UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2020May 1, 2021
OR
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-9595
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
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Minnesota |
| 41-0907483 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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7601 Penn Avenue South |
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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:
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Title of each class | Trading Symbol | Name of exchange on which registered |
Common Stock, $0.10 par value per share | BBY | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer |
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Smaller Reporting Company | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The registrant had 258,944,852250,472,993 shares of common stock outstanding as of November 25, 2020.June 2, 2021.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED OCTOBER 31, 2020May 1, 2021
TABLE OF CONTENTS
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Part I — Financial Information | 3 |
Item 1. |
| Financial Statements | 3 |
| a) | Condensed Consolidated Balance Sheets as of October 31,May 1, 2021, January 30, 2021, and May 2, 2020 February 1, 2020, and November 2, 2019 | 3 |
| b) | Condensed Consolidated Statements of Earnings for the three and nine months ended October 31,May 1, 2021, and May 2, 2020 and November 2, 2019 | 4 |
| c) | Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 31,May 1, 2021, and May 2, 2020 and November 2, 2019 | 5 |
| d) | Condensed Consolidated Statements of Cash Flows for the ninethree months ended October 31,May 1, 2021, and May 2, 2020 and November 2, 2019 | 6 |
| e) | Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended October 31,May 1, 2021, and May 2, 2020 and November 2, 2019 | 7 |
| f) | Notes to Condensed Consolidated Financial Statements | 8 |
Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1415
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Item 3. |
| Quantitative and Qualitative Disclosures About Market Risk | 24 |
Item 4. |
| Controls and Procedures | 25 |
Part II — Other Information | 25 |
Item 1. |
| Legal Proceedings | 25 |
Item 1A.2. |
| Risk FactorsUnregistered Sales of Equity Securities and Use of Proceeds
| 25 |
Item 6. |
| Exhibits | 2726
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Signatures | 2827
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
$ in millions, except per share amounts (unaudited)
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| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 | May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Assets |
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Current assets |
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Cash and cash equivalents | $ | 5,136 |
| $ | 2,229 |
| $ | 1,205 |
| $ | 4,278 |
| $ | 5,494 |
| $ | 3,919 |
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Short-term investments |
| 545 |
|
| - |
|
| - |
|
| 60 |
|
| - |
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| - |
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Receivables, net |
| 1,028 |
|
| 1,149 |
|
| 1,056 |
|
| 850 |
|
| 1,061 |
|
| 749 |
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Merchandise inventories |
| 7,459 |
|
| 5,174 |
|
| 7,569 |
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| 5,721 |
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| 5,612 |
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| 3,993 |
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Other current assets |
| 383 |
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| 305 |
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|
| 345 |
|
| 359 |
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|
| 373 |
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|
| 335 |
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Total current assets |
| 14,551 |
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| 8,857 |
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| 10,175 |
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| 11,268 |
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| 12,540 |
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| 8,996 |
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Property and equipment, net |
| 2,265 |
| 2,328 |
| 2,359 |
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| 2,233 |
| 2,260 |
| 2,291 |
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Operating lease assets |
| 2,692 |
| 2,709 |
| 2,751 |
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| 2,563 |
| 2,612 |
| 2,631 |
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Goodwill |
| 986 |
| 984 |
| 982 |
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| 986 |
| 986 |
| 986 |
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Other assets |
| 708 |
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| 713 |
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| 659 |
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| 655 |
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| 669 |
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| 701 |
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Total assets | $ | 21,202 |
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| $ | 15,591 |
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| $ | 16,926 |
| $ | 17,705 |
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| $ | 19,067 |
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| $ | 15,605 |
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Liabilities and equity |
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Current liabilities |
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Accounts payable | $ | 9,110 |
| $ | 5,288 |
| $ | 7,232 |
| $ | 6,360 |
| $ | 6,979 |
| $ | 4,428 |
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Unredeemed gift card liabilities |
| 278 |
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| 281 |
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| 271 |
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| 297 |
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| 317 |
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| 257 |
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Deferred revenue |
| 788 |
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| 501 |
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| 445 |
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| 734 |
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| 711 |
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| 531 |
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Accrued compensation and related expenses |
| 446 |
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| 410 |
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| 351 |
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| 493 |
|
| 725 |
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| 213 |
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Accrued liabilities |
| 968 |
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| 906 |
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| 769 |
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| 978 |
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| 972 |
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| 769 |
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Short-term debt | |
| 110 |
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| 110 |
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| 1,250 |
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Current portion of operating lease liabilities |
| 685 |
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| 660 |
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| 644 |
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| 654 |
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| 693 |
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| 683 |
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Current portion of long-term debt |
| 670 |
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| 14 |
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| 14 |
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| 15 |
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| 14 |
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| 673 |
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Total current liabilities |
| 12,945 |
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| 8,060 |
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| 9,726 |
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| 9,641 |
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| 10,521 |
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| 8,804 |
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Long-term liabilities |
| 798 |
| 657 |
| 636 |
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| 694 |
| 694 |
| 694 |
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Long-term operating lease liabilities |
| 2,117 |
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| 2,138 |
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| 2,200 |
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| 1,983 |
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| 2,012 |
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| 2,076 |
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Long-term debt |
| 1,256 |
| 1,257 |
| 1,239 |
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| 1,229 |
| 1,253 |
| 621 |
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Contingencies (Note 11) |
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Equity |
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Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - NaN |
| - |
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| - |
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| - |
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Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 258 million, 256 million and 260 million shares, respectively |
| 26 |
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| 26 |
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| 26 |
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Preferred stock, $1.00 par value: Authorized – 400,000 shares; Issued and outstanding – NaN | |
| - |
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| - |
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| - |
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Common stock, $0.10 par value: Authorized – 1.0 billion shares; Issued and outstanding – 250.4 million, 256.9 million and 257.6 million shares, respectively | |
| 25 |
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| 26 |
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| 26 |
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Additional paid-in capital |
| 133 |
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| - |
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| - |
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| 33 |
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| - |
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| 15 |
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Retained earnings |
| 3,659 |
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| 3,158 |
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| 2,809 |
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| 3,762 |
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| 4,233 |
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| 3,126 |
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Accumulated other comprehensive income |
| 268 |
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| 295 |
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| 290 |
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| 338 |
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| 328 |
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| 243 |
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Total equity |
| 4,086 |
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| 3,479 |
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| 3,125 |
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| 4,158 |
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| 4,587 |
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| 3,410 |
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Total liabilities and equity | $ | 21,202 |
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| $ | 15,591 |
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| $ | 16,926 |
| $ | 17,705 |
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| $ | 19,067 |
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| $ | 15,605 |
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NOTE: The Consolidated Balance Sheet as of February 1, 2020,January 30, 2021, has been condensed from the audited consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Earnings
$ and shares in millions, except per share amounts (unaudited)
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| Three Months Ended |
| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Revenue | $ | 11,853 |
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| $ | 9,764 |
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| $ | 30,325 |
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| $ | 28,442 |
| $ | 11,637 |
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| $ | 8,562 |
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Cost of sales |
| 9,058 |
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| 7,403 |
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| 23,295 |
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| 21,629 |
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| 8,922 |
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| 6,597 |
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Gross profit |
| 2,795 |
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| 2,361 |
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| 7,030 |
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| 6,813 |
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| 2,715 |
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| 1,965 |
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Selling, general and administrative expenses |
| 2,123 |
| 1,973 |
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| 5,560 |
| 5,730 |
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| 1,988 |
| 1,735 |
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Restructuring charges |
| 111 |
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| (7) |
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| 112 |
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| 41 |
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| (42) |
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| 1 |
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Operating income |
| 561 |
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|
| 395 |
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| 1,358 |
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| 1,042 |
|
| 769 |
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| 229 |
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Other income (expense): |
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Gain on sale of investments |
| - |
| 1 |
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| - |
| 1 |
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Investment income and other |
| 5 |
| 9 |
|
| 19 |
| 33 |
|
| 3 |
| 6 |
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Interest expense |
| (11) |
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| (16) |
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| (43) |
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| (50) |
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| (6) |
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| (17) |
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Earnings before income tax expense |
| 555 |
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|
| 389 |
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| 1,334 |
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| 1,026 |
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Earnings before income tax expense and equity in income of affiliates | |
| 766 |
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| 218 |
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Income tax expense |
| 164 |
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|
| 96 |
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|
| 352 |
|
|
| 230 |
|
| 172 |
| 59 |
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Equity in income of affiliates | |
| 1 |
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| - |
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Net earnings | $ | 391 |
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| $ | 293 |
|
| $ | 982 |
|
| $ | 796 |
| $ | 595 |
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| $ | 159 |
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Basic earnings per share | $ | 1.50 |
| $ | 1.11 |
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| $ | 3.79 |
| $ | 2.99 |
| $ | 2.35 |
| $ | 0.61 |
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Diluted earnings per share | $ | 1.48 |
| $ | 1.10 |
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| $ | 3.74 |
| $ | 2.96 |
| $ | 2.32 |
| $ | 0.61 |
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Weighted-average common shares outstanding: |
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Basic |
| 259.8 |
| 263.2 |
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| 259.3 |
| 266.0 |
|
| 253.1 |
| 258.3 |
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Diluted |
| 263.7 |
| 265.2 |
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| 262.5 |
| 269.1 |
|
| 256.7 |
| 260.4 |
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See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Income
$ in millions (unaudited)
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| Three Months Ended |
| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Net earnings | $ | 391 |
|
| $ | 293 |
|
| $ | 982 |
|
| $ | 796 |
| $ | 595 |
|
| $ | 159 |
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Foreign currency translation adjustments, net of tax |
| 10 |
| (4) |
| (25) |
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| (4) |
|
| 10 |
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| (52) |
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Cash flow hedges |
| 2 |
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|
| - |
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| (2) |
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| - |
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Comprehensive income | $ | 403 |
|
| $ | 289 |
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| $ | 955 |
|
| $ | 792 |
| $ | 605 |
|
| $ | 107 |
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See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
$ in millions (unaudited)
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| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Operating activities |
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Net earnings | $ | 982 |
| $ | 796 |
| $ | 595 |
| $ | 159 |
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Adjustments to reconcile net earnings to total cash provided by operating activities: | Adjustments to reconcile net earnings to total cash provided by operating activities: |
