Best Buy Reports Better-Than-Expected Third Quarter Results

Best Buy Co., Inc. (NYSE: BBY) today announced results for the 13-week third quarter ended November 2, 2019 (“Q3 FY20”), as compared to the 13-week third quarter ended November 3, 2018 (“Q3 FY19”).

For GAAP to non-GAAP reconciliations of the measures referred to in the above table, please refer to the attached supporting schedule Reconciliation of Non-GAAP Financial Measures.

“Our teams delivered another strong quarter of top- and bottom-line growth,” said Corie Barry, Best Buy CEO. “We are delivering on our purpose to enrich lives through technology by providing customers the products and solutions they want and need, combined with fast and convenient fulfillment. We are excited about our progress and opportunities as we execute on our Building the New Blue strategy, designed to develop deeper relationships with our customers and uniquely position us over the long term.”

Barry continued, “In the near term, we are excited about our holiday plans. Our teams have once again put together a best-in-class assortment, prepared an amazing set of deals and ensured we have great inventory availability. Customers ordering online will get free next-day delivery on thousands of items all season long with no membership or minimum purchase required. They can also choose to pick up their products in a store within an hour of placing their order.”

Barry concluded, “I want to thank our employees for the strong execution in the third quarter, and in advance for all your hard work this week and throughout the holidays. Whether you work in one of our stores, spend your time making house calls to our customers’ homes or work in a distribution center or the corporate office, you are a critical part of what makes Best Buy so special.”

Best Buy CFO Matt Bilunas commented, “The updated FY20 guidance we are providing today reiterates our prior revenue expectations and raises the non-GAAP EPS range to reflect the strong Q3 profitability as well as improved expectations for Q4. Our outlook continues to include our best estimate of the impact of tariffs on goods from China, both implemented and planned.”

FY20 Financial Guidance

Best Buy is updating its full-year FY20 financial outlook to the following:

• Enterprise revenue of $43.2 billion to $43.6 billion, which compares to prior guidance of $43.1 billion to $43.6 billion
• Enterprise comparable sales growth of 1.0% to 2.0%, which compares to prior guidance of 0.7% to 1.7%
• Enterprise non-GAAP operating income rate slightly up from the 4.6% rate in FY19, which compares to prior guidance of flat to slightly up from the 4.6% rate in FY19²
• Non-GAAP effective income tax rate of approximately 23.3%, which compares to prior guidance of approximately 24.0%²
• Non-GAAP diluted EPS of $5.81 to $5.91, which compares to prior guidance of $5.60 to $5.75²

Best Buy is providing the following Q4 FY20 financial outlook:

• Enterprise revenue of $14.75 billion to $15.15 billion
• Enterprise comparable sales growth of 0.5% to 3.0%
• Non-GAAP effective income tax rateof approximately 24.0%²
• Diluted weighted average share count of approximately 261 million
• Non-GAAP diluted EPS of $2.65 to $2.75²

Domestic Segment Q3 FY20 Results

Domestic Revenue

Domestic revenue of $8.96 billion increased 2.4% versus last year. The increase was driven by comparable sales growth of 2.0% and revenue from GreatCall, Inc. (“GreatCall”), which was acquired in Q3 FY19, partially offset by the loss of revenue from store closures in the past year.

The largest comparable sales growth drivers were appliances, headphones, tablets, services and computing. These drivers were partially offset by declines in the gaming and home theater categories.

Domestic online revenue of $1.40 billion increased 15.0% on a comparable basis primarily due to higher average order values. As a percentage of total Domestic revenue, online revenue increased approximately 180 basis points to 15.6% versus 13.8% last year.

Domestic Gross Profit Rate

Domestic gross profit rate was 24.3% versus 24.4% last year. The gross profit rate decrease of approximately 10 basis points was primarily driven by mix into lower-margin products, partially offset by the impact of GreatCall’s higher gross profit rate.

Domestic Selling, General and Administrative Expenses (“SG&A”)

Domestic GAAP SG&A was $1.80 billion, or 20.1% of revenue, versus $1.82 billion, or 20.8% of revenue, last year. On a non-GAAP basis, SG&A was $1.78 billion, or 19.9% of revenue, versus $1.81 billion, or 20.6% of revenue, last year. Both GAAP and non-GAAP SG&A decreased primarily due to lower incentive compensation expense and strong expense management, partially offset by GreatCall operating expenses.

International Segment Q3 FY20 Results

International Revenue

International revenue of $800 million decreased 4.1% versus last year. This decrease was primarily driven by a comparable sales decline of 1.9%, which was driven by Canada, and the impact of approximately 170 basis points of negative foreign currency exchange rates.

International Gross Profit Rate

International gross profit rate was 22.5% versus 22.2% last year. The gross profit rate increase of approximately 30 basis points was primarily due to Canada, which was largely driven by a higher margin rate within the services category.

