Market Overview

Best Buy Reports Better-than-Expected Second Quarter Results

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Enterprise Comparable Sales Increased 6.2%

GAAP Diluted EPS Increased 28% to $0.86

Non-GAAP Diluted EPS Increased 32% to $0.91

Raising FY19 Financial Guidance

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.

BEST BUY CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

($ and shares in millions, except per share amounts)

(Unaudited and subject to reclassification)

   
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
 

BEST BUY CO., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in millions)

(Unaudited and subject to reclassification)

   
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
 

BEST BUY CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

(Unaudited and subject to reclassification)

 
 
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.
 

BEST BUY CO., INC.

SEGMENT INFORMATION

($ in millions)

(Unaudited and subject to reclassification)

   
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.
 

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 August 4, 2018   July 29, 2017 August 4, 2018   July 29, 2017
Consumer Electronics 32% 32% 6.8%

2.5 %

Computing and Mobile Phones 45% 47% 4.2%

6.7 %

Entertainment 7% 6% 8.5%

15.4 %

Appliances 12% 11% 10.3%

5.8 %

Services 4% 4% 6.6%

1.5 %

Other —% —% N/A N/A
Total 100% 100% 6.0%

5.4 %

 
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 %

Computing and Mobile Phones 45% 47% 4.5%

0.3 %

Entertainment 6% 5% 14.3%

0.5 %

Appliances 12% 9% 35.7%

30.8 %

Services 6% 6% 11.3%

(1.3)%

Other 2% 2% 51.4% N/A
Total 100% 100% 7.6%

4.7 %

 

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.

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