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| Adjustments to reconcile net earnings to total cash provided by operating activities: |
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Depreciation and amortization |
| 628 |
| 607 |
|
| 216 |
| 207 |
|
Restructuring charges |
| 112 |
| 41 |
|
| (42) |
| 1 |
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Stock-based compensation |
| 107 |
| 109 |
|
| 37 |
| 15 |
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Deferred income taxes |
| 19 |
| 20 |
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Other, net |
| 10 |
| 16 |
|
| 6 |
| 20 |
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Changes in operating assets and liabilities, net of acquired assets and liabilities: |
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Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: |
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Receivables |
| 106 |
| (36) |
|
| 210 |
| 383 |
|
Merchandise inventories |
| (2,300) |
| (2,159) |
|
| (90) |
| 1,136 |
|
Other assets |
| (60) |
| (2) |
|
| (6) |
| (12) |
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Accounts payable |
| 3,824 |
| 1,984 |
|
| (630) |
| (816) |
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Income taxes |
| 121 |
| (147) |
|
| 113 |
| 31 |
|
Other liabilities |
| 358 |
|
|
| (292) |
|
| (304) |
|
|
| (297) |
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Total cash provided by operating activities |
| 3,907 |
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|
| 937 |
|
| 105 |
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|
| 827 |
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Investing activities |
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Additions to property and equipment |
| (534) |
| (586) |
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| (161) |
| (178) |
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Purchases of investments |
| (620) |
| (319) |
|
| (90) |
| (5) |
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Acquisitions, net of cash acquired |
| - |
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| (145) |
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Sales of investments |
| - |
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| 322 |
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Other, net |
| 1 |
|
|
| 1 |
|
| (2) |
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| 4 |
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Total cash used in investing activities |
| (1,153) |
|
|
| (727) |
|
| (253) |
|
|
| (179) |
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Financing activities |
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Repurchase of common stock |
| (62) |
| (696) |
|
| (927) |
| (62) |
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Issuance of common stock |
| 28 |
| 45 |
| |
Dividends paid |
| (426) |
| (398) |
|
| (175) |
| (141) |
|
Borrowings of debt |
| 1,892 |
| - |
|
| - |
| 1,250 |
|
Repayments of debt |
| (1,261) |
| (11) |
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Other, net |
| (1) |
|
|
| - |
|
| 13 |
|
|
| 2 |
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Total cash provided by (used in) financing activities |
| 170 |
|
|
| (1,060) |
|
| (1,089) |
|
|
| 1,049 |
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Effect of exchange rate changes on cash and cash equivalents |
| (8) |
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| (2) |
|
| 5 |
|
|
| (18) |
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Increase (decrease) in cash, cash equivalents and restricted cash |
| 2,916 |
|
|
| (852) |
|
| (1,232) |
|
|
| 1,679 |
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Cash, cash equivalents and restricted cash at beginning of period |
| 2,355 |
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|
| 2,184 |
|
| 5,625 |
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|
| 2,355 |
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Cash, cash equivalents and restricted cash at end of period | $ | 5,271 |
|
| $ | 1,332 |
| $ | 4,393 |
|
| $ | 4,034 |
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See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Changes in Shareholders' Equity
$ and shares in millions, except per share amounts (unaudited)
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| Common Shares |
| Common Stock |
| Additional Paid-In Capital |
| Retained Earnings |
| Accumulated Other Comprehensive Income (Loss) |
| Total | Common Shares |
| Common Stock |
| Additional Paid-In Capital |
| Retained Earnings |
| Accumulated Other Comprehensive Income (Loss) |
| Total |
Balances at August 1, 2020 |
| 258 |
|
| $ | 26 |
|
| $ | 83 |
|
| $ | 3,413 |
|
| $ | 256 |
|
| $ | 3,778 |
| |
Net earnings, three months ended October 31, 2020 |
| - |
| - |
| - |
| 391 |
|
| - |
|
| 391 |
| |
Balances at January 30, 2021 | |
| 256.9 |
|
| $ | 26 |
|
| $ | - |
|
| $ | 4,233 |
|
| $ | 328 |
|
| $ | 4,587 |
|
Net earnings, three months ended May 1, 2021 | |
| - |
| - |
| - |
| 595 |
|
| - |
|
| 595 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
| - |
| - |
| - |
| - |
|
| 10 |
|
| 10 |
|
| - |
| - |
| - |
| - |
|
| 10 |
|
| 10 |
|
Cash flow hedges |
| - |
| - |
| - |
| - |
|
| 2 |
|
| 2 |
| |
Stock-based compensation |
| - |
| - |
| 41 |
| - |
|
| - |
|
| 41 |
|
| - |
| - |
| 37 |
| - |
|
| - |
|
| 37 |
|
Issuance of common stock |
| - |
| - |
| 6 |
| - |
|
| - |
|
| 6 |
|
| 1.9 |
| - |
| 19 |
| - |
|
| - |
|
| 19 |
|
Common stock dividends, $0.55 per share |
| - |
|
|
| - |
|
|
| 3 |
|
|
| (145) |
|
|
| - |
|
|
| (142) |
| |
Balances at October 31, 2020 |
| 258 |
|
| $ | 26 |
|
| $ | 133 |
|
| $ | 3,659 |
|
| $ | 268 |
|
| $ | 4,086 |
| |
Common stock dividends, $0.70 per share | |
| - |
| - |
| 3 |
| (178) |
|
| - |
|
| (175) |
|
Repurchase of common stock | |
| (8.4) |
|
|
| (1) |
|
|
| (26) |
|
|
| (888) |
|
|
| - |
|
|
| (915) |
|
Balances at May 1, 2021 | |
| 250.4 |
|
| $ | 25 |
|
| $ | 33 |
|
| $ | 3,762 |
|
| $ | 338 |
|
| $ | 4,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at February 1, 2020 |
| 256 |
| $ | 26 |
| $ | - |
| $ | 3,158 |
| $ | 295 |
|
| $ | 3,479 |
|
| 256.5 |
| $ | 26 |
| $ | - |
| $ | 3,158 |
| $ | 295 |
|
| $ | 3,479 |
|
Net earnings, nine months ended October 31, 2020 |
| - |
| - |
| - |
| 982 |
|
| - |
|
| 982 |
| |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign currency translation adjustments, net of tax |
| - |
| - |
| - |
| - |
|
| (25) |
|
| (25) |
| |
Cash flow hedges |
| - |
| - |
| - |
| - |
|
| (2) |
|
| (2) |
| |
Stock-based compensation |
| - |
| - |
| 106 |
| - |
|
| - |
|
| 106 |
| |
Issuance of common stock |
| 3 |
| - |
| 28 |
| - |
|
| - |
|
| 28 |
| |
Common stock dividends, $1.65 per share |
| - |
| - |
| 7 |
| (433) |
|
| - |
|
| (426) |
| |
Repurchase of common stock |
| (1) |
|
|
| - |
|
|
| (8) |
|
|
| (48) |
|
|
| - |
|
|
| (56) |
| |
Balances at October 31, 2020 |
| 258 |
|
| $ | 26 |
|
| $ | 133 |
|
| $ | 3,659 |
|
| $ | 268 |
|
| $ | 4,086 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balances at August 3, 2019 |
| 265 |
| $ | 26 |
| $ | - |
| $ | 2,965 |
| $ | 294 |
|
| $ | 3,285 |
| |
Net earnings, three months ended November 2, 2019 |
| - |
| - |
| - |
| 293 |
|
| - |
|
| 293 |
| |
Net earnings, three months ended May 2, 2020 | |
| - |
| - |
| - |
| 159 |
|
| - |
|
| 159 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
| - |
| - |
| - |
| - |
|
| (4) |
|
| (4) |
|
| - |
| - |
| - |
| - |
|
| (52) |
|
| (52) |
|
Stock-based compensation |
| - |
| - |
| 35 |
| - |
|
| - |
|
| 35 |
|
| - |
| - |
| 15 |
| - |
|
| - |
|
| 15 |
|
Issuance of common stock |
| - |
| - |
| 18 |
| - |
|
| - |
|
| 18 |
|
| 1.7 |
| - |
| 6 |
| - |
|
| - |
|
| 6 |
|
Common stock dividends, $0.50 per share |
| - |
| - |
| 2 |
| (133) |
|
| - |
|
| (131) |
| |
Common stock dividends, $0.55 per share | |
| - |
| - |
| 2 |
| (143) |
|
| - |
|
| (141) |
|
Repurchase of common stock |
| (5) |
|
|
| - |
|
|
| (55) |
|
|
| (316) |
|
|
| - |
|
|
| (371) |
|
| (0.6) |
|
|
| - |
|
|
| (8) |
|
|
| (48) |
|
|
| - |
|
|
| (56) |
|
Balances at November 2, 2019 |
| 260 |
|
| $ | 26 |
|
| $ | - |
|
| $ | 2,809 |
|
| $ | 290 |
|
| $ | 3,125 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balances at February 2, 2019 |
| 266 |
| $ | 27 |
| $ | - |
| $ | 2,985 |
| $ | 294 |
|
| $ | 3,306 |
| |
Adoption of ASU 2016-02 |
| - |
| - |
| - |
| (22) |
|
| - |
|
| (22) |
| |
Net earnings, nine months ended November 2, 2019 |
| - |
| - |
| - |
| 796 |
|
| - |
|
| 796 |
| |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign currency translation adjustments, net of tax |
| - |
| - |
| - |
| - |
|
| (4) |
|
| (4) |
| |
Stock-based compensation |
| - |
| - |
| 109 |
| - |
|
| - |
|
| 109 |
| |
Issuance of common stock |
| 4 |
| - |
| 45 |
| - |
|
| - |
|
| 45 |
| |
Common stock dividends, $1.50 per share |
| - |
| - |
| 6 |
| (404) |
|
| - |
|
| (398) |
| |
Repurchase of common stock |
| (10) |
|
|
| (1) |
|
|
| (160) |
|
|
| (546) |
|
|
| - |
|
|
| (707) |
| |
Balances at November 2, 2019 |
| 260 |
|
| $ | 26 |
|
| $ | - |
|
| $ | 2,809 |
|
| $ | 290 |
|
| $ | 3,125 |
| |
Balances at May 2, 2020 | |
| 257.6 |
|
| $ | 26 |
|
| $ | 15 |
|
| $ | 3,126 |
|
| $ | 243 |
|
| $ | 3,410 |
|
See Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.
During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico. All stores in Mexico were closed as of the end of the first quarter of fiscal 2022 and our International segment will be comprised of operations in Canada going forward. Refer to Note 2, Restructuring, for additional information.
In March 2020 the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. Except where otherwise directed by state and local authorities, on March 22, 2020, we made the decision for the health and safety of our customers and employees to move our stores to a contactless, curbside-only operating model. We also temporarily suspended in-home delivery, repair and consultation services from March 22, 2020, through April 27, 2020, after implementing new safety guidelines. As of June 22, 2020, almost all of our stores were open for shopping and remained open through the first quarter of fiscal 2022. We continue to offer contactless curbside pick-up and in-store consultations for customers who prefer to shop that way.
Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.January 30, 2021. The first ninethree months of fiscal 20212022 and fiscal 20202021 included 3913 weeks.
In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements. Other than as disclosed in Note 2, Restructuring Charges, noNo such events were identified for the reported periods.
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from October 31, 2020,May 1, 2021, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. NoOther than the refinancing of our $1.25 billion five year senior unsecured revolving credit facility described in Note 5, Debt, no such events were identified for the reported periods.
Total Cash, Cash Equivalents and Restricted Cash
The reconciliation of cash,Cash, cash equivalents and restricted cash reported within theon our Condensed Consolidated Balance Sheets is reconciled to the totalstotal shown within theon our Condensed Consolidated Statements of Cash Flows was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 | May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Cash and cash equivalents | $ | 5,136 |
|
| $ | 2,229 |
|
| $ | 1,205 |
| $ | 4,278 |
|
| $ | 5,494 |
|
| $ | 3,919 |
|
Restricted cash included in Other current assets |
| 135 |
|
|
| 126 |
|
|
| 127 |
|
| 115 |
|
|
| 131 |
|
|
| 115 |
|
Total cash, cash equivalents and restricted cash | $ | 5,271 |
|
| $ | 2,355 |
|
| $ | 1,332 |
| $ | 4,393 |
|
| $ | 5,625 |
|
| $ | 4,034 |
|
Amounts included in restricted cash are pledged as collateral orprimarily restricted to use for workers’ compensation and general liability insurance claims.
2. Restructuring Charges
Restructuring charges were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
|
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
| May 1, 2021 |
| May 2, 2020 |
Mexico Exit and Corporate Reorganization(1) |
| $ | 148 |
|
| $ | - |
|
| $ | 148 |
|
| $ | - |
| |
Mexico Exit and Strategic Realignment(1) | |
| $ | (48) |
|
| $ | - |
|
Fiscal 2020 U.S. Retail Operating Model Changes |
|
| (1) |
|
|
| (7) |
|
|
| - |
|
|
| 41 |
|
|
| - |
|
|
| 1 |
|
Total |
| $ | 147 |
|
| $ | (7) |
|
| $ | 148 |
|
| $ | 41 |
|
| $ | (48) |
|
| $ | 1 |
|
(1)Includes $36($6) million related to inventory markdowns recorded in Cost of sales on our Condensed Consolidated Statements of Earnings for the three and nine months ended October 31, 2020.May 1, 2021.
Mexico Exit and Corporate ReorganizationStrategic Realignment
The novel coronavirus disease ("COVID-19")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 thesetheir needs. In light of these changes, we have re-examinedare adapting our Building the New Blue Strategy and adjusted our plans to ensure that our focus and resources are closely aligned with the opportunities we see in front of us. As a result, during in the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico later this fiscal year and tookbegan taking other actions within our Domestic segment to more broadly align our corporate organizational structure in support of our strategy.
Charges incurred in our International segment primarily related to our decision to exit our operations in Mexico. WeAs of May 1, 2021, all stores are closed and we do not expect to incur additional pre-taxmaterial future restructuring charges primarily related to foreign currency translation adjustments, of approximately $50 million to $75 million. We expect operations in Mexico to be substantially complete during the fourth quarter of fiscal 2021 or early fiscal 2022.exit.
Charges incurred in our Domestic segment primarily related to actions taken to align our organizational structure in support of our strategy. During the first quarter of fiscal 2022, we recorded a $44 million credit primarily due to a reduction in expected termination benefits associated with corporateresulting from adjustments to previously planned organizational changes as well as impairments of technology assets held in service of our Mexico operations.and higher-than-expected employee retention.
As we continue to evolve our Building the New Blue Strategy, it is possible that we will incur material future restructuring costs, in both our Domestic and International segments, but we are unable to forecast the timing and magnitude of such costs.
All charges incurred related to this plan arethe exit from Mexico and strategic realignment described above were from continuing operations and were presented as follows ($ in millions):
|
|
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|
|
|
|
|
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|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
| Statement of | Three Months Ended May 1, 2021 |
| Earnings Location | Domestic |
| International |
| Total |
Inventory markdowns | Cost of sales | $ | - |
|
| $ | (6) |
|
| $ | (6) |
|
Asset impairments | Restructuring charges |
| - |
|
|
| 3 |
|
|
| 3 |
|
Termination benefits | Restructuring charges |
| (44) |
|
|
| (1) |
|
|
| (45) |
|
|
| $ | (44) |
|
| $ | (4) |
|
| $ | (48) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statement of | Cumulative Amount as of May 1, 2021 |
| Earnings Location | Domestic |
| International |
| Total |
Inventory markdowns | Cost of sales | $ | - |
|
| $ | 17 |
|
| $ | 17 |
|
Asset impairments(1) | Restructuring charges |
| 10 |
|
|
| 60 |
|
|
| 70 |
|
Termination benefits | Restructuring charges |
| 79 |
|
|
| 19 |
|
|
| 98 |
|
Currency translation adjustment | Restructuring charges |
| - |
|
|
| 39 |
|
|
| 39 |
|
Other(2) | Restructuring charges |
| - |
|
|
| 5 |
|
|
| 5 |
|
|
|
|
|
|
| $ | 89 |
|
| $ | 140 |
|
| $ | 229 |
|
(1)Remaining net carrying value approximates fair value and was immaterial as of May 1, 2021.
(2)Other charges are presented on our Condensed Consolidated Statementsprimarily comprised of Earningscontract termination costs.
Restructuring accrual activity related to the exit from Mexico and strategic realignment described above was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statement of | Three and Nine Months Ended October 31, 2020 |
| Earnings Location | Domestic |
| International |
| Total |
Inventory markdowns | Cost of sales | $ | - |
|
| $ | 36 |
|
| $ | 36 |
|
Asset impairments | Restructuring charges |
| 10 |
|
|
| 48 |
|
|
| 58 |
|
Termination benefits | Restructuring charges |
| 36 |
|
|
| 18 |
|
|
| 54 |
|
|
|
|
|
|
| $ | 46 |
|
| $ | 102 |
|
| $ | 148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Termination Benefits |
| Domestic |
| International |
| Total |
Balances at January 30, 2021 | $ | 104 |
|
| $ | 20 |
|
| $ | 124 |
|
Cash payments |
| (39) |
|
|
| (12) |
|
|
| (51) |
|
Adjustments(1) |
| (44) |
|
|
| (1) |
|
|
| (45) |
|
Changes in foreign currency exchange rates |
| - |
|
|
| (1) |
|
|
| (1) |
|
Balances at May 1, 2021 | $ | 21 |
|
| $ | 6 |
|
| $ | 27 |
|
(1)
As of October 31, 2020, our termination benefits liability was $47 million, which included $7 million of cash payments relatedRepresents adjustments to previously planned organizational changes in our Domestic segment.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 including $10 million related to a voluntary early retirement offer,were related to termination benefits within our Domestic segment and arewere presented within Restructuring charges from continuing operations on our Condensed Consolidated Statements of Earnings. As of October 31, 2020,May 1, 2021, the cumulative amount of charges incurred was $41 million and no0 material liability remains.
3. Fair Value Measurements
Fair value measurements are reported in one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
Recurring Fair Value Measurements
Financial assets and liabilities accounted for at fair value were as follows ($ in millions):
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value at |
|
|
|
|
|
| Fair Value at |
|
| Balance Sheet Location(1) | Fair Value Hierarchy |
| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 |
| Balance Sheet Location(1) | Fair Value Hierarchy |
| May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(2) |
| Cash and cash equivalents |
| Level 1 |
|
| $ | 4,119 |
| $ | 524 |
| $ | 21 |
|
| Cash and cash equivalents | Level 1 |
|
| $ | 1,063 |
| $ | 1,575 |
| $ | 1,153 |
|
Commercial paper(2) |
| Cash and cash equivalents |
| Level 2 |
|
| - |
| 75 |
| - |
| |
Time deposits(3) |
| Cash and cash equivalents |
| Level 2 |
|
| 84 |
| 185 |
| 85 |
|
| Cash and cash equivalents | Level 2 |
|
| 639 |
| 865 |
| 465 |
|
Time deposits(3) |
| Short-term investments |
| Level 2 |
|
| 545 |
| - |
| - |
|
| Short-term investments |
| Level 2 |
|
| 60 |
| - |
| - |
|
Money market funds(2) |
| Other current assets |
| Level 1 |
|
| 29 |
| 16 |
| 20 |
| |
Time deposits(3) |
| Other current assets |
| Level 2 |
|
| 100 |
| 101 |
| 100 |
|
| Other current assets |
| Level 2 |
|
| 65 |
| 65 |
| 101 |
|
Foreign currency derivative instruments(4) |
| Other current assets |
| Level 2 |
|
| 2 |
| 1 |
| - |
| |
Interest rate swap derivative instruments(4) | |
| Other current assets |
| Level 2 |
|
| - |
| - |
| 11 |
|
Interest rate swap derivative instruments(4) |
| Other current assets |
| Level 2 |
|
| 7 |
| - |
| - |
|
| Other assets |
| Level 2 |
|
| 65 |
| 91 |
| 107 |
|
Marketable securities that fund deferred compensation(5) |
| Other assets |
| Level 1 |
|
| 51 |
| 48 |
| 47 |
| Marketable securities that fund deferred compensation(5) | Other assets |
| Level 1 |
|
| 53 |
| 53 |
| 45 |
|
Interest rate swap derivative instruments(4) |
| Other assets |
| Level 2 |
|
| 95 |
| 89 |
| 70 |
| |
(1)Balance sheet location is determined by the length to maturity from the current period-end date.
