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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol | Name of exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated Filer | Non-accelerated Filer | ||
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Smaller Reporting Company | Emerging Growth Company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The registrant had
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED MAY 4, 2024
TABLE OF CONTENTS
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We disclose information to the public concerning Best Buy, Best Buy’s products, content and services and other items through our websites in order to achieve broad, non-exclusionary distribution of information to the public. Some of the information distributed through this channel may be considered material information. Investors and others are encouraged to review the information we make public in the locations below.* This list may be updated from time to time.
For information concerning Best Buy and its products, content and services, please visit: https://bestbuy.com.
For information provided to the investment community, including news releases, events and presentations, and filings with the SEC, please visit: https://investors.bestbuy.com.
For the latest information from Best Buy, including press releases, please visit: https://corporate.bestbuy.com/archive/.
* These corporate websites, and the contents thereof, are not incorporated by reference into this Quarterly Report on Form 10-Q nor deemed filed with the SEC.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
$ in millions, except per share amounts (unaudited)
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| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||
Assets |
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Current assets |
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Cash and cash equivalents | $ | |
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Receivables, net |
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Merchandise inventories |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease assets |
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Goodwill |
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Other assets |
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Total assets | $ | |
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Liabilities and equity |
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Current liabilities |
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Accounts payable | $ | |
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Unredeemed gift card liabilities |
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Deferred revenue |
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Accrued compensation and related expenses |
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Accrued liabilities |
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Current portion of operating lease liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term operating lease liabilities |
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Long-term debt |
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Long-term liabilities |
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Contingencies (Note 10) |
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Equity |
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Best Buy Co., Inc. Shareholders' Equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income |
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Total equity |
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Total liabilities and equity | $ | |
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NOTE: The Consolidated Balance Sheet as of February 3, 2024, has been condensed from the audited consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Earnings
$ and shares in millions, except per share amounts (unaudited)
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Revenue | $ | |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring charges |
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Operating income |
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Other income (expense): |
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Investment income and other |
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Interest expense |
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Earnings before income tax expense and equity in income (loss) of affiliates |
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Income tax expense |
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Equity in income (loss) of affiliates |
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Net earnings | $ | |
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Basic earnings per share | $ | |
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Diluted earnings per share | $ | |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Income
$ in millions (unaudited)
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Net earnings | $ | |
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Foreign currency translation adjustments, net of tax |
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Comprehensive income | $ | |
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See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
$ in millions (unaudited)
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Operating activities |
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Net earnings | $ | |
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Adjustments to reconcile net earnings to total cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Restructuring charges |
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Stock-based compensation |
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Other, net |
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Changes in operating assets and liabilities: |
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Receivables |
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Merchandise inventories |
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Other assets |
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Accounts payable |
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Income taxes |
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Other liabilities |
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Total cash provided by (used in) operating activities |
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Investing activities |
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Additions to property and equipment |
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Other, net |
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Total cash used in investing activities |
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Financing activities |
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Repurchase of common stock |
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Dividends paid |
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Total cash used in financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Decrease in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | |
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See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Changes in Shareholders' Equity
$ and shares in millions, except per share amounts (unaudited)
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| Common Shares |
| Common Stock |
| Additional Paid-In Capital |
| Retained Earnings |
| Accumulated Other Comprehensive Income (Loss) |
| Total | ||||||||||||
Balances at February 3, 2024 |
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Net earnings, three months ended May 4, 2024 |
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Other comprehensive loss: |
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Foreign currency translation adjustments, net of tax |
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Stock-based compensation |
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Issuance of common stock |
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Common stock dividends, $ |
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Repurchase of common stock |
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Balances at May 4, 2024 |
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Balances at January 28, 2023 |
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Net earnings, three months ended April 29, 2023 |
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Other comprehensive loss: |
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Foreign currency translation adjustments, net of tax |
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Stock-based compensation |
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Issuance of common stock |
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Common stock dividends, $ |
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Repurchase of common stock |
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Balances at April 29, 2023 |
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See Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the U.S. (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.
A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024. The first three months of fiscal 2025 and fiscal 2024 included 13 weeks.
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from May 4, 2024, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances reportable segment disclosure requirements primarily through expanded disclosures around significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact of the ASU and expect to include updated segment expense disclosures in our fiscal 2025 Form 10-K.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of specific categories meeting a quantitative threshold within the income tax rate reconciliation, as well as disaggregation of income taxes paid by jurisdiction. This ASU, which can be applied either prospectively or retrospectively, is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of the ASU and expect to include updated income tax disclosures in our fiscal 2026 Form 10-K.
Supply Chain Financing
We have a supply chain financing program with an independent financial institution, whereby some of our suppliers have the opportunity to receive accounts payable settlements early, at a discount, facilitated by the financial institution. Our liability associated with the funded participation in the program, which is included in Accounts payable on our Condensed Consolidated Balance Sheets, was $
Total Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash reported on our Condensed Consolidated Balance Sheets are reconciled to the total shown on our Condensed Consolidated Statements of Cash Flows as follows ($ in millions):
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| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||
Cash and cash equivalents | $ | |
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Restricted cash included in Other current assets |
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Total cash, cash equivalents and restricted cash | $ | |
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Restructuring charges were as follows ($ in millions):
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Fiscal 2024 Restructuring Initiative | $ | |
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| $ | - |
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Fiscal 2023 Resource Optimization Initiative |
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Total | $ | |
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| $ | ( |
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Fiscal 2024 Restructuring Initiative
During the fourth quarter of fiscal 2024, we commenced an enterprise-wide restructuring initiative intended to accomplish the following: (1) align field labor resources with where customers want to shop to optimize the customer experience; (2) redirect corporate resources for better alignment with our strategy; and (3) right-size resources to better align with our revenue outlook for fiscal 2025.
