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 OctoberJuly 30, 20212022
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 240,560,898225,130,807 shares of common stock outstanding as of December 1, 2021.September 6, 2022.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED OCTOBERJULY 30, 20212022
TABLE OF CONTENTS
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Condensed Consolidated Balance Sheets as of | 3 | |||||
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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)
October 30, 2021 | January 30, 2021 | October 31, 2020 | July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||
Assets | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 3,465 | $ | 5,494 | $ | 5,136 | $ | 840 | $ | 2,936 | $ | 4,340 | ||||||||||
Short-term investments | - | - | 545 | |||||||||||||||||||
Receivables, net | 1,016 | 1,061 | 1,028 | 840 | 1,042 | 883 | ||||||||||||||||
Merchandise inventories | 8,553 | 5,612 | 7,459 | 6,043 | 5,965 | 6,417 | ||||||||||||||||
Other current assets | 486 | 373 | 383 | 621 | 596 | 400 | ||||||||||||||||
Total current assets | 13,520 | 12,540 | 14,551 | 8,344 | 10,539 | 12,040 | ||||||||||||||||
Property and equipment, net | 2,256 | 2,260 | 2,265 | 2,319 | 2,250 | 2,226 | ||||||||||||||||
Operating lease assets | 2,688 | 2,612 | 2,692 | 2,796 | 2,654 | 2,670 | ||||||||||||||||
Goodwill | 986 | 986 | 986 | 1,385 | 1,384 | 986 | ||||||||||||||||
Other assets | 652 | 669 | 708 | 575 | 677 | 657 | ||||||||||||||||
Total assets | $ | 20,102 | $ | 19,067 | $ | 21,202 | $ | 15,419 | $ | 17,504 | $ | 18,579 | ||||||||||
Liabilities and equity | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||
Accounts payable | $ | 8,405 | $ | 6,979 | $ | 9,110 | $ | 5,406 | $ | 6,803 | $ | 6,946 | ||||||||||
Unredeemed gift card liabilities | 306 | 317 | 278 | 273 | 316 | 293 | ||||||||||||||||
Deferred revenue | 977 | 711 | 788 | 1,133 | 1,103 | 854 | ||||||||||||||||
Accrued compensation and related expenses | 703 | 725 | 446 | 374 | 845 | 605 | ||||||||||||||||
Accrued liabilities | 895 | 972 | 968 | 820 | 946 | 892 | ||||||||||||||||
Short-term debt | - | 110 | - | - | - | 110 | ||||||||||||||||
Current portion of operating lease liabilities | 645 | 693 | 685 | 629 | 648 | 643 | ||||||||||||||||
Current portion of long-term debt | 15 | 14 | 670 | 15 | 13 | 14 | ||||||||||||||||
Total current liabilities | 11,946 | 10,521 | 12,945 | 8,650 | 10,674 | 10,357 | ||||||||||||||||
Long-term operating lease liabilities | 2,102 | 2,012 | 2,117 | 2,221 | 2,061 | 2,090 | ||||||||||||||||
Long-term debt | 1,223 | 1,253 | 1,256 | 1,184 | 1,216 | 1,243 | ||||||||||||||||
Long-term liabilities | 553 | 694 | 798 | 472 | 533 | 554 | ||||||||||||||||
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 - 243.8 million, 256.9 million and 258.8 million shares, respectively | 24 | 26 | 26 | |||||||||||||||||||
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none | - | - | - | |||||||||||||||||||
Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 225.1 million, 227.4 million and 247.3 million shares, respectively | 22 | 23 | 25 | |||||||||||||||||||
Additional paid-in capital | - | - | 133 | 20 | - | - | ||||||||||||||||
Retained earnings | 3,917 | 4,233 | 3,659 | 2,522 | 2,668 | 3,975 | ||||||||||||||||
Accumulated other comprehensive income | 337 | 328 | 268 | 328 | 329 | 335 | ||||||||||||||||
Total equity | 4,278 | 4,587 | 4,086 | 2,892 | 3,020 | 4,335 | ||||||||||||||||
Total liabilities and equity | $ | 20,102 | $ | 19,067 | $ | 21,202 | $ | 15,419 | $ | 17,504 | $ | 18,579 |
NOTE: The Consolidated Balance Sheet as of January 30, 2021,29, 2022, 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 | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Revenue | $ | 11,910 | $ | 11,853 | $ | 35,396 | $ | 30,325 | $ | 10,329 | $ | 11,849 | $ | 20,976 | $ | 23,486 | ||||||||||||||
Cost of sales | 9,108 | 9,058 | 27,069 | 23,295 | 8,042 | 9,039 | 16,336 | 17,961 | ||||||||||||||||||||||
Gross profit | 2,802 | 2,795 | 8,327 | 7,030 | 2,287 | 2,810 | 4,640 | 5,525 | ||||||||||||||||||||||
Selling, general and administrative expenses | 2,133 | 2,123 | 6,130 | 5,560 | 1,882 | 2,009 | 3,772 | 3,997 | ||||||||||||||||||||||
Restructuring charges | (1) | 111 | (39) | 112 | 34 | 4 | 35 | (38) | ||||||||||||||||||||||
Operating income | 670 | 561 | 2,236 | 1,358 | 371 | 797 | 833 | 1,566 | ||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Investment income and other | 1 | 5 | 7 | 19 | ||||||||||||||||||||||||||
Investment income (loss) and other | 3 | 3 | (2) | 6 | ||||||||||||||||||||||||||
Interest expense | (7) | (11) | (19) | (43) | (7) | (6) | (13) | (12) | ||||||||||||||||||||||
Earnings before income tax expense and equity in income of affiliates | 664 | 555 | 2,224 | 1,334 | ||||||||||||||||||||||||||
Earnings before income tax expense and equity in income (loss) of affiliates | 367 | 794 | 818 | 1,560 | ||||||||||||||||||||||||||
Income tax expense | 166 | 164 | 402 | 352 | 58 | 64 | 168 | 236 | ||||||||||||||||||||||
Equity in income of affiliates | 1 | - | 6 | - | ||||||||||||||||||||||||||
Equity in income (loss) of affiliates | (3) | 4 | (3) | 5 | ||||||||||||||||||||||||||
Net earnings | $ | 499 | $ | 391 | $ | 1,828 | $ | 982 | $ | 306 | $ | 734 | $ | 647 | $ | 1,329 | ||||||||||||||
Basic earnings per share | $ | 2.02 | $ | 1.50 | $ | 7.31 | $ | 3.79 | $ | 1.36 | $ | 2.93 | $ | 2.86 | $ | 5.28 | ||||||||||||||
Diluted earnings per share | $ | 2.00 | $ | 1.48 | $ | 7.23 | $ | 3.74 | $ | 1.35 | $ | 2.90 | $ | 2.85 | $ | 5.22 | ||||||||||||||
Weighted-average common shares outstanding: | ||||||||||||||||||||||||||||||
Basic | 246.4 | 259.8 | 249.9 | 259.3 | 225.4 | 250.2 | 226.1 | 251.7 | ||||||||||||||||||||||
Diluted | 249.1 | 263.7 | 252.9 | 262.5 | 226.1 | 252.8 | 227.2 | 254.7 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Income
$ in millions (unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Net earnings | $ | 499 | $ | 391 | $ | 1,828 | $ | 982 | $ | 306 | $ | 734 | $ | 647 | $ | 1,329 | ||||||||||||||
Foreign currency translation adjustments, net of tax | 2 | 10 | 9 | (25) | - | (3) | (1) | 7 | ||||||||||||||||||||||
Cash flow hedges | - | 2 | - | (2) | ||||||||||||||||||||||||||
Comprehensive income | $ | 501 | $ | 403 | $ | 1,837 | $ | 955 | $ | 306 | $ | 731 | $ | 646 | $ | 1,336 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
$ in millions (unaudited)
Nine Months Ended | Six Months Ended | |||||||||||||
October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | |||||||||||
Operating activities | ||||||||||||||
Net earnings | $ | 1,828 | $ | 982 | $ | 647 | $ | 1,329 | ||||||
Adjustments to reconcile net earnings to total cash provided by operating activities: | ||||||||||||||
Adjustments to reconcile net earnings to total cash provided by (used in) operating activities: | Adjustments to reconcile net earnings to total cash provided by (used in) operating activities: | |||||||||||||
Depreciation and amortization | 644 | 628 | 453 | 430 | ||||||||||
Restructuring charges | (39) | 112 | 35 | (38) | ||||||||||
Stock-based compensation | 105 | 107 | 65 | 71 | ||||||||||
Deferred income taxes | (16) | 19 | ||||||||||||
Other, net | 3 | 10 | 19 | 2 | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Changes in operating assets and liabilities, net of acquired assets and liabilities: | Changes in operating assets and liabilities, net of acquired assets and liabilities: | |||||||||||||
Receivables | 43 | 106 | 201 | 175 | ||||||||||
Merchandise inventories | (2,924) | (2,300) | (79) | (794) | ||||||||||
Other assets | (12) | (60) | (13) | (19) | ||||||||||
Accounts payable | 1,387 | 3,824 | (1,434) | (58) | ||||||||||
Income taxes | (172) | 121 | 42 | (162) | ||||||||||
Other liabilities | 214 | 358 | (645) | (72) | ||||||||||
Total cash provided by operating activities | 1,061 | 3,907 | ||||||||||||
Total cash provided by (used in) operating activities | (709) | 864 | ||||||||||||
Investing activities | ||||||||||||||
Additions to property and equipment | (548) | (534) | (441) | (323) | ||||||||||
Purchases of investments | (221) | (620) | (46) | (93) | ||||||||||
Sales of investments | 64 | - | 2 | 60 | ||||||||||
Other, net | (2) | 1 | 1 | (2) | ||||||||||
Total cash used in investing activities | (707) | (1,153) | (484) | (358) | ||||||||||
Financing activities | ||||||||||||||
Repurchase of common stock | (1,728) | (62) | (465) | (1,323) | ||||||||||
Issuance of common stock | 28 | 28 | ||||||||||||
Dividends paid | (522) | (426) | (397) | (350) | ||||||||||
Borrowings of debt | - | 1,892 | ||||||||||||
Repayments of debt | (123) | (1,261) | ||||||||||||
Other, net | (2) | (1) | 1 | 11 | ||||||||||
Total cash provided by (used in) financing activities | (2,347) | 170 | ||||||||||||
Total cash used in financing activities | (861) | (1,662) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 6 | (8) | 1 | 5 | ||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | (1,987) | 2,916 | ||||||||||||
Decrease in cash, cash equivalents and restricted cash | (2,053) | (1,151) | ||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | 5,625 | 2,355 | 3,205 | 5,625 | ||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 3,638 | $ | 5,271 | $ | 1,152 | $ | 4,474 |
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 | |||||||||||||||||||||||||||||||||||||||||
Balances at April 30, 2022 | 224.6 | $ | 22 | $ | - | $ | 2,417 | $ | 328 | $ | 2,767 | |||||||||||||||||||||||||||||||||||
Net earnings, three months ended July 30, 2022 | - | - | - | 306 | - | 306 | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 26 | - | - | 26 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 0.6 | - | 1 | - | - | 1 | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends, $0.88 per share | - | - | 3 | (201) | - | (198) | ||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (0.1) | - | (10) | - | - | (10) | ||||||||||||||||||||||||||||||||||||||||
Balances at July 30, 2022 | 225.1 | $ | 22 | $ | 20 | $ | 2,522 | $ | 328 | $ | 2,892 | |||||||||||||||||||||||||||||||||||
Balances at January 29, 2022 | 227.4 | $ | 23 | $ | - | $ | 2,668 | $ | 329 | $ | 3,020 | |||||||||||||||||||||||||||||||||||
Net earnings, six months ended July 30, 2022 | - | - | - | 647 | - | 647 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | (1) | (1) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 65 | - | - | 65 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 2.3 | - | 10 | - | - | 10 | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends, $1.76 per share | - | - | 7 | (404) | - | (397) | ||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (4.6) | (1) | (62) | (389) | - | (452) | ||||||||||||||||||||||||||||||||||||||||
Balances at July 30, 2022 | 225.1 | $ | 22 | $ | 20 | $ | 2,522 | $ | 328 | $ | 2,892 | |||||||||||||||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||||||||||
Balances at July 31, 2021 | 247.3 | $ | 25 | $ | - | $ | 3,975 | $ | 335 | $ | 4,335 | |||||||||||||||||||||||||||||||||||
Net earnings, three months ended October 30, 2021 | - | - | - | 499 | - | 499 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||
Balances at May 1, 2021 | 250.4 | $ | 25 | $ | 33 | $ | 3,762 | $ | 338 | $ | 4,158 | |||||||||||||||||||||||||||||||||||
Net earnings, three months ended July 31, 2021 | - | - | - | 734 | - | 734 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | 2 | 2 | - | - | - | - | (3) | (3) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 34 | - | - | 34 | - | - | 34 | - | - | 34 | ||||||||||||||||||||||||||||||||||
