UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 2, 20201, 2021
OR
| 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: 1-9595
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota | 41-0907483 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
7601 Penn Avenue South | ||
Richfield, Minnesota | 55423 | |
(Address of principal executive offices) | (Zip Code) |
(612) 291-1000
(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:
Title of each class | Trading Symbol | Name of exchange on which registered |
Common Stock, $0.10 par value per share | BBY | New York Stock Exchange |
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.
Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | |
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 258,309,045250,472,993 shares of common stock outstanding as of May 22, 2020.June 2, 2021.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED MAY 2, 2020May 1, 2021
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
$ in millions, except per share amounts (unaudited)
May 2, 2020 | February 1, 2020 | May 4, 2019 | May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||||||
Assets | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 3,919 | $ | 2,229 | $ | 1,561 | $ | 4,278 | $ | 5,494 | $ | 3,919 | ||||||||||
Short-term investments | 60 | - | - | |||||||||||||||||||
Receivables, net | 749 | 1,149 | 833 | 850 | 1,061 | 749 | ||||||||||||||||
Merchandise inventories | 3,993 | 5,174 | 5,195 | 5,721 | 5,612 | 3,993 | ||||||||||||||||
Other current assets | 335 | 305 | 425 | 359 | 373 | 335 | ||||||||||||||||
Total current assets | 8,996 | 8,857 | 8,014 | 11,268 | 12,540 | 8,996 | ||||||||||||||||
Property and equipment, net | 2,291 | 2,328 | 2,334 | 2,233 | 2,260 | 2,291 | ||||||||||||||||
Operating lease assets | 2,631 | 2,709 | 2,708 | 2,563 | 2,612 | 2,631 | ||||||||||||||||
Goodwill | 986 | 984 | 915 | 986 | 986 | 986 | ||||||||||||||||
Other assets | 701 | 713 | 579 | 655 | 669 | 701 | ||||||||||||||||
Total assets | $ | 15,605 | $ | 15,591 | $ | 14,550 | $ | 17,705 | $ | 19,067 | $ | 15,605 | ||||||||||
Liabilities and equity | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||
Accounts payable | $ | 4,428 | $ | 5,288 | $ | 4,718 | $ | 6,360 | $ | 6,979 | $ | 4,428 | ||||||||||
Unredeemed gift card liabilities | 257 | 281 | 265 | 297 | 317 | 257 | ||||||||||||||||
Deferred revenue | 531 | 501 | 409 | 734 | 711 | 531 | ||||||||||||||||
Accrued compensation and related expenses | 213 | 410 | 275 | 493 | 725 | 213 | ||||||||||||||||
Accrued liabilities | 769 | 906 | 851 | 978 | 972 | 769 | ||||||||||||||||
Short-term debt | 1,250 | - | - | 110 | 110 | 1,250 | ||||||||||||||||
Current portion of operating lease liabilities | 683 | 660 | 639 | 654 | 693 | 683 | ||||||||||||||||
Current portion of long-term debt | 673 | 14 | 14 | 15 | 14 | 673 | ||||||||||||||||
Total current liabilities | 8,804 | 8,060 | 7,171 | 9,641 | 10,521 | 8,804 | ||||||||||||||||
Long-term liabilities | 694 | 657 | 659 | 694 | 694 | 694 | ||||||||||||||||
Long-term operating lease liabilities | 2,076 | 2,138 | 2,173 | 1,983 | 2,012 | 2,076 | ||||||||||||||||
Long-term debt | 621 | 1,257 | 1,193 | 1,229 | 1,253 | 621 | ||||||||||||||||
Contingencies (Note 10) |
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Contingencies (Note 11) |
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Equity | ||||||||||||||||||||||
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - NaN | - | - | - | |||||||||||||||||||
Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 257 million, 256 million and 267 million shares, respectively | 26 | 26 | 27 | |||||||||||||||||||
Preferred stock, $1.00 par value: Authorized – 400,000 shares; Issued and outstanding – NaN | - | - | - | |||||||||||||||||||
Common stock, $0.10 par value: Authorized – 1.0 billion shares; Issued and outstanding – 250.4 million, 256.9 million and 257.6 million shares, respectively | 25 | 26 | 26 | |||||||||||||||||||
Additional paid-in capital | 15 | - | - | 33 | - | 15 | ||||||||||||||||
Retained earnings | 3,126 | 3,158 | 3,038 | 3,762 | 4,233 | 3,126 | ||||||||||||||||
Accumulated other comprehensive income | 243 | 295 | 289 | 338 | 328 | 243 | ||||||||||||||||
Total equity | 3,410 | 3,479 | 3,354 | 4,158 | 4,587 | 3,410 | ||||||||||||||||
Total liabilities and equity | $ | 15,605 | $ | 15,591 | $ | 14,550 | $ | 17,705 | $ | 19,067 | $ | 15,605 |
NOTE: The Consolidated Balance Sheet as of February 1, 2020,January 30, 2021, 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)
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Revenue | $ | 8,562 | $ | 9,142 | $ | 11,637 | $ | 8,562 | ||||||
Cost of sales | 6,597 | 6,973 | 8,922 | 6,597 | ||||||||||
Gross profit | 1,965 | 2,169 | 2,715 | 1,965 | ||||||||||
Selling, general and administrative expenses | 1,735 | 1,835 | 1,988 | 1,735 | ||||||||||
Restructuring charges | 1 | - | (42) | 1 | ||||||||||
Operating income | 229 | 334 | 769 | 229 | ||||||||||
Other income (expense): | ||||||||||||||
Investment income and other | 6 | 14 | 3 | 6 | ||||||||||
Interest expense | (17) | (18) | (6) | (17) | ||||||||||
Earnings before income tax expense | 218 | 330 | ||||||||||||
Earnings before income tax expense and equity in income of affiliates | 766 | 218 | ||||||||||||
Income tax expense | 59 | 65 | 172 | 59 | ||||||||||
Equity in income of affiliates | 1 | - | ||||||||||||
Net earnings | $ | 159 | $ | 265 | $ | 595 | $ | 159 | ||||||
Basic earnings per share | $ | 0.61 | $ | 0.99 | $ | 2.35 | $ | 0.61 | ||||||
Diluted earnings per share | $ | 0.61 | $ | 0.98 | $ | 2.32 | $ | 0.61 | ||||||
Weighted-average common shares outstanding | ||||||||||||||
Weighted-average common shares outstanding: | ||||||||||||||
Basic | 258.3 | 267.6 | 253.1 | 258.3 | ||||||||||
Diluted | 260.4 | 271.5 | 256.7 | 260.4 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Income
$ in millions (unaudited)
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Net earnings | $ | 159 | $ | 265 | $ | 595 | $ | 159 | ||||||
Foreign currency translation adjustments, net of tax | (52) | (5) | 10 | (52) | ||||||||||
Comprehensive income | $ | 107 | $ | 260 | $ | 605 | $ | 107 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
$ in millions (unaudited)
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Operating activities | ||||||||||||||
Net earnings | $ | 159 | $ | 265 | $ | 595 | $ | 159 | ||||||
Adjustments to reconcile net earnings to total cash provided by operating activities: | Adjustments to reconcile net earnings to total cash provided by operating activities: | Adjustments to reconcile net earnings to total cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 207 | 200 | 216 | 207 | ||||||||||
Restructuring charges | (42) | 1 | ||||||||||||
Stock-based compensation | 15 | 36 | 37 | 15 | ||||||||||
Deferred income taxes | 15 | 13 | ||||||||||||
Other, net | 6 | 1 | 6 | 20 | ||||||||||
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | ||||||||||||
Receivables | 383 | 182 | 210 | 383 | ||||||||||
Merchandise inventories | 1,136 | 207 | (90) | 1,136 | ||||||||||
Other assets | (12) | (14) | (6) | (12) | ||||||||||
Accounts payable | (816) | (519) | (630) | (816) | ||||||||||
Income taxes | 31 | 10 | 113 | 31 | ||||||||||
Other liabilities | (297) | (379) | (304) | (297) | ||||||||||
Total cash provided by operating activities | 827 | 2 | 105 | 827 | ||||||||||
Investing activities | ||||||||||||||
Additions to property and equipment | (178) | (193) | (161) | (178) | ||||||||||
Purchases of investments | (90) | (5) | ||||||||||||
Other, net | (1) | 1 | (2) | 4 | ||||||||||
Total cash used in investing activities | (179) | (192) | (253) | (179) | ||||||||||
Financing activities | ||||||||||||||
Repurchase of common stock | (62) | (98) | (927) | (62) | ||||||||||
Dividends paid | (141) | (134) | (175) | (141) | ||||||||||
Borrowings of debt | 1,250 | - | - | 1,250 | ||||||||||
Other, net | 2 | 6 | 13 | 2 | ||||||||||
Total cash provided by (used in) financing activities | 1,049 | (226) | (1,089) | 1,049 | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | (18) | (1) | 5 | (18) | ||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | 1,679 | (417) | (1,232) | 1,679 | ||||||||||
Cash, cash equivalents and restricted cash at beginning of period | 2,355 | 2,184 | 5,625 | 2,355 | ||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 4,034 | $ | 1,767 | $ | 4,393 | $ | 4,034 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Changes in Shareholders' Equity
$ and shares in millions, except per share amounts (unaudited)
Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||||
Balances at January 30, 2021 | 256.9 | $ | 26 | $ | - | $ | 4,233 | $ | 328 | $ | 4,587 | |||||||||||||||||||||||||||||||||||
Net earnings, three months ended May 1, 2021 | - | - | - | 595 | - | 595 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | 10 | 10 | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 37 | - | - | 37 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 1.9 | - | 19 | - | - | 19 | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends, $0.70 per share | - | - | 3 | (178) | - | (175) | ||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (8.4) | (1) | (26) | (888) | - | (915) | ||||||||||||||||||||||||||||||||||||||||
Balances at May 1, 2021 | 250.4 | $ | 25 | $ | 33 | $ | 3,762 | $ | 338 | $ | 4,158 | |||||||||||||||||||||||||||||||||||
Balances at February 1, 2020 | 256 | $ | 26 | $ | - | $ | 3,158 | $ | 295 | $ | 3,479 | 256.5 | $ | 26 | $ | - | $ | 3,158 | $ | 295 | $ | 3,479 | ||||||||||||||||||||||||
Net earnings, three months ended May 2, 2020 | - | - | - | 159 | - | 159 | - | - | - | 159 | - | 159 | ||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | (52) | (52) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | (52) | (52) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 15 | - | - | 15 | - | - | 15 | - | - | 15 | ||||||||||||||||||||||||||||||||||
Issuance of common stock | 2 | - | 6 | - | - | 6 | 1.7 | - | 6 | - | - | 6 | ||||||||||||||||||||||||||||||||||
Common stock dividends, $0.55 per share | - | - | 2 | (143) | - | (141) | - | - | 2 | (143) | - | (141) | ||||||||||||||||||||||||||||||||||
Repurchase of common stock | (1) | - | (8) | (48) | - | (56) | (0.6) | - | (8) | (48) | - | (56) | ||||||||||||||||||||||||||||||||||
Balances at May 2, 2020 | 257 | $ | 26 | $ | 15 | $ | 3,126 | $ | 243 | $ | 3,410 | 257.6 | $ | 26 | $ | 15 | $ | 3,126 | $ | 243 | $ | 3,410 | ||||||||||||||||||||||||
Balances at February 2, 2019 | 266 | $ | 27 | $ | - | $ | 2,985 | $ | 294 | $ | 3,306 | |||||||||||||||||||||||||||||||||||
Adoption of ASU 2016-02 | - | - | - | (19) | - | (19) | ||||||||||||||||||||||||||||||||||||||||
Net earnings, three months ended May 4, 2019 | - | - | - | 265 | - | 265 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | (5) | (5) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 36 | - | - | 36 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 2 | - | 11 | - | - | 11 | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends, $0.50 per share | - | - | 2 | (136) | - | (134) | ||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (1) | - | (49) | (57) | - | (106) | ||||||||||||||||||||||||||||||||||||||||
Balances at May 4, 2019 | 267 | $ | 27 | $ | - | $ | 3,038 | $ | 289 | $ | 3,354 |
See Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
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 United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.
