Market Overview

Best Buy Reports Better-than-Expected Second Quarter Results

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Enterprise Comparable Sales Increased 5.4%

GAAP Diluted EPS of $0.67 Increased 20%

Non-GAAP Diluted EPS of $0.69 Increased 21%

Best Buy Co., Inc. (NYSE:BBY) today announced results for the second
quarter ended July 29, 2017 ("Q2 FY18"), as compared to the second
quarter ended July 30, 2016 ("Q2 FY17"). The company reported GAAP
diluted earnings per share from continuing operations of $0.67, an
increase of 20% from $0.56 in Q2 FY17. Non-GAAP diluted earnings per
share from continuing operations were $0.69, an increase of 21% from
$0.57 in Q2 FY17.

         
    Q2 FY18   Q2 FY171
Revenue ($ in millions)2        
Enterprise   $8,940   $8,533
Domestic segment   $8,272   $7,889
International segment   $668   $644
Enterprise comparable sales % change   5.4%   0.8%
Domestic comparable sales % change   5.4%   0.8%
Domestic comparable online sales % change   31.2%   23.7%
International comparable sales % change   4.7%   N/A
Operating Income:  
GAAP operating income as a % of revenue   3.6%   3.4%
Non-GAAP operating income as a % of revenue   3.6%   3.4%
Diluted Earnings per Share (EPS):  
GAAP diluted EPS from continuing operations   $0.67   $0.56
Non-GAAP diluted EPS from continuing operations   $0.69   $0.57

For GAAP to non-GAAP reconciliations, please refer to the attached
supporting schedule titled "Reconciliation of non-GAAP Financial
Measures".

"We are pleased today to report strong top and bottom line growth for
the second quarter of fiscal 2018," said Hubert Joly, Best Buy chairman
and CEO. "Our higher-than-expected comparable sales of 5.4% were driven
by stronger consumer demand for technology products and by the strong
execution of our strategy. Against a backdrop of continued healthy
consumer confidence, we believe broad-based product innovation is
resonating with consumers and driving higher spend. And, with our
effective merchandising and marketing activities, combined with our
expert advice and service available online, in-store and in-home – we
are garnering an increasing share of those dollars."

Joly continued, "I want to thank all our associates across the U.S.,
Canada and Mexico for their hard work, dedication and customer focus as
we Build the New Blue. Without them, none of this is possible."

Best Buy CFO Corie Barry commented, "Today we are raising our topline
guidance and are now expecting full year FY18 revenue growth of
approximately 4.0% versus our previous outlook of 2.5%. On the
profitability side, we are now expecting full year non-GAAP operating
income growth3 of 4.0% to 9.0% versus our previous outlook of
3.5% to 8.5% growth. This updated guidance reflects
stronger-than-originally-expected second half revenue performance with
profitability roughly in line with our previous expectations. The
increased topline expectations are being driven by the anticipation of
continued positive industry and consumer momentum, coupled with the
impact of product launches. From a profitability perspective, while our
original full year guidance anticipated an increased level of
investments for FY18, we have made strategic decisions to proactively
make additional Q3 and Q4 investments to continue to drive our Best Buy
2020 strategy forward."

FY18 Financial Guidance

Note: FY18 has 53 weeks compared to 52 weeks in FY17. The extra week
occurs in Q4 FY18.

Best Buy is providing the following Q3 FY18 financial outlook:

  • Enterprise revenue of $9.3 billion to $9.4 billion
  • Enterprise comparable sales growth of 4.5% to 5.5%
  • Domestic comparable sales growth of 4.5% to 5.5%
  • International comparable sales change of flat to 3.0%
  • Non-GAAP effective income tax rate of 32.0% to 32.5%3
  • Diluted weighted average share count of approximately 305 million
  • Non-GAAP diluted EPS of $0.75 to $0.803

Best Buy is updating its full year FY18 financial outlook to the
following:

  • Enterprise revenue growth of approximately 4.0%
  • Enterprise non-GAAP operating income growth rate of 4.0% to 9.0%3
  • Enterprise non-GAAP effective income tax rate of approximately 34.5%3
  • On a 52-week basis, Enterprise revenue growth of approximately 2.5%
  • On a 52-week basis, Enterprise non-GAAP operating income growth rate
    of 2.0% to 6.0%3

Domestic Segment Second Quarter Results

Domestic Revenue
Domestic revenue of $8.3 billion increased
4.9% versus last year driven by comparable sales growth of 5.4%,
partially offset by the loss of revenue from 11 large format and 42 Best
Buy Mobile store closures.