Issuance of common stock | 0.2 | - | 6 | - | - | 6 | 0.6 | - | 3 | - | - | 3 | ||||||||||||||||||||||||||||||||||
Common stock dividends, $0.70 per share | - | - | 3 | (175) | - | (172) | - | - | 5 | (180) | - | (175) | ||||||||||||||||||||||||||||||||||
Repurchase of common stock | (3.7) | (1) | (43) | (382) | - | (426) | (3.7) | - | (75) | (341) | - | (416) | ||||||||||||||||||||||||||||||||||
Balances at October 30, 2021 | 243.8 | $ | 24 | $ | - | $ | 3,917 | $ | 337 | $ | 4,278 | |||||||||||||||||||||||||||||||||||
Balances at July 31, 2021 | 247.3 | $ | 25 | $ | - | $ | 3,975 | $ | 335 | $ | 4,335 | |||||||||||||||||||||||||||||||||||
Balances at January 30, 2021 | 256.9 | $ | 26 | $ | - | $ | 4,233 | $ | 328 | $ | 4,587 | 256.9 | $ | 26 | $ | - | $ | 4,233 | $ | 328 | $ | 4,587 | ||||||||||||||||||||||||
Net earnings, nine months ended October 30, 2021 | - | - | - | 1,828 | - | 1,828 | ||||||||||||||||||||||||||||||||||||||||
Net earnings, six months ended July 31, 2021 | - | - | - | 1,329 | - | 1,329 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | 9 | 9 | - | - | - | - | 7 | 7 | ||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 105 | - | - | 105 | - | - | 71 | - | - | 71 | ||||||||||||||||||||||||||||||||||
Issuance of common stock | 2.7 | - | 28 | - | - | 28 | 2.5 | - | 22 | - | - | 22 | ||||||||||||||||||||||||||||||||||
Common stock dividends, $2.10 per share | - | - | 11 | (533) | - | (522) | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends, $1.40 per share | - | - | 8 | (358) | - | (350) | ||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (15.8) | (2) | (144) | (1,611) | - | (1,757) | (12.1) | (1) | (101) | (1,229) | - | (1,331) | ||||||||||||||||||||||||||||||||||
Balances at October 30, 2021 | 243.8 | $ | 24 | $ | - | $ | 3,917 | $ | 337 | $ | 4,278 | |||||||||||||||||||||||||||||||||||
Balances at August 1, 2020 | 258.8 | $ | 26 | $ | 83 | $ | 3,413 | $ | 256 | $ | 3,778 | |||||||||||||||||||||||||||||||||||
Net earnings, three months ended October 31, 2020 | - | - | - | 391 | - | 391 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | 10 | 10 | ||||||||||||||||||||||||||||||||||||||||
Cash flow hedges | - | - | - | - | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 41 | - | - | 41 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | - | - | 6 | - | - | 6 | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends, $0.55 per share | - | - | 3 | (145) | - | (142) | ||||||||||||||||||||||||||||||||||||||||
Balances at October 31, 2020 | 258.8 | $ | 26 | $ | 133 | $ | 3,659 | $ | 268 | $ | 4,086 | |||||||||||||||||||||||||||||||||||
Balances at February 1, 2020 | 256.5 | $ | 26 | $ | - | $ | 3,158 | $ | 295 | $ | 3,479 | |||||||||||||||||||||||||||||||||||
Net earnings, nine months ended October 31, 2020 | - | - | - | 982 | - | 982 | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | (25) | (25) | ||||||||||||||||||||||||||||||||||||||||
Cash flow hedges | - | - | - | - | (2) | (2) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 106 | - | - | 106 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 2.9 | - | 28 | - | - | 28 | ||||||||||||||||||||||||||||||||||||||||
Common stock dividends, $1.65 per share | - | - | 7 | (433) | - | (426) | ||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (0.6) | - | (8) | (48) | - | (56) | ||||||||||||||||||||||||||||||||||||||||
Balances at October 31, 2020 | 258.8 | $ | 26 | $ | 133 | $ | 3,659 | $ | 268 | $ | 4,086 | |||||||||||||||||||||||||||||||||||
Balances at July 31, 2021 | 247.3 | $ | 25 | $ | - | $ | 3,975 | $ | 335 | $ | 4,335 |
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 StatesU.S. (“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 is now comprised of operations in Canada. Refer to Note 2, Restructuring, for additional information.
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.
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.season. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.29, 2022. The first ninesix months of fiscal 20222023 and fiscal 20212022 included 3926 weeks.
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from OctoberJuly 30, 2021,2022, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. Other than the acquisitions described in Note 13, Subsequent Events,Inflation Reduction Act of 2022 that was enacted on August 16, 2022, no such events were identified for the reported periods. See Note 10, Income Taxes, for additional information.
Total Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash reported on our Condensed Consolidated Balance Sheets are reconciled to the total shown on our Condensed Consolidated Statements of Cash Flows as follows ($ in millions):
October 30, 2021 | January 30, 2021 | October 31, 2020 | July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||
Cash and cash equivalents | $ | 3,465 | $ | 5,494 | $ | 5,136 | $ | 840 | $ | 2,936 | $ | 4,340 | ||||||||||
Restricted cash included in Other current assets | 173 | 131 | 135 | 312 | 269 | 134 | ||||||||||||||||
Total cash, cash equivalents and restricted cash | $ | 3,638 | $ | 5,625 | $ | 5,271 | $ | 1,152 | $ | 3,205 | $ | 4,474 |
Amounts included in restricted cash are primarily restricted to use for workers’ compensation and general liability insurance claims, andcover product protection plans provided under our Best Buy TotaltechTM membership offering.offering and self-insurance liabilities.
2. Restructuring
Restructuring charges were as follows ($ in millions):
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||||||||
Fiscal 2023 Resource Optimization Initiative | Fiscal 2023 Resource Optimization Initiative | $ | 34 | $ | - | $ | 34 | $ | - | ||||||||||||||||||||||||||||||
Mexico Exit and Strategic Realignment(1) | Mexico Exit and Strategic Realignment(1) | $ | (1) | $ | 148 | $ | (45) | $ | 148 | Mexico Exit and Strategic Realignment(1) | - | 4 | 1 | (44) | |||||||||||||||||||||||||
Fiscal 2020 U.S. Retail Operating Model Changes | - | (1) | - | - | |||||||||||||||||||||||||||||||||||
Total | $ | (1) | $ | 147 | $ | (45) | $ | 148 | Total | $ | 34 | $ | 4 | $ | 35 | $ | (44) |
(1)Includes ($6) million related to inventory markdowns recorded in Cost of salesSales on our Condensed Consolidated Statements of Earnings of ($6) million for the ninesix months ended OctoberJuly 31, 2021.
Fiscal 2023 Resource Optimization Initiative
In light of ongoing changes in business trends, during the second quarter of fiscal 2023, we commenced an enterprise-wide initiative to better align our spending with critical strategies and operations, as well as to optimize our cost structure. We incurred $34 million of charges in our Domestic segment related to termination benefits. We currently expect to incur additional charges through the remainder of fiscal 2023, primarily within our Domestic segment, of approximately $40 million to $65 million related to this initiative.
All charges incurred related to this plan were from continuing operations and were presented within Restructuring charges on our Condensed Consolidated Statements of Earnings. There were $1 million of cash payments related to this initiative during the second quarter of fiscal 2023, and our remaining termination benefits liability as of July 30, 2021, and $36 million for the three and nine months ended October 31, 2020.2022, was $33 million.
Mexico Exit and Strategic Realignment
In March 2020 the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. 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. All remainingof our former stores in Mexico were closed inas of the first quarter of fiscal 2022 and we do not expect to incur material future restructuring charges related to the exit.2022.
Charges incurred in our Domestic segment primarily related to actions taken to align our organizational structure in support of our strategy. During the ninesix months ended October 30,July 31, 2021, we recorded a $44 million credit primarily due to a reduction in expected termination benefits resulting from adjustments to previously planned organizational changes and higher-than-expected employee retention.
As we continue to evolve our Building the New Blue Strategy, it is possible that we will incur material future restructuring costs, but we are unable to forecast the timing and magnitude of such costs.
All charges incurred related to the exit from Mexico and strategic realignment described abovethis plan were from continuing operations and were presented as follows ($ in millions):
Statement of | Three Months Ended October 30, 2021 | Nine Months Ended October 30, 2021 | Statement of | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Location | Domestic | International | Total | Domestic | International | Total | Earnings Location | Domestic | International | Total | Domestic | International | Total | ||||||||||||||||||||||||||||||||||||||||||
Inventory markdowns | Cost of sales | $ | - | $ | - | $ | - | $ | - | $ | (6) | $ | (6) | Cost of sales | $ | - | $ | - | $ | - | $ | - | $ | (6) | $ | (6) | |||||||||||||||||||||||||||||
Asset impairments | Restructuring charges | - | (1) | (1) | - | 6 | 6 | Restructuring charges | - | 4 | 4 | - | 7 | 7 | |||||||||||||||||||||||||||||||||||||||||
Termination benefits | Restructuring charges | - | - | - | (44) | (1) | (45) | Restructuring charges | - | - | - | (44) | (1) | (45) | |||||||||||||||||||||||||||||||||||||||||
$ | - | $ | (1) | $ | (1) | $ | (44) | $ | (1) | $ | (45) | $ | - | $ | 4 | $ | 4 | $ | (44) | $ | - | $ | (44) |
Statement of | Three and Nine Months Ended October 31, 2020 | ||||||||||||||||||||||||||||||
Earnings Location | Domestic | International | Total | ||||||||||||||||||||||||||||
Inventory markdowns | Cost of sales | $ | - | $ | 36 | $ | 36 | ||||||||||||||||||||||||
Asset impairments | Restructuring charges | 10 | 48 | 58 | |||||||||||||||||||||||||||
Termination benefits | Restructuring charges | 36 | 18 | 54 | |||||||||||||||||||||||||||
$ | 46 | $ | 102 | $ | 148 | ||||||||||||||||||||||||||
Statement of | Cumulative Amount as of October 30, 2021 | Statement of | Cumulative Amount as of July 30, 2022 | ||||||||||||||||||||||||||||
Earnings Location | Domestic | International | Total | Earnings Location | Domestic | International | Total | ||||||||||||||||||||||||
Inventory markdowns | Cost of sales | $ | - | $ | 17 | $ | 17 | Cost of sales | $ | - | $ | 17 | $ | 17 | |||||||||||||||||
Asset impairments(1) | Restructuring charges | 10 | 63 | 73 | Restructuring charges | 10 | 63 | 73 | |||||||||||||||||||||||
Termination benefits | Restructuring charges | 79 | 19 | 98 | Restructuring charges | 83 | 19 | 102 | |||||||||||||||||||||||
Currency translation adjustment | Restructuring charges | - | 39 | 39 | Restructuring charges | - | 39 | 39 | |||||||||||||||||||||||
Other(2) | Restructuring charges | - | 5 | 5 | Restructuring charges | - | 6 | 6 | |||||||||||||||||||||||
$ | 89 | $ | 143 | $ | 232 | $ | 93 | $ | 144 | $ | 237 |
(1)Remaining net carrying value approximates fair value and was immaterial as of OctoberJuly 30, 2021.2022.
(2)Other charges are primarily comprised of contract termination costs.
Restructuring accrual activityWe do not expect to incur material future restructuring charges related to the exit from Mexico andor strategic realignment initiatives described above, wasand no material liability remains as of July 30, 2022.