All charges incurred related to this initiative were comprised of employee termination benefits from continuing operations and were presented within Restructuring charges on our Condensed Consolidated Statements of Earnings as follows ($ in millions):
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| Three Months Ended |
| Cumulative Amount | ||||
| May 4, 2024 |
| As of May 4, 2024 | ||||
Domestic | $ | |
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| $ | |
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International |
| ( |
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Total | $ | |
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| $ | |
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Restructuring accrual activity related to this initiative was as follows ($ in millions):
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| Termination Benefits | ||||||||||
| Domestic |
| International |
| Total | ||||||
Balances at February 3, 2024 | $ | |
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| $ | |
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| $ | |
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Charges |
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| - |
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Cash payments |
| ( |
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| - |
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| ( |
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Adjustments(1) |
| - |
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| ( |
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| ( |
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Balances at May 4, 2024 | $ | |
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| $ | |
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| $ | |
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(1)Represents adjustments primarily related to higher-than-expected employee retention from previously planned organizational changes.
We do not expect to incur material future restructuring charges related to this initiative.
Fiscal 2023 Resource Optimization Initiative
During the second quarter of fiscal 2023, we commenced an enterprise-wide initiative to better align our spending with critical strategies and operations, as well as to optimize our cost structure. We do not expect to incur material future restructuring charges related to this initiative. All charges incurred related to this initiative were comprised of employee termination benefits from continuing operations and were presented within Restructuring charges on our Condensed Consolidated Statements of Earnings.
We recorded reductions to employee termination benefits of $
Restructuring accrual activity related to this initiative was as follows ($ in millions):
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| Termination Benefits | ||||||||||
| Domestic |
| International |
| Total | ||||||
Balances at January 28, 2023 | $ | |
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| $ | |
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| $ | |
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Cash payments |
| ( |
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| ( |
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| ( |
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Adjustments(1) |
| ( |
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| ( |
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| ( |
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Balances at April 29, 2023 | $ | |
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| $ | |
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| $ | |
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Balances at February 3, 2024 | $ | |
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| $ | - |
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| $ | |
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Cash payments |
| ( |
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| - |
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| ( |
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Adjustments(1) |
| ( |
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| - |
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| ( |
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Balances at May 4, 2024 | $ | |
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| $ | - |
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| $ | |
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(1)Represents adjustments primarily related to higher-than-expected employee retention from previously planned organizational changes
Goodwill
Goodwill balances were as follows as of May 4, 2024, February 3, 2024, and April 29, 2023 ($ in millions):
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| Gross Carrying Amount |
| Cumulative Impairment | ||||
Domestic | $ | |
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| $ | ( |
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International |
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| ( |
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Total | $ | |
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| $ | ( |
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Definite-Lived Intangible Assets
We have definite-lived intangible assets recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):
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| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 |
| Weighted-Average | ||||||||||||||||||||
| Gross Carrying |
| Accumulated |
| Gross Carrying |
| Accumulated |
| Gross Carrying |
| Accumulated |
| Useful Life Remaining as of May 4, 2024 (in years) | ||||||||||||||
Customer relationships | $ | |
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| $ | |
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| $ | |
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| $ | |
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| $ | |
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| $ | |
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Tradenames |
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Developed technology |
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Total | $ | |
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| $ | |
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| $ | |
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| $ | |
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| $ | |
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| $ | |
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| |
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Amortization expense was as follows ($ in millions):
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| Three Months Ended | |||||||
| Statement of Earnings Location | May 4, 2024 |
| April 29, 2023 | ||||||
Amortization expense | SG&A |
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| $ | |
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| $ | |
|
Amortization expense expected to be recognized in future periods is as follows ($ in millions):
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| Amortization Expense | ||
Remainder of fiscal 2025 |
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| $ | |
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Fiscal 2026 |
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Fiscal 2027 |
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Fiscal 2028 |
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Fiscal 2029 |
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Fiscal 2030 |
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Thereafter |
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Fair value measurements are reported in one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
Recurring Fair Value Measurements
Financial assets and liabilities accounted for at fair value were as follows ($ in millions):
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| Fair Value at | ||||||||||
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| Balance Sheet Location(1) | Fair Value Hierarchy |
| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | |||||||||
Assets |
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Money market funds(2) |
| Cash and cash equivalents | Level 1 |
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| $ | |
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| $ | |
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| $ | |
| ||
Time deposits(3) |
| Cash and cash equivalents | Level 2 |
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| ||
Money market funds(2) |
| Other current assets |
|
| Level 1 |
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Time deposits(3) |
| Other current assets |
|
| Level 2 |
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Marketable securities that fund deferred compensation(4) |
| Other assets |
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| Level 1 |
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Liabilities |
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Interest rate swap derivative instruments(5) | Long-term liabilities |
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| Level 2 |
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| |
(1)Balance sheet location is determined by the length to maturity at date of purchase and whether the assets are restricted for particular use.
(2)Valued at quoted market prices in active markets at period end.
(3)Valued at face value plus accrued interest at period end, which approximates fair value.
(4)Valued using the performance of mutual funds that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.
(5)Valued using readily observable market inputs. These instruments are custom, over-the-counter contracts with various bank counterparties that are not traded on an active market. See Note 5, Derivative Instruments, for additional information.
Fair Value of Financial Instruments
The fair values of cash, certain restricted cash, receivables, accounts payable and other payables approximated their carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate their fair values.
Long-term debt is presented at carrying value on our Condensed Consolidated Balance Sheets. If our long-term debt were recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. Long-term debt balances were as follows ($ in millions):
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| ||||||||||||||||||||||||
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| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||||||||||||||||||||||||||||||||||||||
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| Fair Value |
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| Carrying Value | ||||||||||||||||||||||||||||||||||||
Long-term debt(1) | $ | |
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| $ | |
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| $ | |
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| $ | |
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| $ | |
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| $ | |
| ||||||||||||||||||||||||||||
(1)Excludes debt discounts, issuance costs and finance lease obligations.
We manage our economic and transaction exposure to certain risks by using foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations and by using interest rate swaps to mitigate interest rate risk on our $
Our derivative instruments designated as net investment hedges and fair value hedges are recorded on our Condensed Consolidated Balance Sheets at fair value. When significant, the gross fair values of our outstanding derivative instruments and corresponding fair value classifications are included in Note 4, Fair Value Measurements.