During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico. All stores in Mexico were closed as of the end of the first quarter of fiscal 2022 and our International segment will be comprised of operations in Canada going forward. Refer to Note 2, Restructuring, for additional information.
In March 2020 the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. Except where otherwise directed by state and local authorities, on March 22, 2020, we made the decision for the health and safety of our customers and employees to move our stores to a contactless, curbside-only operating model. We also temporarily suspended in-home delivery, repair and consultation services from March 22, 2020, through April 27, 2020, after implementing new safety guidelines. As of June 22, 2020, almost all of our stores were open for shopping and remained open through the first quarter of fiscal 2022. We continue to offer contactless curbside pick-up and in-store consultations for customers who prefer to shop that way.
Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. 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 1, 2020.January 30, 2021. The first three months of fiscal 20212022 and fiscal 20202021 included 13 weeks.
In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements. No such events were identified for the reported periods.
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from May 2, 2020,1, 2021, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. NoOther than the refinancing of our $1.25 billion five year senior unsecured revolving credit facility described in Note 5, Debt, no such events were identified for the reported periods.
COVID-19Total Cash, Cash Equivalents and Restricted Cash
In March 2020,Cash, cash equivalents and restricted cash reported on our Condensed Consolidated Balance Sheets is reconciled to the World Health Organization declared the outbreaktotal shown on our Condensed Consolidated Statements of novel coronavirus disease ("COVID-19")Cash Flows as a pandemic. Except where otherwise directed by statefollows ($ in millions):
May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||
Cash and cash equivalents | $ | 4,278 | $ | 5,494 | $ | 3,919 | |||||
Restricted cash included in Other current assets | 115 | 131 | 115 | ||||||||
Total cash, cash equivalents and restricted cash | $ | 4,393 | $ | 5,625 | $ | 4,034 |
Amounts included in restricted cash are primarily restricted to use for workers’ compensation and local authorities, on March 22, 2020, we made the decision for the health and safety of our customers and employees to move our stores to a contactless, curbside-only operating model. We also suspended in-home delivery, repair and consultation services on March 22, 2020, and resumed these offerings on April 27, 2020, after implementing new safety guidelines.general liability insurance claims.
In light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of our $1.25 billion five year senior unsecured revolving credit facility on March 19, 2020. See Note 4, Debt, for additional information. We also suspended all share repurchases.2. Restructuring
Since the pandemic had a significant impactRestructuring charges were as follows ($ in millions):
Three Months Ended | ||||||||
May 1, 2021 | May 2, 2020 | |||||||
Mexico Exit and Strategic Realignment(1) | $ | (48) | $ | - | ||||
Fiscal 2020 U.S. Retail Operating Model Changes | - | 1 | ||||||
Total | $ | (48) | $ | 1 |
(1)Includes ($6) million related to inventory markdowns recorded in Cost of sales on our store operations, we concluded this was a triggering event to review for potential impairmentsCondensed Consolidated Statements of our store assets. As a result of this analysis, we recorded an immaterial asset impairment charge for a small number of stores within Selling, general and administrative (“SG&A”) expensesEarnings for the three months ended May 2, 2020.
We have goodwill in 2 reporting units – Best Buy Domestic and Best Buy Health – with carrying values as of May 2, 2020, of $444 million and $542 million, respectively. We test goodwill for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. Our most recent goodwill impairment analysis, completed during the fourth quarter of fiscal 2020, indicated an excess of fair value over carrying value for both reporting units. As a result of the impact of COVID-19 on our business, we completed a review for potential impairments of our goodwill in the first quarter of fiscal1, 2021. As a result of this analysis, we concluded that 0 impairment had occurred.
On March 27, 2020, in response to the COVID-19 pandemic, the U.S. Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. As a result of the CARES Act, we intend to defer qualified payroll taxes and claim the employee retention credit, which will be treated as a government subsidy to offset related operating expenses. Based on our preliminary analysis of the CARES Act, we reduced our SG&A expenses for the three months ended May 2, 2020, by $69 million for employee retention credits. We will continue to assess our treatment of the CARES Act to the extent additional guidance and regulations are issued.
The COVID-19 pandemic remains a rapidly evolving situation. The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration and spread of the outbreak within the markets in which we operate and the related impact on consumer confidence and spending, all of which are highly uncertain.
Adopted Accounting Pronouncements
Mexico Exit and Strategic Realignment
The COVID-19 pandemic has had significant impacts on, for example, the economic conditions of the markets in which we operate, customer shopping behaviors, the role of technology in peoples’ lives and the way we meet their needs. In light of these changes, we are adapting our Building the New Blue Strategy to ensure that our focus and resources are closely aligned with the opportunities we see in front of us. As a result, in the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico and began taking other actions to more broadly align our organizational structure in support of our strategy.
Charges incurred in our International segment primarily related to our decision to exit our operations in Mexico. As of May 1, 2021, all stores are closed and we do not expect to incur material future restructuring charges related to the exit.
Charges incurred in our Domestic segment primarily related to actions taken to align our organizational structure in support of our strategy. During the first quarter of fiscal 2021,2022, we prospectively adopted the following Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board, all of which had an immaterial impact on our results of operations, cash flowsrecorded a $44 million credit primarily due to a reduction in expected termination benefits resulting from adjustments to previously planned organizational changes and financial position.higher-than-expected employee retention.
ASU 2016-13, MeasurementAs we continue to evolve our Building the New Blue Strategy, it is possible that we will incur material future restructuring costs, but we are unable to forecast the timing and magnitude of Credit Losses on Financial Instruments
ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820)
ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contractsuch costs.
Total Cash, Cash EquivalentsAll charges incurred related to the exit from Mexico and Restricted Cashstrategic realignment described above were from continuing operations and were presented as follows ($ in millions):
Statement of | Three Months Ended May 1, 2021 | |||||||||||||||
Earnings Location | Domestic | International | Total | |||||||||||||
Inventory markdowns | Cost of sales | $ | - | $ | (6) | $ | (6) | |||||||||
Asset impairments | Restructuring charges | - | 3 | 3 | ||||||||||||
Termination benefits | Restructuring charges | (44) | (1) | (45) | ||||||||||||
$ | (44) | $ | (4) | $ | (48) |
Statement of | Cumulative Amount as of May 1, 2021 | |||||||||||||||
Earnings Location | Domestic | International | Total | |||||||||||||
Inventory markdowns | Cost of sales | $ | - | $ | 17 | $ | 17 | |||||||||
Asset impairments(1) | Restructuring charges | 10 | 60 | 70 | ||||||||||||
Termination benefits | Restructuring charges | 79 | 19 | 98 | ||||||||||||
Currency translation adjustment | Restructuring charges | - | 39 | 39 | ||||||||||||
Other(2) | Restructuring charges | - | 5 | 5 | ||||||||||||
$ | 89 | $ | 140 | $ | 229 |
(1)Remaining net carrying value approximates fair value and was immaterial as of May 1, 2021.
(2)Other charges are primarily comprised of contract termination costs.
The reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance SheetsRestructuring accrual activity related to the totals shown within the Condensed Consolidated Statements of Cash Flowsexit from Mexico and strategic realignment described above was as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||
Cash and cash equivalents | $ | 3,919 | $ | 2,229 | $ | 1,561 | |||||
Restricted cash included in Other current assets | 115 | 126 | 206 | ||||||||
Total cash, cash equivalents and restricted cash | $ | 4,034 | $ | 2,355 | $ | 1,767 |
Termination Benefits | |||||||||||
Domestic | International | Total | |||||||||
Balances at January 30, 2021 | $ | 104 | $ | 20 | $ | 124 | |||||
Cash payments | (39) | (12) | (51) | ||||||||
Adjustments(1) | (44) | (1) | (45) | ||||||||
Changes in foreign currency exchange rates | - | (1) | (1) | ||||||||
Balances at May 1, 2021 | $ | 21 | $ | 6 | $ | 27 |
(1)Represents adjustments to previously planned organizational changes in our Domestic segment and higher-than-expected employee retention in both our Domestic and International segments.
Amounts included in restricted cash are pledged as collateral or restricted to use for workers’ compensation and general liability insurance claims.Fiscal 2020 U.S. Retail Operating Model Changes
2.In the second quarter of fiscal 2020, we made changes primarily related to our U.S. retail operating model to increase organization effectiveness and create a more seamless customer experience across all channels. All charges incurred were related to termination benefits within our Domestic segment and were presented within Restructuring charges from continuing operations on our Condensed Consolidated Statements of Earnings. As of May 1, 2021, the cumulative amount of charges incurred was $41 million and 0 material liability remains.
3. Fair Value Measurements
Fair value measurements are reported in one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
Recurring Fair Value Measurements
Financial assets and liabilities accounted for at fair value were as follows ($ in millions):
Fair Value at | Fair Value at | |||||||||||||||||||||||||||||||||||
Balance Sheet Location(1) | Fair Value Hierarchy | May 2, 2020 | February 1, 2020 | May 4, 2019 | Balance Sheet Location(1) | Fair Value Hierarchy | May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Money market funds(2) | Cash and cash equivalents | Level 1 | $ | 1,153 | $ | 524 | $ | 18 | Cash and cash equivalents | Level 1 | $ | 1,063 | $ | 1,575 | $ | 1,153 | ||||||||||||||||||||
Commercial paper(2) | Cash and cash equivalents | Level 2 | - | 75 | - | |||||||||||||||||||||||||||||||
Time deposits(3) | Cash and cash equivalents | Level 2 | 465 | 185 | 60 | Cash and cash equivalents | Level 2 | 639 | 865 | 465 | ||||||||||||||||||||||||||
Money market funds(2) | Other current assets | Level 1 | 6 | 16 | 93 | |||||||||||||||||||||||||||||||
Time deposits(3) | Other current assets | Level 2 | 101 | 101 | 102 | Short-term investments | Level 2 | 60 | - | - | ||||||||||||||||||||||||||
Foreign currency derivative instruments(4) | Other current assets | Level 2 | 6 | 1 | - | |||||||||||||||||||||||||||||||
Time deposits(3) | Other current assets | Level 2 | 65 | 65 | 101 | |||||||||||||||||||||||||||||||
Interest rate swap derivative instruments(4) | Other current assets | Level 2 | - | - | 11 | |||||||||||||||||||||||||||||||
Interest rate swap derivative instruments(4) | Other current assets | Level 2 | 11 | - | - | Other assets | Level 2 | 65 | 91 | 107 | ||||||||||||||||||||||||||
Marketable securities that fund deferred compensation(5) | Other assets | Level 1 | 45 | 48 | 46 | Marketable securities that fund deferred compensation(5) | Other assets | Level 1 | 53 | 53 | 45 | |||||||||||||||||||||||||
Interest rate swap derivative instruments(4) | Other assets | Level 2 | 107 | 89 | 28 | |||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||
Interest rate swap derivative instruments(4) | Long-term liabilities | Level 2 | - | - | 6 |
(1)Balance sheet location is determined by the length to maturity from the current period-end date.
(2)Valued at quoted market prices.prices in active markets for same (Level 1) or similar (Level 2) instruments.
(3)Valued at face value plus accrued interest, which approximates fair value.
(4)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 7, Derivative Instruments, for additional information.
(5)Valued using select mutual fund performance that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.
Fair Value of Financial Instruments
The fair values of cash, receivables, accounts payable short-term debt and other payables approximated their carrying values because of the short-term nature of these instruments. With the exception of short-term debt, ifIf these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy; short-term debt would be classified as Level 2.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):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||||||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||||
Long-term debt(1) | $ | 1,315 | $ | 1,268 | $ | 1,322 | $ | 1,239 | $ | 1,213 | $ | 1,173 |
May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||||
Long-term debt(1) | $ | 1,260 | $ | 1,215 | $ | 1,331 | $ | 1,241 | $ | 1,315 | $ | 1,268 |
(1)Excludes debt discounts, issuance costs and finance lease obligations.