3. Goodwill and Intangible Assets
Goodwill
Goodwill balances by reportable segment were as follows ($ in millions):
Termination Benefits | |||||||||||
Domestic | International | Total | |||||||||
Balances at February 1, 2020 | $ | - | $ | - | $ | - | |||||
Charges | 36 | 18 | 54 | ||||||||
Cash payments | (7) | - | (7) | ||||||||
Balances at October 31, 2020 | $ | 29 | $ | 18 | $ | 47 | |||||
Balances at January 30, 2021 | $ | 104 | $ | 20 | $ | 124 | |||||
Cash payments | (54) | (17) | (71) | ||||||||
Adjustments(1) | (44) | (1) | (45) | ||||||||
Changes in foreign currency exchange rates | - | (1) | (1) | ||||||||
Balances at October 30, 2021 | $ | 6 | $ | 1 | $ | 7 |
(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.
Fiscal 2020 U.S. Retail Operating Model Changes
July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||||||
Gross Carrying Amount | Cumulative Impairment | Gross Carrying Amount | Cumulative Impairment | Gross Carrying Amount | Cumulative Impairment | ||||||||||||||||||
Domestic | $ | 1,452 | $ | (67) | $ | 1,451 | $ | (67) | $ | 1,053 | $ | (67) | |||||||||||
International | 608 | (608) | 608 | (608) | 608 | (608) | |||||||||||||||||
Total | $ | 2,060 | $ | (675) | $ | 2,059 | $ | (675) | $ | 1,661 | $ | (675) |
No impairment charges were recorded during the periods presented.
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 benefitsDefinite-Lived Intangible Assets
We have definite-lived intangible assets that are recorded within our Domestic segment and were presented within Restructuring charges from continuing operationsOther assets on our Condensed Consolidated Statements of Earnings. As of October 30, 2021, the cumulative amount of charges incurred was $41 million and 0 material liability remains.Balance Sheets as follows ($ in millions):
July 30, 2022 | January 29, 2022 | July 31, 2021 | Weighted-Average | ||||||||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | Useful Life Remaining as of July 30, 2022 (in years) | |||||||||||||||||||||
Customer relationships | $ | 360 | $ | 208 | $ | 360 | $ | 180 | $ | 339 | $ | 152 | 7.7 | ||||||||||||||
Tradenames | 108 | 47 | 108 | 38 | 81 | 31 | 5.5 | ||||||||||||||||||||
Developed technology | 64 | 46 | 64 | 39 | 56 | 32 | 2.7 | ||||||||||||||||||||
Total | $ | 532 | $ | 301 | $ | 532 | $ | 257 | $ | 476 | $ | 215 | 6.8 |
3. Goodwill and Intangible Assets
Goodwill
Balances related to goodwill remained unchanged as of October 30, 2021, January 30, 2021, and October 31, 2020, 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.
Definite-Lived Intangible Assets
We have definite-lived intangible assets recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):
October 30, 2021 | January 30, 2021 | October 31, 2020 | Weighted-Average | ||||||||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | Useful Life Remaining as of October 30, 2021 (in years) | |||||||||||||||||||||
Customer relationships | $ | 339 | $ | 165 | $ | 339 | $ | 124 | $ | 339 | $ | 111 | 6.5 | ||||||||||||||
Tradenames | 81 | 34 | 81 | 24 | 81 | 20 | 4.3 | ||||||||||||||||||||
Developed technology | 56 | 36 | 56 | 27 | 56 | 24 | 1.9 | ||||||||||||||||||||
Total | $ | 476 | $ | 235 | $ | 476 | $ | 175 | $ | 476 | $ | 155 | 5.7 |
Amortization expense was as follows ($ in millions):
Statement of | Three Months Ended | Nine Months Ended | |||||||||||||||||||
Earnings Location | October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | |||||||||||||||||
Amortization expense | SG&A | $ | 20 | $ | 20 | $ | 60 | $ | 60 |
Statement of | Three Months Ended | Six Months Ended | |||||||||||||||||||
Earnings Location | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||
Amortization expense | SG&A | $ | 22 | $ | 20 | $ | 44 | $ | 40 |
Amortization expense expected to be recognized in future periods is as follows ($ in millions):
Amortization Expense | |||||||||||||||||||||||||||
Remainder of fiscal |
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Fiscal 2025 |
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Fiscal 2028 | 12 | ||||||||||||||||||||||||||
Thereafter |
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4. 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 | October 30, 2021 | January 30, 2021 | October 31, 2020 | Balance Sheet Location(1) | Fair Value Hierarchy | July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Money market funds(2) | Cash and cash equivalents | Level 1 | $ | 313 | $ | 1,575 | $ | 4,119 | Cash and cash equivalents | Level 1 | $ | 1 | $ | 548 | $ | 1,113 | ||||||||||||||||||||
Time deposits(3) | Cash and cash equivalents | Level 2 | 625 | 865 | 84 | Cash and cash equivalents | Level 2 | 26 | 278 | 625 | ||||||||||||||||||||||||||
Money market funds(2) | Other current assets | Level 1 | 125 | - | - | |||||||||||||||||||||||||||||||
Time deposits(3) | Short-term investments | Level 2 | - | - | 545 | Other current assets | Level 2 | - | - | 65 | ||||||||||||||||||||||||||
Time deposits(3) | Other current assets | Level 2 | - | 65 | 100 | |||||||||||||||||||||||||||||||
Marketable securities that fund deferred compensation(4) | Other assets | Level 1 | 48 | 54 | 54 | |||||||||||||||||||||||||||||||
Interest rate swap derivative instruments | Other current assets | Level 2 | - | - | 7 | Other assets | Level 2 | 19 | 50 | 79 | ||||||||||||||||||||||||||
Interest rate swap derivative instruments(4) | Other assets | Level 2 | 58 | 91 | 95 | |||||||||||||||||||||||||||||||
Marketable securities that fund deferred compensation(5) | Other assets | Level 1 | 54 | 53 | 51 |
(1)Balance sheet location is determined by length to maturity.maturity at date of purchase.
(2)Valued at quoted market prices in active markets.markets at period end.
(3)Valued at face value plus accrued interest at period end, which approximates fair value.
(4)Valued using the performance of mutual funds that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.
(5)Valued using readily observable market inputs. These instruments are custom, over-the-counter contracts with various bank counterparties that are not traded on an active market. See Note 5, Derivative Instruments, for additional information.
(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, restricted cash, receivables, accounts payable, short-term debt and other payables approximated their carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. Fair values for other investmentsinstruments 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):
October 30, 2021 | January 30, 2021 | October 31, 2020 | |||||||||||||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||||
Long-term debt(1) | $ | 1,257 | $ | 1,208 | $ | 1,331 | $ | 1,241 | $ | 1,954 | $ | 1,902 |
July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||||
Long-term debt(1) | $ | 1,069 | $ | 1,169 | $ | 1,205 | $ | 1,200 | $ | 1,306 | $ | 1,229 |
(1)ExcludesExcluded debt discounts, issuance costs and finance lease obligations.
5. 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. We also useoperations and by using interest rate swaps to mitigate the effect of interest rate fluctuations on our $650 million principal amount of notes due March 15, 2021 (“2021 Notes”), prior to their retirement in December 2020, and on our $500 million principal amount of notes due October 1, 2028 (“2028 Notes”). In addition, we use foreign currency forward contracts not designated as hedging instruments to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies.
Our derivative instruments designated as net investment hedges and interest rate swaps are recorded on our Condensed Consolidated Balance Sheets at fair value. See Note 4, Fair Value Measurements, for gross fair values of our outstanding derivative instruments and corresponding fair value classifications.
Notional amounts of our derivative instruments were as follows ($ in millions):
Contract Type | October 30, 2021 | January 30, 2021 | October 31, 2020 | ||||||||||
Derivatives designated as net investment hedges | $ | 125 | $ | 153 | $ | 68 | |||||||
Derivatives designated as interest rate swaps | 500 | 500 | 1,150 | ||||||||||
No hedge designation (foreign exchange contracts) | 106 | 51 | 81 | ||||||||||
Total | $ | 731 | $ | 704 | $ | 1,299 |
Contract Type | July 30, 2022 | January 29, 2022 | July 31, 2021 | ||||||||||
Derivatives designated as net investment hedges | $ | 118 | $ | 155 | $ | 109 | |||||||
Derivatives designated as interest rate swaps | 500 | 500 | 500 | ||||||||||
No hedge designation (foreign exchange contracts) | 65 | 68 | 46 | ||||||||||
Total | $ | 683 | $ | 723 | $ | 655 | |||||||
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 | Nine Months Ended | Statement of | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
Statement of Earnings Location | October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | Earnings Location | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||||||||
Interest rate swap contracts | Interest expense | $ | (21) | $ | (32) | $ | (33) | $ | 13 | Interest expense | $ | 14 | $ | 14 | $ | (31) | $ | (12) | ||||||||||||||||||||
Adjustments to carrying value of long-term debt | Interest expense | 21 | 32 | 33 | (13) | Interest expense | (14) | (14) | 31 | 12 | ||||||||||||||||||||||||||||
Total | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
6. Debt
Short-Term Debt
U.S. Revolving Credit Facility
On May 18, 2021, we entered intoWe have a $1.25 billion, five year senior unsecured revolving credit facility agreement (the “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. There were 0no borrowings outstanding under the Five-Year Facility Agreement as of OctoberJuly 30, 2021,2022, January 29, 2022, or the Previous Facility as of January 30, 2021, and OctoberJuly 31, 2020.2021.
Bank Advance
In conjunction with a solar energy investment, we were advanced $110 million due October 31, 2021. The advance was recorded within Short-term debt on our Condensed Consolidated Balance Sheets as of January 30,July 31, 2021, and bore interest at 0.14%. This advance was repaid on October 29, 2021.
Long-Term Debt
Long-term debt consisted of the following ($ in millions):
July 30, 2022 | January 29, 2022 | July 31, 2021 | ||||||||||||||||||||||||||||||
October 30, 2021 | January 30, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
2021 Notes | $ | - | $ | - | $ | 650 | ||||||||||||||||||||||||||
2028 Notes | 500 | 500 | 500 | |||||||||||||||||||||||||||||
2030 Notes | 650 | 650 | 650 | |||||||||||||||||||||||||||||
Notes, 4.45%, due October 1, 2028 | $ | 500 | $ | 500 | $ | 500 | ||||||||||||||||||||||||||
Notes, 1.95%, due October 1, 2030 | 650 | 650 | 650 | |||||||||||||||||||||||||||||
Interest rate swap valuation adjustments | Interest rate swap valuation adjustments | 58 | 91 | 102 | 19 | 50 | 79 | |||||||||||||||||||||||||
Subtotal | Subtotal | 1,208 | 1,241 | 1,902 | 1,169 | 1,200 | 1,229 | |||||||||||||||||||||||||
Debt discounts and issuance costs | Debt discounts and issuance costs | (11) | (12) | (13) | (10) | (11) | (12) | |||||||||||||||||||||||||
Finance lease obligations | Finance lease obligations | 41 | 38 | 37 | 40 | 40 | 40 | |||||||||||||||||||||||||
Total long-term debt | Total long-term debt | 1,238 | 1,267 | 1,926 | 1,199 | 1,229 | 1,257 | |||||||||||||||||||||||||
Less current portion | Less current portion | 15 | 14 | 670 | 15 | 13 | 14 | |||||||||||||||||||||||||
Total long-term debt, less current portion | Total long-term debt, less current portion | $ | 1,223 | $ | 1,253 | $ | 1,256 | $ | 1,184 | $ | 1,216 | $ | 1,243 |
See Note 4, Fair Value Measurements, for the fair value of long-term debt.
7. Revenue
We generate substantially all of our revenue from contracts with customers for the sale of products and services. Contract balances primarily consist of receivables and liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards,unfulfilled membership benefits and services not yet completed, unredeemed gift cards and options that provide a material right to customers, such as our customer loyalty programs. Contract balances were as follows ($ in millions):
October 30, 2021 | January 30, 2021 | October 31, 2020 | July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||
Receivables, net(1) | $ | 638 | $ | 618 | $ | 625 | $ | 534 | $ | 591 | $ | 528 | ||||||||||
Short-term contract liabilities included in: | ||||||||||||||||||||||
Unredeemed gift card liabilities | 306 | 317 | 278 | 273 | 316 | 293 | ||||||||||||||||
Deferred revenue | 977 | 711 | 788 | 1,133 | 1,103 | 854 | ||||||||||||||||
Accrued liabilities | 88 | 71 | 71 | 78 | 83 | 79 |
(1)Receivables are recorded net of allowances for doubtful accounts of $24$21 million, $32$31 million and $30$24 million as of OctoberJuly 30, 2021,2022, January 30,29, 2022, and July 31, 2021, and October 31, 2020, respectively.