Notional amounts of our derivative instruments were as follows ($ in millions):
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Contract Type |
|
| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||
Derivatives designated as net investment hedges |
|
| $ | |
|
| $ | |
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| $ | |
|
Derivatives designated as fair value hedges (interest rate swaps) |
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No hedge designation (foreign exchange contracts) |
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Total |
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| $ | |
|
| $ | |
|
| $ | |
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|
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|
Effects of our derivative instruments on our Condensed Consolidated Statements of Earnings were as follows ($ in millions):
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| Gain (Loss) Recognized | ||||||
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| Three Months Ended | |||||||||
| Statement of Earnings Location | May 4, 2024 |
| April 29, 2023 | |||||||
Interest rate swaps | Interest expense | $ | ( |
|
| $ | ( |
| |||
Adjustments to carrying value of long-term debt | Interest expense |
| |
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|
| |
| |||
Total |
|
|
|
| $ | - |
|
| $ | - |
|
Short-Term Debt
U.S. Revolving Credit Facility
We have a $
Long-Term Debt
Long-term debt consisted of the following ($ in millions):
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|
|
|
| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||
Notes, |
| $ | |
|
| $ | |
|
| $ | |
|
Notes, |
|
| |
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| |
|
|
| |
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Interest rate swap valuation adjustments |
|
| ( |
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|
| ( |
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| ( |
|
Subtotal |
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| |
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Debt discounts and issuance costs |
|
| ( |
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|
| ( |
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| ( |
|
Finance lease obligations |
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| |
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| |
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Total long-term debt |
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| |
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|
| |
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| |
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Less current portion |
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| |
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| |
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Total long-term debt, less current portion |
| $ | |
|
| $ | |
|
| $ | |
|
Fair Value and Future Maturities
We generate substantially all of our revenue from contracts with customers from the sale of products and services. Contract balances primarily consist of receivables and liabilities related to unfulfilled membership benefits and services not yet completed, product merchandise not yet delivered to customers, deferred revenue from our private label and co-branded credit card arrangement and unredeemed gift cards. Contract balances were as follows ($ in millions):
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|
|
| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||
Receivables, net(1) | $ | |
|
| $ | |
|
| $ | |
|
Short-term contract liabilities included in: |
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Unredeemed gift card liabilities |
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Deferred revenue |
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Accrued liabilities |
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Long-term contract liabilities included in: |
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Long-term liabilities |
| |
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| |
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| |
|
(1)Receivables are recorded net of allowances for expected credit losses of $
During the first three months of fiscal 2025 and fiscal 2024, $
Estimated revenue from our contract liability balances expected to be recognized in future periods if the performance of the contract is expected to have an initial duration of more than one year is as follows ($ in millions):
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Fiscal Year |
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| Amount |
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| $ | |
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We compute our basic earnings per share based on the weighted-average number of common shares outstanding and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued.
Reconciliations of the numerators and denominators of basic and diluted earnings per share were as follows ($ and shares in millions, except per share amounts):
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Numerator |
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Net earnings | $ | |
|
| $ | |
|
Denominator |
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Weighted-average common shares outstanding |
| |
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| |
|
Dilutive effect of stock compensation plan awards |
| |
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| |
|
Weighted-average common shares outstanding, assuming dilution |
| |
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Potential shares which were anti-dilutive and excluded from weighted-average share computations | |
|
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| |
| |
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|
Basic earnings per share | $ | |
|
| $ | |
|
Diluted earnings per share | $ | |
|
| $ | |
|
On February 28, 2022, our Board of Directors approved a $
Information regarding share repurchases was as follows ($ and shares in millions, except per share amounts):
|
|
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|
|
|
|
| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Total cost of shares repurchased | $ | |
|
| $ | |
|
Average price per share | $ | |
|
| $ | |
|
Total number of shares repurchased |
| |
|
|
| |
|
As of May 4, 2024, $
We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected on our Condensed Consolidated Financial Statements. However, there are cases where liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. We provide disclosure of matters where we believe it is reasonably possible the impact may be material to our Condensed Consolidated Financial Statements.
Reportable segment and product category revenue information was as follows ($ in millions):
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| Three Months Ended | ||||||
|
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|
| May 4, 2024 |
| April 29, 2023 | ||||
Revenue by reportable segment |
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|
Domestic |
|
|
|
| $ | |
|
| $ | |
|
International |
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| |
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| |
|
Total revenue |
|
|
|
| $ | |
|
| $ | |
|
Revenue by product category |
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Domestic: |
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|
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|
Computing and Mobile Phones |
|
|
|
| $ | |
|
| $ | |
|
Consumer Electronics |
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| |
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| |
|
Appliances |
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| |
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Entertainment |
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| |
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| |
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Services |
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| |
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| |
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Other |
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| |
|
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| |
|
Total Domestic revenue |
|
|
|
| $ | |
|
| $ | |
|
International: |
|
|
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|
|
|
|
|
|
|
|
Computing and Mobile Phones |
|
|
|
| $ | |
|
| $ | |
|
Consumer Electronics |
|
|
|
|
| |
|
|
| |
|
Appliances |
|
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| |
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| |
|
Entertainment |
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| |
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| |
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Services |
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| |
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| |
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Other |
|
|
|
|
| |
|
|
| |
|
Total International revenue |
|
|
|
| $ | |
|
| $ | |
|
Operating income by reportable segment and the reconciliation to consolidated earnings before income tax expense and equity in income (loss) of affiliates was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||||
|
|
|
|
| May 4, 2024 |
| April 29, 2023 | ||||
Domestic |
|
|
|
| $ | |
|
| $ | |
|
International |
|
|
|
|
| |
|
|
| |
|
Total operating income |
|
|
|
|
| |
|
|
| |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
Investment income and other |
|
|
|
|
| |
|
|
| |
|
Interest expense |
|
|
|
|
| ( |
|
|
| ( |
|
Earnings before income tax expense and equity in income (loss) of affiliates |
|
| $ | |
|
| $ | |
| ||
Assets by reportable segment were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||
Domestic |
|
|
|
| $ | |
|
| $ | |
|
| $ | |
|
International |
|
|
|
|
| |
|
|
| |
|
|
| |
|
Total assets |
|
|
|
| $ | |
|
| $ | |
|
| $ | |
|
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” refers to Best Buy Co., Inc. and its consolidated subsidiaries. Any references to our website addresses do not constitute incorporation by reference of the information contained on the websites.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (including the information presented therein under Risk Factors), as well as our other reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.
Overview
We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life. We accomplish this by leveraging our combination of technology and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes.
