UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 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 registrantregistrant: (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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
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, (as defined” and “emerging growth company” in Rule 12b-2 of the Exchange Act).
Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | |||
Smaller Reporting Company | |||||
Emerging |
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).
YesThe registrant had 292,326,497258,309,045 shares of common stock outstanding as of November 28, 2017.May 22, 2020.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED
TABLE OF CONTENTS
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed ConsolidatedConsolidated Balance Sheets
$ in millions, except per share and share amounts (unaudited)
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 3,919 | $ | 2,229 | $ | 1,561 | |||||
Receivables, net | 749 | 1,149 | 833 | ||||||||
Merchandise inventories | 3,993 | 5,174 | 5,195 | ||||||||
Other current assets | 335 | 305 | 425 | ||||||||
Total current assets | 8,996 | 8,857 | 8,014 | ||||||||
Property and equipment, net | 2,291 | 2,328 | 2,334 | ||||||||
Operating lease assets | 2,631 | 2,709 | 2,708 | ||||||||
Goodwill | 986 | 984 | 915 | ||||||||
Other assets | 701 | 713 | 579 | ||||||||
Total assets | $ | 15,605 | $ | 15,591 | $ | 14,550 | |||||
Liabilities and equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 4,428 | $ | 5,288 | $ | 4,718 | |||||
Unredeemed gift card liabilities | 257 | 281 | 265 | ||||||||
Deferred revenue | 531 | 501 | 409 | ||||||||
Accrued compensation and related expenses | 213 | 410 | 275 | ||||||||
Accrued liabilities | 769 | 906 | 851 | ||||||||
Short-term debt | 1,250 | - | - | ||||||||
Current portion of operating lease liabilities | 683 | 660 | 639 | ||||||||
Current portion of long-term debt | 673 | 14 | 14 | ||||||||
Total current liabilities | 8,804 | 8,060 | 7,171 | ||||||||
Long-term liabilities | 694 | 657 | 659 | ||||||||
Long-term operating lease liabilities | 2,076 | 2,138 | 2,173 | ||||||||
Long-term debt | 621 | 1,257 | 1,193 | ||||||||
Contingencies (Note 10) |
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Equity | |||||||||||
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - NaN | - | - | - | ||||||||
Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 257 million, 256 million and 267 million shares, respectively | 26 | 26 | 27 | ||||||||
Additional paid-in capital | 15 | - | - | ||||||||
Retained earnings | 3,126 | 3,158 | 3,038 | ||||||||
Accumulated other comprehensive income | 243 | 295 | 289 | ||||||||
Total equity | 3,410 | 3,479 | 3,354 | ||||||||
Total liabilities and equity | $ | 15,605 | $ | 15,591 | $ | 14,550 |
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 1,103 | $ | 2,240 | $ | 1,341 | |||||
Short-term investments | 2,237 | 1,681 | 1,777 | ||||||||
Receivables, net | 971 | 1,347 | 1,174 | ||||||||
Merchandise inventories | 6,663 | 4,864 | 6,331 | ||||||||
Other current assets | 431 | 384 | 398 | ||||||||
Total current assets | 11,405 | 10,516 | 11,021 | ||||||||
Property and equipment, net | 2,352 | 2,293 | 2,298 | ||||||||
Goodwill | 425 | 425 | 425 | ||||||||
Other assets | 603 | 622 | 798 | ||||||||
Total assets | $ | 14,785 | $ | 13,856 | $ | 14,542 | |||||
Liabilities and equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 6,587 | $ | 4,984 | $ | 6,233 | |||||
Unredeemed gift card liabilities | 375 | 427 | 377 | ||||||||
Deferred revenue | 426 | 418 | 380 | ||||||||
Accrued compensation and related expenses | 331 | 358 | 308 | ||||||||
Accrued liabilities | 808 | 865 | 782 | ||||||||
Accrued income taxes | 80 | 26 | 43 | ||||||||
Current portion of long-term debt | 545 | 44 | 43 | ||||||||
Total current liabilities | 9,152 | 7,122 | 8,166 | ||||||||
Long-term liabilities | 697 | 704 | 791 | ||||||||
Long-term debt | 784 | 1,321 | 1,324 | ||||||||
Equity | |||||||||||
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 — 296,000,000, 311,000,000 and 313,000,000 shares, respectively | 30 | 31 | 31 | ||||||||
Retained earnings | 3,818 | 4,399 | 3,953 | ||||||||
Accumulated other comprehensive income | 304 | 279 | 277 | ||||||||
Total equity | 4,152 | 4,709 | 4,261 | ||||||||
Total liabilities and equity | $ | 14,785 | $ | 13,856 | $ | 14,542 |
NOTE: The Consolidated Balance Sheet as of January 28, 2017,February 1, 2020, has been condensed from the audited consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements.Statements.
Condensed Consolidated Statements of Earnings
$ and shares in millions, except per share amounts (unaudited)
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Revenue | $ | 8,562 | $ | 9,142 | |||
Cost of sales | 6,597 | 6,973 | |||||
Gross profit | 1,965 | 2,169 | |||||
Selling, general and administrative expenses | 1,735 | 1,835 | |||||
Restructuring charges | 1 | - | |||||
Operating income | 229 | 334 | |||||
Other income (expense): | |||||||
Investment income and other | 6 | 14 | |||||
Interest expense | (17) | (18) | |||||
Earnings before income tax expense | 218 | 330 | |||||
Income tax expense | 59 | 65 | |||||
Net earnings | $ | 159 | $ | 265 | |||
Basic earnings per share | $ | 0.61 | $ | 0.99 | |||
Diluted earnings per share | $ | 0.61 | $ | 0.98 | |||
Weighted-average common shares outstanding | |||||||
Basic | 258.3 | 267.6 | |||||
Diluted | 260.4 | 271.5 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Revenue | $ | 9,320 | $ | 8,945 | $ | 26,788 | $ | 25,921 | |||||||
Cost of goods sold | 7,040 | 6,742 | 20,333 | 19,511 | |||||||||||
Gross profit | 2,280 | 2,203 | 6,455 | 6,410 | |||||||||||
Selling, general and administrative expenses | 1,932 | 1,890 | 5,484 | 5,407 | |||||||||||
Restructuring charges | (2 | ) | 1 | — | 30 | ||||||||||
Operating income | 350 | 312 | 971 | 973 | |||||||||||
Other income (expense) | |||||||||||||||
Gain on sale of investments | — | — | — | 2 | |||||||||||
Investment income and other | 12 | 8 | 30 | 22 | |||||||||||
Interest expense | (20 | ) | (16 | ) | (57 | ) | (54 | ) | |||||||
Earnings from continuing operations before income tax expense | 342 | 304 | 944 | 943 | |||||||||||
Income tax expense | 104 | 112 | 309 | 343 | |||||||||||
Net earnings from continuing operations | 238 | 192 | 635 | 600 | |||||||||||
Gain from discontinued operations (Note 2), net of tax expense of $0, $0, $0 and $7, respectively | 1 | 2 | 1 | 21 | |||||||||||
Net earnings | $ | 239 | $ | 194 | $ | 636 | $ | 621 | |||||||
Basic earnings per share | |||||||||||||||
Continuing operations | $ | 0.80 | $ | 0.61 | $ | 2.09 | $ | 1.87 | |||||||
Discontinued operations | — | — | — | 0.07 | |||||||||||
Basic earnings per share | $ | 0.80 | $ | 0.61 | $ | 2.09 | $ | 1.94 | |||||||
Diluted earnings per share | |||||||||||||||
Continuing operations | $ | 0.78 | $ | 0.60 | $ | 2.05 | $ | 1.85 | |||||||
Discontinued operations | — | 0.01 | — | 0.07 | |||||||||||
Diluted earnings per share | $ | 0.78 | $ | 0.61 | $ | 2.05 | $ | 1.92 | |||||||
Dividends declared per common share | $ | 0.34 | $ | 0.28 | $ | 1.02 | $ | 1.29 | |||||||
Weighted-average common shares outstanding | |||||||||||||||
Basic | 299.1 | 316.2 | 304.1 | 320.2 | |||||||||||
Diluted | 305.4 | 320.0 | 310.6 | 323.6 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Income
$ in millions (unaudited)
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Net earnings | $ | 159 | $ | 265 | |||
Foreign currency translation adjustments, net of tax | (52) | (5) | |||||
Comprehensive income | $ | 107 | $ | 260 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Net earnings | $ | 239 | $ | 194 | $ | 636 | $ | 621 | |||||||
Foreign currency translation adjustments | (17 | ) | (19 | ) | 25 | 6 | |||||||||
Comprehensive income | $ | 222 | $ | 175 | $ | 661 | $ | 627 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
$ in millions (unaudited)
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Operating activities | |||||||
Net earnings | $ | 159 | $ | 265 | |||
Adjustments to reconcile net earnings to total cash provided by operating activities: | |||||||
Depreciation and amortization | 207 | 200 | |||||
Stock-based compensation | 15 | 36 | |||||
Deferred income taxes | 15 | 13 | |||||
Other, net | 6 | 1 | |||||
Changes in operating assets and liabilities: | |||||||
Receivables | 383 | 182 | |||||
Merchandise inventories | 1,136 | 207 | |||||
Other assets | (12) | (14) | |||||
Accounts payable | (816) | (519) | |||||
Income taxes | 31 | 10 | |||||
Other liabilities | (297) | (379) | |||||
Total cash provided by operating activities | 827 | 2 | |||||
Investing activities | |||||||
Additions to property and equipment | (178) | (193) | |||||
Other, net | (1) | 1 | |||||
Total cash used in investing activities | (179) | (192) | |||||
Financing activities | |||||||
Repurchase of common stock | (62) | (98) | |||||
Dividends paid | (141) | (134) | |||||
Borrowings of debt | 1,250 | - | |||||
Other, net | 2 | 6 | |||||
Total cash provided by (used in) financing activities | 1,049 | (226) | |||||
Effect of exchange rate changes on cash and cash equivalents | (18) | (1) | |||||
Increase (decrease) in cash, cash equivalents and restricted cash | 1,679 | (417) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 2,355 | 2,184 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 4,034 | $ | 1,767 |
Nine Months Ended | |||||||
October 28, 2017 | October 29, 2016 | ||||||
Operating activities | |||||||
Net earnings | $ | 636 | $ | 621 | |||
Adjustments to reconcile net earnings to total cash provided by operating activities: | |||||||
Depreciation | 500 | 491 | |||||
Restructuring charges | — | 30 | |||||
Stock-based compensation | 97 | 82 | |||||
Deferred income taxes | 4 | 28 | |||||
Other, net | (5 | ) | (22 | ) | |||
Changes in operating assets and liabilities: | |||||||
Receivables | 413 | 79 | |||||
Merchandise inventories | (1,811 | ) | (1,369 | ) | |||
Other assets | (36 | ) | (18 | ) | |||
Accounts payable | 1,530 | 1,801 | |||||
Other liabilities | (187 | ) | (192 | ) | |||
Income taxes | 62 | (124 | ) | ||||
Total cash provided by operating activities | 1,203 | 1,407 | |||||
Investing activities | |||||||
Additions to property and equipment | (489 | ) | (445 | ) | |||
Purchases of investments | (4,047 | ) | (2,149 | ) | |||
Sales of investments | 3,518 | 1,685 | |||||
Proceeds from property disposition | 2 | 56 | |||||
Other, net | — | 5 | |||||
Total cash used in investing activities | (1,016 | ) | (848 | ) | |||
Financing activities | |||||||
Repurchase of common stock | (1,138 | ) | (472 | ) | |||
Repayments of debt | (31 | ) | (384 | ) | |||
Dividends paid | (310 | ) | (417 | ) | |||
Issuance of common stock | 145 | 66 | |||||
Other, net | (1 | ) | 8 | ||||
Total cash used in financing activities | (1,335 | ) | (1,199 | ) | |||
Effect of exchange rate changes on cash | 15 | 13 | |||||
Decrease in cash, cash equivalents and restricted cash | (1,133 | ) | (627 | ) | |||
Cash, cash equivalents and restricted cash at beginning of period | 2,433 | 2,161 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 1,300 | $ | 1,534 |
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of ChangeChanges 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 February 1, 2020 | 256 | $ | 26 | $ | - | $ | 3,158 | $ | 295 | $ | 3,479 | ||||||||||||
Net earnings, three months ended May 2, 2020 | - | - | - | 159 | - | 159 | |||||||||||||||||
Other comprehensive loss, net of tax: | |||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | (52) | (52) | |||||||||||||||||
Stock-based compensation | - | - | 15 | - | - | 15 | |||||||||||||||||
Issuance of common stock | 2 | - | 6 | - | - | 6 | |||||||||||||||||
Common stock dividends, $0.55 per share | - | - | 2 | (143) | - | (141) | |||||||||||||||||
Repurchase of common stock | (1) | - | (8) | (48) | - | (56) | |||||||||||||||||
Balances at May 2, 2020 | 257 | $ | 26 | $ | 15 | $ | 3,126 | $ | 243 | $ | 3,410 | ||||||||||||
Balances at February 2, 2019 | 266 | $ | 27 | $ | - | $ | 2,985 | $ | 294 | $ | 3,306 | ||||||||||||
Adoption of ASU 2016-02 | - | - | - | (19) | - | (19) | |||||||||||||||||
Net earnings, three months ended May 4, 2019 | - | - | - | 265 | - | 265 | |||||||||||||||||
Other comprehensive loss, net of tax: | |||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | (5) | (5) | |||||||||||||||||
Stock-based compensation | - | - | 36 | - | - | 36 | |||||||||||||||||
Issuance of common stock | 2 | - | 11 | - | - | 11 | |||||||||||||||||
Common stock dividends, $0.50 per share | - | - | 2 | (136) | - | (134) | |||||||||||||||||
Repurchase of common stock | (1) | - | (49) | (57) | - | (106) | |||||||||||||||||
Balances at May 4, 2019 | 267 | $ | 27 | $ | - | $ | 3,038 | $ | 289 | $ | 3,354 |
Common Shares | Common Stock | Prepaid Share Repurchase | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||
Balances at January 28, 2017 | 311 | $ | 31 | $ | — | $ | — | $ | 4,399 | $ | 279 | $ | 4,709 | |||||||||||||
Adoption of ASU 2016-09 | — | — | — | 10 | (12 | ) | — | (2 | ) | |||||||||||||||||
Net earnings, nine months ended October 28, 2017 | — | — | — | — | 636 | — | 636 | |||||||||||||||||||
Other comprehensive income, net of tax | ||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | 25 | 25 | |||||||||||||||||||
Stock-based compensation | — | — | — | 97 | — | — | 97 | |||||||||||||||||||
Restricted stock vested and stock options exercised | 7 | 1 | — | 137 | — | — | 138 | |||||||||||||||||||
Issuance of common stock under employee stock purchase plan | — | — | — | 7 | — | — | 7 | |||||||||||||||||||
Common stock dividends, $1.02 per share | — | — | — | — | (311 | ) | — | (311 | ) | |||||||||||||||||
Repurchase of common stock | (22 | ) | (2 | ) | — | (251 | ) | (894 | ) | — | (1,147 | ) | ||||||||||||||
Balances at October 28, 2017 | 296 | $ | 30 | $ | — | $ | — | $ | 3,818 | $ | 304 | $ | 4,152 | |||||||||||||
Balances at January 30, 2016 | 324 | $ | 32 | $ | (55 | ) | $ | — | $ | 4,130 | $ | 271 | $ | 4,378 | ||||||||||||
Net earnings, nine months ended October 29, 2016 | — | — | — | — | 621 | — | 621 | |||||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | 6 | 6 | |||||||||||||||||||
Stock-based compensation | — | — | — | 82 | — | — | 82 | |||||||||||||||||||
Restricted stock vested and stock options exercised | 5 | 1 | — | 59 | — | — | 60 | |||||||||||||||||||
Settlement of accelerated share repurchase | — | — | 55 | — | — | — | 55 | |||||||||||||||||||
Issuance of common stock under employee stock purchase plan | — | — | — | 7 | — | — | 7 | |||||||||||||||||||
Tax loss from stock options exercised, restricted stock vesting and employee stock purchase plan | — | — | — | (3 | ) | — | — | (3 | ) | |||||||||||||||||
Common stock dividends, $1.29 per share | — | — | — | — | (417 | ) | — | (417 | ) | |||||||||||||||||
Repurchase of common stock | (16 | ) | (2 | ) | — | (145 | ) | (381 | ) | — | (528 | ) | ||||||||||||||
Balances at October 29, 2016 | 313 | $ | 31 | $ | — | $ | — | $ | 3,953 | $ | 277 | $ | 4,261 |
See Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1.Basis of Presentation
Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.