During the first ninesix months of fiscal 20222023 and fiscal 2021, $1,0012022, $1,089 million and $792$866 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.
See Note 12, Segments, for information on our revenue by reportable segment and product category.
8. Earnings per Share
We compute our basic earnings per share based on the weighted-average number of common shares outstanding and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued.
Reconciliations of the numerators and denominators of basic and diluted earnings per share were as follows ($ and shares in millions, except per share amounts):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Numerator | ||||||||||||||||||||||||||||||
Net earnings | $ | 499 | $ | 391 | $ | 1,828 | $ | 982 | $ | 306 | $ | 734 | $ | 647 | $ | 1,329 | ||||||||||||||
Denominator | ||||||||||||||||||||||||||||||
Weighted-average common shares outstanding | 246.4 | 259.8 | 249.9 | 259.3 | 225.4 | 250.2 | 226.1 | 251.7 | ||||||||||||||||||||||
Dilutive effect of stock compensation plan awards | 2.7 | 3.9 | 3.0 | 3.2 | 0.7 | 2.6 | 1.1 | 3.0 | ||||||||||||||||||||||
Weighted-average common shares outstanding, assuming dilution | 249.1 | 263.7 | 252.9 | 262.5 | 226.1 | 252.8 | 227.2 | 254.7 | ||||||||||||||||||||||
Potential shares which were anti-dilutive and excluded from weighted-average share computations | Potential shares which were anti-dilutive and excluded from weighted-average share computations | 2.1 | - | 1.9 | - | |||||||||||||||||||||||||
Basic earnings per share | $ | 2.02 | $ | 1.50 | $ | 7.31 | $ | 3.79 | $ | 1.36 | $ | 2.93 | $ | 2.86 | $ | 5.28 | ||||||||||||||
Diluted earnings per share | $ | 2.00 | $ | 1.48 | $ | 7.23 | $ | 3.74 | $ | 1.35 | $ | 2.90 | $ | 2.85 | $ | 5.22 |
9. Repurchase of Common Stock
On February 16, 2021,28, 2022, our Board of Directors approved a new $5.0 billion share repurchase program, which replaced the $5.0 billion share repurchase program authorized on February 16, 2021. There is no expiration date governing the period over which we can repurchase shares under this authorization. We temporarily suspended all shareShare repurchases from March to Novemberwere paused during the second quarter of fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties. On August 24, 2021, we announced our plan to repurchase more than $2.5 billion of shares in fiscal 2022.2023.
Information regarding the shares we repurchased and retired was as follows ($ and shares in millions, except per share amounts):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Total cost of shares repurchased | $ | 426 | $ | - | $ | 1,757 | $ | 56 | $ | 10 | $ | 416 | $ | 452 | $ | 1,331 | ||||||||||||||
Average price per share | $ | 115.94 | $ | - | $ | 111.33 | $ | 86.30 | $ | 83.71 | $ | 112.75 | $ | 96.83 | $ | 109.92 | ||||||||||||||
Number of shares repurchased | 3.7 | - | 15.8 | 0.6 | 0.1 | 3.7 | 4.6 | 12.1 |
As of OctoberJuly 30, 2021, $3.42022, $4.7 billion of the $5.0 billion share repurchase authorization was available.Between the end of the third quarter of fiscal 2022 on October 30, 2021, and December 1, 2021, we repurchased an incremental 3.6 million shares of our common stock at a cost of $452 million.
10. Income Taxes
Unrecognized Tax Benefits
Our income tax returns are routinely examined by domestic and foreign tax authorities. During the second quarter of fiscal 2022, we reduced our unrecognized tax benefits by $101 million relating to multi-jurisdiction, multi-year, non-cash benefits from the resolution of certain discrete tax matters, all of which resulted in a tax benefit inbenefit.
Inflation Reduction Act of 2022
On August 16, 2022, the second quarter.U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.
11. Contingencies
We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected on our Condensed Consolidated Financial Statements. However, there are cases where liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. We provide disclosure of matters where we believe it is reasonably possible the impact may be material to our Condensed Consolidated Financial Statements.
12. Segments
Reportable segment and product category revenue information was as follows ($ in millions):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||||||||||
Revenue by reportable segment | ||||||||||||||||||||||||||||||||||||||
Domestic | $ | 10,985 | $ | 10,850 | $ | 32,837 | $ | 27,893 | $ | 9,569 | $ | 11,011 | $ | 19,463 | $ | 21,852 | ||||||||||||||||||||||
International | 925 | 1,003 | 2,559 | 2,432 | 760 | 838 | 1,513 | 1,634 | ||||||||||||||||||||||||||||||
Total revenue | $ | 11,910 | $ | 11,853 | $ | 35,396 | $ | 30,325 | $ | 10,329 | $ | 11,849 | $ | 20,976 | $ | 23,486 | ||||||||||||||||||||||
Revenue by product category | ||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||
Computing and Mobile Phones | $ | 4,901 | $ | 5,059 | $ | 14,460 | $ | 13,130 | $ | 3,964 | $ | 4,765 | $ | 8,249 | $ | 9,558 | ||||||||||||||||||||||
Consumer Electronics | 3,346 | 3,197 | 9,964 | 8,090 | 2,845 | 3,380 | 5,741 | 6,618 | ||||||||||||||||||||||||||||||
Appliances | 1,628 | 1,478 | 4,864 | 3,703 | 1,657 | 1,688 | 3,247 | 3,237 | ||||||||||||||||||||||||||||||
Entertainment | 527 | 509 | 1,755 | 1,430 | 508 | 560 | 1,081 | 1,228 | ||||||||||||||||||||||||||||||
Services | 541 | 578 | 1,667 | 1,461 | 516 | 570 | 1,005 | 1,126 | ||||||||||||||||||||||||||||||
Other | 42 | 29 | 127 | 79 | 79 | 48 | 140 | 85 | ||||||||||||||||||||||||||||||
Total Domestic revenue | $ | 10,985 | $ | 10,850 | $ | 32,837 | $ | 27,893 | $ | 9,569 | $ | 11,011 | $ | 19,463 | $ | 21,852 | ||||||||||||||||||||||
International: | ||||||||||||||||||||||||||||||||||||||
Computing and Mobile Phones | $ | 462 | $ | 531 | $ | 1,230 | $ | 1,211 | $ | 327 | $ | 373 | $ | 671 | $ | 767 | ||||||||||||||||||||||
Consumer Electronics | 253 | 265 | 720 | 663 | 223 | 250 | 436 | 467 | ||||||||||||||||||||||||||||||
Appliances | 87 | 93 | 260 | 243 | 104 | 103 | 175 | 173 | ||||||||||||||||||||||||||||||
Entertainment | 54 | 50 | 176 | 156 | 51 | 57 | 108 | 122 | ||||||||||||||||||||||||||||||
Services | 54 | 51 | 128 | 119 | 37 | 40 | 91 | 75 | ||||||||||||||||||||||||||||||
Other | 15 | 13 | 45 | 40 | 18 | 15 | 32 | 30 | ||||||||||||||||||||||||||||||
Total International revenue | $ | 925 | $ | 1,003 | $ | 2,559 | $ | 2,432 | $ | 760 | $ | 838 | $ | 1,513 | $ | 1,634 |
Operating income (loss) by reportable segment and the reconciliation to consolidated earnings before income tax expense and equity in income (loss) of affiliates was as follows ($ in millions):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||||||||||
Domestic | $ | 609 | $ | 612 | $ | 2,100 | $ | 1,377 | $ | 343 | $ | 757 | $ | 772 | $ | 1,491 | ||||||||||||||||||||||
International | 61 | (51) | 136 | (19) | 28 | 40 | 61 | 75 | ||||||||||||||||||||||||||||||
Total operating income | 670 | 561 | 2,236 | 1,358 | 371 | 797 | 833 | 1,566 | ||||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||||
Investment income and other | 1 | 5 | 7 | 19 | ||||||||||||||||||||||||||||||||||
Investment income (loss) and other | Investment income (loss) and other | 3 | 3 | (2) | 6 | |||||||||||||||||||||||||||||||||
Interest expense | (7) | (11) | (19) | (43) | (7) | (6) | (13) | (12) | ||||||||||||||||||||||||||||||
Earnings before income tax expense and equity in income of affiliates | $ | 664 | $ | 555 | $ | 2,224 | $ | 1,334 | ||||||||||||||||||||||||||||||
Earnings before income tax expense and equity in income (loss) of affiliates | Earnings before income tax expense and equity in income (loss) of affiliates | $ | 367 | $ | 794 | $ | 818 | $ | 1,560 |
Assets by reportable segment were as follows ($ in millions):
October 30, 2021 | January 30, 2021 | October 31, 2020 | July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||||||
Domestic | $ | 18,518 | $ | 17,625 | $ | 19,525 | $ | 14,272 | $ | 16,016 | $ | 17,296 | ||||||||||||||
International | 1,584 | 1,442 | 1,677 | 1,147 | 1,488 | 1,283 | ||||||||||||||||||||
Total assets | $ | 20,102 | $ | 19,067 | $ | 21,202 | $ | 15,419 | $ | 17,504 | $ | 18,579 |
13. Subsequent Events
On October 10, 2021, we signed a definitive agreement to acquire Current Health Ltd. (“Current Health”), a care-at-home technology platform that brings together remote patient monitoring, telehealth and patient engagement into a single solution for healthcare organizations, for approximately $400 million. The acquisition was completed on November 2, 2021, and will be included in our consolidated results beginning in the fourth quarter of fiscal 2022.
On October 18, 2021, we signed a definitive agreement to acquire Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”), an outdoor furniture company, for approximately $85 million. The acquisition was completed on November 4, 2021, and will be included in our consolidated results beginning in the fourth quarter of fiscal 2022.
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 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 January 30, 202129, 2022 (including the information presented therein under Risk Factors), as well as our other reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.
Overview
OurWe are driven by our purpose is to enrich lives through technology.technology and our vision to personalize and humanize technology solutions for every stage of life. We doaccomplish this by leveraging our unique combination of tech expertisetechnology and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes.
We have two reportable segments: Domestic and International. The Domestic segment is comprised of operations, including our Best Buy Health business,operations in all states, districts and territories of the U.S. The International segment is comprisedand our Best Buy Health business. All of all operations in Canada and Mexico. During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico. Allformer stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment is now comprised of all our operations in Canada. 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.season.
Comparable Sales
Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric used by management to evaluate the performance of our existing stores, websites and call centers by measuring the change in net sales for a particular period over the comparable prior-period of equivalent length. Comparable sales includes revenue from stores, websites and call centers operating for at least 14 full months. Stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, are excludedRevenue from online sales is included in comparable sales untiland represents sales initiated on a website or app, regardless of whether customers choose to pick up product in store, curbside, at least 14 full months after reopening. Acquisitions arean alternative pick-up location or take delivery direct to their homes. Revenue from acquisitions is included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition. Comparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. Revenue from stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, is excluded from comparable sales until at least 14 full months after reopening. Comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only). Online 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 in 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,November 2, 2021, we acquired all outstanding shares of Critical Signal Technologies, Inc.Current Health Ltd. (“CST”Current Health”). On November 4, 2021, we acquired all outstanding shares of Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”). Consistent with our comparable sales policy, the results of CSTCurrent Health and Yardbird 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”) as a pandemic. 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 November 24, 2020, we announced our decision to exit our operations in Mexico. As a result, all revenue from Mexico operations has been excluded from our comparable sales calculation beginning in Decemberuntil the first quarter of fiscal 2021.2024.
We believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores, websites and call centers versus the portion resulting from opening new stores or closing existing stores. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers’ methods.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United StatesU.S. (“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”). We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide moreadditional useful information to assist investors infor evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting, also includesincluding budgets and forecasts, and financial targets used for short-term incentives are based on non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill and intangible impairments, price-fixing settlements, gains and losses on certain investments, intangible asset amortization, certain acquisition-related transaction costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors. We provide reconciliations of the most comparable financial measures presented in accordance with GAAP to presented non-GAAP financial measures that enable investors to understand the adjustments made in arriving at the non-GAAP financial measures and to evaluate performance using the same metrics as management. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures as presented herein may not be comparable tocalculated differently from similarly titled measures used by other companies.companies, thereby limiting their usefulness for comparative purposes.
