $ 8,443 $ 8,558 Cost of goods sold 6,298 6,520
Restructuring charges - cost of goods sold - 8
Gross profit 2,145 2,030 Gross profit % 25.4 % 23.7 %
Selling, general and administrative expenses 1,744 1,766 SG&A %
20.7 % 20.6 % Restructuring charges 29 178
Operating income 372 86 Operating income % 4.4 % 1.0 % Other
income (expense): Gain on sale of investments 2 2 Investment income
and other 6 7 Interest expense (20 ) (20 ) Earnings
from continuing operations before income tax expense 360 75 Income
tax expense 134 38 Effective tax rate 37.3 % 50.3 %
Net earnings from continuing operations 226 37 Gain from
discontinued operations, net of tax 3 92
Net earnings attributable to Best Buy Co., Inc. shareholders
$ 229 $ 129 Basic earnings per share
attributable to Best Buy Co., Inc. shareholders Continuing
operations $ 0.70 $ 0.11 Discontinued operations 0.01
0.26 Basic earnings per share $ 0.71 $ 0.37
Diluted earnings per share attributable to Best Buy
Co., Inc. shareholders Continuing operations $ 0.69 $ 0.10
Discontinued operations 0.01 0.26
Diluted earnings per share $ 0.70 $ 0.36
Dividends declared per common share $ 0.73 $ 0.74 Weighted
average common shares outstanding (in millions) Basic 323.6 352.4
Diluted 326.7 357.6
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS ($ in millions)
(Unaudited and subject to reclassification)
April 30, 2016 May 2, 2015
ASSETS Current assets Cash and cash equivalents $ 1,845 $
2,173 Short-term investments 1,220 1,566 Receivables, net 1,097 995
Merchandise inventories 4,719 4,930 Other current assets 401
465 Total current assets 9,282 10,129 Property and
equipment, net 2,332 2,244 Goodwill 425 425 Intangibles, net 18 18
Other assets 813 863 Noncurrent assets held for sale 31
33
TOTAL ASSETS $ 12,901 $
13,712 LIABILITIES & EQUITY Current
liabilities Accounts payable $ 4,397 $ 4,584 Unredeemed gift card
liabilities 379 385 Deferred revenue 349 304 Accrued compensation
and related expenses 277 277 Accrued liabilities 791 743 Accrued
income taxes 97 45 Current portion of long-term debt 44
383 Total current liabilities 6,334 6,721 Long-term
liabilities 807 906 Long-term debt 1,334 1,217 Equity 4,426
4,868
TOTAL LIABILITIES & EQUITY $
12,901 $ 13,712 BEST BUY CO.,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($
in millions) (Unaudited and subject to reclassification)
Three Months Ended April 30,
2016 May 2, 2015 OPERATING ACTIVITIES Net
earnings $ 229 $ 129 Adjustments to reconcile net earnings to total
cash provided by (used in) operating activities: Depreciation 162
163 Restructuring charges 29 186 Gain on sale of business - (99 )
Stock-based compensation 31 27 Deferred income taxes 8 (25 ) Other,
net (12 ) 3 Changes in operating assets and liabilities:
Receivables 73 302 Merchandise inventories 365 261 Other assets (30
) 4 Accounts payable (73 ) (446 ) Other liabilities (211 ) (309 )
Income taxes (88 ) (206 ) Total cash provided by
(used in) operating activities 483 (10 )
INVESTING
ACTIVITIES Additions to property and equipment (136 ) (124 )
Purchases of investments (591 ) (547 ) Sales of investments 683 440
Proceeds from sale of business, net of
cash transferred upon sale
-
48
Change in restricted assets (2 ) (36 ) Other, net 4
5 Total cash used in investing activities (42 ) (214
)
FINANCING ACTIVITIES Repurchase of common stock (52
) - Issuance of common stock 21 25 Dividends paid (238 ) (261 )
Repayment of debt (362 ) (8 ) Other, net 19 6
Total cash used in financing activities (612 ) (238 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH 40
9
DECREASE IN CASH AND CASH EQUIVALENTS (131 )
(453 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD,
EXCLUDING HELD FOR SALE
1,976
2,432
CASH AND CASH EQUIVALENTS HELD FOR SALE AT BEGINNING OF
PERIOD - 194
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $ 1,845 $ 2,173
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash repurchase of common stock
related to completion of accelerated share repurchase
$ 45 $ - Total cash and non-cash repurchase of common stock $ 97 $
-
BEST BUY CO., INC. SEGMENT
INFORMATION ($ in millions) (Unaudited and subject to
reclassification)
Domestic Segment Performance
Summary Three Months Ended April 30,