From a merchandising perspective, comparable sales growth in computing,
wearables, smart home, mobile phones and appliances was partially offset
by declines in tablets.

Domestic online revenue of $1.1 billion increased 31.2% on a comparable
basis primarily due to higher conversion rates and increased traffic. As
a percentage of total Domestic revenue, online revenue increased 260
basis points to 13.2% versus 10.6% last year.

Domestic Gross Profit Rate
Domestic GAAP and non-GAAP gross
profit rates were flat versus last year at 24.0% as improved margin
rates across multiple categories, particularly in appliances, tablets
and home theater, were offset by (1) margin pressure in the mobile
category; (2) the negative impact of higher sales in the lower-margin
wearables category; and (3) an approximately 10-basis point negative
impact from lapping the $11 million Q2 FY17 periodic profit sharing
benefit from our service plan portfolio.4

Domestic Selling, General and Administrative Expenses ("SG&A")
Domestic
GAAP and non-GAAP SG&A expenses were $1.67 billion, or 20.2% of revenue,
versus $1.61 billion, or 20.4% of revenue, last year. GAAP and non-GAAP
SG&A both increased $61 million primarily due to (1) expected increases
in growth investments; (2) higher incentive compensation expenses; and
(3) higher variable costs due to increased revenue. These increases were
partially offset by the flow-through of cost reductions. The rate
decrease was driven by sales leverage.

International Segment Second Quarter Results

International Revenue
International revenue of $668 million
increased 3.7% driven primarily by comparable sales growth of 4.7% due
to growth in both Canada and Mexico. The comparable sales growth was
partially offset by approximately 220 basis points of negative foreign
currency impact.

International Gross Profit Rate
International GAAP and
non-GAAP gross profit rate was 25.1% versus 25.9% last year. The
80-basis point decline was primarily driven by a lower year-over-year
gross profit rate in Canada due to lower rates in the computing and
appliance categories.

International SG&A
International SG&A expenses were $161
million, or 24.1% of revenue, versus $165 million, or 25.6% of revenue,
last year. Non-GAAP SG&A expenses were $161 million, or 24.1% of
revenue, versus $164 million, or 25.5% of revenue, last year. The GAAP
and non-GAAP decreases were primarily driven by slightly lower payroll
and benefits costs. The rate decrease was primarily driven by sales
leverage.

Share Repurchases and Dividends

During Q2 FY18, the company returned a total of $501 million to
shareholders through share repurchases and dividends. On a year-to-date
basis, the company has returned a total of $979 million to shareholders
through share repurchases and dividends.

On March 1, 2017, the company announced the intent to repurchase $3
billion of its shares over a two-year period. In Q2 FY18, the company
repurchased 7.3 million shares for a total of $398 million. On a
year-to-date basis, the company has repurchased 15.4 million shares for
a total of $771 million. The company's cumulative share repurchases, net
of dilution from equity based awards, positively benefitted GAAP and
non-GAAP diluted EPS by approximately $0.02 in Q2 FY18.

On July 6, 2017, the company paid a quarterly dividend of $0.34 per
common share outstanding, or $103 million.

Income Taxes – Adoption of Stock-Based
Compensation Accounting Changes

In Q1 FY18, the company adopted Accounting Standards Update (ASU)
2016-09, Compensation-Stock Compensation: Improvements to Employee
Share-Based Payment Accounting, which now requires all differences
between the tax value and the book value for stock-based compensation to
be recognized as either income tax expense or benefit as the shares vest
or options are exercised or cancelled. The impact of this change on Q2
FY18 was a benefit of approximately $2 million, or $0.01 of non-GAAP
diluted EPS. The year-to-date impact as of Q2 FY18 was a benefit of
approximately $4 million, or $0.01 of non-GAAP diluted EPS. Future
impacts could be positive or negative depending on the stock price,
shares vested, or options exercised or cancelled in a given quarter. The
company's current expectation is that the full year impact will be a
benefit to income tax expense and, based on current projections, is the
primary driver of the lower FY18 non-GAAP effective income tax rate of
approximately 34.5% that the company guided today, versus previous
guidance of 35.5%.3

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 29, 2017. A webcast
of the call is expected to be available at www.investors.bestbuy.com
both live and after the call.