Historically, we have generated a higherlarge proportion of our revenue and earnings in the fiscal fourth fiscal quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.February 1, 2020. The first
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
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from October 29, 2017,May 2, 2020, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for this period.
COVID-19
In May 2014,March 2020, the Financial Accounting Standards BoardWorld Health Organization declared the outbreak of novel coronavirus disease ("FASB"COVID-19") issued Accounting Standards Update ("ASU") 2014-09,
In light of control, as opposed to transfer of risk and rewards under current guidance. It also requires significantly expanded disclosures regarding revenues.
Since the adoptionpandemic had a significant impact on our store operations, we concluded this was a triggering event to review for potential impairments of our store assets. As a result of this analysis, we recorded an immaterial asset impairment charge for a small number of stores within Selling, general and consequent changes to our proceduresadministrative (“SG&A”) expenses for the three months ended May 2, 2020.
We have goodwill in 2 reporting units – Best Buy Domestic and methodologies to require adjustments to our internal controls over financial reporting.
On March 27, 2020, usingin response to the modified retrospective method. WhileCOVID-19 pandemic, the U.S. Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. As a result of the CARES Act, we expect adoptionintend to leaddefer qualified payroll taxes and claim the employee retention credit, which will be treated as a government subsidy to a material increase in the assets and liabilities recordedoffset related operating expenses. Based on our balance sheetpreliminary analysis of the CARES Act, we reduced our SG&A expenses for the three months ended May 2, 2020, by $69 million for employee retention credits. We will continue to assess our treatment of the CARES Act to the extent additional guidance and an increase to our footnote disclosures related to leases, weregulations are still evaluatingissued.
The COVID-19 pandemic remains a rapidly evolving situation. The extent of the impact of COVID-19 on our consolidated statement of earnings. We also expect that adoptionbusiness and financial results will depend on future developments, including the duration and spread of the new standard will require changes to our internal controls over financial reporting.outbreak within the markets in which we operate and the related impact on consumer confidence and spending, all of which are highly uncertain.
Adopted Accounting Pronouncements
In the first quarter of fiscal 2018,2021, we prospectively adopted the following ASUs:
ASU 2016-09,
ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
ASU 2018-13, Fair Value Measurement - Stock Compensation: Improvements to Employee Share-Based PaymentDisclosure Framework (Topic 820)
ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting
October 29, 2016 Reported | ASU 2016-09 Adjustment | ASU 2016-15 Adjustment | ASU 2016-18 Adjustment | October 29, 2016 Adjusted | |||||||||||||||
Operating activities | |||||||||||||||||||
Other, net | $ | (34 | ) | $ | 12 | $ | — | $ | — | $ | (22 | ) | |||||||
Changes in operating assets and liabilities: | |||||||||||||||||||
Receivables | 80 | — | (1 | ) | — | 79 | |||||||||||||
Merchandise inventories | (1,370 | ) | — | 1 | — | (1,369 | ) | ||||||||||||
Total cash provided by operating activities | 1,395 | 12 | — | — | 1,407 | ||||||||||||||
Investing activities | |||||||||||||||||||
Change in restricted assets | (8 | ) | — | — | 8 | — | |||||||||||||
Total cash used in investing activities | (856 | ) | — | — | 8 | (848 | ) | ||||||||||||
Financing activities | |||||||||||||||||||
Other, net | 20 | (12 | ) | — | — | 8 | |||||||||||||
Total cash used in financing activities | (1,187 | ) | (12 | ) | — | — | (1,199 | ) | |||||||||||
Decrease in cash, cash equivalents and restricted cash | (635 | ) | — | — | 8 | (627 | ) | ||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | 1,976 | — | — | 185 | 2,161 | ||||||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 1,341 | $ | — | $ | — | $ | 193 | $ | 1,534 |
Total Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance SheetSheets to the totaltotals shown inwithin the Condensed Consolidated StatementStatements of Cash Flows:Flows was as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||
Cash and cash equivalents | $ | 3,919 | $ | 2,229 | $ | 1,561 | |||||
Restricted cash included in Other current assets | 115 | 126 | 206 | ||||||||
Total cash, cash equivalents and restricted cash | $ | 4,034 | $ | 2,355 | $ | 1,767 |
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
Cash and cash equivalents | $ | 1,103 | $ | 2,240 | $ | 1,341 | |||||
Restricted cash included in Other current assets | 197 | 193 | 193 | ||||||||
Total cash, cash equivalents and restricted cash | $ | 1,300 | $ | 2,433 | $ | 1,534 |
Amounts included in restricted cash are pledged as collateral or restricted to use for workers’ compensation and general liability insurance and workers' compensation insurance.
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Gain from discontinued operations before income tax expense | $ | 1 | $ | 2 | $ | 1 | $ | 28 | |||||||
Income tax expense | — | — | — | 7 | |||||||||||
Net gain from discontinued operations | $ | 1 | $ | 2 | $ | 1 | $ | 21 |
2. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price)measurements are reported in the principal or most advantageous market for the asset or liability in an orderly transaction between market participantsone of three levels based on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:
Recurring Fair Value on a Recurring Basis
Financial assets and liabilities that were accounted for at fair value on a recurring basis at
Fair Value at | ||||||||||||||||||
Balance Sheet Location(1) | Fair Value Hierarchy | May 2, 2020 | February 1, 2020 | May 4, 2019 | ||||||||||||||
Assets | ||||||||||||||||||
Money market funds(2) | Cash and cash equivalents | Level 1 | $ | 1,153 | $ | 524 | $ | 18 | ||||||||||
Commercial paper(2) | Cash and cash equivalents | Level 2 | - | 75 | - | |||||||||||||
Time deposits(3) | Cash and cash equivalents | Level 2 | 465 | 185 | 60 | |||||||||||||
Money market funds(2) | Other current assets | Level 1 | 6 | 16 | 93 | |||||||||||||
Time deposits(3) | Other current assets | Level 2 | 101 | 101 | 102 | |||||||||||||
Foreign currency derivative instruments(4) | Other current assets | Level 2 | 6 | 1 | - | |||||||||||||
Interest rate swap derivative instruments(4) | Other current assets | Level 2 | 11 | - | - | |||||||||||||
Marketable securities that fund deferred compensation(5) | Other assets | Level 1 | 45 | 48 | 46 | |||||||||||||
Interest rate swap derivative instruments(4) | Other assets | Level 2 | 107 | 89 | 28 | |||||||||||||
Liabilities | ||||||||||||||||||
Interest rate swap derivative instruments(4) | Long-term liabilities | Level 2 | - | - | 6 |
(1)Balance sheet location is determined by the valuation techniques we usedlength to determinematurity from the fair value ($ in millions):
Fair Value Hierarchy | Fair Value at | ||||||||||||
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||||
ASSETS | |||||||||||||
Cash and cash equivalents | |||||||||||||
Money market funds | Level 1 | $ | 84 | $ | 290 | $ | 97 | ||||||
Time deposits | Level 2 | — | 15 | 11 | |||||||||
Short-term investments | |||||||||||||
Commercial paper | Level 2 | 588 | 349 | 250 | |||||||||
Time deposits | Level 2 | 1,649 | 1,332 | 1,527 | |||||||||
Other current assets | |||||||||||||
Money market funds | Level 1 | 8 | 7 | 3 | |||||||||
Commercial paper | Level 2 | 60 | 60 | 60 | |||||||||
Foreign currency derivative instruments | Level 2 | 5 | 2 | 5 | |||||||||
Interest rate swap derivative instruments | Level 2 | 3 | — | — | |||||||||
Time deposits | Level 2 | 100 | 100 | 100 | |||||||||
Other assets | |||||||||||||
Marketable securities that fund deferred compensation | Level 1 | 98 | 96 | 96 | |||||||||
Interest rate swap derivative instruments | Level 2 | — | 13 | 13 | |||||||||
LIABILITIES | |||||||||||||
Accrued liabilities | |||||||||||||
Foreign currency derivative instruments | Level 2 | 5 | 3 | 3 | |||||||||
Long-term liabilities | |||||||||||||
Interest rate swap derivative instruments | Level 2 | 3 | — | — |
(2)Valued at par, which resulted in proceeds of $2 million and no realized gain or loss. Other than as described, there were no changes in the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3) for the periods presented.
(3)Valued at face value plus accrued interest, which approximates fair value, and are classified as Level 2.
(4)Valued using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative instruments were classified as Level 2 as theseinputs. These instruments are custom, over-the-counter contracts with various bank counterparties that are not traded inon an active market.
(5)Valued using readily observable inputs, such as the LIBOR interest rate. Our interest rate swap derivative instruments were classified as Level 2
Impairments | Remaining Net Carrying Value(1) | ||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||||||||
Property and equipment (non-restructuring) | $ | 2 | $ | 8 | $ | 8 | $ | 16 | $ | — | $ | — | |||||||||||
Property and equipment (restructuring)(2) | — | 1 | — | 8 | — | — | |||||||||||||||||
Total | $ | 2 | $ | 9 | $ | 8 | $ | 24 | $ | — | $ | — |
Fair Value of Financial Instruments
The fair values of cash, receivables, accounts payable, short-term debt and other payables approximated their carrying values because of the short-term nature of these instruments. IfWith the exception of short-term debt, if these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy.hierarchy; short-term debt would be classified as Level 2. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate their fair value. See Note 6,
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 of our long-term debt.
