UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended
OR
| |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-9595
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota | 41-0907483 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
7601 Penn Avenue South | ||
Richfield, Minnesota | 55423 | |
(Address of principal executive offices) | (Zip Code) |
(612) 291-1000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered |
Common Stock, $0.10 par value per share | BBY | New York Stock Exchange |
Indicate by check mark whether the 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 292,326,497245,964,220 shares of common stock outstanding as of November 28, 2017.August 27, 2021.
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)
. | |||||||||||
July 31, 2021 | January 30, 2021 | August 1, 2020 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 4,340 | $ | 5,494 | $ | 5,305 | |||||
Receivables, net | 883 | 1,061 | 906 | ||||||||
Merchandise inventories | 6,417 | 5,612 | 4,136 | ||||||||
Other current assets | 400 | 373 | 336 | ||||||||
Total current assets | 12,040 | 12,540 | 10,683 | ||||||||
Property and equipment, net | 2,226 | 2,260 | 2,277 | ||||||||
Operating lease assets | 2,670 | 2,612 | 2,770 | ||||||||
Goodwill | 986 | 986 | 986 | ||||||||
Other assets | 657 | 669 | 696 | ||||||||
Total assets | $ | 18,579 | $ | 19,067 | $ | 17,412 | |||||
Liabilities and equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 6,946 | $ | 6,979 | $ | 6,613 | |||||
Unredeemed gift card liabilities | 293 | 317 | 267 | ||||||||
Deferred revenue | 854 | 711 | 699 | ||||||||
Accrued compensation and related expenses | 605 | 725 | 253 | ||||||||
Accrued liabilities | 892 | 972 | 893 | ||||||||
Short-term debt | 110 | 110 | - | ||||||||
Current portion of operating lease liabilities | 643 | 693 | 674 | ||||||||
Current portion of long-term debt | 14 | 14 | 681 | ||||||||
Total current liabilities | 10,357 | 10,521 | 10,080 | ||||||||
Long-term operating lease liabilities | 2,090 | 2,012 | 2,206 | ||||||||
Long-term debt | 1,243 | 1,253 | 632 | ||||||||
Long-term liabilities | 554 | 694 | 716 | ||||||||
Contingencies (Note 11) |
|
|
| ||||||||
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 - 247.3 million, 256.9 million and 258.8 million shares, respectively | 25 | 26 | 26 | ||||||||
Additional paid-in capital | - | - | 83 | ||||||||
Retained earnings | 3,975 | 4,233 | 3,413 | ||||||||
Accumulated other comprehensive income | 335 | 328 | 256 | ||||||||
Total equity | 4,335 | 4,587 | 3,778 | ||||||||
Total liabilities and equity | $ | 18,579 | $ | 19,067 | $ | 17,412 | |||||
| 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, 2017,30, 2021, 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 | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Revenue | $ | 11,849 | $ | 9,910 | $ | 23,486 | $ | 18,472 | |||||||
Cost of sales | 9,039 | 7,640 | 17,961 | 14,237 | |||||||||||
Gross profit | 2,810 | 2,270 | 5,525 | 4,235 | |||||||||||
Selling, general and administrative expenses | 2,009 | 1,702 | 3,997 | 3,437 | |||||||||||
Restructuring charges | 4 | - | (38) | 1 | |||||||||||
Operating income | 797 | 568 | 1,566 | 797 | |||||||||||
Other income (expense) | |||||||||||||||
Investment income and other | 3 | 8 | 6 | 14 | |||||||||||
Interest expense | (6) | (15) | (12) | (32) | |||||||||||
Earnings before income tax expense and equity in income of affiliates | 794 | 561 | 1,560 | 779 | |||||||||||
Income tax expense | 64 | 129 | 236 | 188 | |||||||||||
Equity in income of affiliates | 4 | - | 5 | - | |||||||||||
Net earnings | $ | 734 | $ | 432 | $ | 1,329 | $ | 591 | |||||||
Basic earnings per share | $ | 2.93 | $ | 1.67 | $ | 5.28 | $ | 2.28 | |||||||
Diluted earnings per share | $ | 2.90 | $ | 1.65 | $ | 5.22 | $ | 2.26 | |||||||
Weighted-average common shares outstanding | |||||||||||||||
Basic | 250.2 | 259.5 | 251.7 | 259.0 | |||||||||||
Diluted | 252.8 | 262.1 | 254.7 | 261.4 | |||||||||||
| 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 | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Net earnings | $ | 734 | $ | 432 | $ | 1,329 | $ | 591 | |||||||
Foreign currency translation adjustments, net of tax | (3) | 17 | 7 | (35) | |||||||||||
Cash flow hedges | - | (4) | - | (4) | |||||||||||
Comprehensive income | $ | 731 | $ | 445 | $ | 1,336 | $ | 552 | |||||||
| 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)
Six Months Ended | |||||||
July 31, 2021 | August 1, 2020 | ||||||
Operating activities | |||||||
Net earnings | $ | 1,329 | $ | 591 | |||
Adjustments to reconcile net earnings to total cash provided by operating activities: | |||||||
Depreciation and amortization | 430 | 414 | |||||
Restructuring charges | (38) | 1 | |||||
Stock-based compensation | 71 | 65 | |||||
Deferred income taxes | 2 | 13 | |||||
Other, net | - | 9 | |||||
Changes in operating assets and liabilities: | |||||||
Receivables | 175 | 232 | |||||
Merchandise inventories | (794) | 1,014 | |||||
Other assets | (19) | (17) | |||||
Accounts payable | (58) | 1,343 | |||||
Income taxes | (162) | 108 | |||||
Other liabilities | (72) | 15 | |||||
Total cash provided by operating activities | 864 | 3,788 | |||||
Investing activities | |||||||
Additions to property and equipment | (323) | (340) | |||||
Purchases of investments | (93) | (46) | |||||
Sales of investments | 60 | - | |||||
Other, net | (2) | 3 | |||||
Total cash used in investing activities | (358) | (383) | |||||
Financing activities | |||||||
Repurchase of common stock | (1,323) | (62) | |||||
Issuance of common stock | 22 | 22 | |||||
Dividends paid | (350) | (284) | |||||
Borrowings of debt | - | 1,250 | |||||
Repayments of debt | (10) | (1,257) | |||||
Other, net | (1) | (1) | |||||
Total cash used in financing activities | (1,662) | (332) | |||||
Effect of exchange rate changes on cash and cash equivalents | 5 | (6) | |||||
Increase (decrease) in cash, cash equivalents and restricted cash | (1,151) | 3,067 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 5,625 | 2,355 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 4,474 | $ | 5,422 | |||
| 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 May 1, 2021 | 250.4 | $ | 25 | $ | 33 | $ | 3,762 | $ | 338 | $ | 4,158 | ||||||||||||
Net earnings, three months ended July 31, 2021 | - | - | - | 734 | - | 734 | |||||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | (3) | (3) | |||||||||||||||||
Stock-based compensation | - | - | 34 | - | - | 34 | |||||||||||||||||
Issuance of common stock | 0.6 | - | 3 | - | - | 3 | |||||||||||||||||
Common stock dividends, $0.70 per share | - | - | 5 | (180) | - | (175) | |||||||||||||||||
Repurchase of common stock | (3.7) | - | (75) | (341) | - | (416) | |||||||||||||||||
Balances at July 31, 2021 | 247.3 | $ | 25 | $ | - | $ | 3,975 | $ | 335 | $ | 4,335 | ||||||||||||
Balances at January 30, 2021 | 256.9 | $ | 26 | $ | - | $ | 4,233 | $ | 328 | $ | 4,587 | ||||||||||||
Net earnings, six months ended July 31, 2021 | - | - | - | 1,329 | - | 1,329 | |||||||||||||||||
Other comprehensive income: | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | 7 | 7 | |||||||||||||||||
Stock-based compensation | - | - | 71 | - | - | 71 | |||||||||||||||||
Issuance of common stock | 2.5 | - | 22 | - | - | 22 | |||||||||||||||||
Common stock dividends, $1.40 per share | - | - | 8 | (358) | - | (350) | |||||||||||||||||
Repurchase of common stock | (12.1) | (1) | (101) | (1,229) | - | (1,331) | |||||||||||||||||
Balances at July 31, 2021 | 247.3 | $ | 25 | $ | - | $ | 3,975 | $ | 335 | $ | 4,335 | ||||||||||||
Balances at May 2, 2020 | 257.6 | $ | 26 | $ | 15 | $ | 3,126 | $ | 243 | $ | 3,410 | ||||||||||||