We have two reportable segments: Domestic and International. The Domestic segment is comprised of our operations in all states, districts and territories of the U.S. and our Best Buy Health business. The International segment is comprised of all our operations in Canada.
Our fiscal year ends on the Saturday nearest the end of January. Our business, like that of many retailers, is seasonal. A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season.
Comparable Sales
Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric used by management to evaluate the performance of our existing stores, websites and call centers by measuring the change in net sales for a particular period over the comparable prior period of equivalent length. Comparable sales includes revenue from stores, websites and call centers operating for at least 14 full months. Revenue from online sales is included in comparable sales and represents sales initiated on a website or app, regardless of whether customers choose to pick up product in store, curbside, at an alternative pick-up location or take delivery direct to their homes. Revenue from acquisitions is included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition. Comparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. Revenue from stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, is excluded from comparable sales until at least 14 full months after reopening. Comparable sales excludes the impact of certain periodic warranty-related profit-share revenue, the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only) and the impact of the 53rd week (applicable in 53-week fiscal years only). Comparable sales is based on our fiscal calendar and is not adjusted to align calendar weeks. All periods presented apply this methodology consistently.
We believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores, websites and call centers versus the portion resulting from opening new stores or closing existing stores. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers’ methods.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), as well as certain adjusted or non-GAAP financial measures, such as non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted earnings per share (“EPS”). We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, provide additional useful information for evaluating current period performance and assessing future performance. For these reasons, internal management reporting, including budgets, forecasts and financial targets used for short-term incentives are based on non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill and intangible asset impairments, price-fixing settlements, gains and losses on sales of subsidiaries and certain investments, intangible asset amortization, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors. We provide reconciliations of the most comparable financial measures presented in accordance with GAAP to presented non-GAAP financial measures that enable investors to understand the adjustments made in arriving at the non-GAAP financial measures and to evaluate performance using the same metrics as management. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures may be calculated differently from similarly titled measures used by other companies, thereby limiting their usefulness for comparative purposes.
In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also may use the term “constant currency,” which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.
Refer to the Non-GAAP Financial Measures section below for detailed reconciliations of items impacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS in the presented periods.
Business Strategy Update
In the first quarter of fiscal 2025, we continued to manage our profitability through strong execution, while at the same time preparing for future growth. We made progress on our fiscal 2025 priorities, grew our paid membership base, implemented previously announced restructuring actions and drove improvements in our prioritized customer experiences. While macroeconomic factors continued to create a challenging sales environment during the quarter, we will continue to navigate this fluctuating environment and its impact on customer demand while remaining focused and energized about our purpose to enrich lives through technology.
We expect fiscal 2025 to be a year of increasing industry stabilization as the pace of innovation increases and consumers begin to upgrade and replace technology products bought early in the pandemic. To ensure we are in the best position possible to benefit, we are focused on the following four priorities: 1) invigorate and progress targeted customer experiences; 2) drive operational effectiveness and efficiency; 3) continue our disciplined approach to capital allocation; and 4) explore, pilot and drive incremental revenue streams.
In the first quarter of fiscal 2025, we focused on providing increasingly personalized, highly relevant and motivational content to our App users to drive higher engagement. Each of our App users’ home screens will eventually look different based on their personal preferences and a number of factors like current location, shopping history, membership status and what we know they care about the most based on their activity. We are also driving speed improvements on the product pages and in checkout in the mobile experience to drive customer experience and sales performance.
In our stores, we plan to make enhancements to every store in the chain in some fashion throughout the second and third quarters, improving both our merchandising and ease of shopping for customers. This includes working with many of our vendors to implement new and enhanced in-store experiences across the store. To continue to elevate the expert service we provide customers, we are adding fully dedicated labor expertise to our in-store computing, home theater and major appliances departments in hundreds of stores. These changes are in addition to the actions taken throughout the past year to streamline our leadership model, allowing us to invest in more customer-facing sales associate hours in our stores.
While we elevate our customer experiences, we are simultaneously executing on our longstanding commitment to drive operational effectiveness and efficiencies and identify cost reductions, as this is paramount to help offset inflationary pressures in our business and fund investment capacity. For example, in fiscal 2025 we are focused on driving further efficiencies across forward and reverse supply chain, our Geek Squad repair operations, and our customer care experience. We will continue to lean heavily on analytics and technology to achieve these efficiencies.
Our third key priority for the year is to continue our disciplined approach to capital allocation. This will include striking the appropriate balance of prioritizing areas that best position us for the future while prudently dealing with the near-term uncertainty in the consumer electronics industry.
Our fourth key priority for fiscal 2025 is longer-term in focus. We will continue to explore opportunities that leverage our scale and capabilities to drive incremental profitable revenue streams over time.
We believe we are starting to see the pace of technology innovation increase as computing devices powered by artificial intelligence are expected to launch this summer. We are the largest consumer electronics specialty retailer with what we believe to be a unique range of product assortment and expert services to help humanize tech, especially new innovation, for every stage of our customers’ lives. We intend to strengthen our position in key categories like computing, home theater and major appliances through our differentiated experiences, pointed marketing spend and competitive pricing. We believe we are putting ourselves in the best position for fiscal 2025 and beyond.
Results of Operations
Consolidated Results
Selected consolidated financial data was as follows ($ in millions, except per share amounts):
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Revenue | $ | 8,847 |
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| $ | 9,467 |
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Revenue % change |
| (6.5) | % |
|
| (11.1) | % |
Comparable sales % change |
| (6.1) | % |
|
| (10.1) | % |
Gross profit | $ | 2,064 |
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| $ | 2,150 |
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Gross profit as a % of revenue(1) |
| 23.3 | % |
|
| 22.7 | % |
SG&A | $ | 1,737 |
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| $ | 1,848 |
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SG&A as a % of revenue(1) |
| 19.6 | % |
|
| 19.5 | % |
Restructuring charges | $ | 15 |
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| $ | (9) |
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Operating income | $ | 312 |
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| $ | 311 |
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Operating income as a % of revenue |
| 3.5 | % |
|
| 3.3 | % |
Net earnings | $ | 246 |
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| $ | 244 |
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Diluted earnings per share | $ | 1.13 |
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| $ | 1.11 |
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(1)Because retailers vary in how they record costs of operating their supply chain between cost of sales and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers’ corresponding rates. For additional information regarding costs classified in cost of sales and SG&A, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.