Investor Day

Best Buy is hosting an investor day on September 19, 2017 from 2:00 to
6:00 p.m. Eastern Time (1:00 to 5:00 p.m. Central Time) at its corporate
campus to provide more detail regarding the next phase of Best Buy's
transformation: Best Buy 2020: Building the New Blue. A webcast of the
presentations and question and answer session will be available at www.investors.bestbuy.com
both live and after the event.

(1) Beginning in Q1 FY18, the company will no longer be excluding
non-restructuring property and equipment impairment charges from its
non-GAAP financial metrics. When the company began to execute its Renew
Blue transformation in Q4 FY13, it adopted a change to non-GAAP
reporting to exclude non-restructuring property and equipment impairment
charges from non-GAAP results. From that point, until Q4 FY17, the
company believed that reporting non-GAAP results that excluded these
charges provided a supplemental view of the company's ongoing
performance that was useful and relevant to its investors. Now that
Renew Blue has ended and Best Buy 2020: Building The New Blue has
officially launched, the company believes it is no longer necessary to
adjust for non-restructuring property and equipment impairments in its
non-GAAP reporting. The company believes that future such impairments
will predominantly be immaterial and incurred in the ordinary scope of
ongoing operations. Accordingly, commencing in Q1 FY18, the company
began to no longer adjust for non-restructuring property and equipment
impairments. Prior-period financial information included herein has been
recast to conform with this presentation, including applicable income
tax effects. A complete GAAP to non-GAAP reconciliation for FY16 and
FY17, by quarter, is available on the company's investor relations
website at www.investors.bestbuy.com.

(2) 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
had a material impact on a year-over-year basis on the Canadian retail
stores and the website and, as such, all store and website revenue was
removed from the comparable sales base and International (comprised of
Canada and Mexico) did not have a comparable metric from Q1 FY16 through
Q3 FY17. From Q1 FY16 through Q3 FY17 Enterprise comparable sales were
equal to Domestic comparable sales.

Beginning in Q4 FY17, the company resumed reporting International
comparable sales and as such, Enterprise comparable sales are once again
equal to the aggregation of Domestic and International comparable sales.

(3) A reconciliation of the projected non-GAAP operating income,
non-GAAP effective 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.

(4) In Q2 FY17, the Domestic business recorded an $11 million periodic
profit sharing benefit from its services plan portfolio. In Q2 FY18,
there was no equivalent profit sharing benefit recorded.

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 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, 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, 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 24, 2017.
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 Six Months Ended
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
Revenue $ 8,940 $ 8,533 $ 17,468 $ 16,976
Cost of goods sold   6,787   6,471   13,293   12,769
Gross profit 2,153 2,062 4,175 4,207
Gross profit % 24.1% 24.2% 23.9% 24.8%
Selling, general and administrative expenses 1,830 1,773 3,552 3,517
SG&A % 20.5% 20.8% 20.3% 20.7%
Restructuring charges   2   -   2   29
Operating income 321 289 621 661
Operating income % 3.6% 3.4% 3.6% 3.9%
Other income (expense):
Gain on sale of investments - - - 2
Investment income and other 7 8 18 14
Interest expense   (18)   (18)   (37)   (38)
Earnings from continuing operations before income tax expense 310 279 602 639
Income tax expense 101 97 205 231
Effective tax rate   32.6%   34.8%   34.1%   36.2%
Net earnings from continuing operations 209 182 397 408
Gain from discontinued operations, net of tax   -   16   -   19
Net earnings $ 209 $ 198 $ 397 $ 427
 
Basic earnings per share
Continuing operations $ 0.69 $ 0.57 $ 1.29 $ 1.27
Discontinued operations   -   0.05   -   0.06
Basic earnings per share $ 0.69 $ 0.62 $ 1.29 $ 1.33
 