2016 May 2, 2015 Revenue $7,829 $7,890
Gross profit $1,986 $1,886 SG&A $1,587 $1,584 Operating income
$372 $304
Key Metrics Comparable sales % change
(0.1%) 0.6% Comparable online sales % change 23.9% 5.3% Gross
profit as a % of revenue 25.4% 23.9% SG&A as a % of revenue
20.3% 20.1% Operating income as a % of revenue 4.8% 3.9%
Non-GAAP Results Gross profit $1,803 $1,808 Gross profit as
a % of revenue 23.0% 22.9% SG&A $1,561 $1,562 SG&A as a %
of revenue 19.9% 19.8% Operating income $242 $246 Operating income
as a % of revenue 3.1% 3.1%
International Segment
Performance Summary Three Months Ended April
30, 2016 May 2, 2015 Revenue $614 $668 Gross profit $159
$144 SG&A $157 $182 Operating income (loss) $0 ($218)
Key Metrics Comparable sales % change1 N/A N/A Gross profit
as a % of revenue 25.9% 21.6% SG&A as a % of revenue 25.6%
27.2% Operating income (loss) as a % of revenue 0.0% (32.6%)
Non-GAAP Results Gross profit $159 $152 Gross profit as a %
of revenue 25.9% 22.8% SG&A $156 $179 SG&A as a % of
revenue 25.4% 26.8% Operating income (loss) $3 ($27) Operating
income (loss) as a % of revenue 0.5% (4.0%)
(1) On March 28, 2015, the company consolidated the Future Shop
and Best Buy stores and websites in Canada under the Best Buy
brand. This resulted in the permanent closure of 66 Future Shop
stores, the conversion of 65 Future Shop stores to Best Buy stores
and the elimination of the Future Shop website. The Canadian brand
consolidation has a material impact on a year-over-year basis on
the Canadian retail stores and the website. As such, all store and
website revenue has been removed from the comparable sales base and
International (comprised of Canada and Mexico) no longer has a
comparable metric until International revenue is comparable on a
year-over-year basis.
BEST BUY CO., INC. REVENUE CATEGORY SUMMARY
(Unaudited and subject to reclassification)
Revenue Mix
Summary Comparable Sales Three Months
Ended Three Months Ended Domestic Segment
April 30, 2016 May 2, 2015 April 30,
2016 May 2, 2015 Consumer Electronics 33% 31%
5.6% 7.6% Computing and Mobile Phones 47% 47% (3.5%) (2.2%)
Entertainment 6% 7% (11.6%) (11.0%) Appliances 9% 8% 14.3% 12.3%
Services 5% 5% (10.7%) (10.3%) Other 0% 2% n/a n/a Total 100% 100%
(0.1%) 0.6%
Revenue Mix Summary Three Months
Ended International Segment1 April 30,
2016 May 2, 2015 Consumer Electronics 29% 30% Computing
and Mobile Phones 50% 49% Entertainment 6% 8% Appliances 5% 5%
Services 8% 7% Other 2% 1% Total 100% 100%
(1) On March 28, 2015, the company consolidated the Future Shop
and Best Buy stores and websites in Canada under the Best Buy
brand. This resulted in the permanent closure of 66 Future Shop
stores, the conversion of 65 Future Shop stores to Best Buy stores
and the elimination of the Future Shop website. The Canadian brand
consolidation has a material impact on a year-over-year basis on
the Canadian retail stores and the website. As such, all store and
website revenue has been removed from the comparable sales base and
International (comprised of Canada and Mexico) no longer has a
comparable metric until International revenue is comparable on a
year-over-year basis.
BEST BUY CO., INC.RECONCILIATION OF
NON-GAAP FINANCIAL MEASURESCONTINUING OPERATIONS($ in
millions, except per share amounts)(Unaudited and subject to
reclassification)
The following information provides reconciliations of the most
comparable financial measures from continuing operations calculated
and presented in accordance with accounting principles generally
accepted in the U.S. (“GAAP”) 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, our internal management reporting also includes non-GAAP
measures. On a consistent basis, non-GAAP measures include
adjustments for items such as restructuring charges, goodwill
impairments, non-restructuring asset 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 our investors. The
company strongly encourages investors and shareholders to review
its financial statements and publicly-filed reports in their
entirety and not to rely on any single financial measure. Non-GAAP
measures as presented herein may not be comparable to similarly
titled measures used by other companies.