3.4. Goodwill and Intangible Assets
See NoteGoodwill
Balances related to goodwill remained unchanged as of May 1, Basis of Presentation, for impairment considerations for the three months ended2021, January 30, 2021, and May 2, 2020, due to COVID-19. as follows ($ in millions):
Gross Carrying Amount | Cumulative Impairment | ||||||
Domestic | $ | 1,053 | $ | (67) | |||
International | 608 | (608) | |||||
Total | $ | 1,661 | $ | (675) |
NaN impairment charges were recorded during the fiscal periods presented.
Goodwill
Balances related to goodwill were as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||||||||||||||
Gross Carrying | Cumulative | Gross Carrying | Cumulative | Gross Carrying | Cumulative | ||||||||||||||||||
Domestic | $ | 1,053 | $ | (67) | $ | 1,051 | $ | (67) | $ | 982 | $ | (67) | |||||||||||
International | 608 | (608) | 608 | (608) | 608 | (608) | |||||||||||||||||
Total | $ | 1,661 | $ | (675) | $ | 1,659 | $ | (675) | $ | 1,590 | $ | (675) |
Indefinite-Lived Intangible Assets
DuringIn the three months ended May 2, 2020,first quarter of fiscal 2021, we made the decision to phase out our Pacific Sales tradename in our U.S. Best Buy stores over the coming years. Consequently, we reclassified the tradename from an indefinite-lived intangible asset to a definite-lived intangible asset and have 0 indefinite-lived intangible assets remaining asremaining.
Definite-Lived Intangible Assets
We have definite-lived intangible assets which are recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | Weighted-Average | May 1, 2021 | January 30, 2021 | May 2, 2020 | Weighted-Average | |||||||||||||||||||||||||||||||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | Useful Life Remaining as of May 2, 2020 (in years) | Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | Useful Life Remaining as of May 1, 2021 (in years) | |||||||||||||||||||||||||||||||||||||||||
Customer relationships | $ | 339 | $ | 83 | $ | 339 | $ | 70 | $ | 258 | $ | 29 | 6.9 | $ | 339 | $ | 138 | $ | 339 | $ | 124 | $ | 339 | $ | 83 | 6.5 | ||||||||||||||||||||||||||||
Tradenames | 81 | 13 | 63 | 10 | 63 | 5 | 5.5 | 81 | 27 | 81 | 24 | 81 | 13 | 4.7 | ||||||||||||||||||||||||||||||||||||||||
Developed technology | 56 | 18 | 56 | 15 | 52 | 6 | 3.3 | 56 | 30 | 56 | 27 | 56 | 18 | 2.3 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 476 | $ | 114 | $ | 458 | $ | 95 | $ | 373 | $ | 40 | 6.3 | $ | 476 | $ | 195 | $ | 476 | $ | 175 | $ | 476 | $ | 114 | 5.8 |
Amortization expense was as follows ($ in millions):
Three Months Ended | |||||||||||||
Statement of Earnings Location | May 2, 2020 | May 4, 2019 | |||||||||||
Amortization expense | SG&A | $ | 19 | $ | 17 |
Statement of | Three Months Ended | ||||||||||||
Earnings Location | May 1, 2021 | May 2, 2020 | |||||||||||
Amortization expense | SG&A | $ | 20 | $ | 19 |
Amortization expense expected to be recognized in future periods is as follows ($ in millions):
Amortization Expense | |||||||||||||||||||||||||||
Remainder of fiscal | $ |
| |||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||
Fiscal 2023 | 79 | ||||||||||||||||||||||||||
Fiscal 2024 | 54 | ||||||||||||||||||||||||||
Fiscal 2025 | 16 | ||||||||||||||||||||||||||
Fiscal 2026 | 16 | ||||||||||||||||||||||||||
Fiscal 2027 | 13 | ||||||||||||||||||||||||||
Thereafter |
|
4.5. Debt
Short-Term Debt
U.S. Revolving Credit Facility
We haveSubsequent to the first quarter of fiscal 2022, on May 18, 2021, we entered into a $1.25 billion five year senior unsecured revolving credit facility agreement (the “Facility”“Five-Year Facility Agreement”) with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the “Previous Facility”) with a syndicate of banks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021. The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in May 2026.
The interest rate under the Five-Year Facility Agreement is variable and is determined at our option as: (i) the sum of (a) the greatest of (1) JPMorgan Chase Bank, N.A.’s prime rate, (2) the greater of the federal funds rate and the overnight bank funding rate plus, in each case, 0.5%, and (3) the one-month London Interbank Offered Rate (“LIBOR”), subject to certain adjustments plus 1%, and (b) a variable margin rate (the “ABR Margin”); or (ii) the LIBOR plus a variable margin rate (the “LIBOR Margin”). In addition, a facility fee is assessed on the commitment amount. The ABR Margin, LIBOR Margin and the facility fee are based upon our current senior unsecured debt rating. Under the Five-Year Facility Agreement, the ABR Margin ranges from 0.00% to 0.225%, the LIBOR Margin ranges from 0.805% to 1.225%, and the facility fee ranges from 0.07% to 0.15%. Additionally, the Five-Year Facility Agreement includes fallback language related to the transition from LIBOR to alternative rates. The Five-Year Facility Agreement is guaranteed by certain of our subsidiaries and contains customary affirmative and negative covenants. Among other things, these covenants restrict our and certain of our subsidiaries’ abilities to incur liens on certain assets; make material changes in corporate structure or the nature of our business; dispose of material assets; engage in certain mergers, consolidations and other fundamental changes; or engage in certain transactions with affiliates.
The Five-Year Facility Agreement also contains covenants that require us to maintain a maximum cash flow leverage ratio. The Five-Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.
In the first quarter of fiscal 2021, in light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a seven-dayshort-term draw on the full amount of theour Previous Facility on March 19, 2020, and rolled this into a three-month draw on March 26, 2020. Thewhich remained outstanding until July 27, 2020, when the Previous Facility remained fully drawn as of May 2, 2020, at an interest rate of three-month LIBOR plus a margin rate of 1.015%. was repaid in full. There were 0 borrowings outstanding under the Previous Facility as of FebruaryMay 1, 2020, or May 4, 2019.2021, and January 30, 2021.
Bank Advance
Information regardingIn conjunction with a solar energy investment, we were advanced $110 million due October 31, 2021. The advance is recorded within Short-term debt on our short-term debt for the three months ended May 2, 2020, was as follows ($ in millions):Condensed Consolidated Balance Sheets and bears interest at 0.14%.
Average Amount Outstanding | Maximum Amount Outstanding | Weighted Average Interest Rate | ||||||||||
Short-term debt | $ | 618 | $ | 1,250 | 2.3 | % |
Long-Term Debt
Long-term debt consisted of the following ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||||||||||||||||||||||||
Notes, 5.50%, due March 15, 2021 | Notes, 5.50%, due March 15, 2021 | $ | 650 | $ | 650 | $ | 650 | Notes, 5.50%, due March 15, 2021 | $ | - | $ | - | $ | 650 | ||||||||||||||||||||||||||
Notes, 4.45%, due October 1, 2028 | Notes, 4.45%, due October 1, 2028 | 500 | 500 | 500 | Notes, 4.45%, due October 1, 2028 | 500 | 500 | 500 | ||||||||||||||||||||||||||||||||
Notes, 1.95%, due October 1, 2030 | Notes, 1.95%, due October 1, 2030 | 650 | 650 | - | ||||||||||||||||||||||||||||||||||||
Interest rate swap valuation adjustments | Interest rate swap valuation adjustments | 118 | 89 | 23 | Interest rate swap valuation adjustments | 65 | 91 | 118 | ||||||||||||||||||||||||||||||||
Subtotal | Subtotal | 1,268 | 1,239 | 1,173 | Subtotal | 1,215 | 1,241 | 1,268 | ||||||||||||||||||||||||||||||||
Debt discounts and issuance costs | Debt discounts and issuance costs | (8) | (6) | (7) | Debt discounts and issuance costs | (12) | (12) | (8) | ||||||||||||||||||||||||||||||||
Finance lease obligations | Finance lease obligations | 34 | 38 | 41 | Finance lease obligations | 41 | 38 | 34 | ||||||||||||||||||||||||||||||||
Total long-term debt | Total long-term debt | 1,294 | 1,271 | 1,207 | Total long-term debt | 1,244 | 1,267 | 1,294 | ||||||||||||||||||||||||||||||||
Less current portion | Less current portion | 673 | 14 | 14 | Less current portion | 15 | 14 | 673 | ||||||||||||||||||||||||||||||||
Total long-term debt, less current portion | Total long-term debt, less current portion | $ | 621 | $ | 1,257 | $ | 1,193 | Total long-term debt, less current portion | $ | 1,229 | $ | 1,253 | $ | 621 |
See Note 2,3, Fair Value Measurements, for the fair value of long-term debt.
5.6. Revenue
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 contract liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards, services not yet completed and options that provide a material right to customers, such as our customer loyalty programs. Contract balances were as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||||||
Receivables, net(1) | $ | 396 | $ | 567 | $ | 484 | $ | 545 | $ | 618 | $ | 396 | ||||||||||
Short-term contract liabilities included in: | ||||||||||||||||||||||
Unredeemed gift cards | 257 | 281 | 265 | |||||||||||||||||||
Unredeemed gift card liabilities | 297 | 317 | 257 | |||||||||||||||||||
Deferred revenue | 531 | 501 | 409 | 734 | 711 | 531 | ||||||||||||||||
Accrued liabilities | 45 | 139 | 139 | 79 | 71 | 45 | ||||||||||||||||
Long-term contract liabilities included in: | ||||||||||||||||||||||
Long-term liabilities | 8 | 9 | 10 |
(1)Receivables are recorded net of allowances for doubtful accounts of $29$25 million, $14$32 million and $12$29 million as of May 2, 2020, February 1, 2020,2021, January 30, 2021, and May 4, 2019,2, 2020, respectively.
During the first three months of fiscal 20212022 and fiscal 2020, $4922021, $684 million and $466$492 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.
See Note 9,10, Segments, for information on our revenue by reportable segment and product category.
6.7. Derivative Instruments
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, andoperations. We also use interest rate swaps to mitigate the effect of interest rate fluctuations on our $650 million principal amount of notes due March 15, 2021, prior to their retirement in December 2020, and on our $500 million principal amount of notes due October 1, 2028. In addition, we use foreign currency forward contracts not designated as hedging instruments to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies.
Our derivative instruments designated as net investment hedges and interest rate swaps are recorded on our Condensed Consolidated Balance Sheets at fair value. See Note 2,3, Fair Value Measurements, for gross fair values of our outstanding derivative instruments and corresponding fair value classifications.
Notional amounts of our derivative instruments were as follows ($ in millions):
Contract Type | May 2, 2020 | February 1, 2020 | May 4, 2019 | May 1, 2021 | January 30, 2021 | May 2, 2020 | ||||||||||||||||||||
Derivatives designated as net investment hedges | $ | 126 | $ | 129 | $ | 15 | $ | 94 | $ | 153 | $ | 126 | ||||||||||||||
Derivatives designated as interest rate swaps | 1,150 | 1,150 | 1,150 | 500 | 500 | 1,150 | ||||||||||||||||||||
No hedge designation (foreign exchange contracts) | 21 | 31 | 44 | 34 | 51 | 21 | ||||||||||||||||||||
Total | $ | 1,297 | $ | 1,310 | $ | 1,209 | $ | 628 | $ | 704 | $ | 1,297 |
Effects of our derivatives on our Condensed Consolidated Statements of Earnings were as follows ($ in millions):
Gain (Loss) Recognized | Gain (Loss) Recognized | |||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||
Contract Type | Statement of Earnings Location | May 2, 2020 | May 4, 2019 | |||||||||||||||||||
Statement of Earnings Location | May 1, 2021 | May 2, 2020 | ||||||||||||||||||||
Interest rate swap contracts | Interest expense | $ | 29 | $ | (2) | Interest expense | $ | (26) | $ | 29 | ||||||||||||
Adjustments to carrying value of long-term debt | Interest expense | (29) | 2 | Interest expense | 26 | (29) | ||||||||||||||||
Total | $ | - | $ | - | $ | - | $ | - |
7.8. Earnings per Share
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):
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Numerator | ||||||||||||||
Net earnings | $ | 159 | $ | 265 | $ | 595 | $ | 159 | ||||||
Denominator | ||||||||||||||
Weighted-average common shares outstanding | 258.3 | 267.6 | 253.1 | 258.3 | ||||||||||
Dilutive effect of stock compensation plan awards | 2.1 | 3.9 | 3.6 | 2.1 | ||||||||||
Weighted-average common shares outstanding, assuming dilution | 260.4 | 271.5 | 256.7 | 260.4 | ||||||||||
Potential shares which were anti-dilutive and excluded from weighted-average share computations | 0.6 | 0.8 | 1.1 | 0.6 | ||||||||||
Basic earnings per share | $ | 0.61 | $ | 0.99 | $ | 2.35 | $ | 0.61 | ||||||
Diluted earnings per share | $ | 0.61 | $ | 0.98 | $ | 2.32 | $ | 0.61 |
8.9. Repurchase of Common Stock
On February 23, 2019,16, 2021, our Board of Directors ("Board") authorizedapproved a new $5.0 billion share repurchase program, which replaced the $3.0 billion share repurchase program.program authorized on February 23, 2019. There is no expiration date governing the period over which we can repurchase shares under this authorization. As of May 1, 2021, $4.2 billion of the February 2019 authorization.$5.0 billion share repurchase authorization was available. On May 27, 2021, we announced an increase in the amount of share repurchases planned in fiscal 2022 to $2.5 billion.