Diluted earnings per share
Continuing operations $ 0.67 $ 0.56 $ 1.27 $ 1.26
Discontinued operations   -   0.05   -   0.05
Diluted earnings per share $ 0.67 $ 0.61 $ 1.27 $ 1.31
 
Dividends declared per common share $ 0.34 $ 0.28 $ 0.68 $ 1.01
 
Weighted-average common shares outstanding
Basic 304.1 320.8 306.7 322.2
Diluted 310.8 322.9 313.0 324.8
 
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(Unaudited and subject to reclassification)
   
 
July 29, 2017 July 30, 2016
ASSETS
Current assets
Cash and cash equivalents $ 1,365 $ 1,861
Short-term investments 2,125 1,590
Receivables, net 965 926
Merchandise inventories 5,167 4,908
Other current assets   456   409
Total current assets 10,078 9,694
Property and equipment, net 2,327 2,295
Goodwill 425 425
Other assets   614   840
TOTAL ASSETS $ 13,444 $ 13,254
 
LIABILITIES & EQUITY
Current liabilities
Accounts payable $ 5,072 $ 4,800
Unredeemed gift card liabilities 383 369
Deferred revenue 427 380
Accrued compensation and related expenses 309 272
Accrued liabilities 787 840
Accrued income taxes 83 96
Current portion of long-term debt   44   43
Total current liabilities 7,105 6,800
Long-term liabilities 682 794
Long-term debt 1,310 1,341
Equity   4,347   4,319
TOTAL LIABILITIES & EQUITY $ 13,444 $ 13,254
 
BEST BUY CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited and subject to reclassification)
   
Six Months Ended
July 29, 2017 July 30, 20161
OPERATING ACTIVITIES
Net earnings $ 397 $ 427

Adjustments to reconcile net earnings to total cash provided by
operating activities:

Depreciation 329 327
Restructuring charges 2 29
Stock-based compensation 67 57
Deferred income taxes 9 -
Other, net (2) (29)
Changes in operating assets and liabilities:
Receivables 401 239
Merchandise inventories (285) 161
Other assets (45) (29)
Accounts payable 15 355
Other liabilities (237) (159)
Income taxes   41   (81)
Total cash provided by operating activities 692 1,297
 
INVESTING ACTIVITIES
Additions to property and equipment (296) (276)
Purchases of investments (2,221) (1,388)
Sales of investments 1,806 1,112
Proceeds from property disposition 2 56
Other, net   1   5
Total cash used in investing activities (708) (491)
 
FINANCING ACTIVITIES
Repurchase of common stock (771) (271)
Issuance of common stock 125 23
Dividends paid (208) (328)
Repayments of debt (19) (374)
Other, net   (1)   8
Total cash used in financing activities (874) (942)
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   18   25
DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (872) (111)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD2   2,433   2,161
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD2

$

1,561

$

2,050

 

(1) Represents Condensed Consolidated Statement of Cash Flow as of July
30, 2016, recast to present the company's retrospective adoption of
Accounting Standards Update (ASU) 2016-09, Compensation-Stock
Compensation: Improvements to Employee Share-Based Payment Accounting,
ASU 2016-15, Statement of Cash Flows: Classifications of Certain Cash
Receipts and Cash Payments and ASU 2016-18, Statement of Cash Flows:
Restricted Cash. The adoption of the standards drove a $9 million
increase to cash provided by operating activities, a $4 million decrease
in cash used in investing activities, a $9 million increase in cash used
in financing activities, a $185 million increase to the beginning cash
balance and a $189 million increase to the ending cash balance.
(2)
The beginning and ending cash, cash equivalents and restricted balances
are different than the cash and cash equivalents balance on the balance
sheet due to the adoption of ASU 2016-18 described above. For FY17, the
impact is a $185 million increase in the beginning balance and a $189
million increase in the ending balance. For FY18, the impact is a $193
million increase in the beginning balance and a $196 million increase in
the ending balance. Restricted cash is recorded in Other current assets
on the Condensed Consolidated Balance Sheet.