Net earnings, three months ended August 1, 2020 | - | - | - | 432 | - | 432 | |||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | 17 | 17 | |||||||||||||||||
Cash flow hedges | - | - | - | - | (4) | (4) | |||||||||||||||||
Stock-based compensation | - | - | 50 | - | - | 50 | |||||||||||||||||
Issuance of common stock | 1.2 | - | 16 | - | - | 16 | |||||||||||||||||
Common stock dividends, $0.55 per share | - | - | 2 | (145) | - | (143) | |||||||||||||||||
Balances at August 1, 2020 | 258.8 | $ | 26 | $ | 83 | $ | 3,413 | $ | 256 | $ | 3,778 | ||||||||||||
Balances at February 1, 2020 | 256.5 | $ | 26 | $ | - | $ | 3,158 | $ | 295 | $ | 3,479 | ||||||||||||
Net earnings, six months ended August 1, 2020 | - | - | - | 591 | - | 591 | |||||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | - | - | - | - | (35) | (35) | |||||||||||||||||
Cash flow hedges | - | - | - | - | (4) | (4) | |||||||||||||||||
Stock-based compensation | - | - | 65 | - | - | 65 | |||||||||||||||||
Issuance of common stock | 2.9 | - | 22 | - | - | 22 | |||||||||||||||||
Common stock dividends, $1.10 per share | - | - | 4 | (288) | - | (284) | |||||||||||||||||
Repurchase of common stock | (0.6) | - | (8) | (48) | - | (56) | |||||||||||||||||
Balances at August 1, 2020 | 258.8 | $ | 26 | $ | 83 | $ | 3,413 | $ | 256 | $ | 3,778 | ||||||||||||
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.
During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico. All stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment will be comprised of operations in Canada going forward. Refer to Note 2, Restructuring, for additional information.
In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements. No such events were identified for the reported periods.
Historically, we have generated a 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, 2017.30, 2021. The first
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from October 29, 2017,July 31, 2021, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for this period.
| 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
Cash, cash equivalents and restricted cash reported within theon our Condensed Consolidated Balance SheetSheets are reconciled to the total shown in theon our Condensed Consolidated StatementStatements of Cash Flows:Flows as follows ($ in millions):
July 31, 2021 | January 30, 2021 | August 1, 2020 | |||||||||
Cash and cash equivalents | $ | 4,340 | $ | 5,494 | $ | 5,305 | |||||
Restricted cash included in Other current assets | 134 | 131 | 117 | ||||||||
Total cash, cash equivalents and restricted cash | $ | 4,474 | $ | 5,625 | $ | 5,422 | |||||
| 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 orprimarily restricted to use for workers’ compensation and general liability insurance and workers' compensation insurance.
2. Restructuring
Restructuring charges were as follows ($ in millions):
Three Months Ended | Six Months Ended | |||||||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | |||||||||||||||||
Mexico Exit and Strategic Realignment(1) | $ | 4 | $ | - | $ | (44) | $ | - | ||||||||||||
Fiscal 2020 U.S. Retail Operating Model Changes | - | - | - | 1 | ||||||||||||||||
Total | $ | 4 | $ | - | $ | (44) | $ | 1 | ||||||||||||
(1)Includes ($6) million related to inventory markdowns recorded in Cost of sales on our Condensed Consolidated Statements of Earnings for the six months ended July 31, 2021.
Mexico Exit and Strategic Realignment
In March 2020 the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. The COVID-19 pandemic has had significant impacts on, for example, the economic conditions of the markets in which we operate, customer shopping behaviors, the role of technology in peoples’ lives and the way we meet their needs. In light of these changes, we are adapting our Building the New Blue Strategy to ensure that our focus and resources are closely aligned with the opportunities we see in front of us. As a result, in the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico and began taking other actions to more broadly align our organizational structure in support of our strategy.
| 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 | |||||||
Charges incurred in our International segment primarily related to our decision to exit our operations in Mexico. All remaining stores in Mexico were closed in the first quarter of fiscal 2022 and we do not expect to incur material future restructuring charges related to the exit.
Charges incurred in our Domestic segment primarily related to actions taken to align our organizational structure in support of our strategy. During the six months ended July 31, 2021, we recorded a $44 million credit primarily due to a reduction in expected termination benefits resulting from adjustments to previously planned organizational changes and higher-than-expected employee retention.
As we continue to evolve our Building the New Blue Strategy, it is possible that we will incur material future restructuring costs, but we are unable to forecast the timing and magnitude of such costs.
All charges incurred related to the exit from Mexico and strategic realignment described above were from continuing operations and were presented as follows ($ in millions):
Statement of | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2021 | ||||||||||||||||||||||||||
Earnings Location | Domestic | International | Total | Domestic | International | Total | ||||||||||||||||||||||
Inventory markdowns | Cost of sales | $ | - | $ | - | $ | - | $ | - | $ | (6) | $ | (6) | |||||||||||||||
Asset impairments | Restructuring charges | - | 4 | 4 | - | 7 | 7 | |||||||||||||||||||||
Termination benefits | Restructuring charges | - | - | - | (44) | (1) | (45) | |||||||||||||||||||||
$ | - | $ | 4 | $ | 4 | $ | (44) | $ | - | $ | (44) | |||||||||||||||||
Statement of | Cumulative Amount as of July 31, 2021 | |||||||||||||||
Earnings Location | Domestic | International | Total | |||||||||||||
Inventory markdowns | Cost of sales | $ | - | $ | 17 | $ | 17 | |||||||||
Asset impairments(1) | Restructuring charges | 10 | 64 | 74 | ||||||||||||
Termination benefits | Restructuring charges | 79 | 19 | 98 | ||||||||||||
Currency translation adjustment | Restructuring charges | - | 39 | 39 | ||||||||||||
Other(2) | Restructuring charges | - | 5 | 5 | ||||||||||||
$ | 89 | $ | 144 | $ | 233 | |||||||||||
(1)Remaining net carrying value approximates fair value and was immaterial as of July 31, 2021.
(2)Other charges are primarily comprised of contract termination costs.
Restructuring accrual activity related to the exit from Mexico and strategic realignment described above was as follows ($ in millions):
Termination Benefits | |||||||||||
Domestic | International | Total | |||||||||
Balances at January 30, 2021 | $ | 104 | $ | 20 | $ | 124 | |||||
Cash payments | (48) | (15) | (63) | ||||||||
Adjustments(1) | (44) | (1) | (45) | ||||||||
Changes in foreign currency exchange rates | - | (1) | (1) | ||||||||
Balances at July 31, 2021 | $ | 12 | $ | 3 | $ | 15 | |||||
(1)Represents adjustments to previously planned organizational changes in our Domestic segment and higher-than-expected employee retention in both our Domestic and International segments.
Fiscal 2020 U.S. Retail Operating Model Changes
In the second quarter of fiscal 2020, we made changes primarily related to our U.S. retail operating model to increase organization effectiveness and create a more seamless customer experience across all channels. All charges incurred were related to termination benefits within our Domestic segment and were presented within Restructuring charges from continuing operations on our Condensed Consolidated Statements of Earnings. As of July 31, 2021, the cumulative amount of charges incurred was $41 million and 0 material liability remains.