Information regarding the shares we repurchased was as follows ($ and shares in millions, except per share amounts):
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Total cost of shares repurchased | $ | 56 | $ | 106 | $ | 915 | $ | 56 | ||||||
Average price per share | $ | 86.30 | $ | 70.77 | $ | 108.69 | $ | 86.30 | ||||||
Number of shares repurchased | 0.6 | 1.5 | 8.4 | 0.6 |
AsThe total cost of May 2, 2020, $1.9 billionshares repurchased increased in the first quarter of fiscal 2022 primarily due to the $3.0 billion share repurchase authorization was available. On March 21, 2020, we announced thetemporary suspension of all share repurchases givenfrom March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related concerns.
Between the uncertainty surroundingend of the impactfirst quarter of COVID-19.fiscal 2022 on May 1, 2021, and June 2, 2021, we repurchased an incremental 0.2 million shares of our common stock at a cost of $28 million.
9.10. Segments
Segment and product category revenue information was as follows ($ in millions):
Three Months Ended | Three Months Ended | |||||||||||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||||||||||
Revenue by reportable segment | ||||||||||||||||||||||
Domestic | $ | 7,915 | $ | 8,481 | $ | 10,841 | $ | 7,915 | ||||||||||||||
International | 647 | 661 | 796 | 647 | ||||||||||||||||||
Total revenue | $ | 8,562 | $ | 9,142 | $ | 11,637 | $ | 8,562 | ||||||||||||||
Revenue by product category | ||||||||||||||||||||||
Domestic | ||||||||||||||||||||||
Computing and Mobile Phones | $ | 3,805 | $ | 3,851 | $ | 4,793 | $ | 3,805 | ||||||||||||||
Consumer Electronics | 2,219 | 2,662 | 3,238 | 2,219 | ||||||||||||||||||
Appliances | 935 | 961 | 1,548 | 935 | ||||||||||||||||||
Entertainment | 510 | 473 | 669 | 510 | ||||||||||||||||||
Services | 421 | 497 | 556 | 421 | ||||||||||||||||||
Other | 25 | 37 | 37 | 25 | ||||||||||||||||||
Total Domestic revenue | $ | 7,915 | $ | 8,481 | $ | 10,841 | $ | 7,915 | ||||||||||||||
International | ||||||||||||||||||||||
Computing and Mobile Phones | $ | 309 | $ | 305 | $ | 394 | $ | 309 | ||||||||||||||
Consumer Electronics | 177 | 203 | 217 | 177 | ||||||||||||||||||
Appliances | 58 | 59 | 68 | 58 | ||||||||||||||||||
Entertainment | 57 | 36 | 65 | 57 | ||||||||||||||||||
Services | 32 | 43 | 35 | 32 | ||||||||||||||||||
Other | 14 | 15 | 17 | 14 | ||||||||||||||||||
Total International revenue | $ | 647 | $ | 661 | $ | 796 | $ | 647 |
Segment operatingOperating income (loss) by reportable segment and the reconciliation to consolidated earnings before income tax expense and equity in income of affiliates was as follows ($ in millions):
Three Months Ended | Three Months Ended | |||||||||||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||||||||||
Domestic | $ | 241 | $ | 332 | $ | 734 | $ | 241 | ||||||||||||||
International | (12) | 2 | 35 | (12) | ||||||||||||||||||
Total operating income | 229 | 334 | 769 | 229 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||
Investment income and other | 6 | 14 | 3 | 6 | ||||||||||||||||||
Interest expense | (17) | (18) | (6) | (17) | ||||||||||||||||||
Earnings before income tax expense | $ | 218 | $ | 330 | ||||||||||||||||||
Earnings before income tax expense and equity in income of affiliates | Earnings before income tax expense and equity in income of affiliates | $ | 766 | $ | 218 |
Assets by reportable segment were as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||||||
Domestic | $ | 14,320 | $ | 14,247 | $ | 13,332 | $ | 16,490 | $ | 17,625 | $ | 14,320 | ||||||||||
International | 1,285 | 1,344 | 1,218 | 1,215 | 1,442 | 1,285 | ||||||||||||||||
Total assets | $ | 15,605 | $ | 15,591 | $ | 14,550 | $ | 17,705 | $ | 19,067 | $ | 15,605 |
10.
11. Contingencies
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.
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 is presented in the following sections:
Overview
Business Strategy and COVID-19 Update
Results of Operations
Liquidity and Capital Resources
Off-Balance-Sheet Arrangements and Contractual Obligations
Significant Accounting Policies and Estimates
New Accounting Pronouncements
Safe Harbor Statement Under the Private Securities Litigation Reform Act
Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (“Fiscal 2020 Form 10-K”),January 30, 2021 (including the information presented therein under Risk Factors included in the Fiscal 2020 Form 10-K and in this Form 10-Q,), as well as our other reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.
Overview
Our purpose is to enrich the lives of consumers through technology. We have two reportable segments: Domestic and International. The Domestic segment is comprised of the operations, including our Best Buy Health business, in all states, districts and territories of the U.S. The International segment is comprised of all operations in Canada and Mexico.During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico. All stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment will be comprised of operations in Canada going forward. 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.
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 in the U.S., Canada and Mexico.
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. Stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, are excluded from comparable sales until at least 14 full months after reopening. Acquisitions are 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. Comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only). Comparable onlineOnline sales are included in comparable sales. Online sales represent those initiated on a website or app, regardless of whether customers choose to pick up product at ain store, curbside, at an alternative pick-up location or take delivery direct to their homes. All periods presented apply this methodology consistently.
On May 9, 2019, we acquired all outstanding shares of Critical Signal Technologies, Inc. (“CST”). Consistent with our comparable sales policy, the results of CST are included in our comparable sales calculation beginning in the third quarter of fiscal 2021.
In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease ("COVID-19"(“COVID-19”) as a pandemic. Except where otherwise directed by state and local authorities, on March 22, 2020, we transitioned our stores to a contactless, curbside-only operating model. All stores that were temporarily closed as a result of COVID-19 or operating a curbside-only operating model are included in comparable sales.
On October 1, 2018,November 24, 2020, we acquiredannounced our decision to exit our operations in Mexico. As a result, all outstanding shares of GreatCall, Inc. (“GreatCall”) and on May 9, 2019, we acquired all outstanding shares of Critical Signal Technologies, Inc. (“CST”). Consistent with our comparable sales policy, the results of GreatCall are included in our comparable sales calculation for the three months ended May 2, 2020, and the results of CST arerevenue from Mexico operations has been excluded from our comparable sales calculation for the periods presented.beginning in December of fiscal 2021.
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'retailers’ methods.
Interim Sales Data
Within this MD&A, we refer to sales retention based on interim sales data, which we use to monitor transactional revenue performance on a daily or weekly interval. For a period in which we experienced significant shifts in revenue trends as a result of COVID-19 -related impacts, we believe interim sales data provides helpful insight into these trends. The sales retention estimate represents the year-over-year change compared to the same period in the prior fiscal year. Retention is based on absolute sales dollar changes and is not presented in accordance with comparable sales. Interim sales data is unaudited and excludes quarter-end revenue accounting adjustments. Other companies may track interim sales data using different methods and systems, and therefore, the estimated data as presented herein may not be comparable to any data released by other companies.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP")(“GAAP), as well as certain adjusted or non-GAAP financial measures, such as constant currency, non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted earnings per share ("EPS"(“EPS”) from continuing operations.. We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting also includes non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, price-fixing settlements, 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 we believe doing so provides greater clarity to management and our investors. 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 as presented herein may not be comparable to similarly titled measures used by other companies.
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,"“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 ofwhen there are significant fluctuations in currency rates.
Refer to the Consolidated Non-GAAP Financial Measures section below for a detailed reconciliationreconciliations of items that impacted ourimpacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS from continuing operations in the presented periods.
Business Strategy and COVID-19 Update
In the first quarter of fiscal 2021,2022, our comparable sales grew 37.2% as the impacts of the pandemic continued to drive heightened demand for products and services that focus on the home, which encompasses many aspects of our lives including working, learning, cooking, entertaining, redecorating and remodeling. We provided customers with multiple options for how, when and where they shopped with us to ensure it satisfied their need for safety.
Our research indicates our customers look to Best Buy to serve four shopping needs: inspiration, research, convenience and support. In addition, customers expect to be able to seamlessly interact with physical and digital channels. We have the ability to serve all of these needs, at all times, in all channels. We are currently looking at how we generated $8.6 billion in revenuecan even better deploy our team and our Enterprise comparable sales declined by 5.3%. Our GAAP operating income rate decreased by 100 basis pointsphysical assets to meet these customer expectations and needs. We are taking the opportunity to test and pilot a range of models and initiatives to better understand how we can leverage our stores and facilities for more fulfillment purposes, and how we can deliver customer experiences with a more flexible and engaged workforce.
Overall, it has become evident to us throughout the pandemic that technology is even more important to people’s lives, and we are excited about what that means for our business going forward, especially in combination with both the heightened technology innovation that supports the more home-based way of work and life and our non-GAAP operating income rate decreasedspecial ability to serve our customers.
Our strong financial performance allowed us to share our success with the community, our shareholders, and, importantly, our employees. On May 19, 2021, we announced that we are investing $10 million over five years to create pathways to opportunity for teens from disinvested communities in Los Angeles. As part of that effort, we will build a network of 10 to 12 Teen Tech Centers, which is a key step toward our goal to build a network of 100 Teen Tech Centers by 90 basis points, both compared2025. We believe our Teen Tech Centers help to further our commitments towards economic and social justice in our communities by making a measurable difference in the lives of underserved teens who may not otherwise have access to technology. In addition, during the first quarter of fiscal 2020. The decreases in both GAAP2022, we returned a total of $1.1 billion to shareholders through share repurchases of $927 million and non-GAAP operating income were primarily due dividends of $175 million. For our employees, to the operational disruptions caused by COVID-19. We recorded GAAP diluted EPS of $0.61 and non-GAAP diluted EPS of $0.67, decreases of 38% and 34% compared to the first quarter of fiscal 2020, respectively. Refer to the Consolidated Non-GAAP Financial Measures section belowshow our appreciation for a detailed reconciliation of items that impacted our non-GAAP operating income and non-GAAP diluted EPS.
The pandemic has changed the way wetheir hard work learn, care for ourselves and connect with each other. Against that backdrop, our purpose has never been more relevant: to enrich lives through technology. It is because of that purpose that we were, in virtually every jurisdiction with a stay-at-home order in place, designated an essential retailer because of the products and services we offer.
On March 22, 2020, we proactively moved all our Domestic stores to a contactless, curbside-only operating model, allowing us to safely serve customers and comply with government orders and recommendations. We also halted all in-home installation, repair and consultation services. We did this even in jurisdictions where it was not mandated because we believed it was the best way at the time to keep our customers and employees as safe as possible. This required us to implement a new and highly effective operating model in a matter of 48 hours across our entire Domestic store base.