In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also may use the term “constant currency”,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 when there arein light of significant fluctuations in currency rates.
Refer to the Consolidated Non-GAAP Financial Measures section below for detailed reconciliations of items impacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS in the presented periods.
Business Strategy Update
ThroughoutOne of our greatest strengths is our ability to adapt to rapidly changing and challenging environments, whether due to changes in technology, macroeconomic trends or a pandemic. We are currently operating in an unpredictable consumer electronics industry. As previously stated, we assumed the third quarterconsumer electronics industry would be lower following two years of fiscal 2022,elevated growth driven by unusually strong demand for technology products and services and fueled partly by stimulus dollars. In addition, we providedexpected to see some impact on our business as customers multiple ways to interact with us depending onbroadly shifted their needs, preference and comfort. Similar to the first half of fiscal 2022, customers migratedspending back into our storesexperience areas, such as travel and entertainment. We did not expect these impacts to touchbe compounded by a changing macro environment where consumers are dealing with sustained and feel products and to seek in-person expertise and service. Atrecord high levels of inflation in some of the same time, they continued to interact with us digitally at a significantly higher rate than before the pandemic. Online sales were 31%most fundamental parts of Domestic revenue compared to 16% in the third quarter of fiscal 2020, growing by more than $2 billion during that time. During the third quarter, we reached our fastest small-product delivery times ever as same-day delivery was up 400% and we nearly doubled the percentage of products delivered within one day compared to last year.their daily lives, like food.
Product availability continuedWhile these factors have led to improve throughoutan uneven sales environment, they have not deterred us from continuing to make progress on our initiatives. During the quarter. Whilequarter we had areasdrove broad customer satisfaction improvements even compared to pre-pandemic levels, particularly in installation and repair. We signed up new Best Buy Totaltech members and increased our delivery speed, delivering almost one-third of product constraints, we do not believe this materially limited our overall sales growth.customer online orders in one day. We are proactively navigating supply chain challenges, including delaysalso completed store remodels, opened new outlet stores and higher costs, by making strategic sourcing and inventory decisions earlier in the year to set us up well heading into holiday, pulling up product flow, adjusting store assortment based on availability and acquiring additional, alternative transportation. In addition, we believe the deep, longstanding relationships we havebegan implementing newly signed deals with our transportation and logistics partners and our product vendors have been instrumental in helping us manage through the difficult supply chain environment.healthcare companies.
We believeIn this environment, we have made the right investment decisionsare managing thoughtfully and carefully while still investing in our future. This includes managing our inventory levels and actively assessing further actions to position us as a leader in omnichannel retailing. We also believe there are even more opportunities ahead of usevolve our operating model, manage profitability and that it is important to builditerate on our positiongrowth initiatives. We have proactively managed our inventory levels and believe they continue to reflect a healthy and evolving mix of strengthproducts that enables us to become even more customer-centric, digitally-focusedpositively react to ever-changing consumer needs. We are planning for lower store payroll expenses and efficient.reducing spending in discretionary areas by increasing our rigor around backfilling corporate roles, capital expenditures and travel. During the quarter, we also commenced an enterprise-wide restructuring initiative to better align our spending with critical strategies and operations, as well as to optimize our cost structure.
DuringWhile we remain confident in our strategy, the quarter,current macroeconomic backdrop has changed in ways that we launchedand many others were not expecting. We fundamentally believe that technology is more important than ever in our new membership program, Best Buy TotaltechTM, nationallyeveryday lives, and online. Totaltech leveragesas a result of the past few years, consumers have even more technology devices in their homes that will need to be updated, upgraded and supported over time. As our strengths across merchandising, fulfillment, installation, tech supportvendor partners continue to innovate and product repair and is designed to give our customers the confidence that whatever their technology needs are,world becomes increasingly more digital in all aspects, we will be there to help. Members receive product discountsuniquely help customers in our stores, online, virtually and priority access to certain in-demand products, free delivery and standard installation, free technical support, up to 24 months of product protection on most purchases with active membership and other benefits. The goal of Totaltech is to create a membership experience that customers will love, anddirectly in turn, to generate a higher customer lifetime value and drive a larger share of consumer electronics spending to Best Buy.their homes.
We also continued to conduct several store tests and pilots during the quarter to continue our omnichannel evolution in a way that provides equal focus on all the ways customers shop with us. At the same time, we are piloting and evolving our labor models to meet our customers’ changing shopping behaviors. That means leveraging technology in stores that do not have as much labor and developing a much more flexible workforce. This is a workforce that not only provides expert help across product categories both in-store and virtually, but also flexes into other activities like curbside fulfillment, and this approach also empowers employees with the flexibility to pick up shifts at other stores or at our distribution centers.
We continue to believe that we are fundamentally in a stronger position than we expected to be in just two years ago. We believe there has been a structural increase in the need for technology, and that we now serve a larger install base of consumer electronics with customers who have an elevated appetite to upgrade due to constant technology innovation and needs that reflect structural life changes, like hybrid work and streaming entertainment content. We believe our significant omnichannel assets, including our ability to inspire what is possible across the breadth of consumer electronics, as well as our ability to keep it all working together the way customers want, truly differentiate us going forward in this new landscape.
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 reported periods.
Consolidated Performance SummaryResults
Selected consolidated financial data was as follows ($ in millions, except per share amounts):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Revenue | $ | 11,910 | $ | 11,853 | $ | 35,396 | $ | 30,325 | $ | 10,329 | $ | 11,849 | $ | 20,976 | $ | 23,486 | ||||||||||||||
Revenue % change | 0.5 | % | 21.4 | % | 16.7 | % | 6.6 | % | (12.8) | % | 19.6 | % | (10.7) | % | 27.1 | % | ||||||||||||||
Comparable sales % change | 1.6 | % | 23.0 | % | 17.5 | % | 8.1 | % | (12.1) | % | 19.6 | % | (10.1) | % | 27.7 | % | ||||||||||||||
Gross profit | $ | 2,802 | $ | 2,795 | $ | 8,327 | $ | 7,030 | $ | 2,287 | $ | 2,810 | $ | 4,640 | $ | 5,525 | ||||||||||||||
Gross profit as a % of revenue(1) | 23.5 | % | 23.6 | % | 23.5 | % | 23.2 | % | 22.1 | % | 23.7 | % | 22.1 | % | 23.5 | % | ||||||||||||||
SG&A | $ | 2,133 | $ | 2,123 | $ | 6,130 | $ | 5,560 | $ | 1,882 | $ | 2,009 | $ | 3,772 | $ | 3,997 | ||||||||||||||
SG&A as a % of revenue(1) | 17.9 | % | 17.9 | % | 17.3 | % | 18.3 | % | 18.2 | % | 17.0 | % | 18.0 | % | 17.0 | % | ||||||||||||||
Restructuring charges | $ | (1) | $ | 111 | $ | (39) | $ | 112 | $ | 34 | $ | 4 | $ | 35 | $ | (38) | ||||||||||||||
Operating income | $ | 670 | $ | 561 | $ | 2,236 | $ | 1,358 | $ | 371 | $ | 797 | $ | 833 | $ | 1,566 | ||||||||||||||
Operating income as a % of revenue | 5.6 | % | 4.7 | % | 6.3 | % | 4.5 | % | 3.6 | % | 6.7 | % | 4.0 | % | 6.7 | % | ||||||||||||||
Net earnings | $ | 499 | $ | 391 | $ | 1,828 | $ | 982 | $ | 306 | $ | 734 | $ | 647 | $ | 1,329 | ||||||||||||||
Diluted earnings per share | $ | 2.00 | $ | 1.48 | $ | 7.23 | $ | 3.74 | $ | 1.35 | $ | 2.90 | $ | 2.85 | $ | 5.22 |
(1)Because retailers vary in how they record costs of operating their supply chain between cost of sales and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers’ corresponding rates. For additional information regarding costs classified in cost of sales and SG&A, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.29, 2022.
In the thirdsecond quarter and first ninesix months of fiscal 2022,2023, we generated $11.9$10.3 billion and $35.4$21.0 billion in revenue and our comparable sales grew 1.6%decreased 12.1% and 17.5%10.1%, respectively. We continuedrespectively, as we lapped strong comparable sales last year, which were driven by the timing of government stimulus payments, temporary store closures due to experiencethe COVID-19 pandemic and heightened demand for technology products and services, as consumers continued to leverage technology to meet their needs, andstay-at-home focused purchases. In addition, we provided solutionsfaced macroeconomic pressures, including high inflation, that help them work, learn, entertain, cook and connect at home. Our performancehave resulted in operating income rate increases of 0.9% and 1.8% duringoverall softness in customer demand within the third quarter and first nine months of fiscal 2022, respectively.consumer electronics industry.
SeeRevenue, gross profit rate, SG&A and operating income rate changes in the second quarter and first six months of fiscal 2023 were primarily driven by our Domestic segment. For further discussion of each segment’s rate changes, see Segment Performance Summary below for discussion of our Domestic and International segments’ performance., below.
Income Tax Expense
Income tax expense remained relatively unchangeddecreased in the thirdsecond quarter of fiscal 2022.2023 primarily due to a decrease in pre-tax earnings, partially offset by the prior year resolution of certain discrete tax matters. Our effective tax rate (“ETR”) decreasedincreased to 25.1%15.6% in the thirdsecond quarter of fiscal 2023 compared to 8.0% in the second quarter of fiscal 2022, compared to 29.6% in the third quarter of fiscal 2021, primarily due to a decreasethe prior year resolution of certain discrete tax matters, partially offset by the impact of lower pre-tax earnings in losses for which tax benefits were not recognized.the current year.
Income tax expense increaseddecreased in the first ninesix months of fiscal 2023 primarily due to a decrease in pre-tax earnings, partially offset by the prior year resolution of certain discrete tax matters. Our ETR increased to 20.5% in the first six months of fiscal 2023 compared to 15.1% in the first six months of fiscal 2022, primarily due to an increase in pre-tax earnings, partially offset by the prior year resolution of certain discrete tax matters, which occurred duringpartially offset by the second quarterimpact of fiscal 2022. Our ETR decreased to 18.1%lower pre-tax earnings in the first nine months of fiscal 2022 compared to 26.4% in the first nine months of fiscal 2021, primarily due to the resolution of certain discrete tax matters which occurred during the second quarter of fiscal 2022, as well as a decrease in losses for which tax benefits were not recognized.current year. Refer to Note 10, Income Taxes, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for additional information.
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.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.
Segment Performance Summary
Domestic Segment
Selected financial data for the Domestic segment was as follows ($ in millions):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Revenue | $ | 10,985 | $ | 10,850 | $ | 32,837 | $ | 27,893 | $ | 9,569 | $ | 11,011 | $ | 19,463 | $ | 21,852 | ||||||||||||||
Revenue % change | 1.2 | % | 21.0 | % | 17.7 | % | 6.2 | % | (13.1) | % | 20.6 | % | (10.9) | % | 28.2 | % | ||||||||||||||
Comparable sales % change(1) | 2.0 | % | 22.6 | % | 18.3 | % | 7.5 | % | (12.7) | % | 20.8 | % | (10.6) | % | 28.7 | % | ||||||||||||||
Gross profit | $ | 2,571 | $ | 2,604 | $ | 7,703 | $ | 6,509 | $ | 2,109 | $ | 2,606 | $ | 4,279 | $ | 5,132 | ||||||||||||||
Gross profit as a % of revenue | 23.4 | % | 24.0 | % | 23.5 | % | 23.3 | % | 22.0 | % | 23.7 | % | 22.0 | % | 23.5 | % | ||||||||||||||
SG&A | $ | 1,962 | $ | 1,948 | $ | 5,647 | $ | 5,087 | $ | 1,732 | $ | 1,849 | $ | 3,473 | $ | 3,685 | ||||||||||||||
SG&A as a % of revenue | 17.9 | % | 18.0 | % | 17.2 | % | 18.2 | % | 18.1 | % | 16.8 | % | 17.8 | % | 16.9 | % | ||||||||||||||
Restructuring charges | $ | - | $ | 44 | $ | (44) | $ | 45 | $ | 34 | $ | - | $ | 34 | $ | (44) | ||||||||||||||
Operating income | $ | 609 | $ | 612 | $ | 2,100 | $ | 1,377 | $ | 343 | $ | 757 | $ | 772 | $ | 1,491 | ||||||||||||||
Operating income as a % of revenue | 5.5 | % | 5.6 | % | 6.4 | % | 4.9 | % | 3.6 | % | 6.9 | % | 4.0 | % | 6.8 | % | ||||||||||||||
Selected Online Revenue Data | ||||||||||||||||||||||||||||||
Total online revenue | $ | 3,436 | $ | 3,823 | $ | 10,518 | $ | 12,014 | $ | 2,975 | $ | 3,486 | $ | 6,034 | $ | 7,082 | ||||||||||||||
Online revenue as a % of total segment revenue | 31.3 | % | 35.2 | % | 32.0 | % | 43.1 | % | 31.0 | % | 31.7 | % | 31.0 | % | 32.4 | % | ||||||||||||||
Comparable online sales % change(1) | (10.1) | % | 173.7 | % | (12.5) | % | 191.4 | % | (14.7) | % | (28.1) | % | (14.8) | % | (13.5) | % |
(1)Online sales are included in the comparable sales calculation.
