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Best Buy reports better-than-expected first-quarter results

Enterprise Comparable Sales Increased 7.1%

GAAP Diluted EPS Increased 20% to $0.72

Non-GAAP Diluted EPS Increased 37% to $0.82

MINNEAPOLIS–(BUSINESS WIRE)–Best Buy Co., Inc. (NYSE: BBY) today announced results for the first quarter ended May 5, 2018 (“Q1 FY19”), as compared to the first quarter ended April 29, 2017 (“Q1 FY18”). The company reported Q1 FY19 GAAP diluted earnings per share of $0.72, an increase of 20% from $0.60 in Q1 FY18. Non-GAAP diluted earnings per share for Q1 FY19 were $0.82, an increase of 37% from $0.60 in Q1 FY18.

Q1 FY19 Q1 FY18
Revenue ($ in millions):
Enterprise $9,109 $8,528
Domestic segment $8,412 $7,912
International segment $697 $616
Enterprise comparable sales % change1 7.1% 1.6%
Domestic comparable sales % change1 7.1% 1.4%
Domestic comparable online sales % change 12.0% 22.5%
International comparable sales % change 6.4% 4.0%
Operating Income:
GAAP operating income as a % of revenue 2.9% 3.5%
Non-GAAP operating income as a % of revenue 3.3% 3.5%
Diluted Earnings per Share (“EPS”):
GAAP diluted EPS $0.72 $0.60
Non-GAAP diluted EPS $0.82 $0.60

For GAAP to non-GAAP reconciliations, please refer to the attached supporting schedule titled Reconciliation of Non-GAAP Financial Measures.

“We are happy to report better-than-expected top- and bottom-line results for the first quarter,” said Hubert Joly, Best Buy’s chairman and CEO. “This strong performance was broad-based, with positive comparable sales across all channels, geographies and most of our product categories. The top-line strength is the result of continued healthy consumer confidence, product innovation in multiple areas of technology, and our unique value proposition resonating with customers. We are executing well and customers are responding positively to the unique experience we provide to them online, in stores and in their homes.”

Joly continued, “We are excited by our momentum and continue to believe we are operating in an opportunity-rich environment driven by technology innovation and customers’ need for help. We are focused on providing services and solutions that solve real customer needs, and on building deeper customer relationships. We are investing in technology, people and supply chain in support of our strategy. We believe this has the opportunity to continue to generate significant value for our shareholders.”

Best Buy CFO Corie Barry said, “We are pleased with our Q1 performance and strong start to the year. Our Q2 guidance reflects our expectations for continued momentum in the business as well as lapping strong comparable sales last year. It also reflects continued investments in our long-term strategy such as supply chain and the launch of Total Tech Support. Because it is early in the year, we are not yet updating our previously provided full-year outlook.”

FY19 Financial Guidance

Note: FY19 has 52 weeks compared to 53 weeks in FY18. The extra week occurred in Q4 FY18 and was approximately $760 million in revenue and approximately $0.20 of non-GAAP diluted EPS.

Best Buy is providing the following Q2 FY19 financial outlook:

Best Buy is not updating the following full-year FY19 financial outlook provided on March 1, 2018:

Domestic Segment Q1 FY19 Results

Domestic Revenue
Domestic revenue of $8.41 billion increased 6.3% versus last year driven by comparable sales growth of 7.1%, partially offset by the loss of revenue from 17 large-format and 193 Best Buy Mobile store closures over the past year.

From a merchandising perspective, the company generated comparable sales growth across most of its categories, with the largest drivers being mobile phones, appliances, computing, tablets and smart home.

Domestic online revenue of $1.14 billion increased 12.0% on a comparable basis primarily due to higher average order values and higher conversion rates. As a percentage of total Domestic revenue, online revenue increased 70 basis points to 13.6% versus 12.9% last year.

Domestic Gross Profit Rate
Domestic gross profit rate was 23.3% versus 23.6% last year. The gross profit rate decrease of approximately 30 basis points was driven primarily by rate pressure in the mobile phones category and prior year legal settlement proceeds of $8 million, or 10 basis points, in the services category. These pressures were partially offset by gross profit optimization initiatives and the benefit of an approximately $5 million legal settlement that occurred in the current year.

Domestic Selling, General and Administrative Expenses (“SG&A”)
Domestic GAAP SG&A expenses were $1.67 billion, or 19.8% of revenue, versus $1.57 billion, or 19.9% of revenue, last year. On a non-GAAP basis, SG&A expenses were $1.66 billion, or 19.7% of revenue, versus $1.57 billion, or 19.9% of revenue, last year. Both GAAP and non-GAAP SG&A increased primarily due to (1) growth investments; (2) higher variable costs due to increased revenue; and (3) higher incentive compensation. These increases were partially offset by the flow-through of cost reductions and lower advertising expense.

International Segment Q1 FY19 Results

International Revenue
International revenue of $697 million increased 13.1% versus last year. This increase was primarily driven by comparable sales growth of 6.4%, due to growth in both Canada and Mexico, and approximately 500 basis points of positive foreign currency impact.

International Gross Profit Rate
International gross profit rate was 23.4% versus 24.5% last year. The gross profit rate decrease of approximately 110 basis points was driven primarily by a lower year-over-year gross profit rate in Canada. This was due to lower sales in the higher-margin services category primarily driven by the launch of Canada’s total tech support offer, a long-term recurring service revenue model, and rate pressure in certain product categories.

International SG&A
International GAAP SG&A expenses were $165 million, or 23.7% of revenue, versus $149 million, or 24.2% of revenue, last year. On a non-GAAP basis, SG&A expenses were $164 million, or 23.5% of revenue, versus $149 million, or 24.2% of revenue, last year. Both GAAP and non-GAAP SG&A increased primarily due to the negative impact of foreign exchange rates and higher depreciation expense.

Dividends and Share Repurchases

In Q1 FY19, the company returned a total of $528 million to shareholders through dividends of $128 million and share repurchases of $400 million, or 5.6 million shares. On March 1, 2018, the company announced the intent to spend at least $1.5 billion on share repurchases during fiscal 2019.

Income Taxes

In Q1 FY19, the GAAP effective tax rate was 19.2% versus 35.6% last year. On a non-GAAP basis, the effective tax rate was 20.0% versus 35.6% last year. The lower GAAP and non-GAAP effective tax rates were primarily due to the impacts from the Tax Cuts and Jobs Act of 2017, which included a reduction in the U.S. statutory corporate tax rate, and approximately $18 million of tax benefit related to stock-based compensation.


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