3. Goodwill and Intangible Assets
Goodwill
Balances related to goodwill remained unchanged as of July 31, 2021, January 30, 2021, and August 1, 2020, as follows ($ in millions):
Gross Carrying Amount | Cumulative Impairment | ||||||
Domestic | $ | 1,053 | $ | (67) | |||
International | 608 | (608) | |||||
Total | $ | 1,661 | $ | (675) | |||
NaN impairment charges were recorded during the fiscal periods presented.
Definite-Lived Intangible Assets
We have definite-lived intangible assets recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):
July 31, 2021 | January 30, 2021 | August 1, 2020 | Weighted-Average | ||||||||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | Useful Life Remaining as of July 31, 2021 (in years) | |||||||||||||||||||||
Customer relationships | $ | 339 | $ | 152 | $ | 339 | $ | 124 | $ | 339 | $ | 97 | 6.5 | ||||||||||||||
Tradenames | 81 | 31 | 81 | 24 | 81 | 17 | 4.5 | ||||||||||||||||||||
Developed technology | 56 | 32 | 56 | 27 | 56 | 21 | 2.1 | ||||||||||||||||||||
Total | $ | 476 | $ | 215 | $ | 476 | $ | 175 | $ | 476 | $ | 135 | 5.7 | ||||||||||||||
Amortization expense was as follows ($ in millions):
Statement of | Three Months Ended | Six Months Ended | |||||||||||||||||||
Earnings Location | July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | |||||||||||||||||
Amortization expense | SG&A | $ | 20 | $ | 20 | $ | 40 | $ | 40 | ||||||||||||
Amortization expense expected to be recognized in future periods is as follows ($ in millions):
Amortization Expense | |||||||||||||||||||||||||||
Remainder of fiscal 2022 | $ | 40 | |||||||||||||||||||||||||
Fiscal 2023 | 79 | ||||||||||||||||||||||||||
Fiscal 2024 | 54 | ||||||||||||||||||||||||||
Fiscal 2025 | 16 | ||||||||||||||||||||||||||
Fiscal 2026 | 16 | ||||||||||||||||||||||||||
Fiscal 2027 | 13 | ||||||||||||||||||||||||||
Thereafter | 43 | ||||||||||||||||||||||||||
4. 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 | July 31, 2021 | January 30, 2021 | August 1, 2020 | ||||||||||||||
Assets | ||||||||||||||||||
Money market funds(2) | Cash and cash equivalents | Level 1 | $ | 1,113 | $ | 1,575 | $ | 1,729 | ||||||||||
Time deposits(3) | Cash and cash equivalents | Level 2 | 625 | 865 | 390 | |||||||||||||
Time deposits(3) | Other current assets | Level 2 | 65 | 65 | 101 | |||||||||||||
Interest rate swap derivative instruments(4) | Other current assets | Level 2 | - | - | 18 | |||||||||||||
Interest rate swap derivative instruments(4) | Other assets | Level 2 | 79 | 91 | 115 | |||||||||||||
Marketable securities that fund deferred compensation(5) | Other assets | Level 1 | 54 | 53 | 49 | |||||||||||||
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 | — | — | |||||||||
(1)Balance sheet location is determined by length to estimate the fair value of each class of financial instrument:
(2)Valued at fair value as they trade in an active market using quoted market prices and, therefore, were classified as Level 1.
(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 and other payables approximated their carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate their fair value. See Note 6,
| October 28, 2017 | January 28, 2017 | October 29, 2016 | |||||||||
| Goodwill | $ | 425 | $ | 425 | $ | 425 | |||||
| Intangible assets included in Other assets | 18 | 18 | 18 | ||||||||
Long-term debt is presented at carrying amount of goodwill and cumulative goodwill impairment ($ in millions):
| 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 | |||||||||||
| 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 | ||||||
| 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 | |||||||||
Termination Benefits | |||
| Balances at January 30, 2016 | $ | — | |
| Charges | 19 | ||
| Cash payments | (16 | ) | |
Adjustments(1) | (2 | ) | |
| Balances at October 29, 2016 | $ | 1 | |
| 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 | |||||
| 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 | |||||
July 31, 2021 | January 30, 2021 | August 1, 2020 | |||||||||||||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||||
Long-term debt(1) | $ | 1,306 | $ | 1,229 | $ | 1,331 | $ | 1,241 | $ | 1,386 | $ | 1,283 | |||||||||||||||
(1)Excludes debt facilities, debt instrumentsdiscounts, issuance costs and otherfinance lease obligations.
5. 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.
During the second quarter of fiscal 2021, we entered into Treasury Rate Lock (“T-Lock”) contracts to hedge the base interest rate variability on certain forecast inventory purchases denominated in non-functional currencies.a portion of our then-expected refinancing of our maturing 2021 Notes. The T-Lock contracts generally have termswere cash settled upon issuance of up to 12 months. These derivative instruments are not designated as hedging relationships, and, therefore, we record gains and losses on theseour $650 million principal amount of notes due October 1, 2030 (“2030 Notes”). The fair value of the T-Lock contracts directly to net earnings.
| 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 | |||||||||||
Our derivative instruments designated as net investment hedges and interest rate swaps are recorded on our Condensed Consolidated Balance Sheets at fair value. See Note 4, Fair Value Measurements, for the
| 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 | ) | |||||
Notional amounts of our derivative instruments at October 28, 2017, January 28, 2017, and October 29, 2016were as follows ($ in millions):
Contract Type | July 31, 2021 | January 30, 2021 | August 1, 2020 | ||||||||||
Derivatives designated as net investment hedges | $ | 109 | $ | 153 | $ | 68 | |||||||
Derivatives designated as interest rate swaps | 500 | 500 | 1,150 | ||||||||||
Derivatives designated as cash flow hedges | - | - | 325 | ||||||||||
No hedge designation (foreign exchange contracts) | 46 | 51 | 37 | ||||||||||
Total | $ | 655 | $ | 704 | $ | 1,580 | |||||||
Effects of our derivatives on our Condensed Consolidated Statements of Earnings were as follows ($ in millions):
Gain (Loss) Recognized | |||||||||||||||||||
Statement of | Three Months Ended | Six Months Ended | |||||||||||||||||
Earnings Location | July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | |||||||||||||||
Interest rate swap contracts | Interest expense | $ | 14 | $ | 15 | $ | (12) | $ | 44 | ||||||||||
Adjustments to carrying value of long-term debt | Interest expense | (14) | (15) | 12 | (44) | ||||||||||||||
Total | $ | - | $ | - | $ | - | $ | - | |||||||||||
6. Debt
Short-Term Debt
U.S. Revolving Credit Facility
On May 18, 2021, we entered into a $1.25 billion five year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the “Previous Facility”) with a syndicate of banks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021. The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in May 2026.
The interest rate under the Five-Year Facility Agreement is variable and is determined at our option as: (i) the sum of (a) the greatest of (1) JPMorgan Chase Bank, N.A.’s prime rate, (2) the greater of the federal funds rate and the overnight bank funding rate plus, in each case, 0.5%, and (3) the one-month London Interbank Offered Rate (“LIBOR”), subject to certain adjustments plus 1%, and (b) a variable margin rate (the “ABR Margin”); or (ii) the LIBOR plus a variable margin rate (the “LIBOR Margin”). In addition, a facility fee is assessed on the commitment amount. The ABR Margin, LIBOR Margin and the facility fee are based upon our current senior unsecured debt rating. Under the Five-Year Facility Agreement, the ABR Margin ranges from 0.00% to
| 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 | |||||
0.225%, the LIBOR Margin ranges from 0.805% to 1.225%, and the facility fee ranges from 0.07% to 0.15%. Additionally, the Five-Year Facility Agreement includes fallback language related to the transition from LIBOR to alternative rates. The Five-Year Facility Agreement is guaranteed by certain of our subsidiaries and contains customary affirmative and negative covenants. Among other things, these covenants restrict our and certain of our subsidiaries’ abilities to incur liens on certain assets; make material changes in corporate structure or the nature of our business; dispose of material assets; engage in certain mergers, consolidations and other fundamental changes; or engage in certain transactions with affiliates.