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
Goodwill | $ | 425 | $ | 425 | $ | 425 | |||||
Intangible assets included in Other assets | 18 | 18 | 18 |
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||||||||||||||
Gross Carrying Amount | Cumulative Impairment | Gross Carrying Amount | Cumulative Impairment | Gross Carrying Amount | Cumulative Impairment | ||||||||||||||||||
Goodwill | $ | 1,100 | $ | 675 | $ | 1,100 | $ | 675 | $ | 1,100 | $ | 675 |
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||||||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||||
Long-term debt(1) | $ | 1,315 | $ | 1,268 | $ | 1,322 | $ | 1,239 | $ | 1,213 | $ | 1,173 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Renew Blue Phase 2 | $ | — | $ | 1 | $ | — | $ | 26 | |||||||
Canadian brand consolidation | (2 | ) | (2 | ) | (3 | ) | (1 | ) | |||||||
Renew Blue(1) | — | 1 | 3 | 4 | |||||||||||
Other restructuring activities(2) | — | 1 | — | 1 | |||||||||||
Total restructuring charges | $ | (2 | ) | $ | 1 | $ | — | $ | 30 |
(1)Excludes debt discounts, issuance costs and finance lease obligations. 3. Goodwill and Intangible Assets See Note 1, Basis of Presentation, for impairment considerations for |
Goodwill
Balances related to goodwill were as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||||||||||||||
Gross Carrying | Cumulative | Gross Carrying | Cumulative | Gross Carrying | Cumulative | ||||||||||||||||||
Domestic | $ | 1,053 | $ | (67) | $ | 1,051 | $ | (67) | $ | 982 | $ | (67) | |||||||||||
International | 608 | (608) | 608 | (608) | 608 | (608) | |||||||||||||||||
Total | $ | 1,661 | $ | (675) | $ | 1,659 | $ | (675) | $ | 1,590 | $ | (675) |
Indefinite-Lived Intangible Assets
During the three and nine months ended October 28, 2017. We incurred chargesMay 2, 2020, we made the decision to phase out our Pacific Sales tradename in our U.S. Best Buy stores over the coming years. Consequently, we reclassified the tradename from an indefinite-lived intangible asset to a definite-lived intangible asset and have 0 indefinite-lived intangible assets remaining as of $1 million and $26 million related to PhaseMay 2, 2020. The carrying value of the plan during the threetradename was $18 million as of February 1, 2020, and nine months ended October 29, 2016, respectively. The charges incurred consisted of employee termination benefitsMay 4, 2019, respectively, and property and equipment impairments. All restructuring charges related to this plan are from continuing operations and are presented in Restructuring charges inwas recorded within Other assets on our Condensed Consolidated Statements of Earnings.
Definite-Lived Intangible Assets
We have definite-lived intangible assets which are recorded within Other assets on our Condensed Consolidated Balance Sheets as well as, the cumulative amount incurred through October 28, 2017,follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | Weighted-Average | ||||||||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | Useful Life Remaining as of May 2, 2020 (in years) | |||||||||||||||||||||
Customer relationships | $ | 339 | $ | 83 | $ | 339 | $ | 70 | $ | 258 | $ | 29 | 6.9 | ||||||||||||||
Tradenames | 81 | 13 | 63 | 10 | 63 | 5 | 5.5 | ||||||||||||||||||||
Developed technology | 56 | 18 | 56 | 15 | 52 | 6 | 3.3 | ||||||||||||||||||||
Total | $ | 476 | $ | 114 | $ | 458 | $ | 95 | $ | 373 | $ | 40 | 6.3 |
Amortization expense was as follows ($ in millions):
Three Months Ended | |||||||||||||
Statement of Earnings Location | May 2, 2020 | May 4, 2019 | |||||||||||
Amortization expense | SG&A | $ | 19 | $ | 17 |
Domestic | |||||||||||||||||||
Three Months Ended | Nine Months Ended | Cumulative Amount | |||||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | October 28, 2017 | |||||||||||||||
Property and equipment impairments | $ | — | $ | 1 | $ | — | $ | 8 | $ | 8 | |||||||||
Termination benefits | — | — | — | 18 | 18 | ||||||||||||||
Total restructuring charges | $ | — | $ | 1 | $ | — | $ | 26 | $ | 26 |
Amortization expense expected to termination benefits wasbe recognized in future periods is as follows for the nine months ended October 29, 2016 ($ in millions):
Termination Benefits | |||
Balances at January 30, 2016 | $ | — | |
Charges | 19 | ||
Cash payments | (16 | ) | |
Adjustments(1) | (2 | ) | |
Balances at October 29, 2016 | $ | 1 |
Amortization Expense | |||||||||||||||||||||||||||
Remainder of fiscal 2021 | $ | 61 | |||||||||||||||||||||||||
Fiscal 2022 | 80 | ||||||||||||||||||||||||||
Fiscal 2023 | 79 | ||||||||||||||||||||||||||
Fiscal 2024 | 54 | ||||||||||||||||||||||||||
Fiscal 2025 | 16 | ||||||||||||||||||||||||||
Fiscal 2026 | 16 | ||||||||||||||||||||||||||
Thereafter | 56 |
4. Debt
Short-Term Debt
We have a $1.25 billion five year senior unsecured revolving credit facility agreement (the “Facility”) with a syndicate of banks. In the first quarter of fiscal 2016, we consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores and the conversionlight of the remaining 65 Future Shop storesuncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a seven-day draw on the Best Buy brand. All restructuring charges related tofull amount of the Facility on March 19, 2020, and rolled this plan are from continuing operations and are presented in Restructuring charges ininto a three-month draw on March 26, 2020. The Facility remained fully drawn as of May 2, 2020, at an interest rate of three-month LIBOR plus a margin rate of 1.015%. There were 0 borrowings outstanding as of February 1, 2020, or May 4, 2019.
Information regarding our Condensed Consolidated Statements of Earnings.
Average Amount Outstanding | Maximum Amount Outstanding | Weighted Average Interest Rate | ||||||||||
Short-term debt | $ | 618 | $ | 1,250 | 2.3 | % |
International | |||||||||||||||||||
Three Months Ended | Nine Months Ended | Cumulative Amount | |||||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | October 28, 2017 | |||||||||||||||
Inventory write-downs | $ | — | $ | — | $ | — | $ | — | $ | 3 | |||||||||
Property and equipment impairments | — | — | — | — | 30 | ||||||||||||||
Tradename impairment | — | — | — | — | 40 | ||||||||||||||
Termination benefits | — | — | — | — | 25 | ||||||||||||||
Facility closure and other costs | (2 | ) | (2 | ) | (3 | ) | (1 | ) | 102 | ||||||||||
Total restructuring charges | $ | (2 | ) | $ | (2 | ) | $ | (3 | ) | $ | (1 | ) | $ | 200 |
Termination Benefits | Facility Closure and Other Costs | Total | |||||||||
Balances at January 28, 2017 | $ | — | $ | 34 | $ | 34 | |||||
Cash payments | — | (14 | ) | (14 | ) | ||||||
Adjustments(1) | — | (3 | ) | (3 | ) | ||||||
Changes in foreign currency exchange rates | — | 1 | 1 | ||||||||
Balances at October 28, 2017 | $ | — | $ | 18 | $ | 18 | |||||
Balances at January 30, 2016 | $ | 2 | $ | 64 | $ | 66 | |||||
Charges | — | 1 | 1 | ||||||||
Cash payments | (2 | ) | (29 | ) | (31 | ) | |||||
Adjustments(1) | — | (2 | ) | (2 | ) | ||||||
Changes in foreign currency exchange rates | — | 3 | 3 | ||||||||
Balances at October 29, 2016 | $ | — | $ | 37 | $ | 37 |
Long-Term Debt
Long-term debt consisted of the following ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | ||||||||||||||||||
Notes, 5.50%, due March 15, 2021 | $ | 650 | $ | 650 | $ | 650 | ||||||||||||||
Notes, 4.45%, due October 1, 2028 | 500 | 500 | 500 | |||||||||||||||||
Interest rate swap valuation adjustments | 118 | 89 | 23 | |||||||||||||||||
Subtotal | 1,268 | 1,239 | 1,173 | |||||||||||||||||
Debt discounts and issuance costs | (8) | (6) | (7) | |||||||||||||||||
Finance lease obligations | 34 | 38 | 41 | |||||||||||||||||
Total long-term debt | 1,294 | 1,271 | 1,207 | |||||||||||||||||
Less current portion | 673 | 14 | 14 | |||||||||||||||||
Total long-term debt, less current portion | $ | 621 | $ | 1,257 | $ | 1,193 |
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
2018 Notes | $ | 500 | $ | 500 | $ | 500 | |||||
2021 Notes | 650 | 650 | 650 | ||||||||
Interest rate swap valuation adjustments | — | 13 | 13 | ||||||||
Subtotal | 1,150 | 1,163 | 1,163 | ||||||||
Debt discounts and issuance costs | (3 | ) | (5 | ) | (5 | ) | |||||
Financing lease obligations | 158 | 177 | 180 | ||||||||
Capital lease obligations | 24 | 30 | 29 | ||||||||
Total long-term debt | 1,329 | 1,365 | 1,367 | ||||||||
Less: current portion | 545 | 44 | 43 | ||||||||
Total long-term debt, less current portion | $ | 784 | $ | 1,321 | $ | 1,324 |
See Note 2, Fair Value Measurements, for the fair value of total long-term debt, excluding debt discountsdebt.
5. Revenue
We generate all of our revenue from contracts with customers from the sale of products and issuance costsservices. Contract balances primarily consist of receivables and financingcontract liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards, services not yet completed, and capital lease obligations, approximated
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||
Receivables, net(1) | $ | 396 | $ | 567 | $ | 484 | |||||
Short-term contract liabilities included in: | |||||||||||
Unredeemed gift cards | 257 | 281 | 265 | ||||||||
Deferred revenue | 531 | 501 | 409 | ||||||||
Accrued liabilities | 45 | 139 | 139 | ||||||||
Long-term contract liabilities included in: | |||||||||||
Long-term liabilities | 8 | 9 | 10 |
(1)Receivables are recorded net of allowances for doubtful accounts of $29 million,
During the first three months of fiscal 2021 and fiscal 2020, $492 million and $466 million of revenue was measured at fair valuerecognized, respectively, that was included in the financial statements, it would be classified primarily as Level 2 incontract liabilities at the fair value hierarchy.
See Note 5,
6. Derivative Instruments
We manage our economic and transaction exposure to certain risks through the use of foreign currency and interest rate swap derivative instruments. Our objective in holding derivatives is to reduce the volatility of net earnings, cash flows and net asset value associated with changes in foreign currency exchange rates and interest rates. We do not hold derivative instruments for trading or speculative purposes. We have no derivatives that have credit risk-related contingent features, and we mitigate our credit risk by engaging with major financial institutions as our counterparties.
Our derivative instruments are not designated as hedging relationships,net investment hedges and therefore, we record gains and lossesinterest rate swaps are recorded on these contracts directly to net earnings.
Notional amounts of our derivative instruments were as follows ($ in millions):
Contract Type | May 2, 2020 | February 1, 2020 | May 4, 2019 | ||||||||||
Derivatives designated as net investment hedges | $ | 126 | $ | 129 | $ | 15 | |||||||
Derivatives designated as interest rate swaps | 1,150 | 1,150 | 1,150 | ||||||||||
No hedge designation (foreign exchange contracts) | 21 | 31 | 44 | ||||||||||
Total | $ | 1,297 | $ | 1,310 | $ | 1,209 |
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||
Derivatives designated as net investment hedges(1) | $ | 3 | $ | 5 | $ | 2 | $ | 2 | $ | 4 | $ | 3 | |||||||||||
Derivatives designated as interest rate swaps(2) | 3 | 3 | 13 | — | 13 | — | |||||||||||||||||
No hedge designation (foreign exchange forward contracts)(1) | 2 | — | — | 1 | 1 | — | |||||||||||||||||
Total | $ | 8 | $ | 8 | $ | 15 | $ | 3 | $ | 18 | $ | 3 |
Effects of derivative instruments by contract type on other comprehensive income ("OCI") andour derivatives on our Condensed Consolidated Statements of Earnings for the
Gain (Loss) Recognized | |||||||||||
Three Months Ended | |||||||||||
Contract Type | Statement of Earnings Location | May 2, 2020 | May 4, 2019 | ||||||||
Interest rate swap contracts | Interest expense | $ | 29 | $ | (2) | ||||||
Adjustments to carrying value of long-term debt | Interest expense | (29) | 2 | ||||||||
Total | $ | - | $ | - |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Derivatives designated as net investment hedges | |||||||||||||||
Pre-tax gain (loss) recognized in OCI | $ | 8 | $ | 6 | $ | (3 | ) | $ | (10 | ) | |||||
Derivatives designated as interest rate swaps | |||||||||||||||
Gain (loss) recognized within Interest expense | |||||||||||||||
Interest rate swap gain | $ | 16 | $ | 14 | $ | 13 | $ | 12 | |||||||
Long-term debt loss | (16 | ) | (14 | ) | (13 | ) | (12 | ) | |||||||
Net impact | $ | — | $ | — | $ | — | $ | — | |||||||
No hedge designation (foreign exchange forward contracts) | |||||||||||||||
Gain (loss) recognized within Selling, general and administrative expenses | $ | 2 | $ | 1 | $ | (1 | ) | $ | (2 | ) |
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
Derivatives designated as net investment hedges | $ | 240 | $ | 205 | $ | 203 | |||||
Derivatives designated as interest rate swaps | 1,150 | 750 | 750 | ||||||||
No hedge designation (foreign exchange forward contracts) | 64 | 43 | 59 | ||||||||
Total | $ | 1,454 | $ | 998 | $ | 1,012 |
7. 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. Potentially dilutive securities include stock options, nonvested share awards and shares issuable under our employee stock purchase plan. Nonvested market-based share awards and nonvested performance-based share awards are included in the average diluted shares outstanding for each period, if established market or performance criteria have been met at the end of the respective periods.