As a result, we retained approximately 81% of last year’s consolidated sales based on interim sales data duringover the last six weeksseveral months and in recognition of the first quarter of fiscal 2021 as we operatedtheir ongoing efforts in the new model. This reflects the strengthface of our multi-channel capabilities“pandemic fatigue”, we paid employee gratitude bonuses. In March 2021, all hourly U.S. employees received $500 if full-time and the strategic investments we have been making over the past several years. It is also a testament to the Best Buy culture and our focus on the customer experience as the entire organization pivoted to execute and support the new model. In mid-March 2020, we began to see a surge in demand for the products that people need to work, learn$200 if part-time or entertain from home. For the first quarter of fiscal 2021, we saw strong sales growth in computing, gaming and small appliances. Like many other retailers, we saw a sales benefit during the last three weeks of the first fiscal quarter as customers likely chose to spend some of their government stimulus money on the products and services we provide.
As we entered the second quarter of fiscal 2021, we continued to shift our operating model as we responded to the evolving environment. On May 4, 2020, we began welcoming customers back into our stores by appointment only, following strict social-distancing practices and using appropriate protective equipment. This service allows customers who need to purchase more complex items to consult with one of our sales associates and receive advice tailored to their specific technology needs. We started with approximately 200 stores, and as of May 21, 2020, we have almost 700, or 70%, of our Domestic stores operating this way. Most of the remaining stores are still operating in the curbside-only model, and approximately 40 stores remain completely closed, mainly due to our assessment of employee and customer safety. Customers have responded very positively to this new way of interacting with us in our stores, with 98% of customers surveyed indicating we made them feel safe during the experience. We have also resumed large product delivery, installations and in-home repairs in approximately 80% of U.S. zip codes, while following strict new safety guidelines.
From the very first days of the pandemic we told anyone feeling sick or quarantined that they would keep their job and be paid. We told any employee whose child was home from school that they, too, would be paid. We gaveoccasional/seasonal. Furthermore, all hourly field employees who were still serving customers or workingwill receive an incremental $150 recognition award in our distribution centers a temporary pay increase and, for all others, we paid their normal salaries for a full month as we took the time to determine how to move forward. On April 19, 2020, we furloughed approximately 51,000 Domestic hourly store employees, including nearly all part-time employees. We retained approximately 82% of our full-time store and field employees on our payroll, including the vast majority of In-Home Advisors and Geek Squad Agents. Additionally, some corporate employees are participating in voluntary reduced work weeks and resulting pay, as well as voluntary furloughs.
In addition, our Chief Executive Officer is foregoing 50% of her base salary and the members of the Board of Directors are foregoing 50% of their cash retainer fees. Company executives reporting directly to the Chief Executive Officer are taking a 20% reduction in base salary. The money saved from these temporary pay reductions is being added to the employee hardship fund we established with our founder, Dick Schulze.
Despite the disruption and uncertainty related to COVID-19, we remain focused on executing our Building the New Blue strategy. In many ways, recent events have only reinforced our belief in our strategic direction.
Our multi-year supply chain transformation has been focused on moving facilities closer to our customers and using automation and process improvements to expand fulfillment options, increase delivery speed and improve the delivery and installation experience. This has included significantly improving the ability for customers to order online and pick up at one of our stores. These changes, along with innovative digital advancements allowed our teams to quickly stand up a robust and seamless customer experience for both curbside pickup and the new, in-store consultation process. All of this culminated in Domestic online growth of 155% for the first quarter of fiscalJune 2021.
While overall interactions with our Total Tech Support customers were down in the first quarter of fiscal 2021 compared to last year as our in-store and in-home services were unavailable, our remote technical support provided a critically stable support solution through these challenging times. In addition, we have cross-trained our Geek Squad Agents to work in our call centers, providing crucial phone and chat support to solve a variety of customer needs.
With respect to Best Buy Health, our focus on helping seniors live more independently with our unique combination of tech and touch, has become even more relevant as the world responds to the COVID-19 pandemic. In the first quarter of fiscal 2021, to support our base of over 1 million seniors, we moved quickly to adapt our operations so our caring center agents could support more than 150,000 calls each week while complying with stay-at-home orders.
During the first quarter of fiscal 2021, we also took the following actions to maximize liquidity in light of the uncertainty surrounding the impact of COVID-19:
executed a short-term draw on the full amount of our $1.25 billion five year senior unsecured revolving credit facility (the “Facility”),
suspended share repurchases,
lowered merchandise receipts to match demand,
extended payment terms in partnership with key merchandising vendors,
reduced promotional and marketing spend aligned with the temporary changes in our operating model,
lowered capital spend to focus on mandatory maintenance or high-value strategic areas, and
suspended our 401(k) company matching program.
There are many factors we continue to weigh for the remainder of fiscal 2021, including:
the depth and duration of the pandemic;
the impact of current and potential future government stimulus actions;
the impact on unemployment, consumer confidence and spending;
the evolution of our various operating models; and
how and where our customers are choosing to interact with us.
Our priority has been and will continue to be the safety of our employees and customers while providing essential products and services. We remain thoughtful about managing our profitability and liquidity, balancing our short-term decisions to navigate this unprecedented situation while preserving the elements of our strategy that will ensure we remain a vibrant company in the future.
Results of Operations
In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a lag. Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for the periods presented.reported periods.
Consolidated Performance Summary
Selected consolidated financial data was as follows ($ in millions, except per share amounts):
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Revenue | $ | 8,562 | $ | 9,142 | $ | 11,637 | $ | 8,562 | ||||||
Revenue % change | (6.3) | % | 0.4 | % | 35.9 | % | (6.3) | % | ||||||
Comparable sales % change | (5.3) | % | 1.1 | % | 37.2 | % | (5.3) | % | ||||||
Gross profit | $ | 1,965 | $ | 2,169 | $ | 2,715 | $ | 1,965 | ||||||
Gross profit as a % of revenue(1) | 23.0 | % | 23.7 | % | 23.3 | % | 23.0 | % | ||||||
SG&A | $ | 1,735 | $ | 1,835 | $ | 1,988 | $ | 1,735 | ||||||
SG&A as a % of revenue(1) | 20.3 | % | 20.1 | % | 17.1 | % | 20.3 | % | ||||||
Restructuring charges | $ | (42) | $ | 1 | ||||||||||
Operating income | $ | 229 | $ | 334 | $ | 769 | $ | 229 | ||||||
Operating income as a % of revenue | 2.7 | % | 3.7 | % | 6.6 | % | 2.7 | % | ||||||
Net earnings | $ | 159 | $ | 265 | $ | 595 | $ | 159 | ||||||
Diluted earnings per share | $ | 0.61 | $ | 0.98 | $ | 2.32 | $ | 0.61 |
(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, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.January 30, 2021.
In the first quarter of fiscal 2022, we generated $11.6 billion in revenue and our comparable sales grew 37.2% as we faced high demand for technology products and services. This demand was driven by continued focus on the home, which encompasses many aspects of our lives including working, learning, cooking, entertaining, redecorating and remodeling. The demand was also bolstered by government stimulus programs and the strong housing environment. Our strong sales performance resulted in operating income rate expansion of 390 basis points during the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021. We also lapped an unusual quarter last year that included both periods of high demand and periods when our stores were closed to customer traffic. Compared to the first quarter of fiscal 2020, our results were very strong, with revenue and diluted earnings per share increasing 27.3% and 136.7%, respectively.
High customer demand, as well as production and distribution disruptions, resulted in product availability constraints that may continue in future quarters.
Revenue, gross profit, rate, SG&A rate and operating income rate changes in the first quarter of fiscal 20212022 were primarily driven by our Domestic segment. For further discussion of each segment's rate changes,segment’s performance, see the Segment Performance Summary below.
Income Tax Expense
Income tax expense decreasedincreased in the first quarter of fiscal 20212022 due to a decreasean increase in pre-tax earnings, partially offset by a decrease in the tax benefit from stock-based compensation in the current year period.earnings. Our effective tax rate (“ETR”) increaseddecreased to 22.4% in the first quarter of fiscal 2022 compared to 27.4% in the first quarter of fiscal 2021, compared to 19.8% in the first quarter of fiscal 2020, primarily due to a decreasean increase in the tax benefit from stock-based compensation and the impact of lower pre-tax earnings.compensation.
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
Selected financial data for the Domestic segment was as follows ($ in millions):
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Revenue | $ | 7,915 | $ | 8,481 | $ | 10,841 | $ | 7,915 | ||||||
Revenue % change | (6.7) | % | 0.8 | % | 37.0 | % | (6.7) | % | ||||||
Comparable sales % change(1) | (5.7) | % | 1.3 | % | 37.9 | % | (5.7) | % | ||||||
Gross profit | $ | 1,821 | $ | 2,009 | $ | 2,526 | $ | 1,821 | ||||||
Gross profit as a % of revenue | 23.0 | % | 23.7 | % | 23.3 | % | 23.0 | % | ||||||
SG&A | $ | 1,579 | $ | 1,677 | $ | 1,836 | $ | 1,579 | ||||||
SG&A as a % of revenue | 19.9 | % | 19.8 | % | 16.9 | % | 19.9 | % | ||||||
Restructuring charges | $ | (44) | $ | 1 | ||||||||||
Operating income | $ | 241 | $ | 332 | $ | 734 | $ | 241 | ||||||
Operating income as a % of revenue | 3.0 | % | 3.9 | % | 6.8 | % | 3.0 | % | ||||||
Selected Online Revenue Data | ||||||||||||||
Total online revenue | $ | 3,342 | $ | 1,308 | $ | 3,596 | $ | 3,342 | ||||||
Online revenue as a % of total segment revenue | 42.2 | % | 15.4 | % | 33.2 | % | 42.2 | % | ||||||
Comparable online sales growth(1) | 155.4 | % | 14.5 | % | 7.6 | % | 155.4 | % |
(1)Comparable onlineOnline sales are included in the comparable sales calculation.
The decreaseincrease in revenue in the first quarter of fiscal 20212022 was primarily driven by the comparable sales decline andgrowth across almost all of our product categories, partially offset by the loss of revenue from 24 permanent store closures in the past year. Online revenue of $3.3$3.6 billion in the first quarter of fiscal 20212022 increased 155.4%7.6% on a comparable basis, primarily due to higher conversion ratesaverage order values and increased traffic. The comparable sales decline and increased mix of online revenue were primarily due to the temporary store closures and stores operating a curbside-only operating model as a result of COVID-19.
Domestic segment stores open at the beginning and end of the first quarters of fiscal 20212022 and fiscal 2020,2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows:
Fiscal 2021 | Fiscal 2020 | Fiscal 2022 | Fiscal 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | |||||||||||||||||||||||||||||||||||||||||||||||
Best Buy | 977 | - | (6) | 971 | 997 | - | (2) | 995 | 956 | 1 | (11) | 946 | 977 | - | (6) | 971 | ||||||||||||||||||||||||||||||||||||||||||||||
Outlet Centers | 11 | 1 | - | 12 | 8 | 2 | - | 10 | 14 | - | - | 14 | 11 | 1 | - | 12 | ||||||||||||||||||||||||||||||||||||||||||||||
Pacific Sales | 21 | - | - | 21 | 21 | - | - | 21 | 21 | - | - | 21 | 21 | - | - | 21 | ||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,009 | 1 | (6) | 1,004 | 1,026 | 2 | (2) | 1,026 | 991 | 1 | (11) | 981 | 1,009 | 1 | (6) | 1,004 |
We continuously monitor store performance. As we approach the expiration date of our store leases, we evaluate various options for each location, including whether a store should remain open.
Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix | Comparable Sales | Revenue Mix | Comparable Sales | |||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||
May 2, 2020 | May 4, 2019 | May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | May 1, 2021 | May 2, 2020 | |||||||||||||||||||||||
Computing and Mobile Phones | 48 | % | 46 | % | 0.0 | % | 1.0 | % | 44 | % | 48 | % | 27.3 | % | - | % | ||||||||||||||
Consumer Electronics | 28 | % | 31 | % | (15.7) | % | 0.9 | % | 30 | % | 28 | % | 45.9 | % | (15.7) | % | ||||||||||||||
Appliances | 12 | % | 11 | % | (2.0) | % | 10.5 | % | 15 | % | 12 | % | 66.6 | % | (2.0) | % | ||||||||||||||
Entertainment | 7 | % | 6 | % | 9.5 | % | (12.7) | % | 6 | % | 7 | % | 32.1 | % | 9.5 | % | ||||||||||||||
Services | 5 | % | 6 | % | (16.1) | % | 6.8 | % | 5 | % | 5 | % | 33.2 | % | (16.1) | % | ||||||||||||||
Total | 100 | % | 100 | % | (5.7) | % | 1.3 | % | 100 | % | 100 | % | 37.9 | % | (5.7) | % |
We believeContinued strong demand for technology products and services with a focus on the changes in our operating model as a result of COVID-19home, including working, learning, cooking, entertaining, redecorating and remodeling, contributed to our Domestic comparable sales changesgrowth across most of our categories. Notable comparable sales changes in our Domestic segment by revenue category were as follows:
Computing and Mobile Phones: The 27.3% comparable sales changegain was flat driven primarily by gains in computing, offset by declines intablets, mobile phones.phones and wearables.
Consumer Electronics: The 15.7%45.9% comparable sales declinegain was driven primarily by home theater, digital imaging, headphones and digital imaging.
portable speakers.
Appliances: The 2.0%66.6% comparable sales declinegain was driven by large appliances, partially offset by gains inand small appliances.
Entertainment: The 9.5%32.1% comparable sales gain was driven primarily by gaming partially offset by declines in movies.and virtual reality.
Services: The 16.1%33.2% comparable sales declinegain was primarily due to store closures as a result of COVID-19our warranty and the corresponding higher mix of online sales, which has a lower attach rate than in store, as well as the suspension of in-homesupport services, midway through the quarter.delivery and installation.
Our gross profit rate decreasedincreased in the first quarter of fiscal 2021,2022, primarily driven by higherfavorable product margin rates, including reduced promotions, and rate improvement from supply chain costs resulting from the increaseda lower mix of online revenue compared to the prior year. This favorability was partially offset by higher installation and delivery costs compared to the prior year when in-home services were temporarily suspended as a result of the changes we made in our operating model due to COVID-19. In addition, lower profit sharing revenue from our private label credit card negatively impacted our Domestic gross profit rate by approximately 20 basis points compared to last year. We expect to see continued pressure from lower profit-sharing revenue related to our private label and co-branded credit card arrangement as the economic ramifications of COVID-19 are expected to lead to higher credit card defaults over time.pandemic.
Our SG&A rate remained relatively flat to last year as a percentage of sales, whereas SG&A dollars decreasedincreased in the first quarter of fiscal 2021 by $98 million. The decrease in SG&A dollars was2022, primarily due to reducedhigher incentive compensation expense,for corporate and field employees, increased investments in technology and in support of our health initiatives, and increased variable costs associated with higher sales volume, which included items such as we did not pay or accrue short-term incentive expense forcredit card processing fees.
The restructuring credit in the first quarter performance. SG&A also decreased dueof fiscal 2022 primarily related to lower store payroll expense when including an employeea reduction in termination benefits resulting from adjustments to previously planned organizational changes and higher-than-expected retention credit of $69 million as a result rates. Refer to Note 2, Restructuring, of the Federal CARES Act. This employee retention credit is a payroll tax credit, which represented approximately 50% of qualified wages and health benefits paidNotes to retained employees not working as a result of COVID-19.Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.
Our operating income rate decreasedincreased in the first quarter of fiscal 2021,2022, primarily driven by the decreasefavorability in gross profit rate and relatively flat SG&A rate described above.
International
Selected financial data for the International segment was as follows ($ in millions):
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Revenue | $ | 647 | $ | 661 | $ | 796 | $ | 647 | ||||||
Revenue % change | (2.1) | % | (5.2) | % | 23.0 | % | (2.1) | % | ||||||
Comparable sales % change | 0.2 | % | (1.2) | % | 27.8 | % | 0.2 | % | ||||||
Gross profit | $ | 144 | $ | 160 | $ | 189 | $ | 144 | ||||||
Gross profit as a % of revenue | 22.3 | % | 24.2 | % | 23.7 | % | 22.3 | % | ||||||
SG&A | $ | 156 | $ | 158 | $ | 152 | $ | 156 | ||||||
SG&A as a % of revenue | 24.1 | % | 23.9 | % | 19.1 | % | 24.1 | % | ||||||
Restructuring charges | $ | 2 | $ | - | ||||||||||
Operating income (loss) | $ | (12) | $ | 2 | $ | 35 | $ | (12) | ||||||
Operating income (loss) as a % of revenue | (1.9) | % | 0.3 | % | 4.4 | % | (1.9) | % |
The decreaseincrease in revenue in the first quarter of fiscal 20212022 was primarily driven by comparable sales growth across most of our product categories and the negative impactbenefit of approximately 1,000 basis points of favorable foreign currency exchange rate fluctuations primarily related to our Canadian operations,fluctuations. The increase was partially offset by an increase inlower revenue from new stores opened in Mexico of $69 million as a result of our decision in the past year. Comparable sales were essentially flatthird quarter of fiscal 2021 to last year even though all stores in Canada were closed to customer traffic for a portion of the quarter, similar to our Domestic stores.exit operations.
International segment stores open at the beginning and end of the first quarters of fiscal 20212022 and fiscal 2020,2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows:
Fiscal 2021 | Fiscal 2020 | Fiscal 2022 | Fiscal 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | |||||||||||||||||||||||||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Best Buy | 131 | - | - | 131 | 132 | - | - | 132 | 131 | - | (1) | 130 | 131 | - | - | 131 | ||||||||||||||||||||||||||||||||||||||||||||||
Best Buy Mobile | 42 | - | (1) | 41 | 45 | - | (1) | 44 | 33 | - | - | 33 | 42 | - | (1) | 41 | ||||||||||||||||||||||||||||||||||||||||||||||
Mexico | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Best Buy | 35 | - | - | 35 | 29 | - | - | 29 | 4 | - | (4) | - | 35 | - | - | 35 | ||||||||||||||||||||||||||||||||||||||||||||||
Best Buy Express | 14 | - | - | 14 | 6 | 3 | - | 9 | - | - | - | - | 14 | - | - | 14 | ||||||||||||||||||||||||||||||||||||||||||||||
Total | 222 | - | (1) | 221 | 212 | 3 | (1) | 214 | 168 | - | (5) | 163 | 222 | - | (1) | 221 |
International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix | Comparable Sales | Revenue Mix | Comparable Sales | |||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||
May 2, 2020 | May 4, 2019 | May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | May 1, 2021 | May 2, 2020 | |||||||||||||||||||||||
Computing and Mobile Phones | 48 | % | 46 | % | 4.6 | % | (4.0) | % | 50 | % | 48 | % | 36.5 | % | 4.6 | % | ||||||||||||||
Consumer Electronics | 27 | % | 31 | % | (12.7) | % | 2.5 | % | 27 | % | 27 | % | 23.9 | % | (12.7) | % | ||||||||||||||
Appliances | 9 | % | 9 | % | 0.1 | % | (2.0) | % | 9 | % | 9 | % | 28.9 | % | 0.1 | % | ||||||||||||||
Entertainment | 9 | % | 5 | % | 58.0 | % | (14.0) | % | 8 | % | 9 | % | 12.2 | % | 58.0 | % | ||||||||||||||
Services | 5 | % | 7 | % | (19.5) | % | 13.4 | % | 4 | % | 5 | % | 7.8 | % | (19.5) | % | ||||||||||||||
Other | 2 | % | 2 | % | 1.1 | % | 15.3 | % | 2 | % | 2 | % | 7.6 | % | 1.1 | % | ||||||||||||||
Total | 100 | % | 100 | % | 0.2 | % | (1.2) | % | 100 | % | 100 | % | 27.8 | % | 0.2 | % |
We believeSimilar to the changes in our operating model asDomestic segment, continued strong demand for technology products and services with a result of COVID-19focus on the home, including working, learning, cooking, entertaining, redecorating and remodeling, contributed to our International segment’s comparable sales changesgrowth across most of our categories. Notable comparable sales changes in our International segment by revenue category were as follows:
Computing and Mobile Phones: The 4.6%36.5% comparable sales gain was driven primarily by computing, partially offset by declines in mobile phones.phones and tablets.
Consumer Electronics: The 12.7%23.9% comparable sales declinegain was driven primarily by home theater and digital imaging.health and fitness.
Appliances: The 0.1%28.9% comparable sales gain was driven by large and small appliances, partially offset by declines in large appliances.
Entertainment: The 58.0%12.2% comparable sales gain was driven primarily by gaming and virtual reality.
Services: The 19.5%7.8% comparable sales declinegain was primarily due to store closures as a result of COVID-19 and the corresponding higher mix of online sales, which has a lower attach rate than in store, as well as the suspension of in-home services midway through the quarter.our warranty services.
Other: The 1.1%7.6% comparable sales gain was driven primarily by babyoutdoor products.
Our gross profit rate increased in the first quarter of fiscal 2022, primarily due to improved product margin rates and a $6 million benefit associated with more favorable-than-expected inventory markdowns related to our decision to exit operations in Mexico.
Our SG&A decreased in the first quarter of fiscal 20212022, primarily due to Canada, which was largely drivenour decision to exit operations in Mexico, partially offset by a lower mixthe unfavorable impact of higher margin services revenue and higher supply chain costs fromforeign currency exchange rates in Canada.
Restructuring charges in the increased mixfirst quarter of online revenue as a result fiscal 2022 primarily related to our decision to exit operations in Mexico. Refer to Note 2, Restructuring, of the changes we madeNotes to Condensed Consolidated Financial Statements, included in our operating model due to COVID-19.this Quarterly Report on Form 10-Q, for additional information.
Our SG&Aoperating income rate increased in the first quarter of fiscal 2021, whereas SG&A dollars decreased $2 million due to the favorable impact of foreign currency exchange rates related primarily to Canada.
We incurred an operating loss in the first quarter of fiscal 2021 compared to operating income in fiscal 2020,2022, primarily driven by the lowerfavorable gross profit rate and higher SG&A rate described above.
Consolidated Non-GAAP Financial Measures
Reconciliations of operating income, effective tax rate and diluted EPS (GAAP financial measures) to non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS (non-GAAP financial measures) were as follows ($ in millions, except per share amounts):
Three Months Ended | Three Months Ended | |||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||
Operating income | $ | 229 | $ | 334 | $ | 769 | $ | 229 | ||||||
% of revenue | 2.7 | % | 3.7 | % | 6.6 | % | 2.7 | % | ||||||
Intangible asset amortization(1) | 20 | 17 | ||||||||||||
Restructuring charges(2) | 1 | - | ||||||||||||
Restructuring - inventory markdowns(1) | (6) | - | ||||||||||||
Intangible asset amortization(2) | 20 | 20 | ||||||||||||
Restructuring charges(3) | (42) | 1 | ||||||||||||
Non-GAAP operating income | $ | 250 | $ | 351 | $ | 741 | $ | 250 | ||||||
% of revenue | 2.9 | % | 3.8 | % | 6.4 | % | 2.9 | % | ||||||
Effective tax rate | 27.4 | % | 19.8 | % | 22.4 | % | 27.4 | % | ||||||
Intangible asset amortization(1) | (0.2) | % | 0.3 | % | ||||||||||
Intangible asset amortization(2) | - | % | (0.2) | % | ||||||||||
Restructuring charges(3) | 0.1 | % | - | % | ||||||||||
Non-GAAP effective tax rate | 27.2 | % | 20.1 | % | 22.5 | % | 27.2 | % | ||||||
Diluted EPS | $ | 0.61 | $ | 0.98 | $ | 2.32 | $ | 0.61 | ||||||
Intangible asset amortization(1) | 0.08 | 0.06 | ||||||||||||
Income tax impact of non-GAAP adjustments(3) | (0.02) | (0.02) | ||||||||||||
Restructuring - inventory markdowns(1) | (0.02) | - | ||||||||||||
Intangible asset amortization(2) | 0.08 | 0.08 | ||||||||||||
Restructuring charges(3) | (0.17) | - | ||||||||||||
Income tax impact of non-GAAP adjustments(4) | 0.02 | (0.02) | ||||||||||||
Non-GAAP diluted EPS | $ | 0.67 | $ | 1.02 | $ | 2.23 | $ | 0.67 |
(1)Represents inventory markdown adjustments recorded within cost of sales associated with the exit from operations in Mexico.