The Five-Year Facility Agreement also contains covenants that require us to maintain a maximum cash flow leverage ratio. The Five-Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.
In the first quarter of fiscal 2021, in light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of our Previous Facility on March 19, 2020, which remained outstanding until July 27, 2020, when the Previous Facility was repaid in full. There were 0 borrowings outstanding under the Five-Year Facility Agreement as of July 31, 2021, or the Previous Facility as of January 30, 2021, and August 1, 2020.
Bank Advance
In conjunction with a solar energy investment, we were advanced $110 million due October 31, 2021. The advance is recorded within Short-term debt on our Condensed Consolidated Balance Sheets and bears interest at 0.14%.
Long-Term Debt
Long-term debt consisted of the following ($ in millions):
July 31, 2021 | January 30, 2021 | August 1, 2020 | ||||||||||||||||||
2021 Notes | $ | - | $ | - | $ | 650 | ||||||||||||||
2028 Notes | 500 | 500 | 500 | |||||||||||||||||
2030 Notes | 650 | 650 | - | |||||||||||||||||
Interest rate swap valuation adjustments | 79 | 91 | 133 | |||||||||||||||||
Subtotal | 1,229 | 1,241 | 1,283 | |||||||||||||||||
Debt discounts and issuance costs | (12) | (12) | (5) | |||||||||||||||||
Finance lease obligations | 40 | 38 | 35 | |||||||||||||||||
Total long-term debt | 1,257 | 1,267 | 1,313 | |||||||||||||||||
Less current portion | 14 | 14 | 681 | |||||||||||||||||
Total long-term debt, less current portion | $ | 1,243 | $ | 1,253 | $ | 632 | ||||||||||||||
See Note 4, Fair Value Measurements, for the fair value of long-term debt.
7. Revenue
We generate substantially all of our revenue from contracts with customers from the sale of products and services. Contract balances primarily consist of receivables and liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards, services not yet completed and options that provide a material right to customers, such as our customer loyalty programs. Contract balances were as follows ($ in millions):
July 31, 2021 | January 30, 2021 | August 1, 2020 | |||||||||
Receivables, net(1) | $ | 528 | $ | 618 | $ | 567 | |||||
Short-term contract liabilities included in: | |||||||||||
Unredeemed gift card liabilities | 293 | 317 | 267 | ||||||||
Deferred revenue | 854 | 711 | 699 | ||||||||
Accrued liabilities | 79 | 71 | 60 | ||||||||
(1)Receivables are recorded net of allowances for doubtful accounts of $24 million, $32 million and $28 million as of July 31, 2021, January 30, 2021, and August 1, 2020, respectively.
During the first six months of fiscal 2022 and fiscal 2021, $866 million and $662 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.
See Note 12, Segments, for information on our revenue by reportable segment and product category.
8. Earnings per Share
We compute our basic earnings per share based on the weighted-average number of common shares outstanding and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued. 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 | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Numerator | |||||||||||||||
Net earnings | $ | 734 | $ | 432 | $ | 1,329 | $ | 591 | |||||||
Denominator | |||||||||||||||
Weighted-average common shares outstanding | 250.2 | 259.5 | 251.7 | 259.0 | |||||||||||
Dilutive effect of stock compensation plan awards | 2.6 | 2.6 | 3.0 | 2.4 | |||||||||||
Weighted-average common shares outstanding, assuming dilution | 252.8 | 262.1 | 254.7 | 261.4 | |||||||||||
Potential shares which were anti-dilutive and excluded from weighted-average share computations | - | 0.1 | - | 0.5 | |||||||||||
Basic earnings per share | $ | 2.93 | $ | 1.67 | $ | 5.28 | $ | 2.28 | |||||||
Diluted earnings per share | $ | 2.90 | $ | 1.65 | $ | 5.22 | $ | 2.26 | |||||||
| 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 | |||||||
9. 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
On February 16, 2021, our common stock for the periods presented, and, therefore, the effect would be anti-dilutive (i.e., including such options would result in higher earnings per share).
| 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 | |
Information regarding the shares we repurchased during the
Three Months Ended | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Total cost of shares repurchased | $ | 416 | $ | - | $ | 1,331 | $ | 56 | |||||||
Average price per share | $ | 112.75 | $ | - | $ | 109.92 | $ | 86.30 | |||||||
Number of shares repurchased | 3.7 | - | 12.1 | 0.6 | |||||||||||
| 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 July 31, 2021, $3.8 billion shares remained available for additional purchases underof the February 2017$5.0 billion share repurchase program as of October 28, 2017. authorization was available. Between the end of the thirdsecond quarter of fiscal 20182022 on July 31, 2021, and November 30, 2017,August 27, 2021, we repurchased an incremental 4.51.4 million shares of our common stock at a cost of $256$160 million. Repurchased shares
10. Income Taxes
Unrecognized Tax Benefits
Our income tax returns are retiredroutinely examined by domestic and constitute authorized but unissued shares.
| 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 | |||||||
| 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 | |||||||
| 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 | |||||
11. Contingencies
We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected 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.
12. Segments
Segment and on behalf of all others similarly situated v. Best Buy Co., Inc., et al.
Three Months Ended | Six Months Ended | ||||||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||||||
Revenue by reportable segment | |||||||||||||||||||
Domestic | $ | 11,011 | $ | 9,128 | $ | 21,852 | $ | 17,043 | |||||||||||
International | 838 | 782 | 1,634 | 1,429 | |||||||||||||||
Total revenue | $ | 11,849 | $ | 9,910 | $ | 23,486 | $ | 18,472 | |||||||||||
Revenue by product category | |||||||||||||||||||
Domestic | |||||||||||||||||||
Computing and Mobile Phones | $ | 4,765 | $ | 4,306 | $ | 9,558 | $ | 8,111 | |||||||||||
Consumer Electronics | 3,380 | 2,634 | 6,618 | 4,853 | |||||||||||||||
Appliances | 1,688 | 1,290 | 3,237 | 2,225 | |||||||||||||||
Entertainment | 560 | 411 | 1,228 | 921 | |||||||||||||||
Services | 570 | 462 | 1,126 | 883 | |||||||||||||||
Other | 48 | 25 | 85 | 50 | |||||||||||||||
Total Domestic revenue | $ | 11,011 | $ | 9,128 | $ | 21,852 | $ | 17,043 | |||||||||||
International | |||||||||||||||||||
Computing and Mobile Phones | $ | 373 | $ | 382 | $ | 767 | $ | 691 | |||||||||||
Consumer Electronics | 250 | 212 | 467 | 388 | |||||||||||||||
Appliances | 103 | 91 | 173 | 150 | |||||||||||||||
Entertainment | 57 | 49 | 122 | 106 | |||||||||||||||
Services | 40 | 35 | 75 | 67 | |||||||||||||||
Other | 15 | 13 | 30 | 27 | |||||||||||||||
Total International revenue | $ | 838 | $ | 782 | $ | 1,634 | $ | 1,429 | |||||||||||
Operating income by reportable segment and the officers namedreconciliation to consolidated earnings before income tax expense and equity in the complaint violated Sections 10(b) and 20Aincome of the Exchange Act and Rule 10b-5 under the Exchange Actaffiliates was as follows ($ in connection with press releases and other statements relating to our fiscal 2011 earnings guidance that had been made available to the public. Additionally,millions):
Three Months Ended | Six Months Ended | ||||||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||||||
Domestic | $ | 757 | $ | 524 | $ | 1,491 | $ | 765 | |||||||||||
International | 40 | 44 | 75 | 32 | |||||||||||||||
Total operating income | 797 | 568 | 1,566 | 797 | |||||||||||||||
Other income (expense): | |||||||||||||||||||
Investment income and other | 3 | 8 | 6 | 14 | |||||||||||||||
Interest expense | (6) | (15) | (12) | (32) | |||||||||||||||
Earnings before income tax expense and equity in income of affiliates | $ | 794 | $ | 561 | $ | 1,560 | $ | 779 | |||||||||||
Assets by reportable segment were as follows ($ in March 2011, a similar purported class action was filed by a single shareholder, Rene LeBlanc, against us and certainmillions):
July 31, 2021 | January 30, 2021 | August 1, 2020 | |||||||||
Domestic | $ | 17,296 | $ | 17,625 | $ | 15,964 | |||||
International | 1,283 | 1,442 | 1,448 | ||||||||
Total assets | $ | 18,579 | $ | 19,067 | $ | 17,412 | |||||
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 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, 201730, 2021 (including the information presented therein under
Overview
Our purpose is to enrich lives through technology. We are a leading providerdo this by leveraging our unique combination of technology products, servicestech expertise and solutions. We offer these products and serviceshuman touch to customers whomeet our customers’ everyday needs, whether they come to us online, visit our stores engage with Geek Squad agents or use our websites or mobile applications.invite us into their homes. We have operations in the U.S., Canada and Mexico. We operate two reportable segments: Domestic and International. The Domestic segment is comprised of operations, including our Best Buy Health business, 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).Online sales are included in comparable sales. Online sales represent those initiated on a website or app, regardless of whether customers choose to pick up product in store, curbside, at an alternative pick-up location or take delivery direct to their homes. All periods presented apply this methodology consistently.