(2)Valued at quoted market prices in active markets for same (Level 1) or similar (Level 2) instruments.
(3)Valued at face value plus accrued interest, which approximates fair value.
(4)Valued using readily observable market inputs. These instruments are custom, over-the-counter contracts with various bank counterparties that are not traded on an active market. See Note 7, Derivative Instruments, for additional information.
(5)Valued using select mutual fund performance that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.
Fair Value of Financial Instruments
The fair values of cash, receivables, accounts payable 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 values.
Long-term debt is presented at carrying value on our Condensed Consolidated Balance Sheets. If our long-term debt were recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. Long-term debt balances were as follows ($ in millions):
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| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 |
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|
|
|
| Fair Value |
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| Carrying Value |
Long-term debt(1) | $ | 1,954 |
|
| $ | 1,902 |
|
| $ | 1,322 |
|
| $ | 1,239 |
|
| $ | 1,288 |
|
| $ | 1,220 |
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| May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
|
|
|
|
| Fair Value |
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| Carrying Value |
Long-term debt(1) | $ | 1,260 |
|
| $ | 1,215 |
|
| $ | 1,331 |
|
| $ | 1,241 |
|
| $ | 1,315 |
|
| $ | 1,268 |
|
(1)Includes the current portion of long-term debt and excludesExcludes debt discounts, issuance costs and finance lease obligations.
4. Goodwill and Intangible Assets
Goodwill
Balances related to goodwill wereremained unchanged as of May 1, 2021, January 30, 2021, and May 2, 2020, as follows ($ in millions):
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| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 |
|
| Gross Carrying
Amount |
| Cumulative
Impairment |
| Gross Carrying
Amount |
| Cumulative
Impairment |
| Gross Carrying
Amount |
| Cumulative
Impairment | Gross Carrying Amount |
| Cumulative Impairment |
Domestic | $ | 1,053 |
|
| $ | (67) |
|
| $ | 1,051 |
|
| $ | (67) |
|
| $ | 1,049 |
|
| $ | (67) |
| $ | 1,053 |
|
| $ | (67) |
|
International |
| 608 |
|
|
| (608) |
|
|
| 608 |
|
|
| (608) |
|
|
| 608 |
|
|
| (608) |
|
| 608 |
|
|
| (608) |
|
Total | $ | 1,661 |
|
| $ | (675) |
|
| $ | 1,659 |
|
| $ | (675) |
|
| $ | 1,657 |
|
| $ | (675) |
| $ | 1,661 |
|
| $ | (675) |
|
NaN impairment charges were recorded during the fiscal periods presented.
Indefinite-Lived Intangible Assets
In the first quarter of fiscal 2021, we made the decision to phase out our Pacific Sales tradename in our U.S. Best Buy stores over the coming years. Consequently, we reclassified the tradename from an indefinite-lived intangible asset to a definite-lived intangible asset and have 0 indefinite-lived intangible assets remaining asremaining.
Definite-Lived Intangible Assets
We have definite-lived intangible assets which are recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):
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| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 |
| Weighted-Average | May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
| Weighted-Average |
| Gross Carrying
Amount |
| Accumulated
Amortization |
| Gross Carrying
Amount |
| Accumulated
Amortization |
| Gross Carrying
Amount |
| Accumulated
Amortization |
| Useful Life Remaining as of October 31, 2020 (in years) | Gross Carrying
Amount |
| Accumulated
Amortization |
| Gross Carrying
Amount |
| Accumulated
Amortization |
| Gross Carrying
Amount |
| Accumulated
Amortization |
| Useful Life Remaining as of May 1, 2021 (in years) |
Customer relationships | $ | 339 |
|
| $ | 111 |
|
| $ | 339 |
|
| $ | 70 |
|
| $ | 341 |
|
| $ | 56 |
|
|
| 6.7 |
| $ | 339 |
|
| $ | 138 |
|
| $ | 339 |
|
| $ | 124 |
|
| $ | 339 |
|
| $ | 83 |
|
|
| 6.5 |
|
Tradenames |
| 81 |
| 20 |
| 63 |
| 10 |
| 63 |
| 9 |
| 5.1 |
|
| 81 |
| 27 |
| 81 |
| 24 |
| 81 |
| 13 |
| 4.7 |
|
Developed technology |
| 56 |
|
|
| 24 |
|
|
| 56 |
|
|
| 15 |
|
|
| 56 |
|
|
| 11 |
|
|
| 2.8 |
|
| 56 |
|
|
| 30 |
|
|
| 56 |
|
|
| 27 |
|
|
| 56 |
|
|
| 18 |
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|
| 2.3 |
|
Total | $ | 476 |
|
| $ | 155 |
|
| $ | 458 |
|
| $ | 95 |
|
| $ | 460 |
|
| $ | 76 |
|
|
| 6.0 |
| $ | 476 |
|
| $ | 195 |
|
| $ | 476 |
|
| $ | 175 |
|
| $ | 476 |
|
| $ | 114 |
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|
| 5.8 |
|
Amortization expense was as follows ($ in millions):
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| Statement of |
| Three Months Ended |
| Nine Months Ended |
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|
| Earnings Location |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
Amortization expense | SG&A |
|
| $ | 20 |
|
| $ | 18 |
|
| $ | 60 |
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| $ | 53 |
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| Statement of |
| Three Months Ended |
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|
| Earnings Location |
| May 1, 2021 |
| May 2, 2020 |
Amortization expense | SG&A |
|
| $ | 20 |
|
| $ | 19 |
|
Amortization expense expected to be recognized in future periods is as follows ($ in millions):
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| Amortization Expense |
Remainder of fiscal 20212022 |
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| $ | 20
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|
Fiscal 2022
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| 8060
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Fiscal 2023 |
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| 79 |
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Fiscal 2024 |
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| 54 |
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Fiscal 2025 |
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| 16 |
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Fiscal 2026 |
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| 16 |
|
Fiscal 2027 |
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| 13 |
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Thereafter |
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| 5643
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5. Debt
Short-Term Debt
U.S. Revolving Credit Facility
Subsequent to the first quarter of fiscal 2022, on May 18, 2021, we entered into a $1.25 billion five year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the “Previous Facility”) with a syndicate of banks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021. The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in May 2026.
The interest rate under the Five-Year Facility Agreement is variable and is determined at our option as: (i) the sum of (a) the greatest of (1) JPMorgan Chase Bank, N.A.’s prime rate, (2) the greater of the federal funds rate and the overnight bank funding rate plus, in each case, 0.5%, and (3) the one-month London Interbank Offered Rate (“LIBOR”), subject to certain adjustments plus 1%, and (b) a variable margin rate (the “ABR Margin”); or (ii) the LIBOR plus a variable margin rate (the “LIBOR Margin”). In addition, a facility fee is assessed on the commitment amount. The ABR Margin, LIBOR Margin and the facility fee are based upon our current senior unsecured debt rating. Under the Five-Year Facility Agreement, the ABR Margin ranges from 0.00% to 0.225%, the LIBOR Margin ranges from 0.805% to 1.225%, and the facility fee ranges from 0.07% to 0.15%. Additionally, the Five-Year Facility Agreement includes fallback language related to the transition from LIBOR to alternative rates. The Five-Year Facility Agreement is guaranteed by certain of our subsidiaries and contains customary affirmative and negative covenants. Among other things, these covenants restrict our and certain of our subsidiaries’ abilities to incur liens on certain assets; make material changes in corporate structure or the nature of our business; dispose of material assets; engage in certain mergers, consolidations and other fundamental changes; or engage in certain transactions with affiliates.
The Five-Year Facility Agreement also contains covenants that require us to maintain a maximum cash flow leverage ratio. The Five-Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.
In the first quarter of fiscal 2021, in light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of our $1.25 billion five year senior unsecured revolving credit facility (the “Facility”)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 Previous Facility as of October 31, 2020, FebruaryMay 1, 2020, or November 2, 2019.2021, and January 30, 2021.
Bank Advance
Information regarding our short-term debt for the nine months endedIn conjunction with a solar energy investment, we were advanced $110 million due October 31, 2020, was as follows ($ in millions):2021. The advance is recorded within Short-term debt on our Condensed Consolidated Balance Sheets and bears interest at 0.14%.
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|
| Average Amount Outstanding |
| Maximum Amount Outstanding |
| Weighted Average Interest Rate |
Short-term debt |
| $ | 595 |
|
| $ | 1,250 |
|
|
| 0.9 | % |
Long-Term Debt
Long-term debt consisted of the following ($ in millions):
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|
|
| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 |
|
|
|
|
| May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Notes, 5.50%, due March 15, 2021 (“2021 Notes”) |
| $ | 650 |
|
| $ | 650 |
|
| $ | 650 |
| |
Notes, 4.45%, due October 1, 2028 (“2028 Notes”) |
| 500 |
| 500 |
| 500 |
| |
Notes, 1.95%, due October 1, 2030 (“2030 Notes”) |
| 650 |
| - |
| - |
| |
Notes, 5.50%, due March 15, 2021 | | Notes, 5.50%, due March 15, 2021 |
| $ | - |
|
| $ | - |
|
| $ | 650 |
|
Notes, 4.45%, due October 1, 2028 | | Notes, 4.45%, due October 1, 2028 |
| 500 |
| 500 |
| 500 |
|
Notes, 1.95%, due October 1, 2030 | | Notes, 1.95%, due October 1, 2030 |
| 650 |
| 650 |
| - |
|
Interest rate swap valuation adjustments | Interest rate swap valuation adjustments |
|
| 102 |
|
|
| 89 |
|
|
| 70 |
| Interest rate swap valuation adjustments |
|
| 65 |
|
|
| 91 |
|
|
| 118 |
|
Subtotal | Subtotal |
|
| 1,902 |
|
|
| 1,239 |
|
|
| 1,220 |
| Subtotal |
|
| 1,215 |
|
|
| 1,241 |
|
|
| 1,268 |
|
Debt discounts and issuance costs | Debt discounts and issuance costs |
| (13) |
| (6) |
| (6) |
| Debt discounts and issuance costs |
| (12) |
| (12) |
| (8) |
|
Finance lease obligations | Finance lease obligations |
|
| 37 |
|
|
| 38 |
|
|
| 39 |
| Finance lease obligations |
|
| 41 |
|
|
| 38 |
|
|
| 34 |
|
Total long-term debt | Total long-term debt |
|
| 1,926 |
|
|
| 1,271 |
|
|
| 1,253 |
| Total long-term debt |
|
| 1,244 |
|
|
| 1,267 |
|
|
| 1,294 |
|
Less current portion | Less current portion |
|
| 670 |
|
|
| 14 |
|
|
| 14 |
| Less current portion |
|
| 15 |
|
|
| 14 |
|
|
| 673 |
|
Total long-term debt, less current portion | Total long-term debt, less current portion |
| $ | 1,256 |
|
| $ | 1,257 |
|
| $ | 1,239 |
| Total long-term debt, less current portion |
| $ | 1,229 |
|
| $ | 1,253 |
|
| $ | 621 |
|
2030 Notes
In October 2020, we issued the 2030 Notes that bear interest at a fixed rate of 1.95% per year, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2021. Net proceeds from the issuance were $642 million after underwriting and issuance discounts totaling $8 million. The net proceeds will be used to replace our 2021 Notes that mature in March 2021, which we expect to retire during the fourth quarter of fiscal 2021 by exercising our option to redeem the 2021 Notes at par.
We may redeem some or all of the 2030 Notes at any time at a redemption price equal to the greater of (i) 100% of the principal amount, and (ii) the sum of the present values of each remaining scheduled payment of principal and interest discounted to the redemption date on a semiannual basis, plus accrued and unpaid interest on the principal amount to the redemption date as described in the indenture (including the supplemental indenture) relating to the 2030 Notes. Furthermore, if a change of control triggering event occurs, we will be required to offer to purchase the remaining unredeemed 2030 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the purchase date.
The 2030 Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The 2030 Notes contain covenants that, among other things, limit our ability to incur debt secured by liens or to enter into sale and lease-back transactions.
See Note 3, Fair Value Measurements, for the fair value of long-term debt.
6. Revenue
We generate substantially all of our revenue from contracts with customers from the sale of products and services. Contract balances primarily consist of receivables and contract liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards, services not yet completed and options that provide a material right to customers, such as our customer loyalty programs. Contract balances were as follows ($ in millions):
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|
|
| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 | May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Receivables, net(1) | $ | 625 |
|
| $ | 567 |
|
| $ | 591 |
| $ | 545 |
|
| $ | 618 |
|
| $ | 396 |
|
Short-term contract liabilities included in: |
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|
|
|
|
|
|
|
|
|
|
|
|
Unredeemed gift card liabilities |
| 278 |
|
| 281 |
| 271 |
|
| 297 |
|
| 317 |
| 257 |
|
Deferred revenue |
| 788 |
| 501 |
| 445 |
|
| 734 |
| 711 |
| 531 |
|
Accrued liabilities |
| 71 |
| 139 |
| 145 |
|
| 79 |
| 71 |
| 45 |
|
Long-term contract liabilities included in: |
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|
|
|
|
|
| |
Long-term liabilities |
| 7 |
| 9 |
| 9 |
| |
(1)Receivables are recorded net of allowances for doubtful accounts of $30$25 million, $14$32 million and $13$29 million as of October 31,May 1, 2021, January 30, 2021, and May 2, 2020, February 1, 2020, and November 2, 2019, respectively.
During the first ninethree months of fiscal 20212022 and fiscal 2020, $7922021, $684 million and $762$492 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.
See Note 10, Segments, for information on our revenue by reportable segment and product category.
7. Derivative Instruments
We manage our economic and transaction exposure to certain risks by using foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations. We also use interest rate swaps to mitigate the effect of interest rate fluctuations on our $650 million principal amount of notes due March 15, 2021, Notesprior to their retirement in December 2020, and 2028 Notes.on our $500 million principal amount of notes due October 1, 2028. In addition, we use foreign currency forward contracts not designated as hedging instruments to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies.
During the second quarter of fiscal 2021, we entered into Treasury Rate Lock ("T-Lock") contracts to hedge the base interest rate variability on a portion of our then-expected refinancing of our maturing 2021 Notes. The T-Lock contracts were cash settled during the third quarter of fiscal 2021 upon issuance of our 2030 Notes. The fair value of the T-lock contracts upon settlement was released from Accumulated other comprehensive income on our Condensed Consolidated Balance Sheets and will be recorded in Interest expense on our Condensed Consolidated Statements of Earnings as interest is accrued over the life of the 2030 Notes.
Our derivative instruments designated as net investment hedges and interest rate swaps and cash flow hedges are recorded on our Condensed Consolidated Balance Sheets at fair value. See Note 3, Fair Value Measurements, for gross fair values of our outstanding derivative instruments and corresponding fair value classifications.