Reconciliations of the numerators and denominators of basic and diluted earnings per share from continuing operations for the three
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Numerator | |||||||
Net earnings | $ | 159 | $ | 265 | |||
Denominator | |||||||
Weighted-average common shares outstanding | 258.3 | 267.6 | |||||
Dilutive effect of stock compensation plan awards | 2.1 | 3.9 | |||||
Weighted-average common shares outstanding, assuming dilution | 260.4 | 271.5 | |||||
Potential shares which were anti-dilutive and excluded from weighted-average share computations | 0.6 | 0.8 | |||||
Basic earnings per share | $ | 0.61 | $ | 0.99 | |||
Diluted earnings per share | $ | 0.61 | $ | 0.98 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Numerator | |||||||||||||||
Net earnings from continuing operations | $ | 238 | $ | 192 | $ | 635 | $ | 600 | |||||||
Denominator | |||||||||||||||
Weighted-average common shares outstanding | 299.1 | 316.2 | 304.1 | 320.2 | |||||||||||
Dilutive effect of stock compensation plan awards | 6.3 | 3.8 | 6.5 | 3.4 | |||||||||||
Weighted-average common shares outstanding, assuming dilution | 305.4 | 320.0 | 310.6 | 323.6 | |||||||||||
Net earnings per share from continuing operations | |||||||||||||||
Basic | $ | 0.80 | $ | 0.61 | $ | 2.09 | $ | 1.87 | |||||||
Diluted | $ | 0.78 | $ | 0.60 | $ | 2.05 | $ | 1.85 |
8. Repurchase of weighted-average common shares outstanding, assuming dilution, excluded options to purchase zero shares and 6.3 million shares of common stock for the
Foreign Currency Translation | |||
Balances at July 29, 2017 | $ | 321 | |
Foreign currency translation adjustments | (17 | ) | |
Balances at October 28, 2017 | $ | 304 | |
Balances at January 28, 2017 | $ | 279 | |
Foreign currency translation adjustments | 25 | ||
Balances at October 28, 2017 | $ | 304 | |
Balances at July 30, 2016 | $ | 296 | |
Foreign currency translation adjustments | (19 | ) | |
Balances at October 29, 2016 | $ | 277 | |
Balances at January 30, 2016 | $ | 271 | |
Foreign currency translation adjustments | 6 | ||
Balances at October 29, 2016 | $ | 277 |
On February 2017. The program, which became effective on February 27, 2017, terminated and replaced a $5.0 billion share repurchase program authorized by23, 2019, our Board of Directors in June 2011.("Board") authorized a $3.0 billion share repurchase program. There is no expiration date governing the period over which we can make our share repurchasesrepurchase shares under the February 2017 $5.0 billion share repurchase program.
Information regarding the shares we repurchased during the
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Total cost of shares repurchased | $ | 56 | $ | 106 | |||
Average price per share | $ | 86.30 | $ | 70.77 | |||
Number of shares repurchased | 0.6 | 1.5 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Total cost of shares repurchased | |||||||||||||||
Open market(1) | $ | 366 | $ | 206 | $ | 1,147 | $ | 483 | |||||||
Settlement of January 2016 ASR(2) | — | — | — | 45 | |||||||||||
Total | $ | 366 | $ | 206 | $ | 1,147 | $ | 528 | |||||||
Average price per share | |||||||||||||||
Open market | $ | 57.14 | $ | 37.67 | $ | 52.35 | $ | 33.52 | |||||||
Settlement of January 2016 ASR(2) | $ | — | $ | — | $ | — | $ | 28.55 | |||||||
Average | $ | 57.14 | $ | 37.67 | $ | 52.35 | $ | 33.03 | |||||||
Number of shares repurchased and retired | |||||||||||||||
Open market(1) | 6.4 | 5.5 | 21.9 | 14.4 | |||||||||||
Settlement of January 2016 ASR(2) | — | — | — | 1.6 | |||||||||||
Total | 6.4 | 5.5 | 21.9 | 16.0 |
As of May 2, 2020, $1.9 billion shares remained available for additional purchases underof the February 2017$3.0 billion share repurchase program as of October 28, 2017. Betweenauthorization was available. On March 21, 2020, we announced the end of the third quarter of fiscal 2018 and November 30, 2017, we repurchased an incremental 4.5 million shares of our common stock at a cost of $256 million. Repurchased shares are retired and constitute authorized but unissued shares.
9. Segments
Segment and its districts and territories) and International (which is comprised of all operations within Canada and Mexico). Our CODM has ultimate responsibility for enterprise decisions. Our CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, the Domestic segment and the International segment. The Domestic segment managers and International segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. Our CODM relies on internal management reporting that analyzes enterprise results to the net earnings level and segment results to the operating income level.
Three Months Ended | |||||||||||
May 2, 2020 | May 4, 2019 | ||||||||||
Revenue by reportable segment | |||||||||||
Domestic | $ | 7,915 | $ | 8,481 | |||||||
International | 647 | 661 | |||||||||
Total revenue | $ | 8,562 | $ | 9,142 | |||||||
Revenue by product category | |||||||||||
Domestic | |||||||||||
Computing and Mobile Phones | $ | 3,805 | $ | 3,851 | |||||||
Consumer Electronics | 2,219 | 2,662 | |||||||||
Appliances | 935 | 961 | |||||||||
Entertainment | 510 | 473 | |||||||||
Services | 421 | 497 | |||||||||
Other | 25 | 37 | |||||||||
Total Domestic revenue | $ | 7,915 | $ | 8,481 | |||||||
International | |||||||||||
Computing and Mobile Phones | $ | 309 | $ | 305 | |||||||
Consumer Electronics | 177 | 203 | |||||||||
Appliances | 58 | 59 | |||||||||
Entertainment | 57 | 36 | |||||||||
Services | 32 | 43 | |||||||||
Other | 14 | 15 | |||||||||
Total International revenue | $ | 647 | $ | 661 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Domestic | $ | 8,491 | $ | 8,192 | $ | 24,675 | $ | 23,910 | |||||||
International | 829 | 753 | 2,113 | 2,011 | |||||||||||
Total revenue | $ | 9,320 | $ | 8,945 | $ | 26,788 | $ | 25,921 |
Segment operating income by reportable segment and the reconciliation to earnings from continuing operations before income tax expense were(loss) was as follows ($ in millions):
Three Months Ended | |||||||||||
May 2, 2020 | May 4, 2019 | ||||||||||
Domestic | $ | 241 | $ | 332 | |||||||
International | (12) | 2 | |||||||||
Total operating income | 229 | 334 | |||||||||
Other income (expense): | |||||||||||
Investment income and other | 6 | 14 | |||||||||
Interest expense | (17) | (18) | |||||||||
Earnings before income tax expense | $ | 218 | $ | 330 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Domestic | $ | 345 | $ | 298 | $ | 959 | $ | 959 | |||||||
International | 5 | 14 | 12 | 14 | |||||||||||
Total operating income | 350 | 312 | 971 | 973 | |||||||||||
Other income (expense) | |||||||||||||||
Gain on sale of investments | — | — | — | 2 | |||||||||||
Investment income and other | 12 | 8 | 30 | 22 | |||||||||||
Interest expense | (20 | ) | (16 | ) | (57 | ) | (54 | ) | |||||||
Earnings from continuing operations before income tax expense | $ | 342 | $ | 304 | $ | 944 | $ | 943 |
Assets by reportable segment were as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||
Domestic | $ | 14,320 | $ | 14,247 | $ | 13,332 | |||||
International | 1,285 | 1,344 | 1,218 | ||||||||
Total assets | $ | 15,605 | $ | 15,591 | $ | 14,550 |
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
Domestic | $ | 13,140 | $ | 12,496 | $ | 13,115 | |||||
International | 1,645 | 1,360 | 1,427 | ||||||||
Total assets | $ | 14,785 | $ | 13,856 | $ | 14,542 |
10. Contingencies
We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected inon our Condensed Consolidated Financial Statements. However, there are cases where liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. We provide disclosure of matters where we believe it is reasonably possible the impact may be material to our Condensed Consolidated Financial Statements.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” in the following refers to Best Buy Co., Inc. and its consolidated subsidiaries. Any references to our website addresses do not constitute incorporation by reference of the information contained on the websites.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in the following sections:
Overview
Business Strategy and COVID-19 Update
Results of Operations
Liquidity and Capital Resources
Off-Balance-Sheet Arrangements and Contractual Obligations
Significant Accounting Policies and Estimates
New Accounting Pronouncements
Safe Harbor Statement Under the Private Securities Litigation Reform Act
Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 28, 2017 (includingFebruary 1, 2020 (“Fiscal 2020 Form 10-K”), the information presented therein under
Overview
Our purpose is to enrich the lives of technology products, services and solutions. We offer these products and services to customers who visit our stores, engage with Geek Squad agents or use our websites or mobile applications.consumers through technology. We have operations in the U.S., Canada and Mexico. We operate two reportable segments: Domestic and International. The Domestic segment is comprised of the operations in all operations withinstates, districts and territories of the U.S. and its districts and territories. The International segment is comprised of all operations in Canada and Mexico.
Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2018 will include 53 weeks with the additional week included in the fourth quarter and fiscal 2017 included 52 weeks. Our business, like that of many retailers, is seasonal. A higherlarge proportion of our revenue and earnings is generated in the fiscal fourth fiscal quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico ("Holiday").
Comparable Sales
Throughout this MD&A, we refer to comparable sales. OurComparable 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 calculation comparesincludes revenue from stores, websites and call centers operating for at least 14 full months, as well as revenue relatedmonths. Stores closed more than 14 days, including but not limited to certain other comparable sales channels for a particular period to the corresponding period in the prior year. Relocated stores, as well asrelocated, remodeled, expanded and downsized stores, closed more than 14 days,or stores impacted by natural disasters, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculationComparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of comparablemerchandise to wholesalers and dealers, as applicable. Comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only). Comparable 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 at a store, at an alternative pick-up location or take delivery direct to their homes. All periods presented apply this methodology consistently.
In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease ("COVID-19") as a pandemic. Except where otherwise directed by state and local authorities, on March 22, 2020, we transitioned our stores to a contactless, curbside-only operating model. All stores that were temporarily closed as a result of COVID-19 or operating a curbside-only operating model are included in comparable sales.
On October 1, 2018, we acquired all outstanding shares of GreatCall, Inc. (“GreatCall”) and on May 9, 2019, we acquired all outstanding shares of Critical Signal Technologies, Inc. (“CST”). Consistent with our comparable sales policy, the results of GreatCall are included in our comparable sales calculation for the three months ended May 2, 2020, and the results of CST are excluded from our comparable sales calculation for the periods presented.
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.
Interim Sales Data
Within this MD&A, we refer to sales retention based on interim sales data, which included the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop storeswe use to Best Buy stores and the elimination of the Future Shop website, had a material impactmonitor transactional revenue performance on a daily or weekly interval. For a period in which we experienced significant shifts in revenue trends as a result of COVID-19 -related impacts, we believe interim sales data provides helpful insight into these trends. The sales retention estimate represents the year-over-year basischange compared to the same period in the prior fiscal year. Retention is based on the remaining Canadian retail storesabsolute sales dollar changes and the website. As such, from the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all Canadian store and website revenue was removed from the comparable sales base and the International segment no longer had a comparable sales metric. Therefore, Consolidated comparable sales for the first quarter of fiscal 2016 through the third quarter of fiscal 2017 equaled the Domestic segmentis not presented in accordance with comparable sales. Beginning inInterim sales data is unaudited and excludes quarter-end revenue accounting adjustments. Other companies may track interim sales data using different methods and systems, and therefore, the fourth quarter of fiscal 2017, we resumed reporting Internationalestimated data as presented herein may not be comparable sales and, as such, Consolidated comparable sales are once again equal to the aggregation of Domestic and International comparable sales.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), as well as certain adjusted or non-GAAP financial measures, such as constant currency, non-GAAP operating income, non-GAAP effective tax rate non-GAAP net earnings from continuing operations,and non-GAAP diluted earnings per share ("EPS") from continuing operations and non-GAAP debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio.operations. We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting also includes non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, and gains orand losses on investments.investments, intangible asset amortization, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe thisdoing so provides greater clarity to management and our investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.