On May 9, 2019, we acquired all outstanding shares of Critical Signal Technologies, Inc. (“CST”). Consistent with our comparable sales policy, the results of CST are included in our comparable sales calculation beginning in the third quarter of fiscal 2021.
In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. All stores that were temporarily closed as a result of COVID-19 or operating a curbside-only operating model are included in comparable sales.
On November 24, 2020, we announced our decision to exit our operations in Mexico. As a result, all revenue from Mexico operations has been excluded from our comparable sales calculation beginning in December of fiscal 2021.
We believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores, websites and call centers versus the portion resulting from opening new stores or closing existing stores. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers'retailers’ methods.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP")(“GAAP), as well as certain adjusted or non-GAAP financial measures, such as constant currency, non-GAAP operating income, non-GAAP effective tax rate non-GAAP net earnings from continuing operations,and non-GAAP diluted earnings per share ("EPS"(“EPS”) from continuing operations and non-GAAP debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio.. 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, andprice-fixing settlements, 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"“constant currency”, which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light ofwhen there are significant fluctuations in currency rates 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 Update
Throughout the thirdsecond quarter of fiscal 2018, our Consolidated revenue increased 4.2%2022, we provided customers multiple ways to $9.3 billioninteract with Consolidated comparable sales growth of 4.4% compared to last year. Diluted earnings per share increased 30.0% to $0.78 compared to $0.60 last year.
We continued to roll out and run several tests and pilots during the quarter as we determine the best path forward to become even more customer-centric, digitally-focused and efficient. We believe this is $600 millioncrucial to thriving in additional annualized cost reductionsa new and gross profit optimizationdifferent environment where customers expect to be completed byseamlessly interact with physical and digital channels throughout the shopping journey as they seek inspiration, research, convenience and support.
One of these pilots was a new membership program. Based on the positive pilot results, we plan to scale the program nationally in stores and online at the end of fiscal 2021. During the third quarter of fiscal 2018,2022 under the name Best Buy Totaltech. Totaltech is designed to give our customers the confidence that whatever their technology needs are, we achieved $50 million towards our newwill be there to help. The goal foris to create a total thus far of $100 million.
Over the third quarter despite the pressure from the later phone launch and the multiple natural disasters.longer term, we are fundamentally in a stronger position than we expected to be in just two years ago. We believe we have also made significant progress against our Best Buy 2020 strategy to position us well for long-term value creation. Additionally,there has been a structural increase in the nine months ended October 28, 2017,need for technology, and that we returned approximately $1.5 billionnow serve a larger install base of consumer electronics with customers who have an elevated appetite to upgrade due to constant technology innovation and needs that reflect structural life changes, like hybrid work and streaming entertainment content. We believe our significant omnichannel assets, including our ability to inspire what is possible across the breadth of consumer electronics, as well as our ability to keep it all working together the way customers want, truly differentiate us going forward in cash to our shareholders through both dividends and stock repurchases. We plan to spend approximately $2.0 billion on share repurchases this fiscal year, aheadnew landscape.
Results of Operations
In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a lag. Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for the periods presented.
Consolidated Performance Summary
Selected consolidated financial data was as follows ($ in millions, except per share amounts):
Three Months Ended | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Revenue | $ | 11,849 | $ | 9,910 | $ | 23,486 | $ | 18,472 | |||||||
Revenue % change | 19.6 | % | 3.9 | % | 27.1 | % | (1.1) | % | |||||||
Comparable sales % change | 19.6 | % | 5.8 | % | 27.7 | % | 0.4 | % | |||||||
Gross profit | $ | 2,810 | $ | 2,270 | $ | 5,525 | $ | 4,235 | |||||||
Gross profit as a % of revenue(1) | 23.7 | % | 22.9 | % | 23.5 | % | 22.9 | % | |||||||
SG&A | $ | 2,009 | $ | 1,702 | $ | 3,997 | $ | 3,437 | |||||||
SG&A as a % of revenue(1) | 17.0 | % | 17.2 | % | 17.0 | % | 18.6 | % | |||||||
Restructuring charges | $ | 4 | $ | - | $ | (38) | $ | 1 | |||||||
Operating income | $ | 797 | $ | 568 | $ | 1,566 | $ | 797 | |||||||
Operating income as a % of revenue | 6.7 | % | 5.7 | % | 6.7 | % | 4.3 | % | |||||||
Net earnings | $ | 734 | $ | 432 | $ | 1,329 | $ | 591 | |||||||
Diluted earnings per share | $ | 2.90 | $ | 1.65 | $ | 5.22 | $ | 2.26 | |||||||
| 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 | % | |
In the second quarter of fiscal 2018 compared to the third quarter of fiscal 2017, driven by our International segment. The gross profit rate decrease in theand first ninesix months of fiscal 20182022, we generated $11.8 billion and $23.5 billion in revenue, and our comparable sales grew 19.6% and 27.7%, respectively. We continued to experience high demand for technology products and services, as consumers continued to leverage technology to meet their needs, and we provided solutions that help them work, learn, entertain, cook and connect at home. The demand was also bolstered by overall strong consumer spending, aided by government stimulus, improving wages and high savings levels. Our strong sales performance resulted in operating income rate expansion of 100 basis points and 240 basis points during the second quarter and first six months of fiscal 2022, respectively.
Revenue, gross profit, SG&A and operating income rate changes in the second quarter and first six months of fiscal 2022 were primarily driven by our Domestic segment. For further discussion of each segment’s gross profit rate changes,performance, see
Income Tax Expense
Income tax expense decreased in the thirdsecond quarter of fiscal 2018 compared to the third quarter of fiscal 2017, driven by our Domestic segment. The SG&A rate decrease in the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017 was also driven by our Domestic segment. For further discussion of each segment’s SG&A rate changes, see
Income tax expense increased in the first six months of fiscal 2022 primarily due to an increase in pre-tax earnings.earnings, partially offset by the resolution of certain discrete tax matters. Our effective income tax rateETR decreased to 15.1% in the third quarterfirst six months of fiscal 2018 was 30.4%2022 compared to a rate of 36.7%24.2% in the third quarterfirst six months of fiscal 2017. The decrease in the effective income tax rate was2021, primarily due to the recognition of excess tax benefits related to stock-based compensation and the resolution of certain discrete tax matters in the current year period.