The following tables reconcile gross profit, SG&A, operating
income, effective tax rate, net earnings and diluted earnings per
share for the periods presented for continuing operations (GAAP
financial measures) to non-GAAP gross profit, non-GAAP SG&A,
non-GAAP operating income, non-GAAP effective tax rate, non-GAAP
net earnings and non-GAAP diluted earnings per share for continuing
operations (non-GAAP financial measures) for the periods
presented.
Three
Months Ended Three Months Ended April 30, 2016
May 2, 2015 $ % of Rev. $ % of
Rev.
Domestic -
Continuing Operations
Gross Profit $1,986 25.4% $1,886 23.9% CRT settlements1 (183)
(2.3%) (78) (1.0%) Non-GAAP gross profit $1,803 23.0% $1,808 22.9%
SG&A $1,587 20.3% $1,584 20.1% CRT settlement legal fees
and costs1 (22) (0.3%) (11) (0.1%) Non-restructuring asset
impairments - SG&A (4) (0.1%) (11) (0.1%) Non-GAAP SG&A
$1,561 19.9% $1,562 19.8% Operating income $372 4.8% $304
3.9% Net CRT settlements1 (161) (2.1%) (67) (0.8%)
Non-restructuring asset impairments - SG&A 4 0.1% 11 0.1%
Restructuring charges 27 0.3% (2) (0.0%) Non-GAAP operating income
$242 3.1% $246 3.1%
International -
Continuing Operations
Gross profit $159 25.9% $144 21.6% Restructuring charges - COGS 0
0.0% 8 1.2% Non-GAAP gross profit $159 25.9% $152 22.8%
SG&A $157 25.6% $182 27.2% Other Canadian brand consolidation
charges - SG&A2 0 0.0% (3) (0.4%) Non-restructuring asset
impairments - SG&A (1) (0.2%) 0 0.0% Non-GAAP SG&A $156
25.4% $179 26.8% Operating income (loss) $0 0.0% ($218)
(32.6%) Restructuring charges - COGS 0 0.0% 8 1.2% Other Canadian
brand consolidation charges - SG&A2 0 0.0% 3 0.4%
Non-restructuring asset impairments - SG&A 1 0.2% 0 0.0%
Restructuring charges 2 0.3% 180 26.9% Non-GAAP operating income /
(loss) $3 0.5% ($27) (4.0%)
Consolidated -
Continuing Operations
Gross profit $2,145 25.4% $2,030 23.7% CRT settlements1 (183)
(2.2%) (78) (0.9%) Restructuring charges - COGS 0 0.0% 8 0.1%
Non-GAAP gross profit $1,962 23.2% $1,960 22.9% SG&A
$1,744 20.7% $1,766 20.6% CRT settlement legal fees and costs1 (22)
(0.3%) (11) (0.1%) Other Canadian brand consolidation charges -
SG&A2 0 0.0% (3) 0.0% Non-restructuring asset impairments -
SG&A (5) (0.1%) (11) (0.1%) Non-GAAP SG&A $1,717 20.3%
$1,741 20.3% Operating income $372 4.4% $86 1.0% Net CRT
settlements1 (161) (1.9%) (67) (0.8%) Restructuring charges - COGS
0 0.0% 8 0.1% Other Canadian brand consolidation charges -
SG&A2 0 0.0% 3 0.0% Non-restructuring asset impairments -
SG&A 5 0.1% 11 0.1% Restructuring charges 29 0.3% 178 2.1%
Non-GAAP operating income $245 2.9% $219 2.6% Income tax
expense $134 $38 Effective tax rate 37.3% 50.3% Income tax impact
of non-GAAP adjustments3 (47) 37 Non-GAAP Income tax expense $87
$75 Non-GAAP Effective tax rate 37.7% 36.4% Net earnings
$226 $37 Net CRT settlements1 (161) (67) Restructuring charges -
COGS 0 8 Other Canadian brand consolidation charges - SG&A2 0 3
Non-restructuring asset impairments - SG&A 5 11 Restructuring
charges 29 178 (Gain) loss on investments, net (2) (2) Income tax
impact of non-GAAP adjustments3 47 (37) Non-GAAP net earnings $144
$131 Diluted EPS $0.69 $0.10 Per share impact of net CRT
settlements1 (0.49) (0.19) Per share impact of restructuring
charges - COGS 0.00 0.02
Per share impact of other Canada brand
consolidation charges - SG&A2
0.00
0.01
Per share impact of non-restructuring asset impairments - SG&A
0.02 0.03 Per share impact of restructuring charges 0.09 0.50 Per
share impact of (gain) loss on investments, net (0.01) 0.00 Per
share income tax impact of non-GAAP adjustments3 0.14 (0.10)
Non-GAAP diluted EPS $0.44 $0.37
(1) Represents cathode ray tube (CRT) litigation settlements
reached, net of related legal fees and costs. Settlements relate to