In our discussions of the operating results of our Consolidatedconsolidated 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 in light of significant fluctuations in currency rates and our inability to report comparable store sales for the International segment from the first quarter of fiscal 2016 through the third quarter of fiscal 2017 as a result of the Canadian brand consolidation.
Refer to the
Consolidated Non-GAAP Financial Measures section below forBusiness Strategy and COVID-19 Update
In the first quarter of fiscal 2021, we generated $8.6 billion in revenue and our Enterprise comparable sales declined by 5.3%. Our GAAP operating income rate decreased by 100 basis points and our non-GAAP operating income rate decreased by 90 basis points, both compared to the first quarter of fiscal 2020. The decreases in both GAAP and non-GAAP operating income were primarily due to the operational disruptions caused by COVID-19. We recorded GAAP diluted EPS of $0.61 and non-GAAP diluted EPS of $0.67, decreases of 38% and 34% compared to the first quarter of fiscal 2020, respectively. Refer to the
The pandemic has changed the way we work, learn, care for ourselves and connect with each other. Against that backdrop, our purpose has never been more relevant: to EBITDAR ratioenrich lives through technology. It is important for understandingbecause of that purpose that we were, in virtually every jurisdiction with a stay-at-home order in place, designated an essential retailer because of the products and services we offer.
On March 22, 2020, we proactively moved all our financial positionDomestic stores to a contactless, curbside-only operating model, allowing us to safely serve customers and provides meaningful additional information about our ability to service our long-term debtcomply with government orders and other fixed obligations and to fund our future growth.recommendations. We also believehalted all in-home installation, repair and consultation services. We did this even in jurisdictions where it was not mandated because we believed it was the best way at the time to keep our non-GAAP debtcustomers and employees as safe as possible. This required us to EBITDAR ratio is relevant because it enables investors to compareimplement a new and highly effective operating model in a matter of 48 hours across our indebtedness to thatentire Domestic store base.
As a result, we retained approximately 81% of retailers who own, rather than lease, their stores. Our decision to own or lease real estate islast year’s consolidated sales based on an assessmentinterim sales data during the last six weeks of our financial liquidity, our capital structure, our desire to own or to lease the location, the owner’s desire to own or to lease the location and the alternative that results in the highest return to our shareholders.
As we have begun work on some of these investments, this is resulting in higher capital and operating expenses this year. This is going to be a multi-year journey, which is why we are committed to creating efficiencies to help fund investments and offset ongoing pressures in the business. After reducing cost by $1.4 billion in the past five years, our current target, established inentered the second quarter of fiscal 2018,2021, we continued to shift our operating model as we responded to the evolving environment. On May 4, 2020, we began welcoming customers back into our stores by appointment only, following strict social-distancing practices and using appropriate protective equipment. This service allows customers who need to purchase more complex items to consult with one of our sales associates and receive advice tailored to their specific technology needs. We started with approximately 200 stores, and as of May 21, 2020, we have almost 700, or 70%, of our Domestic stores operating this way. Most of the remaining stores are still operating in the curbside-only model, and approximately 40 stores remain completely closed, mainly due to our assessment of employee and customer safety. Customers have responded very positively to this new way of interacting with us in our stores, with 98% of customers surveyed indicating we made them feel safe during the experience. We have also resumed large product delivery, installations and in-home repairs in approximately 80% of U.S. zip codes, while following strict new safety guidelines.
From the very first days of the pandemic we told anyone feeling sick or quarantined that they would keep their job and be paid. We told any employee whose child was home from school that they, too, would be paid. We gave all field employees who were still serving customers or working in our distribution centers a temporary pay increase and, for all others, we paid their normal salaries for a full month as we took the time to determine how to move forward. On April 19, 2020, we furloughed approximately 51,000 Domestic hourly store employees, including nearly all part-time employees. We retained approximately 82% of our full-time store and field employees on our payroll, including the vast majority of In-Home Advisors and Geek Squad Agents. Additionally, some corporate employees are participating in voluntary reduced work weeks and resulting pay, as well as voluntary furloughs.
In addition, our Chief Executive Officer is $600 millionforegoing 50% of her base salary and the members of the Board of Directors are foregoing 50% of their cash retainer fees. Company executives reporting directly to the Chief Executive Officer are taking a 20% reduction in additional annualized costbase salary. The money saved from these temporary pay reductions is being added to the employee hardship fund we established with our founder, Dick Schulze.
Despite the disruption and gross profit optimizationuncertainty related to be completed byCOVID-19, we remain focused on executing our Building the endNew Blue strategy. In many ways, recent events have only reinforced our belief in our strategic direction.
Our multi-year supply chain transformation has been focused on moving facilities closer to our customers and using automation and process improvements to expand fulfillment options, increase delivery speed and improve the delivery and installation experience. This has included significantly improving the ability for customers to order online and pick up at one of fiscal 2021. Duringour stores. These changes, along with innovative digital advancements allowed our teams to quickly stand up a robust and seamless customer experience for both curbside pickup and the thirdnew, in-store consultation process. All of this culminated in Domestic online growth of 155% for the first quarter of fiscal 2018, we achieved $50 million towards2021.
While overall interactions with our new goal, for a total thus far of $100 million.
With respect to Best Buy 2020Health, our focus on helping seniors live more independently with our unique combination of tech and touch, has become even more relevant as the world responds to the COVID-19 pandemic. In the first quarter of fiscal 2021, to support our base of over 1 million seniors, we moved quickly to adapt our operations so our caring center agents could support more than 150,000 calls each week while complying with stay-at-home orders.
During the first quarter of fiscal 2021, we also took the following actions to maximize liquidity in light of the uncertainty surrounding the impact of COVID-19:
executed a short-term draw on the full amount of our $1.25 billion five year senior unsecured revolving credit facility (the “Facility”),
suspended share repurchases,
lowered merchandise receipts to match demand,
extended payment terms in partnership with key merchandising vendors,
reduced promotional and marketing spend aligned with the temporary changes in our operating model,
lowered capital spend to focus on mandatory maintenance or high-value strategic areas, and
suspended our 401(k) company matching program.
There are many factors we continue to weigh for the remainder of fiscal 2021, including:
the depth and duration of the pandemic;
the impact of current and potential future government stimulus actions;
the impact on unemployment, consumer confidence and spending;
the evolution of our various operating models; and
how and where our customers are choosing to interact with us.
Our priority has been and will continue to be the safety of our employees and customers while providing essential products and services. We remain thoughtful about managing our profitability and liquidity, balancing our short-term decisions to navigate this unprecedented situation while preserving the elements of our strategy to position us well for long-term value creation. Additionally,that will ensure we remain a vibrant company in the nine months ended October 28, 2017, we returned approximately $1.5 billion in cash to our shareholders through both dividends and stock repurchases. We plan to spend approximately $2.0 billion on share repurchases this fiscal year, aheadfuture.
Results of Operations
In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a lag. Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for the periods presented.
Consolidated Performance Summary
Selected consolidated financial data was as follows ($ in millions, except per share amounts):
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Revenue | $ | 8,562 | $ | 9,142 | |||
Revenue % change | (6.3) | % | 0.4 | % | |||
Comparable sales % change | (5.3) | % | 1.1 | % | |||
Gross profit | $ | 1,965 | $ | 2,169 | |||
Gross profit as a % of revenue(1) | 23.0 | % | 23.7 | % | |||
SG&A | $ | 1,735 | $ | 1,835 | |||
SG&A as a % of revenue(1) | 20.3 | % | 20.1 | % | |||
Operating income | $ | 229 | $ | 334 | |||
Operating income as a % of revenue | 2.7 | % | 3.7 | % | |||
Net earnings | $ | 159 | $ | 265 | |||
Diluted earnings per share | $ | 0.61 | $ | 0.98 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Revenue | $ | 9,320 | $ | 8,945 | $ | 26,788 | $ | 25,921 | |||||||
Revenue % growth | 4.2 | % | 1.4 | % | 3.3 | % | 0.1 | % | |||||||
Comparable sales % gain(1) | 4.4 | % | 1.8 | % | 3.8 | % | 0.8 | % | |||||||
Gross profit | $ | 2,280 | $ | 2,203 | $ | 6,455 | $ | 6,410 | |||||||
Gross profit as a % of revenue(2) | 24.5 | % | 24.6 | % | 24.1 | % | 24.7 | % | |||||||
SG&A | $ | 1,932 | $ | 1,890 | $ | 5,484 | $ | 5,407 | |||||||
SG&A as a % of revenue(2) | 20.7 | % | 21.1 | % | 20.5 | % | 20.9 | % | |||||||
Restructuring charges | $ | (2 | ) | $ | 1 | $ | — | $ | 30 | ||||||
Operating income | $ | 350 | $ | 312 | $ | 971 | $ | 973 | |||||||
Operating income as a % of revenue | 3.8 | % | 3.5 | % | 3.6 | % | 3.8 | % | |||||||
Net earnings from continuing operations | $ | 238 | $ | 192 | $ | 635 | $ | 600 | |||||||
Earnings from discontinued operations, net of tax | $ | 1 | $ | 2 | $ | 1 | $ | 21 | |||||||
Net earnings | $ | 239 | $ | 194 | $ | 636 | $ | 621 | |||||||
Diluted earnings per share from continuing operations | $ | 0.78 | $ | 0.60 | $ | 2.05 | $ | 1.85 | |||||||
Diluted earnings per share | $ | 0.78 | $ | 0.61 | $ | 2.05 | $ | 1.92 |
(1)Because retailers vary in how they record costs of operating their supply chain between cost of sales |
Three Months Ended | Nine Months Ended | ||||
October 28, 2017 | October 28, 2017 | ||||
Comparable sales impact | 4.2 | % | 3.7 | % | |
Non-comparable sales impact(1) | (0.4 | )% | (0.5 | )% | |
Foreign currency exchange rate fluctuation impact | 0.4 | % | 0.1 | % | |
Total revenue increase | 4.2 | % | 3.3 | % |
Revenue, gross profit rate, SG&A rate and operating income rate changes in the first quarter of fiscal 2018 compared to the third quarter of fiscal 2017, driven by our International segment. The gross profit rate decrease in the first nine months of fiscal 2018 was2021 were primarily driven by our Domestic segment. For further discussion of each segment’s gross profitsegment's rate changes, see
Income Tax Expense
Income tax expense decreased in the first nine monthsquarter of fiscal 2018 compared2021 due to the first nine months of fiscal 2017. Thisa decrease in operating income was primarily due to the decrease in our Domestic segment gross profit rate,pre-tax earnings, partially offset by a decrease in our Domestic segment SG&A rate and a decrease in our
Our tax provision for interim periods is determined using an estimate of our annual effective tax rate,ETR, adjusted for discrete items, if any, that are taken into account in the relevant period. We update our estimate of the annual effective tax rateETR 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 effective tax rateETR 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 effective tax rateETR can be more or less volatile based on the amount of pre-tax income.earnings. For example, the impact of discrete items and non-deductible losses on our effective tax rateETR is greater when our pre-tax income is lower.
Segment Performance Summary
Domestic
Selected financial data for the Domestic segment was as follows ($ in millions):
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Revenue | $ | 7,915 | $ | 8,481 | |||
Revenue % change | (6.7) | % | 0.8 | % | |||
Comparable sales % change(1) | (5.7) | % | 1.3 | % | |||
Gross profit | $ | 1,821 | $ | 2,009 | |||
Gross profit as a % of revenue | 23.0 | % | 23.7 | % | |||
SG&A | $ | 1,579 | $ | 1,677 | |||
SG&A as a % of revenue | 19.9 | % | 19.8 | % | |||
Operating income | $ | 241 | $ | 332 | |||
Operating income as a % of revenue | 3.0 | % | 3.9 | % | |||
Selected Online Revenue Data | |||||||
Total online revenue | $ | 3,342 | $ | 1,308 | |||
Online revenue as a % of total segment revenue | 42.2 | % | 15.4 | % | |||
Comparable online sales growth(1) | 155.4 | % | 14.5 | % |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Revenue | $ | 8,491 | $ | 8,192 | $ | 24,675 | $ | 23,910 | |||||||
Revenue % growth | 3.6 | % | 1.3 | % | 3.2 | % | 0.2 | % | |||||||
Comparable sales % gain(1) | 4.5 | % | 1.8 | % | 3.8 | % | 0.8 | % | |||||||
Gross profit | $ | 2,096 | $ | 2,020 | $ | 5,952 | $ | 5,901 | |||||||
Gross profit as a % of revenue | 24.7 | % | 24.7 | % | 24.1 | % | 24.7 | % | |||||||
SG&A | $ | 1,751 | $ | 1,720 | $ | 4,993 | $ | 4,915 | |||||||
SG&A as a % of revenue | 20.6 | % | 21.0 | % | 20.2 | % | 20.6 | % | |||||||
Restructuring charges | $ | — | $ | 2 | $ | — | $ | 27 | |||||||
Operating income | $ | 345 | $ | 298 | $ | 959 | $ | 959 | |||||||
Operating income as a % of revenue | 4.1 | % | 3.6 | % | 3.9 | % | 4.0 | % | |||||||
Selected Online Revenue Data | |||||||||||||||
Total online revenue | $ | 1,077 | $ | 881 | $ | 3,191 | $ | 2,548 | |||||||
Online revenue as a % of total segment revenue | 12.7 | % | 10.8 | % | 12.9 | % | 10.7 | % | |||||||
Comparable online sales % gain(1) | 22.3 | % | 24.1 | % | 25.3 | % | 23.9 | % |
(1)Comparable online sales are included |
Three Months Ended | Nine Months Ended | ||||
October 28, 2017 | October 28, 2017 | ||||
Comparable sales impact | 4.3 | % | 3.6 | % | |
Non-comparable sales impact(1) | (0.7 | )% | (0.4 | )% | |
Total revenue increase | 3.6 | % | 3.2 | % |
The decrease in revenue in the first quarter of fiscal 2018 Domestic segment revenue2021 was primarily driven by the comparable sales growth of 4.5%, partially offset bydecline and the loss of revenue from Best Buy and Best Buy Mobile24 permanent store closures. Domestic segment onlineclosures in the past year. Online revenue of $1.1$3.3 billion increased 22.3% on a comparable basis, primarily due to higher conversion rates and higher average order values.