In the first quarter of fiscal 2025, we generated $8.8 billion in revenue and our comparable sales declined 6.1% as we continued to operate in a consumer electronics industry that is challenged by various macroeconomic pressures, including high inflation, increased spending outside the home in areas such as travel and entertainment and lower levels of product innovation.
Revenue, gross profit rate, SG&A and operating income rate changes in the first quarter of fiscal 2025 were primarily driven by our Domestic segment. For further discussion of our Domestic and International segments, see Segment Performance Summary, below.
Store Summary
Stores open by reportable segment were as follows:
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| May 4, 2024 |
| April 29, 2023 | ||||
Best Buy |
| 891 |
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|
| 908 |
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Outlet Centers |
| 23 |
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|
| 20 |
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Pacific Sales |
| 20 |
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|
| 20 |
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Yardbird |
| 23 |
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|
| 18 |
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Total Domestic stores |
| 957 |
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|
| 966 |
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Canada Best Buy stores |
| 128 |
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|
| 127 |
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Canada Best Buy Mobile stand-alone stores |
| 32 |
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|
| 32 |
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Total International stores |
| 160 |
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|
| 159 |
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Total stores |
| 1,117 |
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|
| 1,125 |
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We continuously monitor store performance as part of a market-driven, omnichannel strategy. As we approach the expiration of leases, we evaluate various options for each location, including whether a store should remain open. We currently expect to close approximately 10 to 15 Domestic Best Buy stores in fiscal 2025.
Income Tax Expense
Income tax expense increased in the first quarter of fiscal 2025, primarily due to reduced benefits from the resolution of tax matters and stock-based compensation. Our effective tax rate (“ETR”) increased to 24.7% in the first quarter of fiscal 2025 compared to 23.3% in the first quarter of fiscal 2024, primarily due to reduced tax benefits from the resolution of tax matters and stock-based compensation, partially offset by benefits from green energy incentives.
Our tax provision for interim periods is determined using an estimate of our annual ETR, adjusted for discrete items, if any, that are taken into account in the relevant period. We update our estimate of the annual ETR each quarter and we make a cumulative adjustment if our estimated tax rate changes. Our quarterly tax provision and our quarterly estimate of our annual ETR are subject to variation due to several factors, including our ability to accurately forecast our pre-tax and taxable income and loss by jurisdiction, tax audit developments, recognition of excess tax benefits or deficiencies related to stock-based compensation, foreign currency gains (losses), changes in laws or regulations, and expenses or losses for which tax benefits are not recognized. Our ETR can be more or less volatile based on the amount of pre-tax earnings. For example, the impact of discrete items and non-deductible losses on our ETR is greater when our pre-tax earnings are lower.
Segment Performance Summary
Domestic Segment
Selected financial data for the Domestic segment was as follows ($ in millions):
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Revenue | $ | 8,203 |
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| $ | 8,801 |
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Revenue % change |
| (6.8) | % |
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| (11.0) | % |
Comparable sales % change(1) |
| (6.3) | % |
|
| (10.4) | % |
Gross profit | $ | 1,917 |
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| $ | 1,992 |
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Gross profit as a % of revenue |
| 23.4 | % |
|
| 22.6 | % |
SG&A | $ | 1,598 |
|
| $ | 1,710 |
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SG&A as a % of revenue |
| 19.5 | % |
|
| 19.4 | % |
Restructuring charges | $ | 16 |
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| $ | (8) |
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Operating income | $ | 303 |
|
| $ | 290 |
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Operating income as a % of revenue |
| 3.7 | % |
|
| 3.3 | % |
Selected Online Revenue Data |
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Total online revenue | $ | 2,525 |
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| $ | 2,688 |
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Online revenue as a % of total segment revenue |
| 30.8 | % |
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| 30.5 | % |
Comparable online sales % change(1) |
| (6.1) | % |
|
| (12.1) | % |
(1)Comparable online sales are included in the comparable sales calculation.
Domestic revenue decreased in the first quarter of fiscal 2025, primarily driven by comparable sales declines in appliances, home theater, gaming and mobile phones. These drivers were partially offset by comparable sales growth in services and laptops. Online revenue of $2.5 billion decreased 6.1% on a comparable basis in the first quarter of fiscal 2025. Domestic segment revenue declines were also due to the factors described within the Consolidated Results section, above.
Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
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| Revenue Mix |
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| Comparable Sales |
| ||||||||
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| Three Months Ended |
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| Three Months Ended |
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| May 4, 2024 |
| April 29, 2023 |
| May 4, 2024 |
| April 29, 2023 | ||||||||
Computing and Mobile Phones |
| 44 | % |
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| 42 | % |
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| (2.2) | % |
|
| (13.3) | % |
Consumer Electronics |
| 29 | % |
|
| 29 | % |
|
| (8.3) | % |
|
| (9.8) | % |
Appliances |
| 13 | % |
|
| 15 | % |
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| (18.5) | % |
|
| (15.5) | % |
Entertainment |
| 6 | % |
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| 7 | % |
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| (11.3) | % |
|
| 3.8 | % |
Services |
| 7 | % |
|
| 6 | % |
|
| 9.0 | % |
|
| 12.0 | % |
Other |
| 1 | % |
|
| 1 | % |
|
| 18.2 | % |
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| (12.1) | % |
Total |
| 100 | % |
|
| 100 | % |
|
| (6.3) | % |
|
| (10.4) | % |
Notable comparable sales changes by revenue category were as follows:
Computing and Mobile Phones: The 2.2% comparable sales decline was driven primarily by declines in mobile phones and wearables, partially offset by comparable sales growth in laptops.
Consumer Electronics: The 8.3% comparable sales decline was driven primarily by home theater.
Appliances: The 18.5% comparable sales decline was driven primarily by large appliances.
Entertainment: The 11.3% comparable sales decline was driven primarily by gaming.
Services: The 9.0% comparable sales growth was driven primarily by delivery and installation services.
Domestic gross profit rate increased in the first quarter of fiscal 2025, primarily due to improved financial performance from our services category, including our membership offerings, which was partially offset by lower product margin rates and lower profit-sharing revenue from our private label and co-branded credit card arrangement.