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 | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Revenue | $ | 11,011 | $ | 9,128 | $ | 21,852 | $ | 17,043 | |||||||
Revenue % change | 20.6 | % | 3.5 | % | 28.2 | % | (1.5) | % | |||||||
Comparable sales % change(1) | 20.8 | % | 5.0 | % | 28.7 | % | (0.3) | % | |||||||
Gross profit | $ | 2,606 | $ | 2,084 | $ | 5,132 | $ | 3,905 | |||||||
Gross profit as a % of revenue | 23.7 | % | 22.8 | % | 23.5 | % | 22.9 | % | |||||||
SG&A | $ | 1,849 | $ | 1,560 | $ | 3,685 | $ | 3,139 | |||||||
SG&A as a % of revenue | 16.8 | % | 17.1 | % | 16.9 | % | 18.4 | % | |||||||
Restructuring charges | $ | - | $ | - | $ | (44) | $ | 1 | |||||||
Operating income | $ | 757 | $ | 524 | $ | 1,491 | $ | 765 | |||||||
Operating income as a % of revenue | 6.9 | % | 5.7 | % | 6.8 | % | 4.5 | % | |||||||
Selected Online Revenue Data | |||||||||||||||
Total online revenue | $ | 3,486 | $ | 4,849 | $ | 7,082 | $ | 8,191 | |||||||
Online revenue as a % of total segment revenue | 31.7 | % | 53.1 | % | 32.4 | % | 48.1 | % | |||||||
Comparable online sales % change(1) | (28.1) | % | 242.2 | % | (13.5) | % | 200.5 | % | |||||||
| 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)Online sales are included in |
| 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 increase in revenue in the thirdsecond quarter and first six months of fiscal 2018 Domestic segment revenue2022 was primarily driven by comparable sales growth across almost all of 4.5%,our product categories, partially offset by the loss of revenue from Best Buy and Best Buy Mobilepermanent store closures. Domestic segment onlineclosures in the past year. Online revenue of $1.1$3.5 billion increased 22.3%and $7.1 billion in the second quarter and first six months of fiscal 2022 decreased 28.1% and 13.5%, respectively, on a comparable basis, primarily due to higher conversion rateschannel shifts in customer shopping behavior as a result of the COVID-19 pandemic and higher average order values.
Domestic segment revenue was driven by comparable sales growth of 3.8%, partially offset by the loss of revenue from Best Buy and Best Buy Mobile store closures. Domestic segment online revenue of $3.2 billion increased 25.3% on a comparable basis, primarily due to higher conversion rates and increased traffic.
Fiscal 2022 | Fiscal 2021 | ||||||||||||||||||||||||||||||
Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | ||||||||||||||||||||||||
Best Buy | 946 | 2 | (1) | 947 | 971 | - | (1) | 970 | |||||||||||||||||||||||
Outlet Centers | 14 | 1 | - | 15 | 12 | 2 | - | 14 | |||||||||||||||||||||||
Pacific Sales | 21 | - | - | 21 | 21 | - | - | 21 | |||||||||||||||||||||||
Total | 981 | 3 | (1) | 983 | 1,004 | 2 | (1) | 1,005 | |||||||||||||||||||||||
| 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 inwere as follows:
Revenue Mix | Comparable Sales | ||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Computing and Mobile Phones | 43 | % | 47 | % | 11.4 | % | 11.7 | % | |||||||
Consumer Electronics | 31 | % | 29 | % | 27.4 | % | (3.8) | % | |||||||
Appliances | 16 | % | 14 | % | 31.1 | % | 14.5 | % | |||||||
Entertainment | 5 | % | 5 | % | 36.4 | % | (4.4) | % | |||||||
Services | 5 | % | 5 | % | 23.6 | % | (8.7) | % | |||||||
Total | 100 | % | 100 | % | 20.8 | % | 5.0 | % | |||||||
Continued strong demand for technology products and services with a focus on the third quartershome, including working, learning, entertaining and cooking, contributed to our Domestic comparable sales growth across most 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:
Consumer Electronics: The 27.4% comparable sales gain was driven primarily by home theater, digital imaging, headphones and portable speakers.
Appliances: The 31.1% comparable sales gain was primarily driven by large appliances.
Entertainment:
Services: The 23.6% comparable sales gain was primarily driven by support and warranty services.
Our gross profit rate increased in the second quarter and first six months of fiscal 2022, primarily driven by largefavorable product margin rates, including reduced promotions, and small appliances.
Our SG&A increased in the second quarter and first six months of fiscal 2022, primarily due to pandemic-related actions last year, which resulted in higher costs this year for short-term incentive compensation, store payroll, advertising, medical claims and our 401(k) employer match. In addition, SG&A increased due to investments in support of our technology initiatives.
The restructuring credit in the first six months of fiscal 2022 primarily related to a reduction in termination benefits resulting from adjustments to previously planned organizational changes and higher-than-expected retention rates. Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.
Our operating income rate increased in the second quarter and first six months of fiscal 2022, primarily driven by the favorability in gross profit rate described above and increased leverage from higher sales volume on our fixed expenses, which resulted in favorable SG&A rates.
International
Selected financial data for the International segment was as follows ($ in millions):
Three Months Ended | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Revenue | $ | 838 | $ | 782 | $ | 1,634 | $ | 1,429 | |||||||
Revenue % change | 7.2 | % | 9.4 | % | 14.3 | % | 3.9 | % | |||||||
Comparable sales % change | 5.0 | % | 15.1 | % | 15.0 | % | 8.0 | % | |||||||
Gross profit | $ | 204 | $ | 186 | $ | 393 | $ | 330 | |||||||
Gross profit as a % of revenue | 24.3 | % | 23.8 | % | 24.1 | % | 23.1 | % | |||||||
SG&A | $ | 160 | $ | 142 | $ | 312 | $ | 298 | |||||||
SG&A as a % of revenue | 19.1 | % | 18.2 | % | 19.1 | % | 20.9 | % | |||||||
Restructuring charges | $ | 4 | $ | - | $ | 6 | $ | - | |||||||
Operating income | $ | 40 | $ | 44 | $ | 75 | $ | 32 | |||||||
Operating income as a % of revenue | 4.8 | % | 5.6 | % | 4.6 | % | 2.2 | % | |||||||
The increase in revenue in the second quarter of fiscal 2022 was primarily driven by the benefit of 1,070 basis points of favorable foreign currency exchange rate fluctuations and comparable sales growth of 5.0%. In the first six months of fiscal 2022, revenue increased primarily from comparable sales growth of 15.0% and the benefit of 1,040 basis points of favorable foreign currency exchange rate fluctuations. These increases were partially offset by lower revenue in Mexico in the second quarter and first six months of fiscal 2022 of $60 million and $129 million, respectively, as a result of our Domestic segment was flat. Improved margin rates were offset by the $25 million periodic profit share revenue related to our service plan portfolio earneddecision in the third quarter of fiscal 2017. The profit-share revenue included in our non-comparable sales relates2021 to our extended warranty protection plans that are managed by a third party underwriter. We may be eligible to receive profit-sharing payments, depending on the performanceexit operations.