BEST BUY CO., INC.
SEGMENT INFORMATION
($ in millions)
(Unaudited and subject to reclassification)
       
Domestic Segment Performance Summary
Three Months Ended Six Months Ended
July 29, 2017 July 30, 20161 July 29, 2017 July 30, 20161
Revenue $8,272 $7,889 $16,184 $15,718
Gross profit $1,985 $1,895 $3,856 $3,881
SG&A $1,669 $1,608 $3,242 $3,195
Operating income $316 $289 $614 $661
 
Key Metrics
Comparable sales % change 5.4% 0.8% 3.4% 0.4%
Comparable online sales % change 31.2% 23.7% 26.8% 23.8%
Gross profit as a % of revenue 24.0% 24.0% 23.8% 24.7%
SG&A as a % of revenue 20.2% 20.4% 20.0% 20.3%
Operating income as a % of revenue 3.8% 3.7% 3.8% 4.2%
 
Non-GAAP Results
Gross profit $1,985 $1,895 $3,856 $3,698
Gross profit as a % of revenue 24.0% 24.0% 23.8% 23.5%
SG&A $1,669 $1,608 $3,242 $3,173
SG&A as a % of revenue 20.2% 20.4% 20.0% 20.2%
Operating income $316 $287 $614 $525
Operating income as a % of revenue 3.8% 3.6% 3.8% 3.3%
 
International Segment Performance Summary
Three Months Ended Six Months Ended
July 29, 2017 July 30, 20161 July 29, 2017 July 30, 20161
Revenue $668 $644 $1,284 $1,258
Gross profit $168 $167 $319 $326
SG&A $161 $165 $310 $322
Operating income $5 $0 $7 $0
 
Key Metrics
Comparable sales % change2 4.7% N/A 4.4% N/A
Gross profit as a % of revenue 25.1% 25.9% 24.8% 25.9%
SG&A as a % of revenue 24.1% 25.6% 24.1% 25.6%
Operating income as a % of revenue 0.7% 0.0% 0.5% 0.0%
 
Non-GAAP Results
Gross profit $168 $167 $319 $326
Gross profit as a % of revenue 25.1% 25.9% 24.8% 25.9%
SG&A $161 $164 $310 $321
SG&A as a % of revenue 24.1% 25.5% 24.1% 25.5%
Operating income $7 $3 $9 $5
Operating income as a % of revenue 1.0% 0.5% 0.7% 0.4%

 

(1) Beginning in Q1 FY18, the company will no longer be excluding
non-restructuring property and equipment impairment charges from its
non-GAAP financial metrics. To ensure its financial results are
comparable, the company has recast FY16 and FY17, by quarter, to reflect
the previously excluded impairments now being included in non-GAAP SG&A.
For additional details, please refer to the GAAP to non-GAAP
reconciliation for FY16 and FY17, by quarter, which is available on the
company's investor relations website at www.investors.bestbuy.com.
(2)
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 had a material impact on
a year-over-year basis on the Canadian retail stores and the website and
as such, all store and website revenue was removed from the comparable
sales base and International (comprised of Canada and Mexico) did not
have a comparable metric from Q1 FY16 through Q3 FY17. From Q1 FY16
through Q3 FY17 Enterprise comparable sales were equal to Domestic
comparable sales. Beginning in Q4 FY17, the company resumed reporting
International comparable sales as revenue in the International segment
was once again determined to be comparable and, as such, Enterprise
comparable sales are once again equal to the aggregation of Domestic and
International comparable sales.

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 July 29, 2017   July 30, 2016 July 29, 2017   July 30, 2016
Consumer Electronics 32% 33% 2.5% 4.0%
Computing and Mobile Phones 47% 46% 6.7% 0.3%
Entertainment 6% 5% 15.4% (18.0%)
Appliances 11% 11% 5.8% 8.2%
Services 4% 5% 1.5% (7.2%)
Other 0% 0% n/a n/a
Total 100% 100% 5.4% 0.8%
 
Revenue Mix Summary Comparable Sales
Three Months Ended Three Months Ended
International Segment1 July 29, 2017 July 30, 2016 July 29, 2017 July 30, 2016
Consumer Electronics 31% 29% 7.3% n/a
Computing and Mobile Phones 47% 48% 0.3% n/a
Entertainment 5% 6% 0.5% n/a
Appliances 9% 7% 30.8% n/a
Services 6% 8% (1.3%) n/a
Other 2% 2% n/a n/a
Total 100% 100% 4.7% n/a

 

(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
had a material impact on a year-over-year basis on the Canadian retail
stores and the website and, as such, all store and website revenue was
removed from the comparable sales base and International (comprised of
Canada and Mexico) did not have a comparable metric from Q1 FY16 through
Q3 FY17. From Q1 FY16 through Q3 FY17, Enterprise comparable sales were
equal to Domestic comparable sales. Beginning in Q4 FY17, the company
resumed reporting International comparable sales and, as such,
Enterprise comparable sales are once again equal to the aggregation of
Domestic and International comparable sales.