Domestic SG&A decreased in the first quarter of fiscal 2025, primarily due to: (1) lower employee compensation expense, which was primarily store payroll; (2) reduced vehicle rental costs; and (3) lower expenses across multiple other areas, such as advertising and credit card fees. These decreases were partially offset by higher technology expense.
Domestic restructuring charges in the first quarter of fiscal 2025 were primarily related to employee termination benefits associated with an enterprise-wide restructuring initiative that commenced in the fourth quarter of fiscal 2024. Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for additional information.
Domestic operating income rate increased in the first quarter of fiscal 2025, primarily due to favorability in gross profit rate, partially offset by higher restructuring charges and an unfavorable SG&A rate that was driven by decreased leverage from lower sales volume on our fixed expenses.
International Segment
Selected financial data for the International segment was as follows ($ in millions):
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Revenue | $ | 644 |
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| $ | 666 |
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Revenue % change |
| (3.3) | % |
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| (11.6) | % |
Comparable sales % change |
| (3.3) | % |
|
| (5.5) | % |
Gross profit | $ | 147 |
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| $ | 158 |
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Gross profit as a % of revenue |
| 22.8 | % |
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| 23.7 | % |
SG&A | $ | 139 |
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| $ | 138 |
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SG&A as a % of revenue |
| 21.6 | % |
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| 20.7 | % |
Operating income | $ | 9 |
|
| $ | 21 |
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Operating income as a % of revenue |
| 1.4 | % |
|
| 3.2 | % |
International revenue decreased in the first quarter of fiscal 2025, primarily driven by a comparable sales decline in gaming.
International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
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| Revenue Mix |
| Comparable Sales | ||||||||||||
| Three Months Ended |
| Three Months Ended | ||||||||||||
| May 4, 2024 |
| April 29, 2023 |
| May 4, 2024 |
| April 29, 2023 | ||||||||
Computing and Mobile Phones |
| 50 | % |
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| 47 | % |
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| 0.7 | % |
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| (3.6) | % |
Consumer Electronics |
| 27 | % |
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| 28 | % |
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| (6.6) | % |
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| (9.1) | % |
Appliances |
| 9 | % |
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| 9 | % |
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| 2.0 | % |
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| (11.7) | % |
Entertainment |
| 7 | % |
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| 9 | % |
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| (22.9) | % |
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| 12.0 | % |
Services |
| 6 | % |
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| 5 | % |
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| 5.0 | % |
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| (11.2) | % |
Other |
| 1 | % |
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| 2 | % |
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| (13.4) | % |
|
| (19.0) | % |
Total |
| 100 | % |
|
| 100 | % |
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| (3.3) | % |
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| (5.5) | % |
Notable comparable sales changes by revenue category were as follows:
Computing and Mobile Phones: The 0.7% comparable sales growth was driven primarily by mobile phones, partially offset by a comparable sales decline in computing.
Consumer Electronics: The 6.6% comparable sales decline was driven primarily by headphones and portable speakers, and home theater.
Appliances: The 2.0% comparable sales growth was driven primarily by small appliances.
Entertainment: The 22.9% comparable sales decline was driven primarily by gaming.
Services: The 5.0% comparable sales growth was driven primarily by warranty-related services.
International gross profit rate decreased in the first quarter of fiscal 2025, primarily driven by lower product margin rates.
International SG&A in the first quarter of fiscal 2025 was relatively flat to last year.
International operating income rate decreased in the first quarter of fiscal 2025, primarily due to an unfavorable gross profit rate and decreased leverage from lower sales volume on our fixed expenses, which resulted in an unfavorable SG&A rate.
Consolidated Non-GAAP Financial Measures
Reconciliations of operating income, effective tax rate and diluted EPS (GAAP financial measures) to non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS (non-GAAP financial measures) were as follows ($ in millions, except per share amounts):
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Operating income | $ | 312 |
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| $ | 311 |
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% of revenue |
| 3.5 | % |
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| 3.3 | % |
Intangible asset amortization(1) |
| 6 |
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| 20 |
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Restructuring charges(2) |
| 15 |
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| (9) |
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Non-GAAP operating income | $ | 333 |
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| $ | 322 |
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% of revenue |
| 3.8 | % |
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| 3.4 | % |
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Effective tax rate |
| 24.7 | % |
|
| 23.3 | % |
Intangible asset amortization(1) |
| - | % |
|
| 0.1 | % |
Non-GAAP effective tax rate |
| 24.7 | % |
|
| 23.4 | % |
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Diluted EPS | $ | 1.13 |
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| $ | 1.11 |
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Intangible asset amortization(1) |
| 0.03 |
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|
| 0.09 |
|
Restructuring charges(2) |
| 0.07 |
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|
| (0.04) |
|
Income tax impact of non-GAAP adjustments(3) |
| (0.03) |
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|
| (0.01) |
|
Non-GAAP diluted EPS | $ | 1.20 |
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| $ | 1.15 |
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For additional information regarding the nature of charges discussed below, refer to Note 2, Restructuring, and Note 3, Goodwill and Intangible Assets, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
(1)Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology assets.
(2)Represents restructuring charges related to the Fiscal 2024 Restructuring Initiative and the Fiscal 2023 Resource Optimization Initiative.
(3)The non-GAAP adjustments primarily relate to the U.S. As such, the income tax charge on the U.S. non-GAAP adjustments is calculated using the statutory tax rate of 24.5%.
Non-GAAP operating income rate increased in the first quarter of fiscal 2025, primarily due to a favorable gross profit rate in our Domestic segment.
Non-GAAP effective tax rate increased in the first quarter of fiscal 2025, primarily due to reduced tax benefits from the resolution of tax matters and stock-based compensation, partially offset by benefits from green energy incentives.
Non-GAAP diluted EPS increased in the first quarter of fiscal 2025, primarily due to the increase in non-GAAP operating income.
Liquidity and Capital Resources
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, dividends, credit facilities, short-term borrowing arrangements and working capital management. We modify our approach to managing these variables as changes in our operating environment arise. For example, capital expenditures and share repurchases are a component of our cash flow and capital management strategy, which, to a large extent, we can adjust in response to economic and other changes in our business environment.