International segment ($ in millions):
| 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 | % | |||||||
| 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 | % | |
Fiscal 2022 | Fiscal 2021 | ||||||||||||||||||||||||||||||
Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | Total Stores at Beginning of Second Quarter | Stores Opened | Stores Closed | Total Stores at End of Second Quarter | ||||||||||||||||||||||||
Canada | |||||||||||||||||||||||||||||||
Best Buy | 130 | - | (1) | 129 | 131 | - | - | 131 | |||||||||||||||||||||||
Best Buy Mobile | 33 | - | - | 33 | 41 | - | (1) | 40 | |||||||||||||||||||||||
Mexico | |||||||||||||||||||||||||||||||
Best Buy | - | - | - | - | 35 | - | (1) | 34 | |||||||||||||||||||||||
Best Buy Express | - | - | - | - | 14 | - | - | 14 | |||||||||||||||||||||||
Total | 163 | - | (1) | 162 | 221 | - | (2) | 219 | |||||||||||||||||||||||
| 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 inwere as follows:
Revenue Mix | Comparable Sales | ||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Computing and Mobile Phones | 44 | % | 49 | % | (1.6) | % | 31.0 | % | |||||||
Consumer Electronics | 30 | % | 27 | % | 11.8 | % | (4.7) | % | |||||||
Appliances | 12 | % | 12 | % | 11.6 | % | 13.4 | % | |||||||
Entertainment | 7 | % | 6 | % | 13.7 | % | 44.5 | % | |||||||
Services | 5 | % | 4 | % | 2.2 | % | (11.1) | % | |||||||
Other | 2 | % | 2 | % | 10.8 | % | 12.0 | % | |||||||
Total | 100 | % | 100 | % | 5.0 | % | 15.1 | % | |||||||
Similar to the third quartersDomestic segment, continued strong demand for technology products and services with a focus on the home, including working, learning, entertaining and cooking, contributed to our International segment’s comparable sales growth across most 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: The 1.6% comparable sales decline was driven primarily by revenue category:
Consumer Electronics:
Appliances: The 11.6% comparable sales gain was primarily driven primarily by computing and wearables, partially offset by declines in tablets.
Entertainment:
Services: The 2.2% comparable sales gain was driven primarily by largedue to our repair and small appliances.
Our gross profit rate of our International segment decreased due to lower salesincreased in the higher-margin services category in Canadasecond quarter and first six months of fiscal 2022, primarily driven by the launchsales mixing out of Canada's Total Tech Support offer, a long-term recurring revenue model.
Our SG&A increased in the higher-margin services category,second quarter of fiscal 2022, primarily due to the unfavorable impact of foreign currency exchange rates and increased store payroll and incentive compensation expenses in Canada, partially offset by lower expenses in Mexico as a lowerresult of our decision to exit operations there.
Our SG&A rateincreased in the first six months of fiscal 2022, primarily due to leveragethe unfavorable impact of foreign currency exchange rates and increased incentive compensation expense in Canada, partially offset by lower expenses in Mexico as a result of our decision to exit operations there.
Restructuring charges in the second quarter and first six months of fiscal 2022 primarily related to our decision to exit operations in Mexico. Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on our increased revenue.
Our International segment operating income rate decreased in the second quarter of fiscal 2022, primarily due to the unfavorable SG&A rate and restructuring charges, partially offset by the favorability in gross profit rate described above.
Our operating income rate increased in the first ninesix months of fiscal 20182022, primarily due to a lowerthe favorability in gross profit rate partially offset bydescribed above and increased leverage from higher sales volume on our fixed expenses, which resulted in a lowerfavorable 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 | Six Months Ended | ||||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||||
Operating income | $ | 797 | $ | 568 | $ | 1,566 | $ | 797 | |||||||
% of revenue | 6.7 | % | 5.7 | % | 6.7 | % | 4.3 | % | |||||||
Intangible asset amortization(1) | 20 | 20 | 40 | 40 | |||||||||||
Restructuring charges(2) | 4 | - | (38) | 1 | |||||||||||
Restructuring - inventory markdowns(3) | - | - | (6) | - | |||||||||||
Non-GAAP operating income | $ | 821 | $ | 588 | $ | 1,562 | $ | 838 | |||||||
% of revenue | 6.9 | % | 5.9 | % | 6.7 | % | 4.5 | % | |||||||
Effective tax rate | 8.0 | % | 22.9 | % | 15.1 | % | 24.2 | % | |||||||
Intangible asset amortization(1) | 0.4 | % | 0.1 | % | 0.3 | % | - | % | |||||||
Restructuring charges(2) | - | % | - | % | (0.3) | % | - | % | |||||||
Non-GAAP effective tax rate | 8.4 | % | 23.0 | % | 15.1 | % | 24.2 | % | |||||||
Diluted EPS | $ | 2.90 | $ | 1.65 | $ | 5.22 | $ | 2.26 | |||||||
Intangible asset amortization(1) | 0.08 | 0.08 | 0.16 | 0.16 | |||||||||||
Restructuring charges(2) | 0.02 | - | (0.15) | - | |||||||||||
Restructuring - inventory markdowns(3) | - | - | (0.02) | - | |||||||||||
Income tax impact of non-GAAP adjustments(4) | (0.02) | (0.02) | - | (0.04) | |||||||||||
Non-GAAP diluted EPS | $ | 2.98 | $ | 1.71 | $ | 5.21 | $ | 2.38 | |||||||
| 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 | |||||||
(1)Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology. (2)Represents adjustments to previously planned organizational changes and higher-than-expected retention rates in the Domestic segment and charges and subsequent adjustments associated with the decision to exit operations in Mexico in the International segment for the periods ended July 31, 2021. Represents charges associated with U.S. retail operating model changes for the periods ended August 1, 2020. (3)Represents inventory markdown adjustments recorded within cost of sales associated with the decision to exit operations in Mexico. (4)The non-GAAP adjustments primarily relate to the U.S. and Mexico. As such, the income tax charge is calculated using the statutory tax rate of 24.5% for all U.S. non-GAAP items for all periods presented. There is no income tax charge for the Mexico non-GAAP items, as there was no tax benefit recognized on these expenses in the calculation of GAAP income tax expense. Our non-GAAP |
Our non-GAAP effective tax rate decreased fromin the prior year periodsecond quarter and first six months of fiscal 2022, primarily due to the recognition of excess tax benefits related to stock-based compensation and the resolution of certain discrete tax mattersmatters. Refer to Note 10, Income Taxes, in the current year period.
Our non-GAAP effective tax rate fordiluted EPS increased in the second quarter and first ninesix months of fiscal 2018 decreased from the prior year period2022, primarily due to the recognition of excess tax benefits related to stock-based compensation and the resolution of certain tax matters 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
Cash and cash equivalents were as follows ($ in millions):
July 31, 2021 | January 30, 2021 | August 1, 2020 | |||||||||||||
Cash and cash equivalents | $ | 4,340 | $ | 5,494 | $ | 5,305 | |||||||||
The following table summarizes ourdecreases in cash and cash equivalents from July 31, 2021, compared to January 30, 2021, and short-term investments balances at October 28, 2017, January 28, 2017,August 1, 2020, were primarily due to share repurchases, which were temporarily suspended from March to November 2020, partially offset by the excess of operating cash flows from higher earnings over capital spending and October 29, 2016 ($ in millions):dividends.
| 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):
Six Months Ended | |||||||||||||||
July 31, 2021 | August 1, 2020 | ||||||||||||||
Total cash provided by (used in): | |||||||||||||||
Operating activities | $ | 864 | $ | 3,788 | |||||||||||
Investing activities | (358) | (383) | |||||||||||||
Financing activities | (1,662) | (332) | |||||||||||||
Effect of exchange rate changes on cash | 5 | (6) | |||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | $ | (1,151) | $ | 3,067 | |||||||||||
| 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 decrease in cash provided by operating activities in the first half of fiscal 2022 was primarily due to changes in working capital associated with the timing of inventory, which saw a decrease in receipts and payments as well as the timing of advertising payments. During fiscal 2017, we generally purchased inventory later in the Holiday season thanprior-year period from measures taken in light of COVID-19 and an increase in receipts in the prior year causing more paymentscurrent-year period to occur duringmatch our inventory levels to increased demand. Changes in accounts payable also contributed to the first quarter of fiscal 2018. This wasdecrease from favorable payment terms with vendors in the prior-year period. These decreases were partially offset by changeshigher earnings in receivables driven by higher revenues at the end of fiscal 2017 than the prior year 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 the first half of fiscal 2022 was primarily due to purchasesdriven by an increase in sales of short-term investments 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 in financing activities in the first half of fiscal 2022 was due to increased share repurchases, which was due todriven primarily by an increase in our share price and number of shares repurchased, and an increase in our regularrepurchases. In fiscal 2021, we temporarily suspended share repurchases from March to November 2020. In addition, we increased the quarterly dividend rate. On March 1, 2017, we announced our intentrate from $0.55 to increase our share repurchases to $3.0 billion over 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$0.70 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.