(2)Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology.
(2)(3)Represents adjustments to previously planned organizational changes and higher-than-expected retention rates in the Domestic segment and charges and subsequent adjustments associated with the decision to exit operations in Mexico in the International segment for the period ended May 1, 2021. Represents charges associated with U.S. retail operating model changes.changes for the period ended May 2, 2020.
(3)(4)The non-GAAP adjustments primarily relate primarily to adjustments in the U.S. and Mexico. As such, the income tax charge is calculated using the statutory tax rate of 24.5% for all U.S. non-GAAP items for all periods presented.
GAAP income tax expense.
Non-GAAPOur non-GAAP operating income decreasedrate increased in the first quarter of fiscal 2021,2022, primarily driven by a higher gross profit rate due to favorable product margin rates and rate improvement from supply chain costs, and increased leverage from the higher mix of online revenue assales volume on our fixed expenses, which resulted in a result of the changes we made in our operating model due to COVID-19.favorable SG&A rate.
Our non-GAAP effective tax rate decreased in the first quarter of fiscal 2022, primarily due to an increase in the tax benefit from stock-based compensation.
Our non-GAAP diluted EPS increased in the first quarter of fiscal 2021, primarily due to a decrease in the tax benefit from stock-based compensation and the impact of lower pre-tax earnings.
Non-GAAP diluted EPS decreased in the first quarter of fiscal 2021,2022, primarily driven by the decreaseincrease 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, credit facilities, short-term borrowing arrangements and working capital management. 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. We have a disciplined approach to capital allocation, which focuses on investing in key priorities that support our strategy.
During the first quarter of fiscal 2021, we took numerous actions to maximize liquidity in light of the uncertainty surrounding the impact of COVID-19. Refer to the Business StrategyCash, cash equivalents and Impact of COVID-19 section above for a description of actions taken. We will continue to remain thoughtful about managing our profitability and liquidity, balancing our short-term decisions to navigate this unprecedented situation.
Cash and cash equivalentsinvestments were as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||||||
Cash and cash equivalents | $ | 3,919 | $ | 2,229 | $ | 1,561 |
May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||
Cash and cash equivalents | $ | 4,278 | $ | 5,494 | $ | 3,919 | |||||||||
Short-term investments | 60 | - | - | ||||||||||||
Total cash, cash equivalents and short-term investments | $ | 4,338 | $ | 5,494 | $ | 3,919 |
The increasedecrease in cash, and cash equivalents and short-term investments from February 1, 2020, and May 4, 2019,January 30, 2021, was primarily due to an increase in share repurchases. The increase in cash, cash equivalents and short-term investments from May 2, 2020, was primarily driven by an increase in operating cash flows from higher earnings over the past twelve months. This increase was partially offset by the repayment of our $1.25 billion short-term draw on the Facilityour five-year senior unsecured revolving credit facility that was fully drawn as mentioned above. The increase in cashof May 2, 2020, and cash equivalents from May 4, 2019, was also driven by a reductionincreases in share repurchases, over the past twelve months.capital expenditures and dividends.
Cash Flows
Cash flows from total operations were as follows ($ in millions):
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | |||||||||||||||||||||||||||
Total cash provided by (used in): | ||||||||||||||||||||||||||||||
Operating activities | $ | 827 | $ | 2 | $ | 105 | $ | 827 | ||||||||||||||||||||||
Investing activities | (179) | (192) | (253) | (179) | ||||||||||||||||||||||||||
Financing activities | 1,049 | (226) | (1,089) | 1,049 | ||||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (18) | (1) | ||||||||||||||||||||||||||||
Effect of exchange rate changes on cash | 5 | (18) | ||||||||||||||||||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | Increase (decrease) in cash, cash equivalents and restricted cash | $ | 1,679 | $ | (417) | Increase (decrease) in cash, cash equivalents and restricted cash | $ | (1,232) | $ | 1,679 |
Operating Activities
The increasedecrease in cash provided by operating activities in the first quarter of fiscal 20212022 was primarily due to changes in working capital, primarily dueinventory, which saw a decrease in receipts in the prior-year period from measures taken in light of COVID-19 and an increase in receipts in the current-year period to decreased receipts and payments on inventory partially resulting from COVID-related product constraints,match our efforts to match inventory levels to reduced demand, favorable vendor payment terms and timing of collections on receivables.increased demand. This decrease was partially offset by higher earnings in the current-year period.
Investing Activities
The decreaseincrease in cash used in investing activities in the first quarter of fiscal 20212022 was primarily due to a decreasedriven by an increase in additions to property and equipment.purchases of short-term investments.
Financing Activities
The increase in cash provided byused in financing activities in the first quarter of fiscal 2022 was driven primarily due toby the $1.25 billion short-term draw on our five-year senior unsecured revolving credit facility in the Facility.prior-year period and an increase in share repurchases. During the first quarter of fiscal 2021, in light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of our $1.25 billion five-year senior unsecured revolving credit facility that was repaid in full in July 2020. We also temporarily suspended share repurchases from March to November 2020.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents, our credit facilities and other debt arrangements 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 haveSubsequent to the first quarter of fiscal 2022, on May 18, 2021, we entered into a $1.25 billion five yearfive-year senior unsecured revolving credit facility agreement (the “Facility”“Five-Year Facility Agreement”) with a syndicate of banks. In lightThe Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the “Previous Facility”) with a syndicate of the uncertainty surrounding the impactbanks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021. The Five-Year Facility Agreement permits borrowings of COVID-19up to $1.25 billion and to maximize liquidity,expires in May 2026.
As discussed above, we executed a seven-dayshort-term draw on the full amount of theour Previous Facility on March 19, 2020, and rolled this into a three-month draw on March 26, 2020. Thewhich remained outstanding until July 27, 2020, when the Previous Facility remained fully drawn as of May 2, 2020, at an interest rate of three-month LIBOR plus a margin rate of 1.015%. was repaid in full. There were no borrowings outstanding under the Previous Facility as of FebruaryMay 1, 2020,2021, or May 4, 2019. Refer to Note 4, Debt, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for additional information regarding the Facility.January 30, 2021.
Our credit ratings and outlook as of May 22, 2020,June 2, 2021, are summarized below. On April 22, 2020, Moody’s completedMay 20, 2021, Standard & Poor’s upgraded its periodic reviewrating to BBB+ and confirmed its current rating of Baa1 and outlook of Stable. Standard & Poor’sMoody’s rating and outlook remained unchanged from those disclosed in our Annual Report on Form 10-K for the prior year.fiscal year ended January 30, 2021.
Rating Agency | Rating | Outlook | |||||||||
Standard & Poor's |
| Stable | |||||||||
Moody's |
| Stable |
Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position and changes in our business strategy. If further changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs.
Restricted Cash
Our liquidity is also affected by restricted cash balances that are pledged as collateral orprimarily restricted to use for workers’ compensation and general liability insurance claims. Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $115 million, $126$131 million and $206$115 million at May 2, 2020, February 1, 2020,2021, January 30, 2021, and May 4, 2019,2, 2020, respectively. The decrease from the first quarter of fiscal 2020January 30, 2021, was primarily due to a dividendthe timing of excess cash from our wholly-owned insurance captive that manages a portion of our self-insured claims.premium payments.
Debt and Capital
As of May 2, 2020,1, 2021, we had $1.25 billion of short-term borrowings under the Facility, $650 million of principal amount of notes due March 15, 2021, and $500 million of principal amount of notes due October 1, 2028, outstanding.and $650 million of principal amount of notes due October 1, 2030. Refer to Note 4,5, Debt, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, and Note 6,8, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, for furtheradditional 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"(“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 gradeinvestment-grade credit metrics.
On February 23, 2019,16, 2021, our Board authorizedapproved a new $5.0 billion share repurchase program, which replaced the $3.0 billion share repurchase program. program authorized on February 23, 2019. There is no expiration date governing the period over which we can repurchase shares under this new authorization. As of May 2, 2020, $1.91, 2021, $4.2 billion of the $3.0$5.0 billion share repurchase authorization was available. On March 21, 2020,May 27, 2021, we announced an increase in the suspensionamount of all share repurchases given the uncertainty surrounding the impact of COVID-19.planned in fiscal 2022 to $2.5 billion.
Share repurchase and dividend activity was as follows ($ and shares in millions, except per share amounts):
Three Months Ended | Three Months Ended | ||||||||||||||||||||
May 2, 2020 | May 4, 2019 | May 1, 2021 | May 2, 2020 | ||||||||||||||||||
Total cost of shares repurchased | $ | 56 | $ | 106 | $ | 915 | $ | 56 | |||||||||||||
Average price per share | $ | 86.30 | $ | 70.77 | $ | 108.69 | $ | 86.30 | |||||||||||||
Number of shares repurchased | 0.6 | 1.5 | 8.4 | 0.6 | |||||||||||||||||
Regular quarterly cash dividends per share | $ | 0.55 | $ | 0.50 | $ | 0.70 | $ | 0.55 | |||||||||||||
Cash dividends declared and paid | $ | 141 | $ | 134 | $ | 175 | $ | 141 |
The increasestotal cost of shares repurchased increased in cash dividends declared and paid from the first quarter of fiscal 2020 was2022, primarily due to the resulttemporary suspension of all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related concerns. Cash dividends declared and paid increased in the first quarter of fiscal 2022 primarily due to an increase in the regular quarterly cash dividend rate, partially offset by fewer shares outstanding due to the return of capital to shareholders through share repurchases.per share.
Other Financial Measures
Our current ratio, calculated as current assets divided by current liabilities, wasremained relatively unchanged at 1.2 as of May 1, 2021, and January 30, 2021, and 1.0 as of May 2, 2020, 1.1 as of February 1, 2020, and 1.1 as of May 4, 2019. The slight decline in the ratio at May 2, 2020, compared to prior periods was primarily due to the reclassification of our $650 million of principal amount of notes due March 15, 2021, to current liabilities.2020.
Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings from continuing operations over the trailing twelve months wasdeclined to 0.6 as of May 1, 2021, compared to 0.8 as of January 30, 2021, and 1.8 as of May 2, 2020, 0.8 as of February 1, 2020, and 0.8 as of May 4, 2019.2020. The ratio atdecrease from May 2, 2020, increased from prior periodswas primarily due to the $1.25 billion short-term draw on the Facility.Previous Facility in the first quarter of fiscal 2021.
Off-Balance-Sheet Arrangements and Contractual Obligations
Our liquidity is not dependent on the use of off-balance-sheet financing arrangements.arrangements other than in connection with our $1.25 billion in undrawn capacity on our Previous Facility as of May 1, 2021, which, if drawn upon, would be included in short-term debt on our Condensed Consolidated Balance Sheets.
increase our cash position and maximize liquidity in light of the uncertainty surrounding the impact of COVID-19
, thereThere has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2020. The resulting liability has been included as short-term debt on our Condensed Consolidated Balance Sheets as of May 2, 2020.2021. See our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, 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 included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.January 30, 2021. We discuss 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 1, 2020.January 30, 2021. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2020.2021.
New Accounting Pronouncements
For new applicableWe do not expect any recently issued accounting pronouncements see Note 1, Basis of Presentation, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Reporthave a material effect on Form 10-Q.our financial statements.