Cash and cash equivalents were as follows ($ in millions):
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| May 4, 2024 |
| February 3, 2024 |
| April 29, 2023 | ||||||
Cash and cash equivalents |
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| $ | 1,214 |
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| $ | 1,447 |
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| $ | 1,030 |
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The decrease in cash and cash equivalents from February 3, 2024, was primarily due to the timing and volume of inventory purchases and payments, dividend payments and capital expenditures, partially offset by positive cash flows from operations, primarily driven by earnings.
The increase in cash and cash equivalents from April 29, 2023, was primarily due to positive cash flows from operations, primarily driven by earnings, partially offset by dividend payments, capital expenditures and share repurchases.
Cash Flows
Cash flows were as follows ($ in millions):
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| Three Months Ended | ||||||
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| May 4, 2024 |
| April 29, 2023 | ||||
Total cash provided by (used in): |
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Operating activities |
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|
| $ | 156 |
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| $ | (331) |
|
Investing activities |
|
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|
|
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|
| (167) |
|
|
| (204) |
|
Financing activities |
|
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|
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|
|
| (252) |
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| (281) |
|
Effect of exchange rate changes on cash and cash equivalents |
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| (3) |
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| (5) |
| ||||||
Decrease in cash, cash equivalents and restricted cash |
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| $ | (266) |
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| $ | (821) |
| ||
Operating Activities
The increase in cash provided by operating activities in the first quarter of fiscal 2025 was primarily driven by the timing and volume of inventory purchases and payments, partially offset by the timing of vendor funding receivables and higher incentive compensation payments in the current year.
Investing Activities
Cash used in investing activities in the first quarter of fiscal 2025 decreased, primarily driven by lower capital spending. We currently expect capital expenditures to approximate $750 million in fiscal 2025 compared to $795 million in fiscal 2024.
Financing Activities
The decrease in cash used in financing activities in the first quarter of fiscal 2025 was primarily driven by lower share repurchases.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents, our credit facilities, other debt arrangements and trade payables are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, share repurchases, dividends and strategic initiatives, including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.
We have a $1.25 billion five-year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks that expires in April 2028. There were no borrowings outstanding under the Five-Year Facility Agreement as of May 4, 2024, February 3, 2024, or April 29, 2023.
Restricted Cash
Our liquidity is also affected by restricted cash balances that are primarily restricted to cover product protection plans provided under our membership offerings and other self-insurance liabilities. Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $313 million, $346 million and $402 million at May 4, 2024, February 3, 2024, and April 29, 2023, respectively. The decrease in restricted cash from April 29, 2023, was primarily due to releases of product protection reserves based on claims and purchasing behaviors of customers participating in our membership offerings.
Debt and Capital
As of May 4, 2024, we had $500 million of principal amount of notes due October 1, 2028, and $650 million of principal amount of notes due October 1, 2030. Refer to Note 6, Debt, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, and Note 8, Debt, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, for additional information about our outstanding debt.
Share Repurchases and Dividends
We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors (“Board”). The payment of cash dividends is also subject to customary legal and contractual restrictions. Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment-grade credit metrics. Our share repurchase plans are evaluated on an ongoing basis, considering factors such as our financial condition and cash flows, our economic outlook, the impact of tax laws, our liquidity needs, and the health and stability of global credit markets. The timing and amount of future repurchases may vary depending on such factors.
On February 28, 2022, our Board approved a $5.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under this authorization.
Share repurchase and dividend activity were as follows ($ and shares in millions, except per share amounts):
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| Three Months Ended | ||||||
| May 4, 2024 |
| April 29, 2023 | ||||
Total cost of shares repurchased | $ | 52 |
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| $ | 81 |
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Average price per share | $ | 77.81 |
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| $ | 76.15 |
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Total number of shares repurchased |
| 0.7 |
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| 1.1 |
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Regular quarterly cash dividend per share | $ | 0.94 |
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| $ | 0.92 |
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Cash dividends declared and paid | $ | 202 |
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| $ | 202 |
|
The total cost of shares repurchased decreased in the first quarter of fiscal 2025, primarily due to a decrease in the volume of repurchases. Cash dividends declared and paid remained consistent during the first quarter of fiscal 2025, due to the increase in the regular quarterly cash dividend per share offset by fewer shares outstanding.
Between the end of the first quarter of fiscal 2025 on May 4, 2024, and June 5, 2024, we repurchased an incremental 0.4 million shares of our common stock at a cost of $34 million. We currently expect total share repurchases of approximately $350 million in fiscal 2025.
Off-Balance-Sheet Arrangements and Contractual Obligations
Our liquidity is not dependent on the use of off-balance-sheet financing arrangements other than in connection with our $1.25 billion in undrawn capacity on our Five-Year Facility Agreement as of May 4, 2024, which, if drawn upon, would be included in either short-term or long-term debt on our Condensed Consolidated Balance Sheets.
There has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2024. See our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, for additional information regarding our off-balance-sheet arrangements and contractual obligations.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, and our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2024.