International SG&A

International SG&A was $173 million, or 21.6% of revenue, versus $178 million, or 21.3% of revenue, last year. SG&A decreased primarily due to the favorable impact of foreign exchange rates.

Dividends and Share Repurchases

In Q3 FY20, the company returned a total of $499 million to shareholders through share repurchases of $368 million and dividends of $131 million. On a year-to-date basis, the company has returned a total of $1.09 billion to shareholders through share repurchases of $696 million and dividends of $398 million. The company expects to spend near the high end of its previously communicated range of $750 million to $1 billion of share repurchases in FY20.

Income Taxes

The Q3 FY20 effective tax rate was 24.8% versus 16.1% last year. On a non-GAAP basis, the effective tax rate was 24.8% versus 22.7% last year. The lower Q3 FY19 GAAP effective tax rate included a benefit of approximately 690 basis points associated with the enactment of the Tax Cuts and Jobs Act of 2017. In addition, the non-GAAP effective tax rate increase was primarily driven by the favorable resolution of certain tax matters in the prior year.

Conference Call

Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on November 26, 2019. A webcast of the call is expected to be available at www.investors.bestbuy.com, both live and after the call.

Notes:

(1) In Q1 FY20, the company refined its methodology for calculating comparable sales. It now reflects certain revenue streams previously excluded from the comparable sales calculation, such as credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. The impact of adopting these changes is immaterial to all periods presented, and therefore prior-period comparable sales disclosures have not been restated.

(2) A reconciliation of the projected non-GAAP operating income, non-GAAP effective income tax rate and non-GAAP diluted EPS, which are forward-looking non-GAAP financial measures, to the most directly comparable GAAP financial measures, is not provided because the company is unable to provide such reconciliation without unreasonable effort. The inability to provide a reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. These GAAP measures may include the impact of such items as restructuring charges; goodwill impairments; gains and losses on investments; intangible asset amortization; certain acquisition-related costs; and the tax effect of all such items. Historically, the company has excluded these items from non-GAAP financial measures. The company currently expects to continue to exclude these items in future disclosures of non-GAAP financial measures and may also exclude other items that may arise (collectively, “non-GAAP adjustments”). The decisions and events that typically lead to the recognition of non-GAAP adjustments, such as a decision to exit part of the business or reaching settlement of a legal dispute, are inherently unpredictable as to if or when they may occur. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results.

Forward-Looking and Cautionary Statements:

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that reflect management’s current views and estimates regarding future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment and other events. You can identify these statements by the fact that they use words such as “anticipate,” “believe,” “assume,” “estimate,” “expect,” “intend,” “foresee,” “project,” “guidance,” “plan,” “outlook,” and other words and terms of similar meaning. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: competition (including from multi-channel retailers, e-commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers), our expansion strategies, our focus on services as a strategic priority, our reliance on key vendors and mobile network carriers, our ability to attract and retain qualified employees, changes in market compensation rates, risks arising from statutory, regulatory and legal developments, macroeconomic pressures in the markets in which we operate, failure to effectively manage our costs, our reliance on our information technology systems, our ability to prevent or effectively respond to a privacy or security breach, our ability to effectively manage strategic ventures, alliances or acquisitions, our dependence on cash flows and net earnings generated during the fourth fiscal quarter, susceptibility of our products to technological advancements, product life cycle preferences and changes in consumer preferences, economic or regulatory developments that might affect our ability to provide attractive promotional financing, interruptions and other supply chain issues, catastrophic events, our ability to maintain positive brand perception and recognition, product safety and quality concerns, changes to labor or employment laws or regulations, our ability to effectively manage our real estate portfolio, constraints in the capital markets or our vendor credit terms, changes in our credit ratings, any material disruption in our relationship with or the services of third-party vendors, risks related to our exclusive brand products and risks associated with vendors that source products outside of the U.S., including trade restrictions or changes in the costs of imports (including existing or new tariffs or duties and changes in the amount of any such tariffs or duties) and risks arising from our international activities.

A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission (“SEC”), including, but not limited to, Best Buy’s Annual Report on Form 10-K filed with the SEC on March 28, 2019. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.

BEST BUY CO., INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

($ in millions, except per share amounts)

(Unaudited and subject to reclassification)

The following information provides reconciliations of the most comparable financial measures presented in accordance with accounting principles generally accepted in the U.S. (GAAP financial measures) to presented non-GAAP financial measures. The company believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, internal management reporting also includes non-GAAP financial measures. Generally, presented non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, gains and losses on 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 the company believes this provides greater clarity to management and investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, the GAAP financial measures presented in this earnings release and the company’s financial statements and other publicly filed reports. Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.