Domestic segment stores open at the beginning and end of the thirdfirst quarters of fiscal 20182021 and 2017:fiscal 2020, excluding stores that were temporarily closed as a result of COVID-19, were as follows:
Fiscal 2021 | Fiscal 2020 | ||||||||||||||||||||||||||||||
Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | ||||||||||||||||||||||||
Best Buy | 977 | - | (6) | 971 | 997 | - | (2) | 995 | |||||||||||||||||||||||
Outlet Centers | 11 | 1 | - | 12 | 8 | 2 | - | 10 | |||||||||||||||||||||||
Pacific Sales | 21 | - | - | 21 | 21 | - | - | 21 | |||||||||||||||||||||||
Total | 1,009 | 1 | (6) | 1,004 | 1,026 | 2 | (2) | 1,026 |
2018 | 2017 | ||||||||||||||||||||||
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 | ||||||||||||||||
Best Buy | 1,024 | — | (16 | ) | 1,008 | 1,035 | — | (9 | ) | 1,026 | |||||||||||||
Best Buy Mobile | 292 | — | (5 | ) | 287 | 334 | — | (3 | ) | 331 | |||||||||||||
Pacific Sales | 28 | — | — | 28 | 28 | — | — | 28 | |||||||||||||||
Total Domestic segment stores | 1,344 | — | (21 | ) | 1,323 | 1,397 | — | (12 | ) | 1,385 |
We continuously monitor store performance. As we approach the expiration date of our store leases, we evaluate various options for each location, including whether a store should remain open.
Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix | Comparable Sales | ||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||
May 2, 2020 | May 4, 2019 | May 2, 2020 | May 4, 2019 | ||||||||||||
Computing and Mobile Phones | 48 | % | 46 | % | 0.0 | % | 1.0 | % | |||||||
Consumer Electronics | 28 | % | 31 | % | (15.7) | % | 0.9 | % | |||||||
Appliances | 12 | % | 11 | % | (2.0) | % | 10.5 | % | |||||||
Entertainment | 7 | % | 6 | % | 9.5 | % | (12.7) | % | |||||||
Services | 5 | % | 6 | % | (16.1) | % | 6.8 | % | |||||||
Total | 100 | % | 100 | % | (5.7) | % | 1.3 | % |
We believe the changes in the third quartersour operating model as a result of fiscal 2018 and 2017:
Revenue Mix | Comparable Sales | ||||||||||
Three Months Ended | Three Months Ended | ||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
Consumer Electronics | 31 | % | 31 | % | 3.5 | % | 4.9 | % | |||
Computing and Mobile Phones | 48 | % | 49 | % | 3.5 | % | 1.6 | % | |||
Entertainment | 6 | % | 6 | % | 4.1 | % | (9.4 | )% | |||
Appliances | 10 | % | 9 | % | 13.5 | % | 3.0 | % | |||
Services | 5 | % | 5 | % | 3.2 | % | (1.8 | )% | |||
Other | — | % | — | % | n/a | n/a | |||||
Total | 100 | % | 100 | % | 4.5 | % | 1.8 | % |
Computing and Mobile Phones: The comparable sales change was flat driven primarily by gains in computing, offset by declines in mobile phones.
Consumer Electronics:
Appliances: The 2.0% comparable sales decline was driven by large appliances, partially offset by declinesgains in digital imaging and health & fitness products.
Entertainment:
Services: The 16.1% comparable sales decline was primarily due to store closures as a result of COVID-19 and drones.
Our gross profit rate of our Domestic segment was flat. Improved margin rates were offset by the $25 million periodic profit share revenue related to our service plan portfolio earned in the third quarter of fiscal 2017. The profit-share revenue included in our non-comparable sales relates to our extended warranty protection plans that are managed by a third party underwriter. We may be eligible to receive profit-sharing payments, depending on the performance of the portfolio. When performance of the portfolio is strong and the claims cost to the third party underwriter declines, we are entitled to share in the excess premiums.
Our SG&A rate remained relatively flat to last year as a percentage of our Domestic segment decreased primarily due to sales, leverage, noting that expenses increased due to increases in growth investments, higher advertising expenses and higher variable costs due to increased revenue.
Our third quarter of fiscal 2018 Domestic segment operating income rate increased due to a lower SG&A rate.
International
Selected financial data for the International segment was as follows ($ in millions):
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Revenue | $ | 647 | $ | 661 | |||
Revenue % change | (2.1) | % | (5.2) | % | |||
Comparable sales % change | 0.2 | % | (1.2) | % | |||
Gross profit | $ | 144 | $ | 160 | |||
Gross profit as a % of revenue | 22.3 | % | 24.2 | % | |||
SG&A | $ | 156 | $ | 158 | |||
SG&A as a % of revenue | 24.1 | % | 23.9 | % | |||
Operating income (loss) | $ | (12) | $ | 2 | |||
Operating income (loss) as a % of revenue | (1.9) | % | 0.3 | % |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Revenue | $ | 829 | $ | 753 | $ | 2,113 | $ | 2,011 | |||||||
Revenue % growth (decline) | 10.1 | % | 3.3 | % | 5.1 | % | (1.8 | )% | |||||||
Comparable sales % gain(1) | 3.8 | % | n/a | 4.2 | % | n/a | |||||||||
Gross profit | $ | 184 | $ | 183 | $ | 503 | $ | 509 | |||||||
Gross profit as a % of revenue | 22.2 | % | 24.3 | % | 23.8 | % | 25.3 | % | |||||||
SG&A | $ | 181 | $ | 170 | $ | 491 | $ | 492 | |||||||
SG&A as a % of revenue | 21.8 | % | 22.6 | % | 23.2 | % | 24.5 | % | |||||||
Restructuring charges | $ | (2 | ) | $ | (1 | ) | $ | — | $ | 3 | |||||
Operating income | $ | 5 | $ | 14 | $ | 12 | $ | 14 | |||||||
Operating income as a % of revenue | 0.6 | % | 1.9 | % | 0.6 | % | 0.7 | % |
The components of the 10.1% and 5.1%decrease in revenue increase for the
Three Months Ended | Nine Months Ended | ||||
October 28, 2017 | October 28, 2017 | ||||
Comparable sales impact | 3.7 | % | 4.0 | % | |
Non-comparable sales impact(1) | 1.1 | % | 0.3 | % | |
Foreign currency exchange rate fluctuation impact | 5.3 | % | 0.8 | % | |
Total revenue increase | 10.1 | % | 5.1 | % |
International segment section above.
Fiscal 2021 | Fiscal 2020 | ||||||||||||||||||||||||||||||
Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | Total Stores at Beginning of First Quarter | Stores Opened | Stores Closed | Total Stores at End of First Quarter | ||||||||||||||||||||||||
Canada | |||||||||||||||||||||||||||||||
Best Buy | 131 | - | - | 131 | 132 | - | - | 132 | |||||||||||||||||||||||
Best Buy Mobile | 42 | - | (1) | 41 | 45 | - | (1) | 44 | |||||||||||||||||||||||
Mexico | |||||||||||||||||||||||||||||||
Best Buy | 35 | - | - | 35 | 29 | - | - | 29 | |||||||||||||||||||||||
Best Buy Express | 14 | - | - | 14 | 6 | 3 | - | 9 | |||||||||||||||||||||||
Total | 222 | - | (1) | 221 | 212 | 3 | (1) | 214 |
2018 | 2017 | ||||||||||||||||||||||
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 | ||||||||||||||||
Canada | |||||||||||||||||||||||
Best Buy | 134 | — | — | 134 | 135 | — | — | 135 | |||||||||||||||
Best Buy Mobile | 53 | — | (1 | ) | 52 | 54 | — | (1 | ) | 53 | |||||||||||||
Mexico | |||||||||||||||||||||||
Best Buy | 22 | 1 | — | 23 | 18 | — | — | 18 | |||||||||||||||
Best Buy Express | 5 | — | — | 5 | 6 | — | (1 | ) | 5 | ||||||||||||||
Total International segment stores | 214 | 1 | (1 | ) | 214 | 213 | — | (2 | ) | 211 |
International segment'ssegment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix | Comparable Sales | ||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||
May 2, 2020 | May 4, 2019 | May 2, 2020 | May 4, 2019 | ||||||||||||
Computing and Mobile Phones | 48 | % | 46 | % | 4.6 | % | (4.0) | % | |||||||
Consumer Electronics | 27 | % | 31 | % | (12.7) | % | 2.5 | % | |||||||
Appliances | 9 | % | 9 | % | 0.1 | % | (2.0) | % | |||||||
Entertainment | 9 | % | 5 | % | 58.0 | % | (14.0) | % | |||||||
Services | 5 | % | 7 | % | (19.5) | % | 13.4 | % | |||||||
Other | 2 | % | 2 | % | 1.1 | % | 15.3 | % | |||||||
Total | 100 | % | 100 | % | 0.2 | % | (1.2) | % |
We believe the changes in the third quartersour operating model as a result of fiscal 2018 and 2017:
Revenue Mix | Comparable Sales | |||||||||
Three Months Ended | Three Months Ended | |||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016(1) | |||||||
Consumer Electronics | 27 | % | 28 | % | 4.5 | % | n/a | |||
Computing and Mobile Phones | 52 | % | 54 | % | 0.6 | % | n/a | |||
Entertainment | 6 | % | 6 | % | 7.8 | % | n/a | |||
Appliances | 8 | % | 5 | % | 49.0 | % | n/a | |||
Services | 5 | % | 6 | % | (15.1 | )% | n/a | |||
Other | 2 | % | 1 | % | n/a | n/a | ||||
Total | 100 | % | 100 | % | 3.8 | % | n/a |
Computing and Mobile Phones:
Consumer Electronics: The 12.7% comparable sales decline was driven primarily by home theater and digital imaging.
Appliances: The 0.1% comparable sales gain was driven by small appliances, partially offset by declines in large appliances.
Entertainment:
Services: The 19.5% comparable sales decline was primarily due to store closures as a result of COVID-19 and the corresponding higher mix of online sales, which has a lower attach rate than in store, as well as the suspension of in-home services midway through the quarter.
Other: The 1.1% comparable sales gain was driven primarily by large and small appliances.
Our gross profit rate of our International segment decreased due to lower sales in the higher-margin services category in Canada primarily driven by the launch of Canada's Total Tech Support offer, a long-term recurring revenue model.
Our SG&A rate increased in the first quarter of fiscal 2021, whereas SG&A dollars decreased $2 million due to the favorable impact of foreign currency exchange rates related primarily to Canada.
We incurred an operating loss in the first quarter of fiscal 2021 compared to operating income in fiscal 2020, primarily driven by the lower gross profit rate partially offset by a lowerand higher SG&A rate.
Consolidated Non-GAAP Financial Measures
Reconciliations of operating income, effective tax rate net earnings and diluted earnings per share ("EPS") from continuing operations for the periods presentedEPS (GAAP financial measures) to non-GAAP operating income, non-GAAP effective tax rate non-GAAP net earnings and non-GAAP diluted earnings per share from continuing operations for the periods presentedEPS (non-GAAP financial measures) were as follows ($ in millions, except per share amounts):
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Operating income | $ | 229 | $ | 334 | |||
% of revenue | 2.7 | % | 3.7 | % | |||
Intangible asset amortization(1) | 20 | 17 | |||||
Restructuring charges(2) | 1 | - | |||||
Non-GAAP operating income | $ | 250 | $ | 351 | |||
% of revenue | 2.9 | % | 3.8 | % | |||
Effective tax rate | 27.4 | % | 19.8 | % | |||
Intangible asset amortization(1) | (0.2) | % | 0.3 | % | |||
Non-GAAP effective tax rate | 27.2 | % | 20.1 | % | |||
Diluted EPS | $ | 0.61 | $ | 0.98 | |||
Intangible asset amortization(1) | 0.08 | 0.06 | |||||
Income tax impact of non-GAAP adjustments(3) | (0.02) | (0.02) | |||||
Non-GAAP diluted EPS | $ | 0.67 | $ | 1.02 |
(1)Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology.