Notional amounts of our derivative instruments were as follows ($ in millions):
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|
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|
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|
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|
|
Contract Type |
|
| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 |
|
| May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Derivatives designated as net investment hedges |
|
| $ | 68 |
|
| $ | 129 |
|
| $ | 30 |
|
|
| $ | 94 |
|
| $ | 153 |
|
| $ | 126 |
|
Derivatives designated as interest rate swaps |
|
|
| 1,150 |
|
| 1,150 |
|
| 1,150 |
|
|
|
| 500 |
|
| 500 |
|
| 1,150 |
|
No hedge designation (foreign exchange contracts) |
|
|
| 81 |
|
|
| 31 |
|
|
| 62 |
|
|
|
| 34 |
|
|
| 51 |
|
|
| 21 |
|
Total |
|
| $ | 1,299 |
|
| $ | 1,310 |
|
| $ | 1,242 |
|
|
| $ | 628 |
|
| $ | 704 |
|
| $ | 1,297 |
|
Effects of our derivatives on our Condensed Consolidated Statements of Earnings were as follows ($ in millions):
|
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|
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
| Gain (Loss) Recognized |
|
|
|
| Gain (Loss) Recognized |
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Statement of Earnings Location | October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | Statement of Earnings Location | May 1, 2021 |
| May 2, 2020 |
Interest rate swap contracts | Interest expense | $ | (32) |
|
| $ | (8) |
|
| $ | 13 |
|
| $ | 45 |
| Interest expense | $ | (26) |
|
| $ | 29 |
|
Adjustments to carrying value of long-term debt | Interest expense |
| 32 |
|
|
| 8 |
|
|
| (13) |
|
|
| (45) |
| Interest expense |
| 26 |
|
|
| (29) |
|
Total |
|
|
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
| $ | - |
|
| $ | - |
|
8. Earnings per Share
We compute our basic earnings per share based on the weighted-average number of common shares outstanding and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued.
Reconciliations of the numerators and denominators of basic and diluted earnings per share were as follows ($ and shares in millions, except per share amounts):
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|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 391 |
|
| $ | 293 |
|
| $ | 982 |
|
| $ | 796 |
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
| 259.8 |
|
|
| 263.2 |
|
|
| 259.3 |
|
|
| 266.0 |
|
Dilutive effect of stock compensation plan awards |
| 3.9 |
|
|
| 2.0 |
|
|
| 3.2 |
|
|
| 3.1 |
|
Weighted-average common shares outstanding, assuming dilution |
| 263.7 |
|
|
| 265.2 |
|
|
| 262.5 |
|
|
| 269.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential shares which were anti-dilutive and excluded from weighted-average share computations |
| - |
|
|
| 1.1 |
|
|
| - |
|
|
| 0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share | $ | 1.50 |
|
| $ | 1.11 |
|
| $ | 3.79 |
|
| $ | 2.99 |
|
Diluted earnings per share | $ | 1.48 |
|
| $ | 1.10 |
|
| $ | 3.74 |
|
| $ | 2.96 |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| May 1, 2021 |
| May 2, 2020 |
Numerator |
|
|
|
|
|
|
|
Net earnings | $ | 595 |
|
| $ | 159 |
|
Denominator |
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
| 253.1 |
|
|
| 258.3 |
|
Dilutive effect of stock compensation plan awards |
| 3.6 |
|
|
| 2.1 |
|
Weighted-average common shares outstanding, assuming dilution |
| 256.7 |
|
|
| 260.4 |
|
|
|
|
|
|
|
|
|
Potential shares which were anti-dilutive and excluded from weighted-average share computations |
| 1.1 |
|
|
| 0.6 |
|
|
|
|
|
|
|
|
|
Basic earnings per share | $ | 2.35 |
|
| $ | 0.61 |
|
Diluted earnings per share | $ | 2.32 |
|
| $ | 0.61 |
|
9. Repurchase of Common Stock
On February 23, 2019,16, 2021, our Board of Directors authorizedapproved a new $5.0 billion share repurchase program, which replaced the $3.0 billion share repurchase program.program authorized on February 23, 2019. There is no expiration date governing the period over which we can repurchase shares under this authorization. As of May 1, 2021, $4.2 billion of the February 2019 authorization. $5.0 billion share repurchase authorization was available. On March 21, 2020,May 27, 2021, we announced an increase in the suspensionamount of all share repurchases planned in fiscal 2022 to conserve liquidity in light of COVID-19-related uncertainties. We resumed repurchases in the fourth quarter of fiscal 2021.$2.5 billion.
Information regarding the shares we repurchased was as follows ($ and shares in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Total cost of shares repurchased | $ | - |
|
| $ | 371 |
|
| $ | 56 |
|
| $ | 707 |
| $ | 915 |
|
| $ | 56 |
|
Average price per share | $ | - |
|
| $ | 67.28 |
| $ | 86.30 |
|
| $ | 68.56 |
| $ | 108.69 |
|
| $ | 86.30 |
|
Number of shares repurchased |
| - |
|
| 5.5 |
| 0.6 |
|
| 10.3 |
|
| 8.4 |
|
| 0.6 |
|
AsThe total cost of October 31, 2020, $1.9 billionshares repurchased increased in the first quarter of fiscal 2022 primarily due to the $3.0 billiontemporary suspension of all share repurchase authorization was available.repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related concerns.
Between the end of the first quarter of fiscal 2022 on May 1, 2021, and June 2, 2021, we repurchased an incremental 0.2 million shares of our common stock at a cost of $28 million.
10. Segments
Segment and product category revenue information was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
|
|
| Three Months Ended |
|
|
|
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
|
|
| May 1, 2021 |
| May 2, 2020 |
Revenue by reportable segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
| $ | 10,850 |
| $ | 8,964 |
|
| $ | 27,893 |
| $ | 26,266 |
|
|
|
| $ | 10,841 |
| $ | 7,915 |
|
International |
|
|
|
| 1,003 |
|
|
| 800 |
|
|
| 2,432 |
|
|
| 2,176 |
|
|
|
|
| 796 |
|
|
| 647 |
|
Total revenue |
|
|
| $ | 11,853 |
|
| $ | 9,764 |
|
| $ | 30,325 |
|
| $ | 28,442 |
|
|
|
| $ | 11,637 |
|
| $ | 8,562 |
|
Revenue by product category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Domestic | |
|
|
|
|
|
|
|
|
Computing and Mobile Phones |
|
|
| $ | 5,059 |
| $ | 4,238 |
|
| $ | 13,130 |
| $ | 12,006 |
|
|
|
| $ | 4,793 |
| $ | 3,805 |
|
Consumer Electronics |
|
|
|
| 3,197 |
| 2,659 |
|
|
| 8,090 |
| 8,101 |
|
|
|
|
| 3,238 |
| 2,219 |
|
Appliances |
|
|
|
| 1,478 |
| 1,071 |
|
|
| 3,703 |
| 3,170 |
|
|
|
|
| 1,548 |
| 935 |
|
Entertainment |
|
|
|
| 509 |
| 441 |
|
|
| 1,430 |
| 1,353 |
|
|
|
|
| 669 |
| 510 |
|
Services |
|
|
|
| 578 |
| 519 |
|
|
| 1,461 |
| 1,526 |
|
|
|
|
| 556 |
| 421 |
|
Other |
|
|
|
| 29 |
|
|
| 36 |
|
|
| 79 |
|
|
| 110 |
|
|
|
|
| 37 |
|
|
| 25 |
|
Total Domestic revenue |
|
|
| $ | 10,850 |
|
| $ | 8,964 |
|
| $ | 27,893 |
|
| $ | 26,266 |
|
|
|
| $ | 10,841 |
|
| $ | 7,915 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
International | |
|
|
|
|
|
|
|
|
|
|
Computing and Mobile Phones |
|
|
| $ | 531 |
| $ | 407 |
|
| $ | 1,211 |
| $ | 1,020 |
|
|
|
| $ | 394 |
| $ | 309 |
|
Consumer Electronics |
|
|
|
| 265 |
| 229 |
|
|
| 663 |
| 663 |
|
|
|
|
| 217 |
| 177 |
|
Appliances |
|
|
|
| 93 |
| 67 |
|
|
| 243 |
| 209 |
|
|
|
|
| 68 |
| 58 |
|
Entertainment |
|
|
|
| 50 |
| 37 |
|
|
| 156 |
| 109 |
|
|
|
|
| 65 |
| 57 |
|
Services |
|
|
|
| 51 |
| 50 |
|
|
| 119 |
| 138 |
|
|
|
|
| 35 |
| 32 |
|
Other |
|
|
|
| 13 |
|
|
| 10 |
|
|
| 40 |
|
|
| 37 |
|
|
|
|
| 17 |
|
|
| 14 |
|
Total International revenue |
|
|
| $ | 1,003 |
|
| $ | 800 |
|
| $ | 2,432 |
|
| $ | 2,176 |
|
|
|
| $ | 796 |
|
| $ | 647 |
|
Operating income (loss) by reportable segment and the reconciliation to consolidated earnings before income tax expense and equity in income of affiliates was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
|
|
| Three Months Ended |
|
|
|
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
|
|
| May 1, 2021 |
| May 2, 2020 |
Domestic |
|
|
| $ | 612 |
|
| $ | 388 |
|
| $ | 1,377 |
|
| $ | 1,029 |
|
|
|
| $ | 734 |
|
| $ | 241 |
|
International |
|
|
|
| (51) |
|
|
| 7 |
|
|
| (19) |
|
|
| 13 |
|
|
|
|
| 35 |
|
|
| (12) |
|
Total operating income |
|
|
|
| 561 |
|
|
| 395 |
|
|
| 1,358 |
|
|
| 1,042 |
|
|
|
|
| 769 |
|
|
| 229 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of investments |
|
|
| - |
| 1 |
|
|
| - |
| 1 |
| |
Investment income and other |
|
|
| 5 |
| 9 |
|
|
| 19 |
| 33 |
|
|
|
| 3 |
| 6 |
|
Interest expense |
|
|
|
| (11) |
|
|
| (16) |
|
|
| (43) |
|
|
| (50) |
|
|
|
|
| (6) |
|
|
| (17) |
|
Earnings before income tax expense |
|
|
| $ | 555 |
|
| $ | 389 |
|
| $ | 1,334 |
|
| $ | 1,026 |
| |
Earnings before income tax expense and equity in income of affiliates | | Earnings before income tax expense and equity in income of affiliates | $ | 766 |
|
| $ | 218 |
|
Assets by reportable segment were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 | May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Domestic | $ | 19,525 |
|
| $ | 14,247 |
|
| $ | 15,442 |
| $ | 16,490 |
|
| $ | 17,625 |
|
| $ | 14,320 |
|
International |
| 1,677 |
|
|
| 1,344 |
|
|
| 1,484 |
|
| 1,215 |
|
|
| 1,442 |
|
|
| 1,285 |
|
Total assets | $ | 21,202 |
|
| $ | 15,591 |
|
| $ | 16,926 |
| $ | 17,705 |
|
| $ | 19,067 |
|
| $ | 15,605 |
|
11. Contingencies
We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected on our Condensed Consolidated Financial Statements. However, there are cases where liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. We provide disclosure of matters where we believe it is reasonably possible the impact may be material to our Condensed Consolidated Financial Statements.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” refers to Best Buy Co., Inc. and its consolidated subsidiaries. Any references to our website addresses do not constitute incorporation by reference of the information contained on the websites.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in the following sections:
Overview
Business Strategy and COVID-19 Update
Results of Operations
Liquidity and Capital Resources
Off-Balance-Sheet Arrangements and Contractual Obligations
Significant Accounting Policies and Estimates
New Accounting Pronouncements
Safe Harbor Statement Under the Private Securities Litigation Reform Act
Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (“Fiscal 2020 Form 10-K”),January 30, 2021 (including the information presented therein under Risk Factors included in the Fiscal 2020 Form 10-K and in this Form 10-Q,), as well as our other reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.
Overview
Our purpose is to enrich the lives of consumers through technology. We have two reportable segments: Domestic and International. The Domestic segment is comprised of the operations, including our Best Buy Health business, in all states, districts and territories of the U.S. The International segment is comprised of all operations in Canada and Mexico.During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico. All stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment will be comprised of operations in Canada going forward. Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.
Our fiscal year ends on the Saturday nearest the end of January. Our business, like that of many retailers, is seasonal. A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico.
Comparable Sales
Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric used by management to evaluate the performance of our existing stores, websites and call centers by measuring the change in net sales for a particular period over the comparable prior-period of equivalent length. Comparable sales includes revenue from stores, websites and call centers operating for at least 14 full months. Stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, are excluded from comparable sales until at least 14 full months after reopening. Acquisitions are included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition. Comparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. Comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only). 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 October 1, 2018,November 24, 2020, we acquiredannounced our decision to exit our operations in Mexico. As a result, all outstanding shares of GreatCall, Inc. (“GreatCall”) and on May 9, 2019, we acquired all outstanding shares of Critical Signal Technologies, Inc. (“CST”). Consistent with our comparable sales policy, the results of GreatCall are included inrevenue from Mexico operations has been excluded from our comparable sales calculation for the three and nine months ended October 31, 2020, and the resultsbeginning in December of CST are included in our comparable sales calculation for the three months ended October 31, 2020.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 and non-GAAP diluted earnings per share ("EPS"(“EPS”) from continuing operations.. We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting also includes non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, price-fixing settlements, gains and losses on investments, intangible asset amortization, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.
In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also may use the term "constant currency,"“constant currency”, which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light ofwhen there are significant fluctuations in currency rates.
Refer to the Consolidated Non-GAAP Financial Measures section below for a detailed reconciliationreconciliations of items that impacted ourimpacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS from continuing operations in the presented periods.
Business Strategy and COVID-19 Update
DuringIn the thirdfirst quarter of fiscal 2022, our comparable sales grew 23%37.2% as we leveraged our unique capabilities, including our supply chain expertise, flexible store operating model and abilitythe impacts of the pandemic continued to shift quickly to digital, to meet what is clearly elevated drive heightened demand for products and services that help customers work, learn, cook, entertainfocus on the home, which encompasses many aspects of our lives including working, learning, cooking, entertaining, redecorating and connect in their homes.remodeling. We provided customers with multiple options for how, when and where they shopped with us to ensure it satisfied their need for safety and convenience. The current environment has underscored our purpose to enrich lives through technology, and the capabilities we are strengthening now will benefit us going forward as we execute our strategy.safety.
Our better-than-expected sales resultedresearch indicates our customers look to Best Buy to serve four shopping needs: inspiration, research, convenience and support. In addition, customers expect to be able to seamlessly interact with physical and digital channels. We have the ability to serve all of these needs, at all times, in significant operating income rate expansionall channels. We are currently looking at how we can even better deploy our team and earnings growthour physical assets to meet these customer expectations and needs. We are taking the opportunity to test and pilot a range of 33% overmodels and initiatives to better understand how we can leverage our stores and facilities for more fulfillment purposes, and how we can deliver customer experiences with a more flexible and engaged workforce.
Overall, it has become evident to us throughout the same period last year. pandemic that technology is even more important to people’s lives, and we are excited about what that means for our business going forward, especially in combination with both the heightened technology innovation that supports the more home-based way of work and life and our special ability to serve our customers.