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," "assume," "believe," "estimate," "expect," "guidance," "intend," "outlook," "plan," "project" and other words and terms of similar meaning. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment and other events. These statements are subject to certain risks and uncertainties 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 Annual Report on Form 10-K for the fiscal year ended February 1, 2020, and Item 1A, Risk Factors, in this Quarterly Report on Form 10-QJanuary 30, 2021, 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: the duration and scope of the COVID-19 pandemic and its resurgence and the impact on demand for our products and services, levels of consumer confidence and our supply chain; macroeconomic pressures in the markets in which we operate (including but not limited to the effects of COVID-19, fluctuations in housing prices, energy markets and duration of steps we take in response to the pandemic, including the implementationjobless rates); future outbreaks, catastrophic events, health crises and pandemics; susceptibility of our interimproducts to technological advancements, product life cycles and evolving operating model; actions governments, businesseslaunches; conditions in the industries and individuals takecategories in response to the pandemicwhich we operate; changes in consumer preferences, spending and their impact on economic activity and consumer spending; the pace of recovery when the COVID-19 pandemic subsides; general economic uncertainty in key global markets and worsening of global economic conditions or low levels of economic growth;debt; competition (including from multi-channel retailers, e-commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers),; our mix of productsability to attract and services,retain qualified employees; changes in market compensation rates; our expansion strategies,strategies; our focus on services as a strategic priority,priority; our reliance on key vendors and mobile network carriers (including product availability), pricing investments and promotional activity,; our ability to attractmaintain positive brand perception and retain qualified employees, changes in market compensation rates, risks arising from statutory, regulatoryrecognition; our company transformation; our mix of products and legal developments (including tax statutes and regulations), macroeconomic pressures in the markets in which we operate (including fluctuations in housing prices, energy markets and jobless rates), conditions in the industries and categories in which weoperate, 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,services; 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 cycles and launches, changes in consumer preferences, spending and debt, 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, acquisitions;our ability to effectively manage our real estate portfolio, constraints in the capital markets, changes to our vendor credit terms, changes in our credit ratings,portfolio; interruptions and other supply chain issues; 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.,; 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); our reliance on our information technology systems; our dependence on 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 tax statutes and regulations); risks arising from our international activities.activities; 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 general economic uncertainty in key global markets and worsening of global economic conditions or low levels of economic growth. 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 1, 2020,January 30, 2021, 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. Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, for further information regarding our interest rate swaps.
As of May 2, 2020,1, 2021, we had $3.92$4.3 billion of cash, and cash equivalents and $2.40short-term investments and $0.5 billion of fixed-rate debt which includes $1.15 billion that has beenwas swapped to floating rate, and $1.25 billion from the Facility that fluctuates with each new draw or rollover based on LIBOR, resulting in a net balance exposed to interest rate changes of $1.52$3.8 billion. As of May 2, 2020,1, 2021, a 50-basis point increase in short-term interest rates would have led to an estimated $8$19 million reduction in net interest expense, and conversely a 50-basis point decrease in short-term interest rates would have led to an estimated $8$19 million increase in net interest expense.
Foreign Currency Exchange Rate Risk
We have market risk arising from changes in foreign currency exchange rates related to our International segment operations. Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, for additional information regarding these instruments.
Foreign currency exchange rate fluctuations were primarily driven by the strength of the U.S.Canadian dollar compared to the CanadianU.S. dollar compared to the prior-year period, which had a negativepositive overall impact on our revenue as these foreign currencies translated into fewermore U.S. dollars. We estimate that foreign currency exchange rate fluctuations had a net unfavorablefavorable impact of $21$64 million on our revenue in the first quarter of fiscal 2021.2022. The impact of foreign exchange rate fluctuations on our net earnings for the first quarter of fiscal 20212022 was not significant.
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 SEC’s 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 otherwise as needed.
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 2, 2020.1, 2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at May 2, 2020,1, 2021, our disclosure controls and procedures were effective.
There were no changes in internal control over financial reporting during the fiscal quarter ended May 2, 2020,1, 2021, 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 10,11, Contingencies, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
Item 1A.2.Risk FactorsUnregistered Sales of Equity Securities and Use of Proceeds
The global COVID-19 pandemic has had a material impact on our business, financial results and liquidity, and such impact could worsen and last for an unknown period of time.(c) Stock Repurchases
The COVID-19 pandemic has subjectedOn February 16, 2021, our business, operationsBoard approved a new $5.0 billion share repurchase program, which replaced the $3.0 billion share repurchase program authorized on February 23, 2019. Share repurchases prior to February 16, 2021, were made under the February 2019 $3.0 billion share repurchase program and financial conditionthereafter under the February 2021 $5.0 billion share repurchase program. For additional information, see Note 9, Repurchase of Common Stock, of the Notes to a number of risks, including, but not limited to, those discussed below:the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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 | ||||||||||||
January 31, 2021 through February 15, 2021 | 1,035,614 | $ | 114.80 | 1,035,614 | $ | 1,554,000,000 | ||||||||||
February 16, 2021 through February 27, 2021 | 1,227,169 | $ | 110.98 | 1,227,169 | $ | 4,864,000,000 | ||||||||||
February 28, 2021 through April 3, 2021 | 6,156,555 | $ | 107.20 | 6,156,555 | $ | 4,204,000,000 | ||||||||||
April 4, 2021 through May 1, 2021 | - | $ | - | - | $ | 4,204,000,000 | ||||||||||
Total | 8,419,338 | $ | 108.69 | 8,419,338 | $ | 4,204,000,000 | ||||||||||
Risks Related to Sales and Customer Demand: The significant reduction in customer visits to, and spending at, our stores since March 2020 as a result of the operational changes we have made in response to the pandemic and reduced customer demand for nonessential products and services, has negatively impacted our sales. The extent to which the pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration of the pandemic; the extent of the impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates, consumer discretionary spending and consumer confidence; actions governments, businesses and individuals take in their ongoing response to the pandemic, including the timing and nature of loosening of restrictions imposed in response to the pandemic; and our ability to successfully navigate those impacts. We have tried to mitigate the negative impact of sales declines on our profitability by lowering merchandise receipts to match demand with a focus on essential items for our customers, reducing operating costs, and extending payment terms in partnership with key merchandise vendors, but these measures may not be successful. We may not be able to meet customer demand in all of our categories due to product shortages or decisions by our vendors to allocate products to certain customers due to the circumstances resulting from the pandemic, and our vendors may increase prices, each of which may adversely impact our revenue and profitability. The pandemic has, and may continue to, negatively impact our products and services that historically have been more likely to be purchased in a physical store than online.
Risks Related to Operations: We have made a number of operational changes in light of COVID-19, including temporarily closing all of our domestic U.S. stores to customer traffic and moving them to a contactless, curbside-only model beginning on March 22, 2020. Although beginning on May 4, 2020, we began to welcome a limited number of customers back into some of our stores, many of our stores are still operating in the curbside-only model, and approximately 40 of our stores remain completely closed. Our ability to continue to sell our products and services is highly dependent on our ability to maintain the safety of our customers and those employees who are needed to work at our stores and distribution facilities. The ability of our employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19. While we are following the requirements of governmental authorities and taking preventative and protective measures to prioritize the safety of our customers and employees, these measures may not be successful, and we may be required to temporarily close distribution centers or stores, halt certain services or take other measures. In addition, any disruptions to our vendors’ ability or desire to provide products and services to us due to the pandemic, or disruptions to our internal supply chain infrastructure (such as facility closures, governmental orders restrictions movement, COVID-19 outbreaks, present and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures), may materially adversely affect our ability to meet customer demand, other aspects of our operations and our financial results. Further, as our online sales have increased, the risk of any interruption of our IT system capabilities is heightened, and any such interruption could result in a deterioration of our ability to process online sales, provide customer service, or perform other necessary business functions. Having shifted to remote working arrangements for many employees, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities. Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a particular region or our company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future. Additionally, while we have continued to prioritize the health and safety of our employees and customers as we continue to operate during the pandemic, we face an increased risk of litigation related to our operating environments. Preparing for and responding to the continuing pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our employees and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value or otherwise disrupt our business operations.
Risks Related to Profitability: To the extent COVID-19 continues to cause fundamental shifts in the channels in which customers choose to engage us, our profitability and our profitability rate may continue to be adversely impacted. For example, we may need to continue to pay rent for physical stores that are closed and not generating sales, our online mix of products and services generally produces lower gross profit rates than in-store sales, and we offer some products and services that historically are more likely to be purchased in a physical store than online. We also do not offer or have limited digital and online offerings for certain products and services, such as financing and services offerings, which have higher profitability rates. To the extent we are not able to increase the level of customer traffic in our stores or enable a more profitable mix of sales in our digital and online channels, our profitability and profitability rates may be materially negatively impacted. In addition, we expect to see continued pressure from lower profit-sharing revenue related to our private label and co-branded credit card arrangement, as the economic ramifications of COVID-19 are expected to lead to higher credit card defaults over time, which would have an adverse effect on our profitability. We have also incurred significant additional costs due to the operational changes we have made in response to the pandemic, and these costs have adversely impacted our profitability. As a result of disruptions to our supply chain, primarily due to mandatory shutdowns in locations where our products are manufactured, we are experiencing, and may continue to experience, increased costs for shipping and transportation resources. At the same time, we have continued to incur the majority of the costs to operate our stores, including rent and payroll for our employees who continue to work and, in certain cases, increased pay to field employees. If we are unable to manage these costs and supply chain disruptions, our profitability may be adversely impacted. Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our costs, for example, the need for enhanced health and hygiene requirements in one or more regions in attempts to counteract future outbreaks. As a result of decreased store traffic, certain of our stores may not generate revenue sufficient to meet operating expenses, which could adversely affect the value of our owned and leased properties, potentially requiring us to record more significant non-cash impairment charges in future periods.
Risks Related to Our Debt and Global Financing Markets: As previously disclosed, we have borrowed the full amount available under our $1.25 billion revolving credit facility to increase our cash position and maximize flexibility in light of the uncertainty surrounding the impact of COVID-19, and accordingly, our short-term debt has increased substantially since February 1, 2020, when we had no outstanding borrowings under the facility. The increase in our level of debt may adversely affect our financial
and operating activities or ability to incur additional debt. In addition, as a result of the risks described above, we may be required to raise additional capital, and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects, our credit ratings, and our business and industry outlook. There is no guarantee that debt or equity financings will be available in the future to fund our obligations, or will be available on terms consistent with our expectations.
COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identified in our Fiscal 2020 Form 10-K, which in turn could materially adversely affect our business, financial condition, liquidity, results of operations (including revenues and profitability) and/or stock price. Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Stock Repurchases
The following table presents information regarding our repurchases of common stock during the first quarter of fiscal 2021. On March 21,2020, we announced the suspension of all share repurchases given the uncertainty surrounding the impact of COVID-19.
Fiscal Period | Total Number of | Average Price Paid | Total Number of Shares Purchased as Part of Publicly Announced Program(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1) | |||||||||||
February 2, 2020 through February 29, 2020 | 613,936 | $ | 87.96 | 613,936 | $ | 1,937,000,000 | |||||||||
March 1, 2020 through April 4, 2020 | 34,725 | $ | 57.07 | 34,725 | $ | 1,935,000,000 | |||||||||
April 5, 2020 through May 2, 2020 | - | $ | 0.00 | - | $ | 1,935,000,000 | |||||||||
Total | 648,661 | $ | 86.30 | 648,661 | $ | 1,935,000,000 |
(1)Pursuant to a $3.0 billion share repurchase program that was authorized by our Board in February 2019. There is no expiration date governing the period over which we can repurchase shares under the February 2019 share repurchase program. For additional information, see Note 8, Repurchase of Common Stock, in the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
Item 6.ExhibitsExhibits
101 | The following financial information from our Quarterly Report on Form 10-Q for the first quarter of fiscal |
104 | The cover page from our Quarterly Report on Form 10-Q for the first quarter of fiscal |
*Management contracts or compensatory plans or arrangements.
(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.
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.
BEST BUY CO., INC. | ||
(Registrant) | ||
Date: | By: | /s/ CORIE BARRY |
Corie Barry | ||
Chief Executive Officer | ||
Date: | By: | /s/ MATTHEW BILUNAS |
Matthew Bilunas | ||
Chief Financial Officer | ||
Date: | By: | /s/ MATHEW R. WATSON |
Mathew R. Watson | ||
Senior Vice President, Finance – Controller and Chief Accounting Officer |