The increasedecrease in revenue in the thirdsecond quarter and first ninesix months of fiscal 20222023 was primarily driven by comparable sales growthdeclines across most of our product categories, partially offset by the loss of revenue from permanent store closures in the past year.particularly computing and home theater. Online revenue of $3.4$3.0 billion and $10.5$6.0 billion in the thirdsecond quarter and first ninesix months of fiscal 20222023 decreased 10.1%14.7% and 12.5%, respectively,14.8% on a comparable basis, respectively. These decreases in revenue were primarily due to channel shifts in customer shopping behavior as a result of the COVID-19 pandemic.reasons described above.
Domestic segment stores open at the beginning and end of the thirdsecond quarters of fiscal 20222023 and fiscal 2021, excluding stores that were temporarily closed as a result of COVID-19,2022 were as follows:
Fiscal 2022 | Fiscal 2021 | Fiscal 2023 | Fiscal 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Stores at Beginning of Third Quarter | Stores Opened | Stores Closed | Total Stores at End of Third Quarter | Total Stores at Beginning of Third Quarter | Stores Opened | Stores Closed | Total Stores at End of Third Quarter | Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | |||||||||||||||||||||||||||||||||||||||||||||||
Best Buy | 947 | - | (9) | 938 | 970 | - | (14) | 956 | 931 | 1 | (2) | 930 | 946 | 2 | (1) | 947 | ||||||||||||||||||||||||||||||||||||||||||||||
Outlet Centers | 15 | 1 | - | 16 | 14 | - | - | 14 | 16 | 2 | - | 18 | 14 | 1 | - | 15 | ||||||||||||||||||||||||||||||||||||||||||||||
Pacific Sales | 21 | - | - | 21 | 21 | - | - | 21 | 21 | - | - | 21 | 21 | - | - | 21 | ||||||||||||||||||||||||||||||||||||||||||||||
Yardbird | 9 | 4 | - | 13 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 983 | 1 | (9) | 975 | 1,005 | - | (14) | 991 | 977 | 7 | (2) | 982 | 981 | 3 | (1) | 983 |
We continuously monitor store performance.performance as part of a market-driven, omnichannel strategy. As we approach the expiration date of our leases, we evaluate various options for each location, including whether a store should remain open. We currently expect to close approximately 15 to 20 Best Buy stores in fiscal 2023 and to increase the number of Outlet Centers to approximately 30 by the end of fiscal 2024.
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 | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Computing and Mobile Phones | 45 | % | 47 | % | (2.4) | % | 21.5 | % | 42 | % | 43 | % | (16.6) | % | 11.4 | % | ||||||||||||||
Consumer Electronics | 30 | % | 29 | % | 5.5 | % | 21.1 | % | 30 | % | 31 | % | (14.7) | % | 27.4 | % | ||||||||||||||
Appliances | 15 | % | 14 | % | 10.9 | % | 39.3 | % | 17 | % | 16 | % | (1.2) | % | 31.1 | % | ||||||||||||||
Entertainment | 5 | % | 5 | % | 4.1 | % | 17.5 | % | 5 | % | 5 | % | (9.2) | % | 36.4 | % | ||||||||||||||
Services | 5 | % | 5 | % | (5.6) | % | 12.7 | % | 5 | % | 5 | % | (8.5) | % | 23.6 | % | ||||||||||||||
Other | 1 | % | - | % | 15.6 | % | N/A | |||||||||||||||||||||||
Total | 100 | % | 100 | % | 2.0 | % | 22.6 | % | 100 | % | 100 | % | (12.7) | % | 20.8 | % |
Notable comparable sales changes by revenue category were as follows:
Computing and Mobile Phones: The 2.4%16.6% comparable sales decline was driven primarily by computing, networkingtablets and tablets, partially offset by a comparable sales gain in mobile phones.wearables.
Consumer Electronics: The 5.5%14.7% comparable sales gaindecline was driven primarily by home theater, headphones and portable speakers and health and fitness.speakers.
Appliances: The 10.9%1.2% comparable sales gaindecline was driven primarily by large appliances.
Entertainment: The 4.1%9.2% comparable sales gaindecline was driven primarily by gaming.
Services: The 5.6%8.5% comparable sales decline was driven primarily by the launch of our Totaltech membership offering that includes benefits that were previously stand-alone revenue-generating services, such as warranty and installation.warranty.
Our gross profit raterates decreased in the thirdsecond quarter and first six months of fiscal 2022, primarily driven by lower product margin rates due to lapping low levels of promotions, product damages and product returns last year, as well as increased inventory shrink2023, primarily due to theft. Our gross profit rate also decreased from lower services margin rates, which included rateresulted in approximately 100 basis points of margin pressure associated with ouron a weighted basis in both the second quarter and first six months of fiscal 2023. Our Totaltech membership offering that includeswas the primary driver of the lower services margin rates, which is primarily due to incremental customer benefits, and associated costs, compared to our previous Total Tech Support offer. Lower product margin rates, including increased promotions, and higher supply chain costs also contributed to the decreases in our gross profit rates. These decreases were partially offset by higher profit-sharing revenue from our private label and co-branded credit card arrangement.
Our gross profit rate increasedarrangement in the second quarter and first ninesix months of fiscal 2022, primarily driven by product margin rate improvement from supply chain costs resulting from a lower mix of online revenue compared to the prior year, higher profit-sharing revenue from our private label and co-branded credit card arrangement and favorability from reduced promotions. These increases were partially offset by lower services margin rates.2023.
Our SG&A increaseddecreased in the thirdsecond quarter and first six months of fiscal 2022,2023, primarily due to higher advertising expenses and increased technology investments, which were partially offset by lapping last year’s $40 million donation to the Best Buy Foundation and lower incentive compensation.
Our SG&A increased in the first nine monthscompensation expense of fiscal 2022, primarily dueapproximately $135 million and $265 million, respectively, compared to higherprior-year periods. We currently expect to be below required financial thresholds for short-term incentive compensation technology investments, advertising expenses and store payroll expenses, which included $81 million of employee retention creditsperformance metrics in the current year while lapping short-term incentive payments near maximum levels in the prior year period as a result of the Federal Coronavirus Aid, Relief and Economic Security Act. This was partially offset by lapping last year’s $40 million donation to the Best Buy Foundation.year.
The restructuring charges incurred in the thirdsecond quarter and first ninesix months of fiscal 20212023 primarily related to termination benefits associated with actions takenrelated to more broadlyan enterprise-wide restructuring initiative that commenced in the second quarter of fiscal 2023 to better align our corporate organizational structure in support ofspending with critical strategies and operations, as well as to optimize our strategy. The restructuring credit in the first nine months of fiscal 2022 primarily related to subsequent adjustments to termination benefits resulting from changes in our previously planned organizational changes and higher-than-expected retention rates. cost structure. Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for additional information.
Our operating income raterates decreased in the thirdsecond quarter and first six months of fiscal 2022,2023, primarily driven bydue to the unfavorable gross profit rate described above, partially offset by lower restructuring chargesrates and increaseddecreased leverage from higherlower sales volume on our fixed expenses, which resulted in a favorableunfavorable SG&A rate.
Our operating income rate increased in the first nine months of fiscal 2022, primarily driven by the favorability in gross profit rate described above and increased leverage from higher sales volume on our fixed expenses, which resulted in a favorable SG&A rate.rates.
International Segment
Selected financial data for the International segment was as follows ($ in millions):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Revenue | $ | 925 | $ | 1,003 | $ | 2,559 | $ | 2,432 | $ | 760 | $ | 838 | $ | 1,513 | $ | 1,634 | ||||||||||||||
Revenue % change | (7.8) | % | 25.4 | % | 5.2 | % | 11.8 | % | (9.3) | % | 7.2 | % | (7.4) | % | 14.3 | % | ||||||||||||||
Comparable sales % change | (3.0) | % | 27.3 | % | 7.7 | % | 15.1 | % | (4.2) | % | 5.0 | % | (2.8) | % | 15.0 | % | ||||||||||||||
Gross profit | $ | 231 | $ | 191 | $ | 624 | $ | 521 | $ | 178 | $ | 204 | $ | 361 | $ | 393 | ||||||||||||||
Gross profit as a % of revenue | 25.0 | % | 19.0 | % | 24.4 | % | 21.4 | % | 23.4 | % | 24.3 | % | 23.9 | % | 24.1 | % | ||||||||||||||
SG&A | $ | 171 | $ | 175 | $ | 483 | $ | 473 | $ | 150 | $ | 160 | $ | 299 | $ | 312 | ||||||||||||||
SG&A as a % of revenue | 18.5 | % | 17.4 | % | 18.9 | % | 19.4 | % | 19.7 | % | 19.1 | % | 19.8 | % | 19.1 | % | ||||||||||||||
Restructuring charges | $ | (1) | $ | 67 | $ | 5 | $ | 67 | $ | - | $ | 4 | $ | 1 | $ | 6 | ||||||||||||||
Operating income (loss) | $ | 61 | $ | (51) | $ | 136 | $ | (19) | ||||||||||||||||||||||
Operating income (loss) as a % of revenue | 6.6 | % | (5.1) | % | 5.3 | % | (0.8) | % | ||||||||||||||||||||||
Operating income | $ | 28 | $ | 40 | $ | 61 | $ | 75 | ||||||||||||||||||||||
Operating income as a % of revenue | 3.7 | % | 4.8 | % | 4.0 | % | 4.6 | % |
The decreases in revenue in the second quarter and first six months of fiscal 2023 were primarily driven by comparable sales declines of 4.2% and 2.8%, respectively, in Canada and the negative impact from unfavorable foreign currency exchange rates. The decrease in revenue in the third quarterfirst six months of fiscal 20222023 was primarilyalso driven by lower revenue in Mexico as a result of our decision in the third quarter of fiscal 2021 to exit operations and a comparable sales decline of 3.0% in Canada. These decreases were partially offset by the benefit of approximately 4.5% of favorable foreign currency exchange rates.operations.
The increase in revenue in the first nine months of fiscal 2022 was primarily driven by the benefit of approximately 8.0% of favorable foreign currency exchange rates and comparable sales growth of 7.7%. These increases were partially offset by lower revenue in Mexico as a result of our decision in the third quarter of fiscal 2021 to exit operations.