BEST BUY CO., INC.
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES

CONTINUING 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, 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.

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
July 29, 2017 July 30, 20161
$

% of
Rev.

$

% of
Rev.

Domestic - Continuing Operations

Operating income $316 3.8% $289 3.7%
Restructuring charges 0 0.0% (2) (0.0%)
Non-GAAP operating income $316 3.8% $287 3.6%
 

International - Continuing Operations

SG&A $161 24.1% $165 25.6%
Other Canada brand consolidation charges - SG&A2 0 0.0% (1) (0.2%)
Non-GAAP SG&A $161 24.1% $164 25.5%
 
Operating income $5 0.7% $0 0.0%
Other Canada brand consolidation charges - SG&A2 0 0.0% 1 0.2%
Restructuring charges 2 0.3% 2 0.3%
Non-GAAP operating income $7 1.0% $3 0.5%
 

Consolidated - Continuing Operations

SG&A $1,830 20.5% $1,773 20.8%
Other Canada brand consolidation charges - SG&A2 0 0.0% (1) (0.0%)
Non-GAAP SG&A $1,830 20.5% $1,772 20.8%
 
Operating income $321 3.6% $289 3.4%
Other Canada brand consolidation charges - SG&A2 0 0.0% 1 0.0%
Restructuring charges 2 0.0% 0 0.0%
Non-GAAP operating income $323 3.6% $290 3.4%

 

Income tax expense $101 $97
Effective tax rate 32.6% 34.8%
Income tax impact of non-GAAP adjustments3 2 -
Non-GAAP income tax expense $103 $97
Non-GAAP effective tax rate 32.6% 34.8%
 
Net earnings $209 $182
Other Canada brand consolidation charges - SG&A2 0 1
Restructuring charges 2 0
Loss on investments, net 5 0
Income tax impact of non-GAAP adjustments3 (2) 0
Non-GAAP net earnings $214 $183
 
Diluted EPS $0.67 $0.56
Per share impact of restructuring charges 0.01 0.00

Per share impact of loss on investments, net

0.02 0.00

Per share income tax impact of non-GAAP adjustments3

(0.01)

0.01

Non-GAAP diluted EPS $0.69 $0.57
 
Six Months Ended Six Months Ended
July 29, 2017 July 30, 20161
$

% of
Rev.

$

% of
Rev.

Domestic - Continuing Operations

Gross profit $3,856 23.8% $3,881 24.7%
CRT/LCD settlements4 0 0.0% (183) (1.2%)
Non-GAAP gross profit $3,856 23.8% $3,698 23.5%
 
SG&A $3,242 20.0% $3,195 20.3%
CRT/LCD settlement legal fees and costs4 0 0.0% (22) (0.1%)
Non-GAAP SG&A $3,242 20.0% $3,173 20.2%

 

Operating income $614 3.8% $661 4.2%
Net CRT/LCD settlements4 0 0.0% (161) (1.0%)
Restructuring charges 0 0.0% 25 0.2%
Non-GAAP operating income $614 3.8% $525 3.3%
 

International - Continuing Operations

SG&A $310 24.1% $322 25.6%
Other Canada brand consolidation charges - SG&A2 0 0.0% (1) (0.1%)
Non-GAAP SG&A $310 24.1% $321 25.5%
 
Operating income $7 0.5% $0 0.0%
Other Canada brand consolidation charges - SG&A2 0 0.0% 1 0.1%
Restructuring charges 2 0.2% 4 0.3%
Non-GAAP operating income $9 0.7% $5 0.4%

 

Consolidated - Continuing Operations

Gross profit $4,175 23.9% $4,207 24.8%
CRT/LCD settlements4 0 0.0% (183) (1.1%)
Non-GAAP gross profit $4,175 23.9% $4,024 23.7%
 