Our strong financial performance is allowingallowed us to share our success with the community, our shareholders, and, importantly, our employees. During the quarter,On May 19, 2021, we announced that we madeare investing $10 million over five years to create pathways to opportunity for teens from disinvested communities in Los Angeles. As part of that effort, we will build a $40 million donationnetwork of 10 to the Best Buy Foundation to accelerate the progress towards12 Teen Tech Centers, which is a key step toward our goal to reachbuild a network of 100 Teen Tech Centers across the U.S. by 2025. We believe our Teen Tech Centers help to further our commitments towards economic and social justice in our communities by making a measurable difference in the lives of underserved teens who may not otherwise have access to technology. In addition, we resumed our share repurchase program during the fourthfirst quarter of this fiscal year.2022, we returned a total of $1.1 billion to shareholders through share repurchases of $927 million and dividends of $175 million. For our employees, to show our appreciation for their hard work over the last several months and in recognition of their ongoing efforts in the face of “pandemic fatigue”, we reinstated our short-term incentive compensation, paid recognition bonuses toemployee gratitude bonuses. In March 2021, all hourly U.S. employees received $500 if full-time and $200 if part-time or occasional/seasonal. Furthermore, all hourly field employees and raised our starting wage to $15 per hour for all employees. In the early days of the pandemic, we establishedwill receive an employee hardship fund that continues to provide emergency funds to our employees who are sick, have loved ones who are sick or are experiencing financial hardship. In addition,incremental $150 recognition award in the fourth quarter of fiscal 2021, we resumed our 401(k) employer match and invested further in our employee well-being benefits.June 2021.
Throughout the pandemic and across all the ways customers can shop, we have continued to adhere to safety protocols that limit store capacity, follow strict social distancing practices and use proper protective equipment, including requiring our employees and customers to wear masks.
This COVID-19 pandemic and the shift in customer buying behavior underscores the importance of our strong multi-channel capabilities. During the third quarter, our Domestic online revenue grew approximately 174% from last year. We believe it is essential to provide options that let customers choose what works best for them. We provide fulfillment options that customers have come to expect from all retailers like fast and free home delivery and in-store-pickup. We also offer curbside pickup, in-store consultations, and home installation of appliances, TVs, fitness equipment and more. In addition, our digital experiences, such as chatting with an expert or leveraging a digital consultation in your home, remain popular options.
As we look forward, the environment is still evolving, and our operating model and supporting cost structure are evolving as well. The pandemic has accelerated the evolution of retail and compelled us to change our operating model in the best interest of our employees and customers. We have also expedited some planned strategic changes that will allow us to emerge from this time even stronger.
During the quarter, we made the difficult decision to exit our operations in Mexico and took other actions within our Domestic segment to more broadly align our corporate organizational structure in support of our strategy. As a result, we recorded $102 million of charges in our International segment during the third quarter of fiscal 2021, including $36 million of inventory markdowns within cost of sales and $66 million of asset impairments and termination benefits within restructuring charges. We expect to incur additional pre-tax restructuring charges, primarily related to foreign currency translation adjustments, of approximately $50 million to $75 million. In fiscal 2020 our Mexico operations generated annual revenue of approximately $400 million, with an operating loss of approximately $10 million. We expect operations in Mexico to be substantially complete during the fourth quarter of fiscal 2021 or early fiscal 2022.
We also recorded $45 million of restructuring charges in our Domestic segment primarily related to termination benefits associated with corporate organizational changes, as well as impairments of technology assets held in service of our Mexico operations.
It is possible that we will incur material future restructuring costs, both in our Domestic and International segments, but we are unable to forecast the timing and magnitude of such costs. Refer to Note 2, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information.
We believe the following will be permanent and structural implications of the pandemic relevant to Best Buy:
Customer shopping behavior will be permanently changed in a way that is even more digital and puts customers entirely in control to shop how they want. Our strategy is to embrace that reality, and lead, not follow.
Our workforce will need to evolve in a way that meets the needs of customers while also providing more flexible opportunities for our people.
Technology is playing an even more crucial role in people’s lives, and, as a result, our purpose to enrich lives through technology has never been more important. Said differently, people are using technology to address their needs in ways they never contemplated before, and we play a vital role in bringing tech to life for both customers and our vendor partners.
These implications are extensive and interdependent and have been considered as we have made decisions throughout the course of the pandemic and will help shape our strategy for our future store design, our operating models and our digital investments.
From the very start of the pandemic, we have been focused on guiding the business with two goals in mind: first, ensuring the health and safety of our customers and employees while protecting the employee experience as much as possible; and second, making certain we come out of this a strong, innovative company. Clearly, we are still operating in a dynamic environment, and much uncertainty remains around future outbreaks, government stimulus efforts and the economic impacts of sustained high unemployment levels and ongoing shut-downs that vary by industry. In addition, we continue to navigate the impacts of inventory constraints, natural disasters and civil unrest. We are cognizant of all of these factors. At the same time we are encouraged by our clarity of purpose and our momentum, which has guided and will continue to guide our operating model changes and investments. Our purpose to enrich lives through technology is more relevant than it has ever been, and we are confident
regarding our execution, adaptability and the opportunities ahead. We will continue to invest in those capabilities that focus on the customer experience over the long term – and that are designed to provide choice, speed and now safety.
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. Other than the restructuring charges incurred related to our decision to exit our operations in Mexico, noNo such events were identified for the periods presented.reported periods.
Consolidated Performance Summary
Selected consolidated financial data was as follows ($ in millions, except per share amounts):
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| Three Months Ended |
| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Revenue | $ | 11,853 |
|
| $ | 9,764 |
|
| $ | 30,325 |
|
| $ | 28,442 |
| $ | 11,637 |
|
| $ | 8,562 |
|
Revenue % change |
| 21.4 | % |
| 1.8 | % |
|
| 6.6 | % |
| 1.3 | % |
| 35.9 | % |
| (6.3) | % |
Comparable sales % change |
| 23.0 | % |
| 1.7 | % |
|
| 8.1 | % |
| 1.5 | % |
| 37.2 | % |
| (5.3) | % |
Gross profit | $ | 2,795 |
|
| $ | 2,361 |
|
| $ | 7,030 |
|
| $ | 6,813 |
| $ | 2,715 |
| $ | 1,965 |
|
Gross profit as a % of revenue(1) |
| 23.6 | % |
| 24.2 | % |
|
| 23.2 | % |
| 24.0 | % |
| 23.3 | % |
| 23.0 | % |
SG&A | $ | 2,123 |
|
| $ | 1,973 |
|
| $ | 5,560 |
|
| $ | 5,730 |
| $ | 1,988 |
| $ | 1,735 |
|
SG&A as a % of revenue(1) |
| 17.9 | % |
| 20.2 | % |
|
| 18.3 | % |
| 20.1 | % |
| 17.1 | % |
| 20.3 | % |
Restructuring charges | $ | 111 |
|
| $ | (7) |
|
| $ | 112 |
|
| $ | 41 |
| $ | (42) |
| $ | 1 |
|
Operating income | $ | 561 |
|
| $ | 395 |
|
| $ | 1,358 |
|
| $ | 1,042 |
| $ | 769 |
| $ | 229 |
|
Operating income as a % of revenue |
| 4.7 | % |
| 4.0 | % |
|
| 4.5 | % |
| 3.7 | % |
| 6.6 | % |
| 2.7 | % |
Net earnings | $ | 391 |
|
| $ | 293 |
|
| $ | 982 |
|
| $ | 796 |
| $ | 595 |
| $ | 159 |
|
Diluted earnings per share | $ | 1.48 |
|
| $ | 1.10 |
|
| $ | 3.74 |
|
| $ | 2.96 |
| $ | 2.32 |
| $ | 0.61 |
|
(1)Because retailers vary in how they record costs of operating their supply chain between cost of sales and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers’ corresponding rates. For additional information regarding costs classified in cost of sales and SG&A, refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.January 30, 2021.
In the thirdfirst quarter and first nine months of fiscal 2021,2022, we generated $11.9 billion and $30.3$11.6 billion in revenue and our comparable sales increased 23.0% and 8.1%, respectively. The impact of the pandemic continued to drive strong customergrew 37.2% as we faced high demand for technology products to help them work, learn, cook, entertain and connect in their homes.services. This demand was driven by continued focus on the home, which encompasses many aspects of our lives including working, learning, cooking, entertaining, redecorating and remodeling. The demand was also bolstered by government stimulus programs and the strong housing environment. Our strong sales performance resulted in operating income rate expansion of 70 basis points and 80390 basis points during the third quarter and first nine months of fiscal 2021, respectively, compared to prior year periods, allowing us to share our success with employees, the community and our shareholders. During the third quarter of fiscal 2021, we re-instated short-term incentive compensation and made a $40 million donation2022 compared to the Best Buy Foundationfirst quarter of fiscal 2021. We also lapped an unusual quarter last year that included both periods of high demand and periods when our stores were closed to acceleratecustomer traffic. Compared to the progress towardsfirst quarter of fiscal 2020, our goal to reach 100 Teen Tech Centers across the U.S.results were very strong, with revenue and diluted earnings per share increasing 27.3% and 136.7%, respectively.
High customer demand, as well as production and distribution disruptions, resulted in product availability constraints that may continue in future quarters.
Revenue, gross profit, rate, SG&A and operating income rate changes in the thirdfirst quarter and first nine months of fiscal 20212022 were primarily driven by our Domestic segment. For further discussion of each segment'ssegment’s performance, see the Segment Performance Summary below.
Income Tax Expense
Income tax expense increased in the thirdfirst quarter of fiscal 20212022 due to an increase in pre-tax earnings. Our effective tax rate (“ETR”) increaseddecreased to 29.6%22.4% in the thirdfirst quarter of fiscal 20212022 compared to 24.8%27.4% in the thirdfirst quarter of fiscal 2020,2021, primarily due to an increase in losses for which tax benefits were not recognized.
Income tax expense increased in the first nine months of fiscal 2021 due to an increase in pre-tax earnings and a decrease in the tax benefit from stock-based compensation in the current year period. Our ETR increased to 26.4% in the first nine months of fiscal 2021 compared to 22.5% in the first nine months of fiscal 2020, primarily due to an increase in losses for which tax benefits were not recognized, a decrease in the tax benefit from stock-based compensation and the impact of higher pre-tax earnings.compensation.
Our tax provision for interim periods is determined using an estimate of our annual ETR, adjusted for discrete items, if any, that are taken into account in the relevant period. We update our estimate of the annual ETR each quarter and we make a cumulative adjustment if our estimated tax rate changes. Our quarterly tax provision and our quarterly estimate of our annual ETR are subject to variation due to several factors, including our ability to accurately forecast our pre-tax and taxable income and loss by jurisdiction, tax audit developments, recognition of excess tax benefits or deficiencies related to stock-based compensation, foreign currency gains (losses), changes in laws or regulations, and expenses or losses for which tax benefits are not recognized. Our ETR can be more or less volatile based on the amount of pre-tax earnings. For example, the impact of discrete items and non-deductible losses on our ETR is greater when our pre-tax earnings are lower.
Segment Performance Summary
Domestic
Selected financial data for the Domestic segment was as follows ($ in millions):
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| Three Months Ended |
| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Revenue | $ | 10,850 |
|
| $ | 8,964 |
|
| $ | 27,893 |
|
| $ | 26,266 |
| $ | 10,841 |
|
| $ | 7,915 |
|
Revenue % change |
| 21.0 | % |
| 2.4 | % |
|
| 6.2 | % |
| 1.8 | % |
| 37.0 | % |
| (6.7) | % |
Comparable sales % change(1) |
| 22.6 | % |
| 2.0 | % |
|
| 7.5 | % |
| 1.8 | % |
| 37.9 | % |
| (5.7) | % |
Gross profit | $ | 2,604 |
|
| $ | 2,181 |
|
| $ | 6,509 |
|
| $ | 6,303 |
| $ | 2,526 |
| $ | 1,821 |
|
Gross profit as a % of revenue |
| 24.0 | % |
| 24.3 | % |
|
| 23.3 | % |
| 24.0 | % |
| 23.3 | % |
| 23.0 | % |
SG&A | $ | 1,948 |
|
| $ | 1,800 |
|
| $ | 5,087 |
|
| $ | 5,233 |
| $ | 1,836 |
| $ | 1,579 |
|
SG&A as a % of revenue |
| 18.0 | % |
| 20.1 | % |
|
| 18.2 | % |
| 19.9 | % |
| 16.9 | % |
| 19.9 | % |
Restructuring charges | $ | 44 |
|
| $ | (7) |
|
| $ | 45 |
|
| $ | 41 |
| $ | (44) |
| $ | 1 |
|
Operating income | $ | 612 |
|
| $ | 388 |
|
| $ | 1,377 |
|
| $ | 1,029 |
| $ | 734 |
| $ | 241 |
|
Operating income as a % of revenue |
| 5.6 | % |
| 4.3 | % |
|
| 4.9 | % |
| 3.9 | % |
| 6.8 | % |
| 3.0 | % |
Selected Online Revenue Data |
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Total online revenue | $ | 3,823 |
|
| $ | 1,397 |
|
| $ | 12,014 |
|
| $ | 4,122 |
| $ | 3,596 |
| $ | 3,342 |
|
Online revenue as a % of total segment revenue |
| 35.2 | % |
| 15.6 | % |
|
| 43.1 | % |
| 15.7 | % |
| 33.2 | % |
| 42.2 | % |
Comparable online sales growth(1) |
| 173.7 | % |
| 15.0 | % |
|
| 191.4 | % |
| 15.6 | % |
| 7.6 | % |
| 155.4 | % |
(1)Online sales are included in the comparable sales calculation.
The increasesincrease in revenue in the thirdfirst quarter and first nine months of fiscal 2021 were2022 was primarily driven by comparable sales growth across mostalmost all of our product categories, partially offset by the loss of revenue from permanent store closures in the past year. Online revenue of $3.8 billion and $12.0$3.6 billion in the thirdfirst quarter and first nine months of fiscal 20212022 increased 173.7% and 191.4%, respectively,7.6% on a comparable basis, primarily due to higher conversion ratesaverage order values and increased traffic as we continue to see a channel shift in our customer shopping behavior as a result of COVID-19.traffic.
Domestic segment stores open at the beginning and end of the thirdfirst quarters of fiscal 20212022 and fiscal 2020,2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows:
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|
| Fiscal 2021 |
| Fiscal 2020 | Fiscal 2022 |
| Fiscal 2021 |
| Total Stores at Beginning of Third Quarter |
| Stores Opened |
| Stores Closed |
| Total Stores at End of Third Quarter |
| Total Stores at Beginning of Third Quarter |
| Stores Opened |
| Stores Closed |
| Total Stores at End of Third Quarter | Total Stores at Beginning of First Quarter |
| Stores Opened |
| Stores Closed |
| Total Stores at End of First Quarter |
| Total Stores at Beginning of First Quarter |
| Stores Opened |
| Stores Closed |
| Total Stores at End of First Quarter |
Best Buy |
| 970 |
|
|
| - |
|
|
| (14) |
|
|
| 956 |
|
|
| 995 |
|
|
| - |
|
|
| (17) |
|
|
| 978 |
|
| 956 |
|
|
| 1 |
|
|
| (11) |
|
|
| 946 |
|
|
| 977 |
|
|
| - |
|
|
| (6) |
|
|
| 971 |
|
Outlet Centers |
| 14 |
| - |
| - |
| 14 |
| 11 |
| 2 |
| - |
| 13 |
|
| 14 |
| - |
| - |
| 14 |
| 11 |
| 1 |
| - |
| 12 |
|
Pacific Sales |
| 21 |
|
|
| - |
|
|
| - |
|
|
| 21 |
|
|
| 21 |
|
|
| - |
|
|
| - |
|
|
| 21 |
|
| 21 |
|
|
| - |
|
|
| - |
|
|
| 21 |
|
|
| 21 |
|
|
| - |
|
|
| - |
|
|
| 21 |
|
Total |
| 1,005 |
|
|
| - |
|
|
| (14) |
|
|
| 991 |
|
|
| 1,027 |
|
|
| 2 |
|
|
| (17) |
|
|
| 1,012 |
|
| 991 |
|
|
| 1 |
|
|
| (11) |
|
|
| 981 |
|
|
| 1,009 |
|
|
| 1 |
|
|
| (6) |
|
|
| 1,004 |
|
We continuously monitor store performance. As we approach the expiration date of our store leases, we evaluate various options for each location, including whether a store should remain open.
Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
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| Revenue Mix |
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|
| Comparable Sales |
|
| Revenue Mix |
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|
| Comparable Sales |
|
|
| Three Months Ended |
|
|
| Three Months Ended |
|
| Three Months Ended |
|
|
| Three Months Ended |
|
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
| May 1, 2021 |
| May 2, 2020 |
Computing and Mobile Phones |
| 47 | % |
|
| 47 | % |
|
| 21.5 | % |
|
| 3.0 | % |
| 44 | % |
|
| 48 | % |
|
| 27.3 | % |
|
| - | % |
Consumer Electronics |
| 29 | % |
| 30 | % |
| 21.1 | % |
| - | % |
| 30 | % |
| 28 | % |
| 45.9 | % |
| (15.7) | % |
Appliances |
| 14 | % |
| 12 | % |
| 39.3 | % |
| 12.5 | % |
| 15 | % |
| 12 | % |
| 66.6 | % |
| (2.0) | % |
Entertainment |
| 5 | % |
| 5 | % |
| 17.5 | % |
| (20.8) | % |
| 6 | % |
| 7 | % |
| 32.1 | % |
| 9.5 | % |
Services |
| 5 | % |
|
| 6 | % |
| 12.7 | % |
| 12.9 | % |
| 5 | % |
|
| 5 | % |
| 33.2 | % |
| (16.1) | % |
Total |
| 100 | % |
|
| 100 | % |
| 22.6 | % |
| 2.0 | % |
| 100 | % |
|
| 100 | % |
| 37.9 | % |
| (5.7) | % |
Continued strong demand in categories that help our customers work, learn, cook, entertainfor technology products and connect fromservices with a focus on the home, including working, learning, cooking, entertaining, redecorating and remodeling, contributed to our Domestic comparable sales changesgrowth across most of our categories. Notable comparable sales changes by revenue category were as follows:
Computing and Mobile Phones: The 21.5%27.3% comparable sales gain was driven primarily by computing, tablets, mobile phones and tablets, partially offset by declines in mobile phones.wearables.
Consumer Electronics: The 21.1%45.9% comparable sales gain was driven primarily by home theater, digital imaging, headphones and digital imaging.portable speakers.
Appliances: The 39.3%66.6% comparable sales gain was driven by large and small appliances.
Entertainment: The 17.5%32.1% comparable sales gain was driven primarily by gaming and virtual reality and drones, partially offset by declines in movies.reality.
Services: The 12.7%33.2% comparable sales gain was primarily due to our warranty and support services.services, delivery and installation.
Our gross profit rate decreasedincreased in the thirdfirst quarter and first nine months of fiscal 2021,2022, primarily driven by higherfavorable product margin rates, including reduced promotions, and rate improvement from supply chain costs resulting from a lower mix of online revenue compared to the prior year. This favorability was partially offset by higher installation and delivery costs compared to the prior year when in-home services were temporarily suspended as a result of the increased mix of online revenue and lower profit sharing revenue from our private label and co-branded credit card arrangement, partially offset by a more favorable promotional environment.pandemic.
Our SG&A increased in the thirdfirst quarter of fiscal 2021,2022, primarily due to higher incentive compensation for corporate and field employees, increased investments in technology and in support of approximately $75 million,our health initiatives, and increased variable costs associated with higher sales volume, and a $40 million donation to the Best Buy Foundation. These increases were partially offset by lower store payroll expense, primarily from fewer labor hourswhich included items such as a result of lower store revenue, reduced store operating hours and efficiencies in our labor model. The decrease in labor hours was partially offset by higher hourly wage rates, as we raised our starting wage to $15 per hour for all employees.credit card processing fees.
Our SG&A decreasedThe restructuring credit in the first nine monthsquarter of fiscal 2021, primarily due to lower store payroll expense, lower incentive compensation expense and lower advertising expense. These decreases were partially offset by increases in variable costs associated with higher sales volume and a $40 million donation to the Best Buy Foundation. The decrease due to lower store payroll expense also included employee retention credits of $81 million in the first nine months of fiscal 2021 as a result of the Federal Coronavirus Aid, Relief and Economic Security Act. The employee retention credit is a payroll credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic.
Restructuring charges in the third quarter and first nine months of fiscal 20212022 primarily related to a reduction in termination benefits associated with actions takenresulting from adjustments to previously planned organizational changes and higher-than-expected retention rates. more broadly align our corporate organizational structure in support of our strategy. Restructuring charges in the third quarter and first nine months of fiscal 2020 related to termination benefits associated with our fiscal 2020 U.S. retail operating model changes. Refer to Note 2, Restructuring Charges, in, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.
Our operating income rate increased in the thirdfirst quarter and first nine months of fiscal 2021,2022, primarily driven by increased leverage from higher sales volume on our fixed expenses which resulted in favorable SG&A rates, partially offset by restructuring charges and the decreasesfavorability in gross profit rates described above. The increase for the first nine months of fiscal 2021 was also driven by lowerrate and SG&A asrate described above.
International
Selected financial data for the International segment was as follows ($ in millions):
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|
| Three Months Ended |
| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Revenue | $ | 1,003 |
|
| $ | 800 |
|
| $ | 2,432 |
|
| $ | 2,176 |
| $ | 796 |
|
| $ | 647 |
|
Revenue % change |
| 25.4 | % |
| (4.1) | % |
| 11.8 | % |
| (4.2) | % |
| 23.0 | % |
| (2.1) | % |
Comparable sales % change |
| 27.3 | % |
| (1.9) | % |
| 15.1 | % |
| (1.7) | % |
| 27.8 | % |
| 0.2 | % |
Gross profit | $ | 191 |
|
| $ | 180 |
|
| $ | 521 |
|
| $ | 510 |
| $ | 189 |
| $ | 144 |
|
Gross profit as a % of revenue |
| 19.0 | % |
| 22.5 | % |
| 21.4 | % |
| 23.4 | % |
| 23.7 | % |
| 22.3 | % |
SG&A | $ | 175 |
|
| $ | 173 |
|
| $ | 473 |
|
| $ | 497 |
| $ | 152 |
| $ | 156 |
|
SG&A as a % of revenue |
| 17.4 | % |
| 21.6 | % |
| 19.4 | % |
| 22.8 | % |
| 19.1 | % |
| 24.1 | % |
Restructuring charges | $ | 67 |
|
| $ | - |
|
| $ | 67 |
|
| $ | - |
| $ | 2 |
| $ | - |
|
Operating income (loss) | $ | (51) |
|
| $ | 7 |
|
| $ | (19) |
|
| $ | 13 |
| $ | 35 |
| $ | (12) |
|
Operating income (loss) as a % of revenue |
| (5.1) | % |
| 0.9 | % |
| (0.8) | % |
| 0.6 | % |
| 4.4 | % |
| (1.9) | % |
The increasesincrease in revenue in the thirdfirst quarter and first nine months of fiscal 2021 were2022 was primarily driven by comparable sales growth across most of our product categories partially offset byand the negative impactbenefit of approximately 1,000 basis points of favorable foreign currency exchange rate fluctuations primarily related tofluctuations. The increase was partially offset by lower revenue in Mexico of $69 million as a result of our Mexico operationsdecision in the third quarter of fiscal 2021 to exit operations.
International segment stores open at the beginning and both our Canadian and Mexico operations inend of the first nine monthsquarters of fiscal 2021.2022 and fiscal 2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows:
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| Fiscal 2022 |
| Fiscal 2021 |
| Total Stores at Beginning of First Quarter |
| Stores Opened |
| Stores Closed |
| Total Stores at End of First Quarter |
| Total Stores at Beginning of First Quarter |
| Stores Opened |
| Stores Closed |
| Total Stores at End of First Quarter |
Canada |
|
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|
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|
Best Buy |
| 131 |
|
|
| - |
|
|
| (1) |
|
|
| 130 |
|
|
| 131 |
|
|
| - |
|
|
| - |
|
|
| 131 |
|
Best Buy Mobile |
| 33 |
|
|
| - |
|
|
| - |
|
|
| 33 |
|
|
| 42 |
|
|
| - |
|
|
| (1) |
|
|
| 41 |
|
Mexico |
|
|
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|
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|
Best Buy |
| 4 |
|
|
| - |
|
|
| (4) |
|
|
| - |
|
|
| 35 |
|
|
| - |
|
|
| - |
|
|
| 35 |
|
Best Buy Express |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14 |
|
|
| - |
|
|
| - |
|
|
| 14 |
|
Total |
| 168 |
|
|
| - |
|
|
| (5) |
|
|
| 163 |
|
|
| 222 |
|
|
| - |
|
|
| (1) |
|
|
| 221 |
|
International segment stores open at the beginning and end of the third quarters of fiscal 2021 and fiscal 2020, excluding stores that were temporarily closed as a result of COVID-19, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal 2021 |
| Fiscal 2020 |
| Total Stores at Beginning of 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 |
| 131 |
|
|
| - |
|
|
| - |
|
|
| 131 |
|
|
| 132 |
|
|
| - |
|
|
| (1) |
|
|
| 131 |
|
Best Buy Mobile |
| 40 |
|
|
| - |
|
|
| (3) |
|
|
| 37 |
|
|
| 43 |
|
|
| - |
|
|
| - |
|
|
| 43 |
|
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Best Buy |
| 34 |
|
|
| - |
|
|
| (3) |
|
|
| 31 |
|
|
| 30 |
|
|
| 4 |
|
|
| - |
|
|
| 34 |
|
Best Buy Express |
| 14 |
|
|
| - |
|
|
| - |
|
|
| 14 |
|
|
| 9 |
|
|
| 1 |
|
|
| - |
|
|
| 10 |
|
Total |
| 219 |
|
|
| - |
|
|
| (6) |
|
|
| 213 |
|
|
| 214 |
|
|
| 5 |
|
|
| (1) |
|
|
| 218 |
|
International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue Mix |
| Comparable Sales | Revenue Mix |
| Comparable Sales |
| Three Months Ended |
| Three Months Ended | Three Months Ended |
| Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
| May 1, 2021 |
| May 2, 2020 |
Computing and Mobile Phones |
| 53 | % |
|
| 51 | % |
|
| 35.7 | % |
|
| (0.3) | % |
| 50 | % |
|
| 48 | % |
|
| 36.5 | % |
|
| 4.6 | % |
Consumer Electronics |
| 27 | % |
| 29 | % |
| 13.3 | % |
| 1.2 | % |
| 27 | % |
| 27 | % |
| 23.9 | % |
| (12.7) | % |
Appliances |
| 9 | % |
| 8 | % |
| 40.1 | % |
| (1.5) | % |
| 9 | % |
| 9 | % |
| 28.9 | % |
| 0.1 | % |
Entertainment |
| 5 | % |
| 5 | % |
| 35.6 | % |
| (31.1) | % |
| 8 | % |
| 9 | % |
| 12.2 | % |
| 58.0 | % |
Services |
| 5 | % |
| 6 | % |
| 4.3 | % |
| 11.5 | % |
| 4 | % |
| 5 | % |
| 7.8 | % |
| (19.5) | % |
Other |
| 1 | % |
|
| 1 | % |
| 22.0 | % |
| (28.2) | % |
| 2 | % |
|
| 2 | % |
| 7.6 | % |
| 1.1 | % |
Total |
| 100 | % |
|
| 100 | % |
| 27.3 | % |
| (1.9) | % |
| 100 | % |
|
| 100 | % |
| 27.8 | % |
| 0.2 | % |
Similar to the Domestic segment, continued strong demand in categories that help our customers work, learn, cook, entertainfor technology products and connect fromservices with a focus on the home, including working, learning, cooking, entertaining, redecorating and remodeling, contributed to our International segment’s comparable sales changesgrowth across most of our categories. Notable comparable sales changes by revenue category were as follows:
Computing and Mobile Phones: The 35.7%36.5% comparable sales gain was driven primarily by computing, mobile phones and tablets.
Consumer Electronics: The 13.3%23.9% comparable sales gain was driven primarily by home theater and health and fitness.
Appliances: The 40.1%28.9% comparable sales gain was driven by large and small appliances.
Entertainment: The 35.6%12.2% comparable sales gain was driven primarily by gaming, virtual reality and drones, partially offset by declines in movies.reality.
Services: The 4.3%7.8% comparable sales gain was primarily due to our warranty services.
Other: The 22.0%7.6% comparable sales gain was driven primarily by babyoutdoor products.
Our gross profit rate declinedincreased in the thirdfirst quarter and first nine months of fiscal 2021,2022, primarily due to $36improved product margin rates and a $6 million ofbenefit associated with more favorable-than-expected inventory markdowns associated withrelated to our decision to exit our operations in Mexico. During the first nine months of fiscal 2021, our gross profit rate also decreased due to Canada, which was largely driven by a lower mix of higher margin services revenue and higher supply chain costs as a result of the increased mix of online revenue.
Our SG&A increaseddecreased in the thirdfirst quarter of fiscal 20212022, primarily due to higher incentive compensationour decision to exit operations in Canada. DuringMexico, partially offset by the first nine months of fiscal 2021, SG&A decreased primarily due to the favorableunfavorable impact of foreign currency exchange rates and lower store payroll expense in Canada, similar to our Domestic segment. These decreases were partially offset by higher incentive compensation in Canada.
Restructuring charges in the thirdfirst quarter and first nine months of fiscal 20212022 primarily related to asset impairments and termination benefits associated with our decision to exit our operations in Mexico. Refer to Note 2, Restructuring Charges, in, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.
Our operating lossincome rate increased in the thirdfirst quarter and first nine months of fiscal 2021 was2022, primarily driven by restructuring charges and lowerthe favorable gross profit ratesrate described above, partially offset by favorable SG&A rates driven by increased leverage from higher sales volume on our fixed expenses.above.