products purchased and sold in prior fiscal years. Refer to Note
12, Contingencies and Commitments, in the Notes to Consolidated
Financial Statements included in the company’s Annual Report on
Form 10-K for the fiscal year ended January 30, 2016, for
additional information.(2) Represents charges related to the
Canadian brand consolidation initiated in Q1 FY16, primarily due to
retention bonuses and other store-related costs that were a direct
result of the consolidation but did not qualify as restructuring
charges.(3) Income tax impact of non-GAAP adjustments is the
summation of the calculated income tax charge related to each
non-GAAP non-income tax adjustment. Income tax charge is calculated
using the estimated annual effective tax rate in effect during the
period of the related non-GAAP adjustment.
Return on Assets and
Return on Invested Capital
The following table includes a reconciliation to the calculation
of return on total 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 measures) for the
periods presented.
Calculation of Return on Assets ("ROA")
April 30, 20161 May 2,
20151 Net earnings including noncontrolling interests $
997 $ 903 Total assets 13,790 14,771
ROA 7.2 % 6.1 %
Calculation of Non-GAAP Return on Invested Capital
("ROIC") April 30, 20161 May 2,
20151
Net Operating
Profit After Taxes (NOPAT)
Operating income - continuing operations $ 1,661 $ 1,326 Operating
income - discontinued operations 1 83
Total operating income 1,662 1,409 Add: Operating lease interest2
232 268 Add: Investment income 11 26 Less: Net earnings
attributable to noncontrolling interest - (2 ) Less: Income taxes3
(689 ) (759 )
NOPAT $ 1,216
$ 942 Add: Restructuring charges and impairments4
(67 ) 187
Non-GAAP NOPAT $
1,149 $ 1,129
Average Invested
Capital
Total assets $ 13,790 $ 14,771 Less: Excess cash5 (2,903 ) (3,093 )
Add: Capitalized operating lease obligations2 3,869 4,463 Total
liabilities (9,271 ) (10,029 ) Exclude: Debt6 1,590 1,625 Less:
Noncontrolling interests - (3 )
Average
invested capital $ 7,075 $
7,734 Non-GAAP ROIC 16.2
% 14.6 %
(1) Income statement accounts represent the activity for the 12
months ended as of each of the balance sheet dates. Balance sheet
accounts represent the average account balances for the 4 quarters
ended as of each of the balance sheet dates.(2) Operating lease
interest represents the add-back to operating income driven by the
capitalization of operating lease obligations using the multiple of
five times annual rent expense and represents 30% of annual rental
expense. Similiarly, the capitalized operating lease obligations
represent annual rental expense times 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
creditworthiness, and the companyconsiders it to be an appropriate
multiple for its lease portfolio. Historically, the company has
used an add-back multiple of 50% and a capitalized lease multiple
of eight times annual rent expense; however, due to changes in the
average remaining lease life of the company’s operating leases, the
company has lowered multiples. The prior period calculations have
been updated to reflect the use of the changes.(3) Income taxes are
calculated using a blended statutory rate at the enterprise level
based on statutory rates from the countries in which we do
business.(4) Includes all restructuring charges in costs of goods
sold and operating expenses, tradename impairments and
non-restructuring impairments.(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) 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160524005431/en/
Best Buy Co., Inc.Investor Contact:Mollie O'Brien,
612-291-7735mollie.obrien@bestbuy.comorMedia Contact:Jeff
Shelman, 612-291-6114jeffrey.shelman@bestbuy.com
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