SG&A $3,552 20.3% $3,517 20.7%
CRT/LCD settlement legal fees and costs4 0 0.0% (22) (0.1%)
Other Canada brand consolidation charges - SG&A2 0 0.0% (1) (0.0%)
Non-GAAP SG&A $3,552 20.3% $3,494 20.6%
 
Operating income $621 3.6% $661 3.9%
Net CRT/LCD settlements4 0 0.0% (161) (0.9%)
Other Canada brand consolidation charges - SG&A2 0 0.0% 1 0.0%
Restructuring charges 2 0.0% 29 0.2%
Non-GAAP operating income $623 3.6% $530 3.1%
 
Income tax expense $205 $231
Effective tax rate 34.1% 36.2%
Income tax impact of non-GAAP adjustments3 2 (49)
Non-GAAP income tax expense $207 $182
Non-GAAP effective tax rate 34.1% 36.1%
 
Net earnings $397 $408
Net CRT/LCD settlements4 0 (161)
Other Canada brand consolidation charges - SG&A2 0 1
Restructuring charges 2 29
(Gain) loss on investments, net 5 (2)
Income tax impact of non-GAAP adjustments3 (2) 49
Non-GAAP net earnings $402 $324
 
Diluted EPS $1.27 $1.26
Per share impact of net CRT/LCD settlements4 0.00 (0.50)
Per share impact of restructuring charges 0.01 0.09
Per share impact of (gain) loss on investments, net 0.01 (0.01)

Per share income tax impact of non-GAAP adjustments3

(0.01)

0.16

Non-GAAP diluted EPS $1.28 $1.00

 

(1) Beginning in Q1 FY18, the company will no longer be excluding
non-restructuring property and equipment impairment charges from its
non-GAAP financial metrics. To ensure its financial results are
comparable, the company has recast FY16 and FY17, by quarter, to reflect
the previously excluded impairments now being included in non-GAAP SG&A.
A complete GAAP to non-GAAP reconciliation for FY16 and FY17, by
quarter, which is available on the company's investor relations website
at www.investors.bestbuy.com.
(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. 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
of 38.0% for the United States and 26.6% for Canada, applied to the
non-GAAP adjustments of each country, which are detailed in the Domestic
and International segment reconciliations above, respectively.
(4)
Represents cathode ray tube (CRT) and LCD 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 28, 2017, for additional information.

Return on Assets and Non-GAAP 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 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")
   
July 29, 20171 July 30, 20161
Net earnings $ 1,198 $ 1,031
Total assets   13,699   13,723
ROA   8.7%   7.5%
 
Calculation of Non-GAAP Return on Invested Capital ("ROIC")
 
July 29, 20171 July 30, 20161

Net Operating Profit After Taxes (NOPAT)

Operating income - continuing operations $ 1,814 $ 1,662
Operating income - discontinued operations   2   28
Total operating income 1,816 1,690
Add: Operating lease interest2 233 231
Add: Non-GAAP operating income adjustments3 12 (132)
Add: Investment income 41 15
Less: Income taxes4   (786)   (684)
Non-GAAP NOPAT $ 1,316 $ 1,120
 

Average Invested Capital

Total assets $ 13,699 $ 13,712
Less: Excess cash5 (3,133) (2,892)
Add: Capitalized operating lease obligations6 3,880 3,847
Total liabilities (9,245) (9,269)
Exclude: Debt7   1,358   1,534
Average invested capital $ 6,559 $ 6,932
 
Non-GAAP ROIC   20.1%   16.2%

 

(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 net CRT/LCD settlements, restructuring charges and other
Canada brand consolidation charges in SG&A, and a discontinued
operations adjustment for a gain on a property sale. 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 Form 10-Q
for the fiscal quarter ended July 30, 2016. Beginning Q1 FY18,
non-restructuring impairments within SG&A have been removed from the
reconciliation of non-GAAP financial measures. The prior period
calculations have been updated to reflect these changes. For additional
details, please refer to the GAAP to non-GAAP reconciliation for FY16
and FY17, by quarter, which is available on the company's investor
relations website at www.investors.bestbuy.com.
(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 is primarily made up of a 38.0% rate in
the United States and a 26.6% rate in Canada.
(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.

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