On May 18, 2021, we entered into a $1.25 billion five-yearfive year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the "Five-Year Facility Agreement"“Previous Facility”) with a syndicate of banks, thatwhich was originally scheduled to expire in April 2023, but was terminated on May 18, 2021. The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in June 2021. At October 28, 2017,May 2026.
In the first quarter of fiscal 2021, in light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we hadexecuted a short-term draw on the full amount of our Previous Facility on March 19, 2020, which remained outstanding until July 27, 2020, when the Previous Facility was repaid in full. There were no borrowings outstanding under the Five-Year Facility Agreement. ReferAgreement as of July 31, 2021, or the Previous Facility as of January 30, 2021, and August 1, 2020.
Our credit ratings and outlook as of August 27, 2021, are summarized below. On May 20, 2021, Standard & Poor’s upgraded its rating to Note 5,
Rating Agency | Rating | Outlook | |||||||||
Standard & Poor's | BBB+ | Stable | |||||||||
Moody's | |||||||||||
A3 | Stable | ||||||||||
Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. 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 orprimarily 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 $134 million, $193$131 million and $193$117 million at October 28, 2017,July 31, 2021, January 28, 2017,30, 2021, and October 29, 2016,August 1, 2020, respectively.
Debt and Capital
As of October 28, 2017,July 31, 2021, we havehad $500 million of principal amount of notes due AugustOctober 1, 2018 (the "2018 Notes")2028, and $650 million of principal amount of notes due March 15, 2021 (the "2021 Notes").October 1, 2030. 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"(“Board”). The payment of cash dividends is also subject to customary legal and contractual restrictions. Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment gradeinvestment-grade credit metrics.
On 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 16, 2021, our Board approved a new $5.0 billion share repurchase program in February 2017. This share repurchase program supersedes the previous $5.0 billion authorization dated June 2011.. There is no expiration date governing the period over which we can repurchase shares under this new authorization. As of July 31, 2021, $3.8 billion of the February 2017$5.0 billion share repurchase program. Weauthorization was available. On August 24, 2021, we announced our plan to spend approximately $2.0repurchase more than $2.5 billion onof shares in fiscal 2022.
Share repurchase and dividend activity was as follows ($ and shares in millions, except per share amounts):
Three Months Ended | Six Months Ended | |||||||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | |||||||||||
Total cost of shares repurchased | $ | 416 | $ | - | $ | 1,331 | $ | 56 | ||||||
Average price per share | $ | 112.75 | $ | - | $ | 109.92 | $ | 86.30 | ||||||
Number of shares repurchased | 3.7 | - | 12.1 | 0.6 | ||||||||||
Regular quarterly cash dividends per share | $ | 0.70 | $ | 0.55 | $ | 1.40 | $ | 1.10 | ||||||
Cash dividends declared and paid | $ | 175 | $ | 143 | $ | 350 | $ | 284 | ||||||
The total cost of shares repurchased increased in fiscal 2022, primarily due to the temporary suspension of all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties. Cash dividends declared and paid increased in fiscal 2018, versus our original expectation of $1.5 billion. Approximately $3.9 billion remained available for additional purchases under2022 primarily due to an increase in the February 2017 share repurchase program as of October 28, 2017. regular quarterly cash dividend per share.
Between the end of the thirdsecond quarter of fiscal 20182022 on July 31, 2021, and November 30, 2017,August 27, 2021, we repurchased an incremental 4.51.4 million shares of our common stock at a cost of $256$160 million. Repurchased shares are retired and constitute authorized but unissued shares.
| 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 | |||||||||||
| 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, wasremained relatively unchanged at 1.2 at the endas of the third quarterJuly 31, 2021, and January 30, 2021, and 1.1 as of fiscal 2018, 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 2017 due primarily to the reclassification of our 2018 Notes 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 ratio was 1.1 atover the endtrailing twelve months decreased to 0.5 as of the third quarter of fiscal 2018,July 31, 2021, compared to 1.1 at the end0.8 as of fiscal 2017January 30, 2021, 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 wasAugust 1, 2020, primarily due to an increase inhigher 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 other than in connection with our operating leases and our $1.25 billion in undrawn capacity on our credit facilities at October 28, 2017,Five-Year Facility Agreement as of July 31, 2021, which, if drawn upon, would be included as Short-termin either short-term or long-term debt inon our Condensed Consolidated Balance Sheets.
There has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2017.2021. See our Annual Report on Form 10-K for the fiscal year ended January 28, 2017,30, 2021, for additional information regarding our off-balance-sheet arrangements and contractual obligations.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1,
Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended JanuaryNew Accounting Pronouncements
We do not expect any recently issued 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
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 January 30, 2021, in addition to the risks inherent in our operations, we are exposed to certain market risks.
Interest Rate Risk
We are exposed to changes in short-term market interest rates and these changes in rates will impact our net interest expense. 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,July 31, 2021, we had $3.3$4.3 billion of cash and short-term investmentscash equivalents and $1.2$0.5 billion of fixed-rate debt that has beenwas swapped to floating rate. Therefore, we hadrate, resulting in a net cash and short-term investments of $2.1 billion generating income, which isbalance exposed to interest rate changes. changes of $3.8 billion. As of October 28, 2017,July 31, 2021, a 50 basis50-basis point increase in short-term interest rates would leadhave led to an estimated $11$19 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$19 million increase in net interest expense.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 termsrate fluctuations were primarily driven by the strength of upthe Canadian dollar compared 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 for 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 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Stock Repurchases
On February 16, 2021, our Board approved a new $5.0 billion share repurchase program, which replaced the $3.0 billion share repurchase program authorized on February 23, 2019. For additional information, regarding our repurchasessee Note 9, Repurchase of common stock duringCommon Stock, of the third quarter of fiscal 2018:Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Fiscal Period | Total Number of | Average Price Paid | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | |||||||||||
May 2, 2021 through May 29, 2021 | 81,787 | $ | 115.62 | 81,787 | $ | 4,194,000,000 | |||||||||
May 30, 2021 through July 3, 2021 | 1,993,562 | $ | 113.70 | 1,993,562 | $ | 3,968,000,000 | |||||||||
July 4, 2021 through July 31, 2021 | 1,604,914 | $ | 111.42 | 1,604,914 | $ | 3,789,000,000 | |||||||||
Total | 3,680,263 | $ | 112.75 | 3,680,263 | $ | 3,789,000,000 | |||||||||
| 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 | ||||||||||
Item 6.Exhibits
Form of Best Buy Co., Inc. Long-Term Incentive Program Award Agreement (2021) - Directors | ||
101 | ||
The following financial information from our Quarterly Report on Form 10-Q for the | ||
104 | The |
*Management contracts or compensatory plans or arrangements.
(1)The certifications in Exhibit 32.1 and Exhibit 32.2 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K under the Securities Act of 1933, as amended, the registrant has not filed as exhibits to this Quarterly Report on Form 10-Q certain instruments with respect to long-term debt under which the amount of securities authorized does not exceed 10% of the total assets of the registrant. The registrant hereby agrees to furnish copies of all such instruments to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BEST BUY CO., INC. | |||
(Registrant) | |||
Date: | By: | ||
/s/ CORIE BARRY | |||
Corie Barry | |||
Chief Executive Officer | |||
Date: August 31, 2021 | 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 | |||