International segment stores open at the beginning and end of the thirdsecond quarters of fiscal 20222023 and fiscal 2021, excluding stores that were temporarily closed as a result of COVID-19,2022 were as follows:
Fiscal 2022 | Fiscal 2021 | Fiscal 2023 | Fiscal 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Stores at Beginning of Third Quarter | Stores Opened | Stores Closed | Total Stores at End of Third Quarter | Total Stores at Beginning of Third Quarter | Stores Opened | Stores Closed | Total Stores at End of Third Quarter | Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | |||||||||||||||||||||||||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Best Buy | 129 | - | - | 129 | 131 | - | - | 131 | 127 | - | - | 127 | 130 | - | (1) | 129 | ||||||||||||||||||||||||||||||||||||||||||||||
Best Buy Mobile | 33 | - | - | 33 | 40 | - | (3) | 37 | 33 | - | - | 33 | 33 | - | - | 33 | ||||||||||||||||||||||||||||||||||||||||||||||
Mexico | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Best Buy | - | - | - | - | 34 | - | (3) | 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Best Buy Express | - | - | - | - | 14 | - | - | 14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 162 | - | - | 162 | 219 | - | (6) | 213 | 160 | - | - | 160 | 163 | - | (1) | 162 |
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 | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Computing and Mobile Phones | 50 | % | 53 | % | (6.7) | % | 35.7 | % | 43 | % | 44 | % | (7.6) | % | (1.6) | % | ||||||||||||||
Consumer Electronics | 27 | % | 27 | % | (0.8) | % | 13.3 | % | 29 | % | 30 | % | (4.8) | % | 11.8 | % | ||||||||||||||
Appliances | 9 | % | 9 | % | (1.8) | % | 40.1 | % | 14 | % | 12 | % | 6.8 | % | 11.6 | % | ||||||||||||||
Entertainment | 6 | % | 5 | % | 15.0 | % | 35.6 | % | 7 | % | 7 | % | (5.8) | % | 13.7 | % | ||||||||||||||
Services | 6 | % | 5 | % | (2.2) | % | 4.3 | % | 5 | % | 5 | % | (0.4) | % | 2.2 | % | ||||||||||||||
Other | 2 | % | 1 | % | 17.0 | % | 22.0 | % | 2 | % | 2 | % | 12.6 | % | 10.8 | % | ||||||||||||||
Total | 100 | % | 100 | % | (3.0) | % | 27.3 | % | 100 | % | 100 | % | (4.2) | % | 5.0 | % |
Notable comparable sales changes by revenue category were as follows:
Computing and Mobile Phones: The 6.7%7.6% comparable sales decline was driven primarily by computing.computing, partially offset by comparable sales growth in mobile phones.
Consumer Electronics: The 0.8%4.8% comparable sales decline was driven primarily by digital imaging and headphones and portable speakers.home theater.
Appliances: The 1.8%6.8% comparable sales growth was driven primarily by small appliances.
Entertainment: The 5.8% comparable sales decline was driven primarily by large appliances.
Entertainment: The 15.0% comparable sales gain was driven primarily by gaming and virtual reality.gaming.
Services: The 2.2%0.4% comparable sales decline was driven primarily by our repairwarranty services.
Other: The 12.6% comparable sales growth was driven primarily by sporting goods.
The increasesdecrease in our gross profit rate in the thirdsecond quarter of fiscal 2023 was primarily driven by lower product margin rates. In the first six months of fiscal 2023, the decrease in our gross profit rate was primarily driven by lower product margin rates and a $6 million benefit in the first ninesix months of fiscal 2022 were primarily driven by improved product margin rates in Canada and sales mixing out of Mexico, which had a lower gross profit rate than Canada. The increases were also driven by $36 million ofassociated with more-favorable-than-expected inventory markdowns incurred in the prior year associated withrelated to our decision to exit operations in Mexico. The decrease in the first six months of fiscal 2023 was partially offset by a larger percentage of revenue from the higher margin services category in Canada.
Our SG&A decreased in the thirdsecond quarter and first six months of fiscal 2022,2023, primarily due to lower expenses in Mexico as a result of our decision to exit operations, partially offset byincentive compensation expense and the unfavorablefavorable impact of foreign currency exchange rates, and increased store payroll expense in Canada.
Our SG&A increased in the first nine months of fiscal 2022, primarily due to the unfavorable impact of foreign currency exchange rates and increased incentive compensation and store payroll expense in Canada, partially offset by lower expenses in Mexico as a result of our decision to exit operations.
The restructuring charges for all periods presented primarily related to our decision to exit operations in Mexico. 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.higher store payroll expense.
Our operating income rate increasedrates decreased in the thirdsecond quarter of fiscal 2022, primarily due to lower restructuring charges and the favorability in gross profit rate described above.
Our operating income rate increased in the first ninesix months of fiscal 2022,2023, primarily due to the favorability inunfavorable gross profit rate described above, lower restructuring chargesrates and increaseddecreased leverage from higherlower sales volume on our fixed expenses, which resulted in a favorableunfavorable SG&A rate.rates.
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 | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||
Operating income | $ | 670 | $ | 561 | $ | 2,236 | $ | 1,358 | $ | 371 | $ | 797 | $ | 833 | $ | 1,566 | ||||||||||||||
% of revenue | 5.6 | % | 4.7 | % | 6.3 | % | 4.5 | % | 3.6 | % | 6.7 | % | 4.0 | % | 6.7 | % | ||||||||||||||
Intangible asset amortization(1) | 20 | 20 | 60 | 60 | 22 | 20 | 44 | 40 | ||||||||||||||||||||||
Acquisition-related transaction costs(1) | 5 | - | 5 | - | ||||||||||||||||||||||||||
Restructuring charges(2) | (1) | 111 | (39) | 112 | 34 | 4 | 35 | (38) | ||||||||||||||||||||||
Restructuring - inventory markdowns(3) | - | 36 | (6) | 36 | - | - | - | (6) | ||||||||||||||||||||||
Non-GAAP operating income | $ | 694 | $ | 728 | $ | 2,256 | $ | 1,566 | $ | 427 | $ | 821 | $ | 912 | $ | 1,562 | ||||||||||||||
% of revenue | 5.8 | % | 6.1 | % | 6.4 | % | 5.2 | % | 4.1 | % | 6.9 | % | 4.3 | % | 6.7 | % | ||||||||||||||
Effective tax rate | 25.1 | % | 29.6 | % | 18.1 | % | 26.4 | % | 15.6 | % | 8.0 | % | 20.5 | % | 15.1 | % | ||||||||||||||
Intangible asset amortization(1) | (0.1) | % | (1.5) | % | 0.1 | % | (1.1) | % | 0.4 | % | 0.4 | % | 0.2 | % | 0.3 | % | ||||||||||||||
Restructuring charges(2) | - | % | (3.2) | % | (0.1) | % | (0.8) | % | 0.7 | % | - | % | 0.1 | % | (0.3) | % | ||||||||||||||
Non-GAAP effective tax rate | 25.0 | % | 24.9 | % | 18.1 | % | 24.5 | % | 16.7 | % | 8.4 | % | 20.8 | % | 15.1 | % | ||||||||||||||
Diluted EPS | $ | 2.00 | $ | 1.48 | $ | 7.23 | $ | 3.74 | $ | 1.35 | $ | 2.90 | $ | 2.85 | $ | 5.22 | ||||||||||||||
Intangible asset amortization(1) | 0.08 | 0.08 | 0.24 | 0.23 | 0.10 | 0.08 | 0.19 | 0.16 | ||||||||||||||||||||||
Acquisition-related transaction costs(1) | 0.02 | - | 0.02 | - | ||||||||||||||||||||||||||
Restructuring charges(2) | - | 0.42 | (0.15) | 0.43 | 0.15 | 0.02 | 0.15 | (0.15) | ||||||||||||||||||||||
Restructuring - inventory markdowns(3) | - | 0.14 | (0.03) | 0.13 | - | - | - | (0.02) | ||||||||||||||||||||||
Income tax impact of non-GAAP adjustments(4) | (0.02) | (0.06) | (0.02) | (0.10) | (0.06) | (0.02) | (0.08) | - | ||||||||||||||||||||||
Non-GAAP diluted EPS | $ | 2.08 | $ | 2.06 | $ | 7.29 | $ | 4.43 | $ | 1.54 | $ | 2.98 | $ | 3.11 | $ | 5.21 |
(1)Represents charges associated with acquisitions, including: (1) the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology; and (2) acquisition-related transaction and due diligence costs, primarily comprised of professional fees.technology assets.
(2)Represents charges and subsequent adjustmentsprimarily related to actions takentermination benefits in the Domestic segment for the periods ended July 30, 2022, associated with an enterprise-wide initiative that commenced in the second quarter of fiscal 2023 to better align our spending with critical strategies and operations, as well as to optimize our cost structure. Represents adjustments to previously planned organizational changes and higher-than-expected retention rates in the company’s organizational structureDomestic segment and charges associated with its strategic focus and the decision to exit from operations in Mexico in the International segment.segment for the periods ended July 31, 2021.
(3)Represents inventory markdown adjustments recorded within cost of sales associated with the decision to exit from operations in Mexico.
(4)The non-GAAP adjustments primarily relate to the U.S., the UK 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. There is no income tax charge for the UK and Mexico non-GAAP items, as there was no tax benefit recognized on these expenses in the calculation of GAAP income tax expense.
Our non-GAAP operating income rate decreased in the thirdsecond quarter and first six months of fiscal 2022,2023, primarily driven by aour Domestic segment’s lower gross profit rate in our Domestic segment.
Our non-GAAP operating income rate increased in the first nine months of fiscal 2022, primarily driven by a higher gross profit rate due to favorable supply chain costs resulting from a lower mix of online revenue compared to the prior year,rates and increaseddecreased leverage from higherlower sales volume on our fixed expenses, which resulted in a favorableunfavorable SG&A rate.rates.
Our non-GAAP effective tax rate remained relatively unchangedincreased in the thirdsecond quarter of fiscal 2022. Our non-GAAP effective tax rate decreased in theand first ninesix months of fiscal 2022,2023, primarily due to the prior year resolution of certain discrete tax matters, which occurred duringpartially offset by the second quarterimpact of fiscal 2022.lower pre-tax earnings in the current year. Refer to Note 10, Income Taxes, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for additional information.
Our non-GAAP diluted EPS increaseddecreased in the thirdsecond quarter of fiscal 2022, primarily driven by lower diluted weighted-average common shares outstanding from share purchases.
Our non-GAAP diluted EPS increased in theand first ninesix months of fiscal 2022,2023, primarily driven by the increasedecreases in non-GAAP operating income, the lower non-GAAP effective tax rate and lower diluted weighted-average common shares outstanding from share purchases.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. CapitalWe modify our approach to managing these variables as changes in our operating environment arise. For example, capital expenditures and share repurchases are a component of our cash flow and capital management strategy, which, to a large extent, we can adjust in response to economic and other changes in our business environment. We have a disciplined approach to capital allocation, which focuses on investing in key priorities that support our strategy.
Cash and cash equivalents were as follows ($ in millions):
July 30, 2022 | January 29, 2022 | July 31, 2021 | ||||||||||||||
Cash and cash equivalents | $ | 840 | $ | 2,936 | $ | 4,340 |
The decrease in cash and cash equivalents from January 29, 2022, was primarily due to lower inventory turnover and the timing and volume of inventory purchases and payments, higher incentive compensation payments in fiscal 2023 as a result of strong fiscal 2022 results, share repurchases, capital expenditures and dividend payments, partially offset by earnings.
Cash, cash equivalents and short-term investments were as follows ($ in millions):
October 30, 2021 | January 30, 2021 | October 31, 2020 | |||||||||||||
Cash and cash equivalents | $ | 3,465 | $ | 5,494 | $ | 5,136 | |||||||||
Short-term investments | - | - | 545 | ||||||||||||
Total cash, cash equivalents and short-term investments | $ | 3,465 | $ | 5,494 | $ | 5,681 |
The decrease in cash and cash equivalents from January 30,July 31, 2021, was primarily due to increases in share repurchases, lower inventory turnover and the timing and volume of inventory purchases and payments, capital expenditures, dividend payments and dividend payments. This wasacquisitions, partially offset by positive cash flows from operations, primarily driven by earnings.
The decrease in cash, cash equivalents and short-term investments from October 31, 2020, was primarily due to increases in share repurchases, the repayment of our $650 million principal amount of notes due March 15, 2021, capital expenditures and dividend payments. This was partially offset by positive cash flows from operations, primarily driven by earnings.