Consolidated Non-GAAP Financial Measures
Reconciliations of operating income, effective tax rate and diluted EPS (GAAP financial measures) to non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS (non-GAAP financial measures) were as follows ($ in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | May 1, 2021 |
| May 2, 2020 |
Operating income | $ | 561 |
|
| $ | 395 |
|
| $ | 1,358 |
|
| $ | 1,042 |
| $ | 769 |
|
| $ | 229 |
|
% of revenue |
| 4.7 | % |
| 4.0 | % |
| 4.5 | % |
| 3.7 | % |
| 6.6 | % |
| 2.7 | % |
Restructuring - inventory markdowns(1) |
| 36 |
|
| - |
|
| 36 |
|
| - |
|
| (6) |
| - |
|
Intangible asset amortization(2) |
| 20 |
|
| 18 |
|
| 60 |
|
| 53 |
|
| 20 |
| 20 |
|
Acquisition-related transaction costs(2) |
| - |
|
| - |
|
| - |
|
| 3 |
| |
Restructuring charges(3) |
| 111 |
|
|
| (7) |
|
|
| 112 |
|
|
| 41 |
|
| (42) |
|
|
| 1 |
|
Non-GAAP operating income | $ | 728 |
|
| $ | 406 |
|
| $ | 1,566 |
|
| $ | 1,139 |
| $ | 741 |
|
| $ | 250 |
|
% of revenue |
| 6.1 | % |
|
| 4.2 | % |
|
| 5.2 | % |
|
| 4.0 | % |
| 6.4 | % |
|
| 2.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
| 29.6 | % |
| 24.8 | % |
| 26.4 | % |
| 22.5 | % |
| 22.4 | % |
| 27.4 | % |
Intangible asset amortization(2) |
| (1.5) | % |
| 0.1 | % |
| (1.1) | % |
| 0.1 | % |
| - | % |
| (0.2) | % |
Restructuring charges(3) |
| (3.2) | % |
|
| (0.1) | % |
|
| (0.8) | % |
|
| - | % |
| 0.1 | % |
|
| - | % |
Non-GAAP effective tax rate |
| 24.9 | % |
|
| 24.8 | % |
|
| 24.5 | % |
|
| 22.6 | % |
| 22.5 | % |
|
| 27.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS | $ | 1.48 |
|
| $ | 1.10 |
|
| $ | 3.74 |
|
| $ | 2.96 |
| $ | 2.32 |
| $ | 0.61 |
|
Restructuring - inventory markdowns(1) |
| 0.14 |
|
| - |
|
| 0.13 |
|
| - |
|
| (0.02) |
| - |
|
Intangible asset amortization(2) |
| 0.08 |
|
| 0.07 |
|
| 0.23 |
|
| 0.20 |
|
| 0.08 |
| 0.08 |
|
Acquisition-related transaction costs(2) |
| - |
|
| - |
|
| - |
|
| 0.01 |
| |
Restructuring charges(3) |
| 0.42 |
|
| (0.03) |
|
| 0.43 |
|
| 0.15 |
|
| (0.17) |
| - |
|
Income tax impact of non-GAAP adjustments(4) |
| (0.06) |
|
|
| (0.01) |
|
|
| (0.10) |
|
|
| (0.09) |
|
| 0.02 |
|
|
| (0.02) |
|
Non-GAAP diluted EPS | $ | 2.06 |
|
| $ | 1.13 |
|
| $ | 4.43 |
|
| $ | 3.23 |
| $ | 2.23 |
|
| $ | 0.67 |
|
(1)Represents inventory markdownsmarkdown adjustments recorded within cost of sales associated with the decision to exit from operations in Mexico.
(2)Represents charges associated with acquisitions, including: (1) the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology; and (2) acquisition-related transaction costs primarily comprised of professional fees.technology.
(3)Represents adjustments to previously planned organizational changes and higher-than-expected retention rates in the Domestic segment and charges related to asset impairments and termination benefitssubsequent adjustments associated with the decision to exit operations in Mexico and other actions within our Domesticin the International segment to more broadly align our corporate organizational structure in support of our strategy for the periodsperiod ended October 31, 2020.May 1, 2021. Represents charges and subsequent adjustments related to termination benefits associated with U.S. retail operating model changes for the periodsperiod ended NovemberMay 2, 2019.2020.
(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.
Non-GAAPOur non-GAAP operating income rate increased in the thirdfirst quarter and first nine months of fiscal 2021,2022, primarily driven by a higher gross profit rate due to favorable product margin rates and rate improvement from supply chain costs, and increased leverage from higher sales volume on our fixed expenses, which resulted in a favorable SG&A rates, partially offset by decreases in gross profit rates.rate.
Our non-GAAP effective tax rate remained relatively unchangeddecreased in the thirdfirst quarter of fiscal 2021. Our non-GAAP effective tax rate increased in the first nine months of fiscal 2021, 2022, primarily due to a decreasean increase in the tax benefit from stock-based compensation and the impact of higher pre-tax earnings.compensation.
Non-GAAPOur non-GAAP diluted EPS increased in the thirdfirst quarter and first nine months of fiscal 2021,2022, primarily driven by increasesthe increase in non-GAAP operating income and lower diluted weighted-average common shares outstanding from share repurchases.income.
Liquidity and Capital Resources
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, credit facilities, short-term borrowing arrangements and working capital management. Capital expenditures and share repurchases are a component of our cash flow and capital management strategy, which, to a large extent, we can adjust in response to economic and other changes in our business environment. We have a disciplined approach to capital allocation, which focuses on investing in key priorities that support our strategy.
Cash, cash equivalents and short-term investments were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 31, 2020 |
| February 1, 2020 |
| November 2, 2019 |
|
|
| May 1, 2021 |
| January 30, 2021 |
| May 2, 2020 |
Cash and cash equivalents |
|
|
| $ | 5,136 |
|
| $ | 2,229 |
|
| $ | 1,205 |
|
|
|
| $ | 4,278 |
|
| $ | 5,494 |
|
| $ | 3,919 |
|
Short-term investments |
|
|
|
| 545 |
|
|
| - |
|
|
| - |
|
|
|
|
| 60 |
|
|
| - |
|
|
| - |
|
Total cash, cash equivalents and short-term investments |
|
|
| $ | 5,681 |
|
| $ | 2,229 |
|
| $ | 1,205 |
|
|
|
| $ | 4,338 |
|
| $ | 5,494 |
|
| $ | 3,919 |
|
The decrease in cash, cash equivalents and short-term investments from January 30, 2021, was primarily due to an increase in share repurchases. The increase in cash, cash equivalents and short-term investments from May 2, 2020, was primarily driven by an increase in operating cash flows from higher earnings over the past twelve months. This increase was partially offset by the repayment of our $1.25 billion short-term draw on our five-year senior unsecured revolving credit facility that was fully drawn as of May 2, 2020, and increases in share repurchases, capital expenditures and dividends.
The increases in cash, cash equivalents and short-term investments from February 1, 2020, and November 2, 2019, were primarily driven by the increase in operating cash flows, the issuance of our $650 million principal amount of notes due October 1, 2030 (“2030 Notes”), and a reduction in share repurchases, which were temporarily suspended from March to November of fiscal 2021. These increases were partially offset by increases in capital expenditures and dividends paid.
Cash Flows
Cash flows from total operations were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| October 31, 2020 |
| November 2, 2019 |
|
|
|
|
| May 1, 2021 |
| May 2, 2020 |
Total cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
| $ | 3,907 |
| $ | 937 |
|
|
|
|
|
| $ | 105 |
| $ | 827 |
|
Investing activities |
|
|
|
|
| (1,153) |
| (727) |
|
|
|
|
|
| (253) |
| (179) |
|
Financing activities |
|
|
|
|
| 170 |
| (1,060) |
|
|
|
|
|
| (1,089) |
| 1,049 |
|
Effect of exchange rate changes on cash |
|
|
|
|
|
| (8) |
|
|
| (2) |
|
|
|
|
|
|
| 5 |
|
|
| (18) |
|
Increase (decrease) in cash, cash equivalents and restricted cash | Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
| $ | 2,916 |
|
| $ | (852) |
| Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
| $ | (1,232) |
|
| $ | 1,679 |
|
Operating Activities
The increasedecrease in cash provided by operating activities in the first quarter of fiscal 20212022 was primarily due to working capital improvement.changes in inventory, which saw a decrease in receipts in the prior-year period from measures taken in light of COVID-19 and an increase in receipts in the current-year period to match our inventory levels to increased demand. This decrease was primarily due topartially offset by higher earnings in the timing of inventory purchasing and payments to meet higher demand while higher inventory turnover and supply chain constraints continued to impact inventory levels. Lower income tax payments also contributed to the increase.current-year period.
Investing Activities
The increase in cash used in investing activities in the first quarter of fiscal 20212022 was primarily due to thedriven by an increase in purchases of short-term investments as a result of our strong cash position, partially offset by acquisitions in the prior year.investments.
Financing Activities
The increase in cash provided byused in financing activities in the first quarter of fiscal 2022 was driven primarily by the $1.25 billion short-term draw on our five-year senior unsecured revolving credit facility in the prior-year period and an increase in share repurchases. During the first quarter of fiscal 2021, was primarily duein light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the issuancefull amount of our 2030 Notes and lower$1.25 billion five-year senior unsecured revolving credit facility that was repaid in full in July 2020. We also temporarily suspended share repurchases which were temporarily suspended from March to November of fiscal 2021.2020.
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, including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.
We haveSubsequent to the first quarter of fiscal 2022, on May 18, 2021, we entered into a $1.25 billion five yearfive-year senior unsecured revolving credit facility agreement (the “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 “Facility”“Previous Facility”) with a syndicate of banks. In lightbanks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021. The Five-Year Facility Agreement permits borrowings of the uncertainty surrounding the impact of COVID-19up to $1.25 billion and to maximize liquidity,expires in May 2026.
As discussed above, we executed a short-term draw on the full amount of theour 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 Previous Facility as of October 31, 2020, FebruaryMay 1, 2020,2021, or November 2, 2019.January 30, 2021.
Our credit ratings and outlook as of November 25, 2020,June 2, 2021, are summarized below. On April 22, 2020, Moody’s completedMay 20, 2021, Standard & Poor’s upgraded its periodic reviewrating to BBB+ and confirmed its current rating of Baa1 and outlook of Stable. Standard & Poor’sMoody’s rating and outlook remained unchanged from those disclosed in our Annual Report on Form 10-K for the prior year.fiscal year ended January 30, 2021.
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|
Rating Agency |
|
|
|
| Rating |
| Outlook |
Standard & Poor's |
|
|
|
|
| BBBBBB+
|
|
|
| Stable |
|
Moody's |
|
|
|
| Baa1A3
|
| Stable |
Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position and changes in our business strategy. If changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs.
Restricted Cash
Our liquidity is also affected by restricted cash balances that are pledged as collateral orprimarily restricted to use for workers’ compensation and general liability insurance claims. Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $135$115 million, $126$131 million and $127$115 million at October 31,May 1, 2021, January 30, 2021, and May 2, 2020, February 1, 2020, and November 2, 2019, respectively. The decrease from January 30, 2021, was primarily due to the timing of insurance premium payments.
Debt and Capital
As of October 31, 2020,May 1, 2021, we had $650 million of principal amount of notes due March 15, 2021 (“2021 Notes”), $500 million of principal amount of notes due October 1, 2028, (“2028 Notes”) and $650 million of our 2030 Notes. During the third quarterprincipal amount of fiscal 2021, we issued our 2030 Notes and cash settled the associated Treasury Rate Lock ("T-Lock") contracts entered into during the second quarter of fiscal 2021 to hedge the base interest rate variability on a portion of our then-expected refinancing of our maturing 2021 Notes. The net proceeds from the 2030 Notes will be used to replace our 2021 Notes that mature in March 2021, which we expect to retire during the fourth quarter of fiscal 2021 by exercising our option to redeem the 2021 Notes at par. notes due October 1, 2030. Refer to Note 7, Derivative Instruments, for further information about our T-Lock contracts, and Note 5, Debt, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, and Note 6,8, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, for furtheradditional information about our outstanding debt.
Share Repurchases and Dividends
We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors ("Board"(“Board”). The payment of cash dividends is also subject to customary legal and contractual restrictions. Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment gradeinvestment-grade credit metrics.
On February 23, 2019,16, 2021, our Board authorizedapproved a new $5.0 billion share repurchase program, which replaced the $3.0 billion share repurchase program. program authorized on February 23, 2019. There is no expiration date governing the period over which we can repurchase shares under this new authorization. As of October 31, 2020, $1.9May 1, 2021, $4.2 billion of the $3.0$5.0 billion share repurchase authorization was available. On March 21, 2020,May 27, 2021, we announced an increase in the suspensionamount of all share repurchases planned in fiscal 2022 to conserve liquidity in light of COVID-19-related uncertainties. We resumed repurchases in the fourth quarter of fiscal 2021.$2.5 billion.
Share repurchase and dividend activity was as follows ($ and shares in millions, except per share amounts):
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|
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|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
|
|
|
| May 1, 2021 |
| May 2, 2020 |
Total cost of shares repurchased | $ | - |
|
| $ | 371 |
|
| $ | 56 |
|
| $ | 707 |
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|
|
|
| $ | 915 |
|
| $ | 56 |
Average price per share | $ | - |
| $ | 67.28 |
| $ | 86.30 |
| $ | 68.56 |
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|
|
|
| $ | 108.69 |
| $ | 86.30 |
Number of shares repurchased |
| - |
| 5.5 |
| 0.6 |
| 10.3 |
|
|
|
|
| 8.4 |
| 0.6 |
Regular quarterly cash dividends per share | $ | 0.55 |
| $ | 0.50 |
| $ | 1.65 |
| $ | 1.50 |
|
|
|
|
| $ | 0.70 |
| $ | 0.55 |
Cash dividends declared and paid | $ | 142 |
| $ | 131 |
| $ | 426 |
| $ | 398 |
|
|
|
|
| $ | 175 |
| $ | 141 |
The total cost of shares repurchased increased in the first quarter of 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 concerns. Cash dividends declared and paid increased in the first quarter of fiscal 2022 primarily due to an increase in the regular quarterly cash dividend per share.
Between the end of the first quarter of fiscal 2022 on May 1, 2021, and June 2, 2021, we repurchased an incremental 0.2 million shares of our common stock at a cost of $28 million.
Other Financial Measures
Our current ratio, calculated as current assets divided by current liabilities, remained relatively unchanged at 1.11.2 as of October 31, 2020,May 1, 2021, and February 1, 2020,January 30, 2021, and was 1.0 as of NovemberMay 2, 2019.2020.
Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings from continuing operations over the trailing twelve months grewdeclined to 1.10.6 as of October 31, 2020, primarily due to the issuance of our 2030 Notes,May 1, 2021, compared to 0.8 as of February 1,January 30, 2021, and 1.8 as of May 2, 2020. The decrease from May 2, 2020, and November 2, 2019.was primarily due to the $1.25 billion short-term draw on the Previous Facility in the first quarter of fiscal 2021.
Off-Balance-Sheet Arrangements and Contractual Obligations
Our liquidity is not dependent on the use of off-balance-sheet financing arrangements. Otherarrangements other than the short-term drawin connection with our $1.25 billion in undrawn capacity on our Previous Facility as of May 1, 2021, which, if drawn upon, would be included in the first quartershort-term debt on our Condensed Consolidated Balance Sheets.
There has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2020.2021. See our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, for additional information regarding our off-balance-sheet arrangements and contractual obligations.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.January 30, 2021. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.January 30, 2021. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2020.2021.
New Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as "anticipate," "assume," "believe," "estimate," "expect," "guidance," "intend," "outlook," "plan," "project" and other words and terms of similar meaning. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment and other events. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, and Item 1A, Risk Factors, in this Quarterly Report on Form 10-QJanuary 30, 2021, for a description of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: the duration and scope of the COVID-19 pandemic and its resurgence and the impact on demand for our products and services, levels of consumer confidence and our supply chain; macroeconomic pressures in the markets in which we operate (including but not limited to the effects of COVID-19, fluctuations in housing prices, energy markets and duration of steps we have takenjobless rates); future outbreaks, catastrophic events, health crises and will continue to take in response to the pandemic, including the implementationpandemics; susceptibility of our interimproducts to technological advancements, product life cycles and evolving operating model; actions governments, businesseslaunches; conditions in the industries and individuals have takencategories in which we operate; changes in consumer preferences, spending and will continue to take in response to the pandemic and their impact on economic activity and consumer spending; the pace of recovery when the COVID-19 pandemic subsides; general economic uncertainty in key global markets and worsening of global economic conditions or low levels of economic growth;debt; competition (including from multi-channel retailers, e-commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers),; our mix of productsability to attract and services,retain qualified employees; changes in market compensation rates; our expansion strategies,strategies; our focus on services as a strategic priority,priority; our reliance on key vendors and mobile network carriers (including product availability), pricing investments and promotional activity,; our ability to attractmaintain positive brand perception and retain qualified employees, changes in market compensation rates, risks arising from statutory, regulatoryrecognition; our company transformation; our mix of products and legal developments (including tax statutes and regulations), macroeconomic pressures in the markets in which we operate (including fluctuations in housing prices, energy markets and jobless rates), conditions in the industries and categories in which weoperate, failure to effectively manage our costs, our reliance on our information technology systems, our ability to prevent or effectively respond to a privacy or security breach,services; our ability to effectively manage strategic ventures, alliances or acquisitions, our dependence on cash flows and net earnings generated during the fourth fiscal quarter, susceptibility of our products to technological advancements, product life cycles and launches, changes in consumer preferences, spending and debt, economic or regulatory developments that might affect our ability to provide attractive promotional financing, interruptions and other supply chain issues, catastrophic events, health crises, pandemics, our ability to maintain positive brand perception and recognition, product safety and quality concerns, changes to labor or employment laws or regulations, acquisitions;our ability to effectively manage our real estate portfolio, constraints in the capital markets, changes to our vendor credit terms, changes in our credit ratings,portfolio; interruptions and other supply chain issues; any material disruption in our relationship with or the services of third-party vendors, risks related to our exclusive brand products and risks associated with vendors that source products outside of the U.S.,; trade restrictions or changes in the costs of imports (including existing or new tariffs or duties and changes in the amount of any such tariffs or duties); our reliance on our information technology systems; our dependence on internet and telecommunications access and capabilities; our ability to prevent or effectively respond to a cyber-attack, privacy or security breach; product safety and quality concerns; changes to labor or employment laws or regulations; risks arising from statutory, regulatory and legal developments (including tax statutes and regulations); risks arising from our international activities.activities; failure to effectively manage our costs; our dependence on cash flows and net earnings generated during the fourth fiscal quarter; pricing investments and promotional activity; economic or regulatory developments that might affect our ability to provide attractive promotional financing; constraints in the capital markets; changes to our vendor credit terms; changes in our credit ratings; and general economic uncertainty in key global markets and worsening of global economic conditions or low levels of economic growth. We caution that the foregoing list of important factors is not complete. Any forward-looking statements speak only as of the date they are made, and we assume no obligation to update any forward-looking statement that we may make.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, in addition to the risks inherent in our operations, we are exposed to certain market risks.
Interest Rate Risk
We are exposed to changes in short-term market interest rates and these changes in rates will impact our net interest expense. Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, for further information regarding our interest rate swaps.
During the second quarter of fiscal 2021, we entered into Treasury Rate Lock ("T-Lock") contracts to hedge the base interest rate variability on a portion of our then-expected refinancing of our maturing 2021 Notes. The T-Lock contracts were cash settled during the third quarter of fiscal 2021 upon issuance of our 2030 Notes. The fair value of the T-lock contracts upon settlement was released from Accumulated other comprehensive income on our Condensed Consolidated Balance Sheets and will be recorded in Interest expense on our Condensed Consolidated Statements of Earnings as interest is accrued over the life of the 2030 Notes.
As of October 31, 2020,May 1, 2021, we had $5.7$4.3 billion of cash, cash equivalents and short-term investments and $1.2$0.5 billion of fixed-rate debt that was swapped to floating rate, resulting in a net balance exposed to interest rate changes of $4.5$3.8 billion. As of October 31, 2020,May 1, 2021, a 50-basis point increase in short-term interest rates would have led to an estimated $23$19 million reduction in net interest expense, and conversely a 50-basis point decrease in short-term interest rates would have led to an estimated $23$19 million increase in net interest expense.
Foreign Currency Exchange Rate Risk
We have market risk arising from changes in foreign currency exchange rates related to our International segment operations. Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020,January 30, 2021, for additional information regarding these instruments.
During the third quarter of fiscal 2021, foreignForeign currency exchange rate fluctuations were primarily driven by the strength of the U.S.Canadian dollar compared to the Mexican peso compared to the prior-year period. During the first nine months of fiscal 2021, foreign currency exchange rate fluctuations were primarily driven by the strength of the U.S. dollar compared to the Canadian dollar and Mexican peso compared to the prior-year period. These fluctuationsperiod, which had a negativepositive overall impact on our revenue duringas these periods as foreign currencies translated into fewermore U.S. dollars. We estimate that foreign currency exchange rate fluctuations had a net unfavorablefavorable impact of $11 million and $67$64 million on our revenue in the thirdfirst quarter and first nine months of fiscal 2021, respectively.2022. The impact of foreign exchange rate fluctuations had aon our net favorable impact of $11 million on earnings for the thirdfirst quarter and first nine months of fiscal 2021.2022 was not significant.
Item 4.Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis and otherwise as needed.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at October 31, 2020.May 1, 2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at October 31, 2020,May 1, 2021, our disclosure controls and procedures were effective.
There were no changes in internal control over financial reporting during the fiscal quarter ended October 31, 2020,May 1, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.Legal Proceedings
For information about our legal proceedings, see Note 11, Contingencies, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.
Item 1A.2.Risk FactorsUnregistered Sales of Equity Securities and Use of Proceeds
The global COVID-19 pandemic has had a material impact on our business, financial results and liquidity, and such impact could worsen and last for an unknown period of time.(c) Stock Repurchases
The COVID-19 pandemic has subjectedOn February 16, 2021, our business, operationsBoard approved a new $5.0 billion share repurchase program, which replaced the $3.0 billion share repurchase program authorized on February 23, 2019. Share repurchases prior to February 16, 2021, were made under the February 2019 $3.0 billion share repurchase program and financial conditionthereafter under the February 2021 $5.0 billion share repurchase program. For additional information, see Note 9, Repurchase of Common Stock, of the Notes to a number of risks, including, but not limited to, those discussed below:the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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Fiscal Period |
| Total Number of
Shares Purchased |
| Average Price Paid
per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Program |
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
January 31, 2021 through February 15, 2021 |
| 1,035,614 |
|
| $ | 114.80 |
|
|
| 1,035,614 |
|
| $ | 1,554,000,000 |
|
February 16, 2021 through February 27, 2021 |
| 1,227,169 |
|
| $ | 110.98 |
|
|
| 1,227,169 |
|
| $ | 4,864,000,000 |
|
February 28, 2021 through April 3, 2021 |
| 6,156,555 |
|
| $ | 107.20 |
|
|
| 6,156,555 |
|
| $ | 4,204,000,000 |
|
April 4, 2021 through May 1, 2021 |
| - |
|
| $ | - |
|
|
| - |
|
| $ | 4,204,000,000 |
|
Total |
| 8,419,338 |
|
| $ | 108.69 |
|
|
| 8,419,338 |
|
| $ | 4,204,000,000 |
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Risks Related to Sales and Customer Demand: At various times during fiscal 2021, the pandemic and the operational changes we have made have resulted in significant reductions in customer visits to, and spending at, our stores. The extent to which the pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration of the pandemic; the extent of the impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates, consumer discretionary spending and consumer confidence; actions governments, businesses and individuals take in their ongoing response to the pandemic, including the timing and nature of loosening of restrictions imposed in response to the pandemic and its resurgence; and our ability to successfully navigate those impacts. The pandemic has caused some products and services to be in high demand, and we may not be able to meet this demand in all of our categories due to product shortages or decisions by our vendors to allocate products to certain customers due to the circumstances resulting from the pandemic, and our vendors may increase prices, each of which may adversely impact our revenue and profitability. The pandemic has, and may continue to, negatively impact our products and services that historically have been more likely to be purchased in a physical store than online.
Risks Related to Operations: The pandemic has forced us to make a number of operational changes. Although since June 22, 2020, almost all of our stores were open for shopping, we continue to offer a contactless, curbside model for those who prefer to shop that way, and we could be required to return to a curbside-only model or close stores due to the current or future resurgence of the pandemic. Our ability to continue to sell our products and services is highly dependent on our ability to maintain the safety of our customers and those employees who are needed to work at our stores and distribution facilities. The ability of our employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19. While we are following the requirements of governmental authorities and taking preventative and protective measures to prioritize the safety of our customers and employees, these measures may not be successful, and we may be required to temporarily close distribution centers or stores from time to time, halt certain services or take other measures. In addition, disruptions to our vendors’ ability or desire to provide products and services to us due to the pandemic, or disruptions to our internal supply chain infrastructure (such as facility closures, governmental orders restricting movement, COVID-19 outbreaks, present and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures), may materially adversely affect our ability to meet customer demand, other aspects of our operations and our financial results. Further, as our online sales have increased and have become critical to our growth, the risk of any interruption of our IT system capabilities is heightened, as well as the risk that customer demand exceeds the capacity of our online operations, and any such interruption or capacity constraint could result in a deterioration of our ability to process online sales, provide customer service or perform other necessary business functions. Having shifted to remote working arrangements for many employees, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities. Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a particular region or our company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future. Additionally, while we have continued to prioritize the health and safety of our employees and customers as we continue to operate during the pandemic, we face an increased risk of litigation related to our operating environments. Preparing for and responding to the continuing pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our employees and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value or otherwise disrupt our business operations.
Risks Related to Profitability: To the extent COVID-19 continues to cause fundamental shifts in the channels in which customers choose to engage us, our profitability and our profitability rate may be adversely impacted. For example, at various times during fiscal 2021, we continued to pay rent for a number of physical stores that were closed and not generating sales (and we may need to do so again in the future), our online mix of products and services generally produces lower gross profit rates than in-store sales, and we offer some products and services that historically are more likely to be purchased in a physical store than online. We also do not offer or have limited digital and online offerings for certain products and services, such as financing and services offerings, which have higher profitability rates. To the extent we are not able to maintain or increase the level of customer traffic in our stores or maintain or enable a more profitable mix of sales in our digital and online channels, our profitability and profitability rates may be materially negatively impacted. In addition, we may experience pressure from lower profit-sharing revenue related to our private label and co-branded credit card arrangement, as the economic ramifications of COVID-19 may lead to higher credit card defaults over time, which would have an adverse effect on our profitability. We have also incurred additional costs due to the operational changes we have made in response to the pandemic, and these costs have adversely impacted our profitability. As a result of disruptions to our supply chain, primarily due to mandatory shutdowns in locations where our products are manufactured, we are experiencing, and may continue to experience, increased costs for shipping and transportation resources. At the same time, we have continued to incur the majority of the costs to operate our stores, including rent and certain employee costs. Beginning August 2, 2020, we implemented a 4% increase in the hourly rate for hourly store employees below the leadership level, and, in addition, employees who were not yet at $15 per hour had their pay increased to the $15 per hour starting wage. If we are unable to manage these costs and supply chain disruptions, our profitability may be adversely impacted. Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our costs, for example, the need for enhanced health and hygiene requirements in one or more regions in attempts to counteract future outbreaks. In the event of decreased store traffic, certain of our stores may not generate revenue sufficient to meet operating expenses, which could adversely affect the value of our owned and leased properties, potentially requiring us to record more significant non-cash impairment charges in future periods.
Risks Related to Our Debt and Global Financing Markets: Although we repaid in full the amounts we had borrowed under our revolving credit facility, we may find it necessary to increase our cash position and our short-term debt in the future in response to further resurgences of COVID-19. In the event we are required to raise capital, our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects, our credit ratings, and our business and industry outlook. There is no guarantee that debt or equity financings will be available in the future to fund our obligations, or will be available on terms consistent with our expectations.
COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identified in our Fiscal 2020 Form 10-K, which in turn could materially adversely affect our business, financial condition, liquidity, results of operations (including revenues and profitability) and/or stock price. Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.
Item 6.Exhibits
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3.1 | Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Best Buy Co., Inc. on June 12, 2020) |
3.2 | Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Best Buy Co., Inc. on June 14, 2018) |
4.110.1
| Fourth Supplemental Indenture,Five-Year Credit Agreement dated as of October 1, 2020, to the Indenture, dated as of March 11, 2011, betweenMay 18, 2021, among Best Buy Co., Inc. the Subsidiary Guarantors, the Lenders, and U.S.JPMorgan Chase Bank, National Association,N.A., as successor trustee (incorporatedadministrative agent (Incorporated herein by reference to Exhibit 4.110.1 to the Current Report on Form 8-K filed by Best Buy Co., Inc. on October 1, 2020)May 20, 2021).
|
*10.2 | Form of Employment Separation and General Release Agreement |
*10.3 | Employment Separation and General Release Agreement between R. Michael Mohan and Best Buy Co., Inc. |
31.1 | Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) |
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) |
101 | The following financial information from our Quarterly Report on Form 10-Q for the thirdfirst quarter of fiscal 2021,2022, filed with the SEC on November 30, 2020,June 4, 2021, formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) the Condensed Consolidated Balance Sheets at October 31,May 1, 2021, January 30, 2021, and May 2, 2020, February 1, 2020, and November 2, 2019, (ii) the Condensed Consolidated Statements of Earnings for the three and nine months ended October 31,May 1, 2021, and May 2, 2020, and November 2, 2019, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 31,May 1, 2021, and May 2, 2020, and November 2, 2019, (iv) the Condensed Consolidated Statements of Cash Flows for the ninethree months ended October 31,May 1, 2021, and May 2, 2020, and November 2, 2019, (v) the Condensed Consolidated Statements of Changes in Shareholders��Shareholders’ Equity for the three and nine months ended October 31,May 1, 2021, and May 2, 2020, and November 2, 2019, and (vi) the Notes to Condensed Consolidated Financial Statements. |
104 | The cover page from our Quarterly Report on Form 10-Q for the thirdfirst quarter of fiscal 2021,2022, filed with the SEC on November 30, 2020,June 4, 2021, formatted in iXBRL (included as Exhibit 101). |
*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.
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| BEST BUY CO., INC. |
| (Registrant) |
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Date: November 30, 2020June 4, 2021 | By: | /s/ CORIE BARRY |
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| Corie Barry |
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| Chief Executive Officer |
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Date: November 30, 2020June 4, 2021 | By: | /s/ MATTHEW BILUNAS |
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| Matthew Bilunas |
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| Chief Financial Officer |
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Date: November 30, 2020June 4, 2021 | By: | /s/ MATHEW R. WATSON |
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| Mathew R. Watson |
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| Senior Vice President, Finance – Controller and Chief Accounting Officer |