New or Recently Issued Accounting Pronouncements
For a description of applicable new or recently issued accounting pronouncements, including our assessment of the impact on our financial statements, see Note 1, Basis of Presentation, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as “anticipate,” “appear,” “approximate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “possible,” “project,” “seek,” “should,” “would,” and other words and terms of similar meaning or the negatives thereof. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, our operating model, new strategies and growth initiatives, the competitive environment, consumer behavior and other events. These statements involve a number of judgments and are subject to certain risks and uncertainties, many of which are outside the control of the Company, that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A, Risk Factors, of our most recent Annual Report on Form 10-K, and any updated information in subsequent Quarterly Reports on Form 10-Q, for a description of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: macroeconomic pressures in the markets in which we operate (including but not limited to recession, inflation rates, fluctuations in foreign currency exchange rates, limitations on a government’s ability to borrow and/or spend capital, fluctuations in housing prices, energy markets, jobless rates and effects related to the conflicts in Eastern Europe and the Middle East or other geopolitical events); catastrophic events, health crises and pandemics; susceptibility of the products we sell to technological advancements, product life cycle fluctuations and changes in consumer preferences; competition (including from multi-channel retailers, e-commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers and in the provision of delivery speed and options); our ability to attract and retain qualified employees; changes in market compensation rates; our expansion into health and new products, services and technologies; our focus on services as a strategic priority; our reliance on key vendors and mobile network carriers (including product availability); our ability to maintain positive brand perception and recognition; our ability to effectively manage strategic ventures, alliances or acquisitions; our ability to effectively manage our real estate portfolio; inability of vendors or service providers to perform components of our supply chain (impacting our stores or other aspects of our operations) and other various functions of our business; risks arising from and potentially unique to our exclusive brands products; risks associated with vendors that source products outside of the U.S.; our reliance on our information technology systems, internet and telecommunications access and capabilities; our ability to prevent or effectively respond to a cyber-attack, privacy or security breach; product safety and quality concerns; changes to labor or employment laws or regulations; risks arising from statutory, regulatory and legal developments (including statutes and/or regulations related to tax or privacy); evolving corporate governance and public disclosure regulations and expectations (including, but not limited to, cybersecurity and environmental, social and governance matters); risks arising from our international activities (including those related to the conflicts in Eastern Europe and the Middle East or fluctuations in foreign currency exchange rates) and those of our vendors; failure to effectively manage our costs; our dependence on cash flows and net earnings generated during the fourth fiscal quarter; pricing investments and promotional activity; economic or regulatory developments that might affect our ability to provide attractive promotional financing; constraints in the capital markets; changes to our vendor credit terms; changes in our credit ratings; and failure to meet financial-performance guidance or other forward-looking statements. We caution that the foregoing list of important factors is not complete. Any forward-looking statements speak only as of the date they are made and we assume no obligation to update any forward-looking statement that we may make.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, in addition to the risks inherent in our operations, we are exposed to certain market risks.
Interest Rate Risk
We are exposed to changes in short-term market interest rates and these changes in rates will impact our net interest expense. Our cash, cash equivalents and restricted cash generate interest income that will vary based on changes in short-term interest rates. In addition, we have swapped a portion of our fixed-rate debt to floating rate such that the interest expense on this debt will vary with short-term interest rates. Refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, for further information regarding our interest rate swaps.
As of May 4, 2024, we had $1.5 billion of cash, cash equivalents and restricted cash and $0.5 billion of debt that has been swapped to floating rate, and therefore the net asset balance exposed to interest rate changes was $1.0 billion. As of May 4, 2024, a 50-basis point increase in short-term interest rates would have led to an estimated $5 million increase in interest income, and conversely a 50-basis point decrease in short-term interest rates would have led to an estimated $5 million decrease in interest income.
Foreign Currency Exchange Rate Risk
We have market risk arising from changes in foreign currency exchange rates related to operations in our International segment. On a limited basis, we utilize foreign exchange forward contracts to manage foreign currency exposure to certain forecasted inventory purchases, recognized receivable and payable balances and our investment in our Canadian operations. Refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, for additional information regarding these instruments.
In the first quarter of fiscal 2025, foreign currency exchange rate fluctuations were primarily driven by the strength of the U.S. dollar against the Canadian dollar compared to the prior-year period. Foreign currency exchange rate fluctuations did not have a significant impact on our revenue or net earnings in the first quarter of fiscal 2025.
Item 4.Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis and more often if necessary.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at May 4, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at May 4, 2024, our disclosure controls and procedures were effective.
There were no changes in internal control over financial reporting during the fiscal quarter ended May 4, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.Legal Proceedings
For information about our legal proceedings, see Note 10, Contingencies, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
c) Stock Repurchases
On February 28, 2022, our Board approved a $5.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under this authorization. For additional information, see Note 9, Repurchase of Common Stock, of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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Fiscal Period |
| Total Number of |
| Average Price Paid |
| Total Number of Shares Purchased as Part of Publicly Announced Program |
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | |||||||
February 4, 2024 through March 2, 2024 |
| 10,360 |
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| $ | 78.42 |
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| 10,360 |
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| $ | 3,783,000,000 |
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March 3, 2024 through April 6, 2024 |
| 308,226 |
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| $ | 79.50 |
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| 308,226 |
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| $ | 3,759,000,000 |
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April 7, 2024 through May 4, 2024 |
| 347,784 |
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| $ | 76.30 |
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| 347,784 |
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| $ | 3,732,000,000 |
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Total fiscal 2025 first quarter |
| 666,370 |
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| $ | 77.81 |
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| 666,370 |
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| $ | 3,732,000,000 |
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Item 5.Other Information
Rule 10b5-1 Plan Elections
During the fiscal quarter ended May 4, 2024, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted, terminated or modified a
Item 6.Exhibits
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Form of Best Buy Co., Inc. Long-Term Incentive Program Award Agreement (2024) – Restricted Shares. | |
Restated Best Buy Severance Plan and Summary Plan Description (2023). | |
101 | The following financial information from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2025, filed with the SEC on June 7, 2024, formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) the Condensed Consolidated Balance Sheets as of May 4, 2024, February 3, 2024, and April 29, 2023, (ii) the Condensed Consolidated Statements of Earnings for the three months ended May 4, 2024, and April 29, 2023, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended May 4, 2024, and April 29, 2023, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended May 4, 2024, and April 29, 2023, (v) the Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended May 4, 2024, and April 29, 2023, and (vi) the Notes to Condensed Consolidated Financial Statements. |
104 | The cover page from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2025, filed with the SEC on June 7, 2024, formatted in iXBRL (included as Exhibit 101). |
(1)The certifications in Exhibit 32.1 and Exhibit 32.2 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
* Management contracts or compensatory plans or arrangements
Pursuant to Item 601(b)(4)(iii) of Regulation S-K under the Securities Act of 1933, as amended, the registrant has not filed as exhibits to this Quarterly Report on Form 10-Q certain instruments with respect to long-term debt under which the amount of securities authorized does not exceed 10% of the total assets of the registrant. The registrant hereby agrees to furnish copies of all such instruments to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| BEST BUY CO., INC. | |
| (Registrant) | |
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Date: June 7, 2024 | By: | /s/ CORIE BARRY |
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| Corie Barry |
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| Chief Executive Officer |
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Date: June 7, 2024 | By: | /s/ MATTHEW BILUNAS |
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| Matthew Bilunas |
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| Senior Executive Vice President of Enterprise Strategy and Chief Financial Officer |
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Date: June 7, 2024 | By: | /s/ MATHEW R. WATSON |
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| Mathew R. Watson |
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| Senior Vice President, Finance – Controller and Chief Accounting Officer |