Cash Flows
Cash flows from total operations were as follows ($ in millions):
Nine Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||||||
Total cash provided by (used in): | ||||||||||||||||||||||||||||||
Operating activities | $ | 1,061 | $ | 3,907 | $ | (709) | $ | 864 | ||||||||||||||||||||||
Investing activities | (707) | (1,153) | (484) | (358) | ||||||||||||||||||||||||||
Financing activities | (2,347) | 170 | (861) | (1,662) | ||||||||||||||||||||||||||
Effect of exchange rate changes on cash | 6 | (8) | 1 | 5 | ||||||||||||||||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | $ | (1,987) | $ | 2,916 | ||||||||||||||||||||||||||
Decrease in cash, cash equivalents and restricted cash | Decrease in cash, cash equivalents and restricted cash | $ | (2,053) | $ | (1,151) |
Operating Activities
The decreaseincrease in cash provided byused in operating activities in the first ninesix months of fiscal 2022 compared to the prior-year period2023 was primarily due todriven by lower earnings in the current year period, lower inventory turnover and the timing and volume of inventory purchases and payments, reflecting an earlier and more pronounced build of inventory for the holiday seasonwhich resulted in fiscal 2022, as we sought to manage supply chain challenges and sustained strong demand in most product categories. As a result, our inventory balance at the end of the third quarter of fiscal 2022 was materially higher than fiscal 2021, and a larger proportion of inventory purchases hadhaving been paid for bycompared to the endfirst six months of the quarter. These decreases were partially offset byfiscal 2022. The increase in cash used in operating activities was also due to higher earningsincentive compensation payments in the current-year period.first six months of fiscal 2023 as a result of strong fiscal 2022 results.
Investing Activities
The decreaseincrease in cash used in investing activities in the first ninesix months of fiscal 2022 compared to the prior-year period2023 was primarily driven by a decrease in purchases of short-term investments.increased capital spending for initiatives to support our business.
Financing Activities
The increasedecrease in cash used in financing activities in the first ninesix months of fiscal 2022 compared to the prior-year period2023 was primarily driven primarily by an increase inlower share repurchases, which were temporarily suspended from March to November of fiscal 2021. Fiscal 2021 also included the issuance of our $650 million principal amount of notes due October 1, 2030.repurchases.
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.
On May 18, 2021, we entered intoWe have a $1.25 billion, five year senior unsecured revolving credit facility agreement (the “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. There were no borrowings outstanding under the Five-Year Facility Agreement as of OctoberJuly 30, 2021,2022, January 29, 2022, or the Previous Facility as of January 30, 2021, or OctoberJuly 31, 2020.2021.
Our credit ratings and outlook as of December 1, 2021, are summarized below. On May 20, 2021, Standard & Poor’s upgraded its rating to BBB+ and confirmed its outlook of Stable. Moody’s rating and outlookSeptember 6, 2022, remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 30, 202129, 2022, and are summarized below.
Rating Agency | Rating | Outlook | |||||||||
Standard & Poor's | BBB+ | Stable | |||||||||
Moody's | A3 | 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 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 primarily restricted to use for workers’ compensation and general liability insurance claims, andcover product protection plans provided under our Totaltech membership offering.offering and self-insurance liabilities. Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $173$312 million, $131$269 million and $135$134 million at OctoberJuly 30, 2021,2022, January 30,29, 2022, and July 31, 2021, and October 31, 2020, respectively. The increases in restricted cash from January 30,29, 2022, and July 31, 2021, and October 31, 2020, were primarily due to the initial funding related to the national launch of our Totaltech membership offering in October 2021.2021 and growth in the membership base, partially offset by a decrease in restricted cash for self-insurance liabilities.
Debt and Capital
As of OctoberJuly 30, 2021,2022, we had $500 million of principal amount of notes due October 1, 2028, and $650 million of principal amount of notes due October 1, 2030. Refer to Note 6, Debt, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, and Note 8, Debt, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021,29, 2022, for additional information about our outstanding debt.
Share Repurchases and Dividends
We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors (“Board”). The payment of cash dividends is also subject to customary legal and contractual restrictions. Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment-grade credit metrics.
On February 16, 2021,28, 2022, our Board approved a new $5.0 billion share repurchase program, which replaced the $5.0 billion share repurchase program authorized on February 16, 2021. There is no expiration date governing the period over which we can repurchase shares under this new authorization. AsShare repurchases were paused during the second quarter of October 30, 2021, $3.4 billion of the $5.0 billion share repurchase authorization was available. On August 24, 2021, we announced our plan to repurchase more than $2.5 billion of shares in fiscal 2022.2023.
Share repurchase and dividend activity was as follows ($ and shares in millions, except per share amounts):
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
October 30, 2021 | October 31, 2020 | October 30, 2021 | October 31, 2020 | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||||
Total cost of shares repurchased | $ | 426 | $ | - | $ | 1,757 | $ | 56 | $ | 10 | $ | 416 | $ | 452 | $ | 1,331 | |||||||||||||
Average price per share | $ | 115.94 | $ | - | $ | 111.33 | $ | 86.30 | $ | 83.71 | $ | 112.75 | $ | 96.83 | $ | 109.92 | |||||||||||||
Number of shares repurchased | 3.7 | - | 15.8 | 0.6 | 0.1 | 3.7 | 4.6 | 12.1 | |||||||||||||||||||||
Regular quarterly cash dividend per share | $ | 0.70 | $ | 0.55 | $ | 2.10 | $ | 1.65 | $ | 0.88 | $ | 0.70 | $ | 1.76 | $ | 1.40 | |||||||||||||
Cash dividends declared and paid | $ | 172 | $ | 142 | $ | 522 | $ | 426 | $ | 198 | $ | 175 | $ | 397 | $ | 350 |
The total cost of shares repurchased increaseddecreased in the second quarter and first six months of fiscal 2022,2023, primarily due to decreases in the temporary suspensionvolume of all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties.repurchases. Cash dividends declared and paid increased in the second quarter and first six months of fiscal 20222023, primarily due to the increaseincreases in the regular quarterly cash dividend per share.
Between the end of the third quarter of fiscal 2022 on October 30, 2021, and December 1, 2021, we repurchased an incremental 3.6 million shares of our common stock at a cost of $452 million.
Other Financial Measures
Our current ratio, calculated as current assets divided by current liabilities, remained relatively unchanged at 1.1was 1.0 as of OctoberJuly 30, 2021,2022, and October 31, 2020,January 29, 2022, and 1.2 as of January 30,July 31, 2021. The decrease from July 31, 2021, was primarily driven by lower cash and cash equivalents.
Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings over the trailing twelve months decreasedincreased to 0.7 as of July 30, 2022, compared to 0.5 as of October 30,January 29, 2022, and July 31, 2021, compared to 0.8 as of January 30, 2021, and 1.1 as of October 31, 2020, primarily due to higherlower net earnings. The decrease from October 31, 2020, was also due to the retirement of our $650 million principal amount of notes due March 15, 2021, in December 2020.
Off-Balance-Sheet Arrangements and Contractual Obligations
Our liquidity is not dependent on the use of off-balance-sheet financing arrangements other than in connection with our $1.25 billion in undrawn capacity on our Five-Year Facility Agreement as of OctoberJuly 30, 2021,2022, which, if drawn upon, would be included in either short-term or long-term debt on our Condensed Consolidated Balance Sheets.
There has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2021.2022. See our Annual Report on Form 10-K for the fiscal year ended January 30, 2021,29, 2022, for additional information regarding our off-balance-sheet arrangements and contractual obligations.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, and our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.29, 2022. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2021.2022.
New Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on 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"“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 January 30, 2021,29, 2022, 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 resurgences and the impact on demand for our products and services; levels of consumer confidence; interruptionsmacroeconomic pressures in the markets in which we operate (including but not limited to the effects of COVID-19; increased inflation rates; increased levels of inventory loss due to organized crime, petty theft or otherwise, fluctuations in housing prices, energy markets, and otherjobless rates and those related to the conflict in Ukraine); 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.; macroeconomic pressures in the markets in which we operate (including but not limited toduration and scope of the effects of COVID-19 increased levels of inventory loss due to organized crime, petty theft or otherwise, fluctuations in housing prices, energy marketspandemic and jobless rates); future outbreaks,its resurgences and the impact on demand for our products and services; catastrophic events, health crises and pandemics; susceptibility of our products to technological advancements, product life cycles and launches; conditions in the industries and categories in which we operate; changes in consumer preferences, spending and debt; competition (including from multi-channel retailers, e-commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers); our ability to attract and retain qualified employees; changes in market compensation rates; our expansion strategies; our focus on services as a strategic priority; our reliance on key vendors and mobile network carriers (including product availability); our ability to maintain positive brand perception and recognition; our company transformation; our mix of products and services; our ability to effectively manage strategic ventures, alliances or acquisitions;our ability to effectively manage our real estate portfolio; 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 (including those related to the conflict in Ukraine); 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 January 30, 2021,29, 2022, in addition to the risks inherent in our operations, we are exposed to certain market risks.
Interest Rate Risk
We are exposed to changes in short-term market interest rates and these changes in rates will impact our net interest expense. Our cash, cash equivalents and restricted cash generate interest income that will vary based on changes in short-term interest rates. In addition, we have swapped a portion of our fixed-rate debt to floating rate such that the interest expense on this debt will vary with short-term interest rates. Refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021,29, 2022, for further information regarding our interest rate swaps.
As of OctoberJuly 30, 2021,2022, we had $3.47$1.15 billion of cash, and cash equivalents and restricted cash and $0.5 billion of fixed-rate debt that washas been swapped to floating rate, resulting in aand therefore the net balance exposed to interest rate changes of $2.97was $0.65 billion. As of OctoberJuly 30, 2021,2022, a 50-basis point increase in short-term interest rates would have led to an estimated $15$3 million reduction in net interest expense, and conversely a 50-basis point decrease in short-term interest rates would have led to an estimated $15$3 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 operations in our International segment operations.segment. Refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021,29, 2022, for additional information regarding these instruments.
ForeignIn the second quarter and first six months of fiscal 2023, foreign currency exchange rate fluctuations were primarily driven by the strength of the CanadianU.S. dollar compared to the U.S.Canadian dollar compared to the prior-year period, which had a positivenegative overall impact on our revenue as thesethis foreign currenciescurrency revenue translated into moreless U.S. dollars. We estimate that foreign currency exchange rate fluctuations had a net favorablean unfavorable impact of $45 million and $194 million on our revenue of approximately $35 million and $40 million in the thirdsecond quarter and first ninesix months of fiscal 2022,2023, respectively. The impact of foreign exchange rate fluctuations on our net earnings forin the thirdsecond quarter and first ninesix months of fiscal 20222023 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’sU.S. Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis and otherwise as needed.more often if necessary.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at OctoberJuly 30, 2021.2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at OctoberJuly 30, 2021,2022, our disclosure controls and procedures were effective.
There were no changes in internal control over financial reporting during the fiscal quarter ended OctoberJuly 30, 2021,2022, 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 11, Contingencies, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Stock Repurchases
On February 16, 2021,28, 2022, our Board approved a new $5.0 billion share repurchase program. program. For additional information, see Note 9, Repurchase of Common Stock, of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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 | |||||||||||
August 1, 2021 through August 28, 2021 | 1,400,603 | $ | 114.28 | 1,400,603 | $ | 3,629,000,000 | |||||||||
August 29, 2021 through October 2, 2021 | - | $ | 0.00 | - | $ | 3,629,000,000 | |||||||||
October 3, 2021 through October 30, 2021 | 2,281,476 | $ | 116.96 | 2,281,476 | $ | 3,362,000,000 | |||||||||
Total | 3,682,079 | $ | 115.94 | 3,682,079 | $ | 3,362,000,000 | |||||||||
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 | |||||||||||
May 1, 2022 through May 28, 2022 | 119,460 | $ | 83.71 | 119,460 | $ | 4,674,000,000 | |||||||||
May 29, 2022 through July 2, 2022 | - | - | - | $ | 4,674,000,000 | ||||||||||
July 3, 2022 through July 30, 2022 | - | - | - | $ | 4,674,000,000 | ||||||||||
Total | 119,460 | $ | 83.71 | 119,460 | $ | 4,674,000,000 |
Item 6.Exhibits
Form of Best Buy Co., Inc. Long-Term Incentive Program Award Agreement (2022) – Directors | |
101 | The following financial information from our Quarterly Report on Form 10-Q for the |
104 | The cover page from our Quarterly Report on Form 10-Q for the |
(1)The certifications in Exhibit 32.1 and Exhibit 32.2 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
Management contracts or compensatory plans or arrangements.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K under the Securities Act of 1933, as amended, the registrant has not filed as exhibits to this Quarterly Report on Form 10-Q certain instruments with respect to long-term debt under which the amount of securities authorized does not exceed 10% of the total assets of the registrant. The registrant hereby agrees to furnish copies of all such instruments to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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 |