(2)Represents adjustments associated with U.S. retail operating model changes.
(3)The non-GAAP adjustments relate primarily to adjustments in the U.S. As such, the income tax charge is calculated using the statutory tax rate of 24.5% for all periods presented.
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016(1) | October 28, 2017 | October 29, 2016(1) | ||||||||||||
Operating income | $ | 350 | $ | 312 | $ | 971 | $ | 973 | |||||||
Net CRT/LCD settlements(2) | — | — | — | (161 | ) | ||||||||||
Other Canadian brand consolidation charges - SG&A(3) | — | — | — | 1 | |||||||||||
Restructuring charges(4) | (2 | ) | 1 | — | 30 | ||||||||||
Non-GAAP operating income | $ | 348 | $ | 313 | $ | 971 | $ | 843 | |||||||
Income tax expense | $ | 104 | $ | 112 | $ | 309 | $ | 343 | |||||||
Effective tax rate | 30.4 | % | 36.7 | % | 32.7 | % | 36.4 | % | |||||||
Income tax impact of non-GAAP adjustments(5) | — | — | 2 | (49 | ) | ||||||||||
Non-GAAP income tax expense | $ | 104 | $ | 112 | $ | 311 | $ | 294 | |||||||
Non-GAAP effective tax rate | 30.4 | % | 36.6 | % | 32.8 | % | 36.3 | % | |||||||
Net earnings from continuing operations | $ | 238 | $ | 192 | $ | 635 | $ | 600 | |||||||
Net CRT/LCD settlements(2) | — | — | — | (161 | ) | ||||||||||
Other Canadian brand consolidation charges - SG&A(3) | — | — | — | 1 | |||||||||||
Restructuring charges(4) | (2 | ) | 1 | — | 30 | ||||||||||
(Gain) loss on investments, net(6) | 1 | — | 6 | (2 | ) | ||||||||||
Income tax impact of non-GAAP adjustments(5) | — | — | (2 | ) | 49 | ||||||||||
Non-GAAP net earnings from continuing operations | $ | 237 | $ | 193 | $ | 639 | $ | 517 | |||||||
Diluted EPS from continuing operations | $ | 0.78 | $ | 0.60 | $ | 2.05 | $ | 1.85 | |||||||
Per share impact of net CRT/LCD settlements(2) | — | — | — | (0.50 | ) | ||||||||||
Per share impact of other Canadian brand consolidation charges - SG&A(3) | — | — | — | 0.01 | |||||||||||
Per share impact of restructuring charges(4) | — | — | — | 0.09 | |||||||||||
Per share impact of (gain) loss on investments, net (6) | — | — | 0.02 | (0.01 | ) | ||||||||||
Per share income tax impact of non-GAAP adjustments(5) | — | — | (0.01 | ) | 0.16 | ||||||||||
Non-GAAP diluted EPS from continuing operations | $ | 0.78 | $ | 0.60 | $ | 2.06 | $ | 1.60 |
Non-GAAP operating income was 3.7% and 3.5% of revenue fordecreased in the
Our non-GAAP effective tax rate decreased fromincreased in the prior year periodfirst quarter of fiscal 2021, primarily due to a decrease in the recognition of excess tax benefits related tobenefit from stock-based compensation and the resolutionimpact of certain tax matterslower pre-tax earnings.
Non-GAAP diluted EPS decreased in the current year period.
Liquidity and Capital Resources
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment neededrequired to support our business strategies, the performance of our business, capital expenditures, credit facilities, and short-term borrowing arrangements and working capital management. Capital expenditures and share repurchases
During the New Blue strategies.first quarter of fiscal 2021, we took numerous actions to maximize liquidity in light of the uncertainty surrounding the impact of COVID-19. Refer to the Business Strategy and Impact of COVID-19 section above for a description of actions taken. We will continue to remain thoughtful about managing our profitability and liquidity, balancing our short-term decisions to navigate this unprecedented situation.
Cash and cash equivalents were as follows ($ in millions):
May 2, 2020 | February 1, 2020 | May 4, 2019 | |||||||||||||
Cash and cash equivalents | $ | 3,919 | $ | 2,229 | $ | 1,561 |
The following table summarizes ourincrease in cash and cash equivalents from February 1, 2020, and May 4, 2019, was primarily due to the $1.25 billion short-term investments balances at October 28, 2017, January 28, 2017,draw on the Facility as mentioned above. The increase in cash and October 29, 2016 ($ in millions):
October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
Cash and cash equivalents | $ | 1,103 | $ | 2,240 | $ | 1,341 | |||||
Short-term investments | 2,237 | 1,681 | 1,777 | ||||||||
Total cash, cash equivalents and short-term investments | $ | 3,340 | $ | 3,921 | $ | 3,118 |
Cash Flows
Cash flows from total operations for the first nine months of fiscal 2018 and 2017were as follows ($ in millions):
Three Months Ended | |||||||||||||||
May 2, 2020 | May 4, 2019 | ||||||||||||||
Total cash provided by (used in): | |||||||||||||||
Operating activities | $ | 827 | $ | 2 | |||||||||||
Investing activities | (179) | (192) | |||||||||||||
Financing activities | 1,049 | (226) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (18) | (1) | |||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | $ | 1,679 | $ | (417) |
Nine Months Ended | |||||||
October 28, 2017 | October 29, 2016(1) | ||||||
Total cash provided by (used in): | |||||||
Operating activities | $ | 1,203 | $ | 1,407 | |||
Investing activities | (1,016 | ) | (848 | ) | |||
Financing activities | (1,335 | ) | (1,199 | ) | |||
Effect of exchange rate changes on cash | 15 | 13 | |||||
Decrease in cash, cash equivalents and restricted cash | $ | (1,133 | ) | $ | (627 | ) |
Operating activities
The decreaseincrease in cash provided by operating activities in fiscal 2021 was primarily due to changes in working capital, associated with the timing of inventoryprimarily due to decreased receipts and payments as well as the timing of advertising payments. During fiscal 2017, we generally purchasedon inventory later in the Holiday season than in the prior year causing more paymentspartially resulting from COVID-related product constraints, our efforts to occur during the first quarter of fiscal 2018. This was partially offset by changes in receivables driven by higher revenues at the end of fiscal 2017 than the prior yearmatch inventory levels to reduced demand, favorable vendor payment terms and the subsequent timing of collections during fiscal 2018 compared with fiscal 2017. Timing of income tax payments also contributed to an increase to inflows in fiscal 2018.
Investing activities
The increasedecrease in cash used in investing activities in fiscal 2021 was primarily due to purchases of short-term investmentsa decrease in additions to property and cash received in fiscal 2017 for the sale of a retail property in Shanghai, China related to the Five Star disposition. Refer to Note 2,
Financing activities
The increase in cash used inprovided by financing activities was primarily due to increased share repurchases, which was due to an increase in our share price and number of shares repurchased, and an increase in our regular quarterly dividend rate. On March 1, 2017, we announced our intent to increase our share repurchases to $3.0the $1.25 billion overshort-term draw on the next two years compared to the $1.0 billion over two years that had been announced in February 2016. We also increased our regular quarterly dividend from $0.28 per share to $0.34 per share. This was substantially offset by repayment of our 2016 Notes and payment of a special dividend in fiscal 2017 and proceeds from option exercises in fiscal 2018 driven by the increased share price.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents, short-term investments, 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, share repurchases and dividends.including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we
will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.
We have a $1.25 billion five-yearfive year senior unsecured revolving credit facility agreement (the "Five-Year Facility Agreement"“Facility”) with a syndicate of banks that expires in June 2021. At October 28, 2017,banks. In light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we hadexecuted a seven-day draw on the full amount of the Facility on March 19, 2020, and rolled this into a three-month draw on March 26, 2020. The Facility remained fully drawn as of May 2, 2020, at an interest rate of three-month LIBOR plus a margin rate of 1.015%. There were no borrowings outstanding under the Five-Year Facility Agreement.as of February 1, 2020, or May 4, 2019. Refer to Note 5,
Our credit ratings and outlooks at November 28, 2017,outlook as of May 22, 2020, are summarized below. In fiscal 2018, Standard & Poor's Rating Services affirmedOn April 22, 2020, Moody’s completed its long-term credit rating of BBB-periodic review and changedconfirmed its outlook from Stable to Positive; Moody's Investors Service, Inc. affirmed its long-term creditcurrent rating of Baa1 with a Stable outlook; and Fitch Ratings Limited affirmed its long-term creditoutlook of Stable. Standard & Poor’s rating of BBB- and changed its outlook remained unchanged from Stable to Positive .
Rating Agency | Rating | Outlook | |||||||||
Standard & Poor's | BBB | Stable | |||||||||
Moody's | |||||||||||
Baa1 | 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. Accordingly, we are not able to predict whether our current credit ratings will remain as disclosed above. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position and changes in our business strategy. If further changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future storenew-store leasing costs.
Restricted Cash
Our liquidity is also affected by restricted cash balances that are pledged as collateral or restricted to use for workers’ compensation and general liability insurance and workers’ compensation insurance.claims. Restricted cash, and cash equivalents related to our continuing operations, which areis included in Other current assets remained consistent at $197on our Condensed Consolidated Balance Sheets, was $115 million, $193$126 million and $193$206 million at October 28, 2017, January 28, 2017,May 2, 2020, February 1, 2020, and October 29, 2016,May 4, 2019, respectively.
Debt and Capital
As of October 28, 2017,May 2, 2020, we have $500had $1.25 billion of short-term borrowings under the Facility, $650 million principal amount of notes due August 1, 2018 (the "2018 Notes") and $650 million principal amount of notes due March 15, 2021, (the "2021 Notes").and $500 million of principal amount of notes due October 1, 2028, outstanding. Refer to Note 5,
Share Repurchases and 2021 Notes. As we approach the due date for the 2018 Notes in the second quarter of fiscal 2019, we will continue to evaluate whether to fund the repayment through existing cash resources or issuance of new debt.
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 March 1, 2017, we announced our intent to repurchase $3.0 billion of shares over the next two years. In order to execute this plan,February 23, 2019, our Board approvedauthorized a new $5.0$3.0 billion share repurchase program in February 2017. Thisprogram. As of May 2, 2020, $1.9 billion of the $3.0 billion share repurchase program supersedesauthorization was available. On March 21, 2020, we announced the previous $5.0 billion authorization dated June 2011. There is no expiration date governing the period over which we can repurchase shares under the February 2017 share repurchase program. We plan to spend approximately $2.0 billion onsuspension of all share repurchases in fiscal 2018, versus our original expectationgiven the uncertainty surrounding the impact of $1.5 billion. Approximately $3.9 billion remained available for additional purchases under the February 2017 shareCOVID-19.
Share repurchase programand dividend activity was as of October 28, 2017. Between the end of the third quarter of fiscal 2018follows ($ and November 30, 2017, we repurchased an incremental 4.5 million shares of our common stock at a cost of $256 million. Repurchased shares are retired and constitute authorized but unissued shares.
Three Months Ended | |||||||
May 2, 2020 | May 4, 2019 | ||||||
Total cost of shares repurchased | $ | 56 | $ | 106 | |||
Average price per share | $ | 86.30 | $ | 70.77 | |||
Number of shares repurchased | 0.6 | 1.5 | |||||
Regular quarterly cash dividends per share | $ | 0.55 | $ | 0.50 | |||
Cash dividends declared and paid | $ | 141 | $ | 134 |
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016(1) | ||||||||||||
Total cost of shares repurchased | $ | 366 | $ | 206 | $ | 1,147 | $ | 528 | |||||||
Average price per share | $ | 57.14 | $ | 37.67 | $ | 52.35 | $ | 33.03 | |||||||
Number of shares repurchased and retired | 6.4 | 5.5 | 21.9 | 16.0 |
The increases reflect our announced intent to increase our share repurchases to $3.0 billion over the next two years compared with the $1.0 billion over two years that had been announced in February 2016.
Three Months Ended | Nine Months Ended | ||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
Regular quarterly cash dividends per share | $ | 0.34 | $ | 0.28 | $ | 1.02 | $ | 0.84 | |||||||
Special cash dividends per share (1) | — | — | — | 0.45 | |||||||||||
Total cash dividends per share | $ | 0.34 | $ | 0.28 | $ | 1.02 | $ | 1.29 | |||||||
Cash dividends declared and paid | $ | 102 | $ | 89 | $ | 310 | $ | 417 |
Other Financial Measures
Our current ratio, calculated as current assets divided by current liabilities, was 1.21.0 as of May 2, 2020, 1.1 as of February 1, 2020, and 1.1 as of May 4, 2019. The slight decline in the ratio at the end of the third quarter of fiscal 2018,May 2, 2020, compared to 1.5 at the end of fiscal 2017 and 1.3 at the end of the third quarter of fiscal 2017. The third quarter of fiscal 2018 declined from the end of fiscal 2017prior periods was primarily due primarily to the reclassification of our 2018 Notes$650 million of principal amount of notes due March 15, 2021, to current liabilities and a decline in receivables attributed to higher sales at the end of fiscal 2017.
Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings from continuing operations over the trailing twelve months, was 1.8 as of May 2, 2020, 0.8 as of February 1, 2020, and 0.8 as of May 4, 2019. The ratio was 1.1 at the end of the third quarter of fiscal 2018, compared to 1.1 at the end of fiscal 2017 and 1.3 at the end of the third quarter of fiscal 2017. The decrease at the end of the third quarter of fiscal 2018 compared to the end of the third quarter of fiscal 2017 wasMay 2, 2020, increased from prior periods primarily due to an increase in earnings.
October 28, 2017(1) | January 28, 2017(1) | October 29, 2016(1) | |||||||||
Debt (including current portion) | $ | 1,329 | $ | 1,365 | $ | 1,367 | |||||
Capitalized operating lease obligations (5 times rental expense)(2) | 3,910 | 3,872 | 3,834 | ||||||||
Non-GAAP debt | $ | 5,239 | $ | 5,237 | $ | 5,201 | |||||
Net earnings from continuing operations | $ | 1,242 | $ | 1,207 | $ | 1,077 | |||||
Other income (expense) (including interest expense, net) | 35 | 38 | 51 | ||||||||
Income tax expense | 575 | 609 | 616 | ||||||||
Depreciation and amortization expense | 663 | 654 | 654 | ||||||||
Rental expense | 782 | 774 | 767 | ||||||||
Restructuring charges(3) | 9 | 39 | 42 | ||||||||
Non-GAAP EBITDAR | $ | 3,306 | $ | 3,321 | $ | 3,207 | |||||
Debt to net earnings ratio | 1.1 | 1.1 | 1.3 | ||||||||
Non-GAAP debt to EBITDAR ratio | 1.6 | 1.6 | 1.6 |
Off-Balance-Sheet Arrangements and Contractual Obligations
Our liquidity is not dependent on the use of off-balance-sheet financing arrangements otherarrangements.
Other than in connection with our operating leases andshort-term draw on the full amount of our $1.25 billion Facility to increase our cash position and maximize liquidity in undrawn capacity on our credit facilities at October 28, 2017, which, if drawn upon, would be included as Short-term debt in our Condensed Consolidated Balance Sheets.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1,
Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedNew Accounting Pronouncements
For a description of new applicable accounting pronouncements, see Note 1,
Safe Harbor Statement Under the Private Securities Litigation Reform Act
Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as "anticipate," "assume," "believe," "estimate," "expect," "guidance," "intend," "outlook," "plan," "project" and other words and terms of similar meaning. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment and other events. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017
disruption in our relationship with or the services of third-party vendors, risks related to our exclusive brand products and services offered for sale in our physical stores and online, product availability,risks associated with vendors that source products outside of the U.S., trade restrictions or changes in the costs of imports competitive initiatives of competitors (including pricing actionsexisting or new tariffs or duties and promotional activities), strategic and business decisions of our vendors (including actions that could impact promotional support, product margin and/or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, our ability to prevent or react to a disaster recovery situation, changes in lawthe amount of any such tariffs or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developmentsduties) and resolution of other discrete tax matters, changes inrisks arising from our stock price and the impact on excess tax benefits or deficiencies related to stock-based compensation, our ability to manage our property portfolio, the impact of labor markets, our ability to retain qualified employees and management, failure to achieve anticipated expense and cost reductions, disruptions in our supply chain, the costs of procuring goods we sell, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which we will incur costs, development of new businesses, failure to complete or achieve anticipated benefits of announced transactions and our ability to protect information relating to our employees and customers.international activities. 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 2017,year ended February 1, 2020, 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 and short-term investments generate interest income that will vary based on changes in short-term interest rates. In addition, we have swapped our fixed-rate debt to a floating-rate such that the interest rate expense on this debt will vary with short-term interest rates. Refer to Note 5,
As of October 28, 2017,May 2, 2020, we had $3.3$3.92 billion of cash and short-term investmentscash equivalents and $1.2$2.40 billion of debt, which includes $1.15 billion that has been swapped to floating rate. Therefore, we hadrate and $1.25 billion from the Facility that fluctuates with each new draw or rollover based on LIBOR, resulting in a net cash and short-term investments of $2.1 billion generating income, which isbalance exposed to interest rate changes. changes of $1.52 billion. As of October 28, 2017,May 2, 2020, a 50 basis50-basis point increase in short-term interest rates would leadhave led to an estimated $11$8 million reduction in net interest expense, and conversely a 50 basis50-basis point decrease in short-term interest rates would leadhave led to an estimated $11$8 million increase in net interest expense.
Foreign Currency Exchange Rate Risk
We have market risk arising from changes in foreign currency exchange rates related to our International segment operations. On a limited basis, we utilize foreign exchange forward contractsRefer to manage foreign currency exposureNote 1, Summary of Significant Accounting Policies, in the Notes to certain forecast inventory purchases, recognized receivable and payable balances and our investmentConsolidated Financial Statements included in our Canadian operations. Our primary
Foreign currency exchange rates. Our foreign currency risk management strategy includes both hedging instruments and derivatives that are not designated as hedging instruments, which generally have terms of up to 12 months. The aggregate notional amount related to our foreign exchange forward contracts outstanding at October 28, 2017, was $304 million. The net fair value recorded on our Condensed Consolidated Balance Sheets at October 28, 2017, related to our foreign exchange forward contracts was zero. The amount recorded in our Condensed Consolidated Statements of Earnings from continuing operations related to all contracts settled and outstanding was a gain of $2 million forrate fluctuations were primarily driven by the three months ended October 28, 2017, and a loss of $1 million for the nine months ended October 28, 2017.
Item 4.Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis and otherwise as needed.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at
There waswere no changechanges in internal control over financial reporting during the fiscal quarter ended
PART II — OTHER INFORMATION
Item 1.Legal Proceedings
For a description ofinformation about our legal proceedings, see Note 12,
Item 1A.Risk Factors
The global COVID-19 pandemic has had a material impact on our business, financial results and liquidity, and such impact could worsen and last for an unknown period of time.
The COVID-19 pandemic has subjected our business, operations and financial condition to a number of risks, including, but not limited to, those discussed below:
Risks Related to Sales and Customer Demand: The significant reduction in customer visits to, and spending at, our stores since March 2020 as a result of the operational changes we have made in response to the pandemic and reduced customer demand for nonessential products and services, has negatively impacted our sales. The extent to which the pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration of the pandemic; the extent of the impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates, consumer discretionary spending and consumer confidence; actions governments, businesses and individuals take in their ongoing response to the pandemic, including the timing and nature of loosening of restrictions imposed in response to the pandemic; and our ability to successfully navigate those impacts. We have tried to mitigate the negative impact of sales declines on our profitability by lowering merchandise receipts to match demand with a focus on essential items for our customers, reducing operating costs, and extending payment terms in partnership with key merchandise vendors, but these measures may not be successful. We may not be able to meet customer demand in all of our categories due to product shortages or decisions by our vendors to allocate products to certain customers due to the circumstances resulting from the pandemic, and our vendors may increase prices, each of which may adversely impact our revenue and profitability. The pandemic has, and may continue to, negatively impact our products and services that historically have been more likely to be purchased in a physical store than online.
Risks Related to Operations: We have made a number of operational changes in light of COVID-19, including temporarily closing all of our domestic U.S. stores to customer traffic and moving them to a contactless, curbside-only model beginning on March 22, 2020. Although beginning on May 4, 2020, we began to welcome a limited number of customers back into some of our stores, many of our stores are still operating in the curbside-only model, and approximately 40 of our stores remain completely closed. Our ability to continue to sell our products and services is highly dependent on our ability to maintain the safety of our customers and those employees who are needed to work at our stores and distribution facilities. The ability of our employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19. While we are following the requirements of governmental authorities and taking preventative and protective measures to prioritize the safety of our customers and employees, these measures may not be successful, and we may be required to temporarily close distribution centers or stores, halt certain services or take other measures. In addition, any disruptions to our vendors’ ability or desire to provide products and services to us due to the pandemic, or disruptions to our internal supply chain infrastructure (such as facility closures, governmental orders restrictions movement, COVID-19 outbreaks, present and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures), may materially adversely affect our ability to meet customer demand, other aspects of our operations and our financial results. Further, as our online sales have increased, the risk of any interruption of our IT system capabilities is heightened, and any such interruption could result in a deterioration of our ability to process online sales, provide customer service, or perform other necessary business functions. Having shifted to remote working arrangements for many employees, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities. Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a particular region or our company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future. Additionally, while we have continued to prioritize the health and safety of our employees and customers as we continue to operate during the pandemic, we face an increased risk of litigation related to our operating environments. Preparing for and responding to the continuing pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our employees and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value or otherwise disrupt our business operations.
Risks Related to Profitability: To the extent COVID-19 continues to cause fundamental shifts in the channels in which customers choose to engage us, our profitability and our profitability rate may continue to be adversely impacted. For example, we may need to continue to pay rent for physical stores that are closed and not generating sales, our online mix of products and services generally produces lower gross profit rates than in-store sales, and we offer some products and services that historically are more likely to be purchased in a physical store than online. We also do not offer or have limited digital and online offerings for certain products and services, such as financing and services offerings, which have higher profitability rates. To the extent we are not able to increase the level of customer traffic in our stores or enable a more profitable mix of sales in our digital and online channels, our profitability and profitability rates may be materially negatively impacted. In addition, we expect to see continued pressure from lower profit-sharing revenue related to our private label and co-branded credit card arrangement, as the economic ramifications of COVID-19 are expected to lead to higher credit card defaults over time, which would have an adverse effect on our profitability. We have also incurred significant additional costs due to the operational changes we have made in response to the pandemic, and these costs have adversely impacted our profitability. As a result of disruptions to our supply chain, primarily due to mandatory shutdowns in locations where our products are manufactured, we are experiencing, and may continue to experience, increased costs for shipping and transportation resources. At the same time, we have continued to incur the majority of the costs to operate our stores, including rent and payroll for our employees who continue to work and, in certain cases, increased pay to field employees. If we are unable to manage these costs and supply chain disruptions, our profitability may be adversely impacted. Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our costs, for example, the need for enhanced health and hygiene requirements in one or more regions in attempts to counteract future outbreaks. As a result of decreased store traffic, certain of our stores may not generate revenue sufficient to meet operating expenses, which could adversely affect the value of our owned and leased properties, potentially requiring us to record more significant non-cash impairment charges in future periods.
Risks Related to Our Debt and Global Financing Markets: As previously disclosed, we have borrowed the full amount available under our $1.25 billion revolving credit facility to increase our cash position and maximize flexibility in light of the uncertainty surrounding the impact of COVID-19, and accordingly, our short-term debt has increased substantially since February 1, 2020, when we had no outstanding borrowings under the facility. The increase in our level of debt may adversely affect our financial
and operating activities or ability to incur additional debt. In addition, as a result of the risks described above, we may be required to raise additional capital, and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects, our credit ratings, and our business and industry outlook. There is no guarantee that debt or equity financings will be available in the future to fund our obligations, or will be available on terms consistent with our expectations.
COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identified in our Fiscal 2020 Form 10-K, which in turn could materially adversely affect our business, financial condition, liquidity, results of operations (including revenues and profitability) and/or stock price. Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Stock Repurchases
The following table presents information regarding our repurchases of common stock during the thirdfirst quarter of fiscal 2018:2021. On March 21,2020, we announced the suspension of all share repurchases given the uncertainty surrounding the impact of COVID-19.
Fiscal Period | Total Number of | Average Price Paid | Total Number of Shares Purchased as Part of Publicly Announced Program(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1) | |||||||||||
February 2, 2020 through February 29, 2020 | 613,936 | $ | 87.96 | 613,936 | $ | 1,937,000,000 | |||||||||
March 1, 2020 through April 4, 2020 | 34,725 | $ | 57.07 | 34,725 | $ | 1,935,000,000 | |||||||||
April 5, 2020 through May 2, 2020 | - | $ | 0.00 | - | $ | 1,935,000,000 | |||||||||
Total | 648,661 | $ | 86.30 | 648,661 | $ | 1,935,000,000 |
(1)Pursuant to a $3.0 billion share repurchase program that was authorized by our Board in February 2019. There is no expiration date governing the period over which we can repurchase shares under the February 2019 share repurchase program. For additional information, see Note 8, Repurchase of Common Stock, in the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
Item 6.Exhibits
Fiscal Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1) | ||||||||||
July 30, 2017 through August 26, 2017 | 1,891,131 | $ | 60.50 | 1,891,131 | $ | 4,143,000,000 | ||||||||
August 27, 2017 through September 30, 2017 | 1,831,093 | $ | 55.16 | 1,831,093 | $ | 4,042,000,000 | ||||||||
October 1, 2017 through October 28, 2017 | 2,680,203 | $ | 56.13 | 2,680,203 | $ | 3,891,000,000 | ||||||||
Total | 6,402,427 | $ | 57.14 | 6,402,427 |
Form of Best Buy Co., Inc. Long-Term Incentive Program Award Agreement (2020) – Restricted Shares | ||
101 | ||
The following financial information from our Quarterly Report on Form 10-Q for the |
104 | 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.
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: May 27, 2020 | 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 |