Best Buy Beats - Keeps Holiday Guidance

November 23, 2022

Best Buy reported esults for the 13-week third quarter ended October 29, 2022 (“Q3 FY23”), as compared to the 13-week third quarter ended October 30, 2021 (“Q3 FY22”).

The firm had earnings per share of $1.38 adjusted with $1.03 expected. The retailer had revenue of $10.59 billion with $10.31 billion expected. Best Buy reiterated its outlook for the holiday quarter.

“I am proud of our team’s execution and their relentless focus on providing amazing service to our customers during what is clearly a challenging environment for our industry,” said Corie Barry, Best Buy CEO. “Throughout the quarter, we were committed to balancing our near-term response to current conditions and managing well what is in our control, while also advancing our strategic initiatives and investing in areas important for our long-term growth. As a result, we delivered Q3 results ahead of our expectations coming into the quarter.”

“The holiday shopping season has begun, and now, more than ever, our customers are looking to bring joy back into their celebrations,” continued Barry. “We have strategically and effectively managed our inventory flow based on a shopping pattern that we believe looks more similar to historical holiday periods, with customer shopping activity concentrated on Black Friday week, Cyber Monday and the two weeks leading up to December 25. We are excited about the promotions and values we have planned, including special offers available to Totaltech and MyBestBuy members, and have tailored our offerings to delight our customers, whatever their budget.”

FY23 Financial Guidance

“We are updating our FY23 outlook to flow through our better-than-expected Q3 results while keeping our Q4 expectations unchanged,” said Matt Bilunas, Best Buy CFO. “We now expect comparable sales to decline approximately 10% and our non-GAAP operating income rate2 to be slightly higher than 4.0%.”

Bilunas added, “From a capital allocation perspective, we resumed share repurchases in November after pausing during Q2 and now expect to spend approximately $1 billion in share repurchases this year.”

Merchandise Inventories

At the end of Q3 FY23, merchandise inventories of $7.3 billion declined 14.7% compared to last year. The lower inventory balance was primarily driven by a year-over-year decline in revenue, both in Q3 and in anticipation of the expected decline in Q4. The decline in inventory was also impacted by the timing of inventory receipts, reflecting an earlier build of inventory in the prior year that was driven by a more uncertain supply chain environment and the anticipated phasing of holiday sales.

Domestic Segment Q3 FY23 Results

Domestic Revenue

Domestic revenue of $9.80 billion decreased 10.8% versus last year primarily driven by a comparable sales decline of 10.5%.

From a merchandising perspective, the company had comparable sales declines across almost all categories, with the largest drivers on a weighted basis being computing and home theater.

Domestic online revenue of $3.04 billion decreased 11.6% on a comparable basis, and as a percentage of total Domestic revenue, online revenue was 31.0% versus 31.3% last year.

Domestic Gross Profit Rate

Domestic gross profit rate was 21.9% versus 23.4% last year. The lower gross profit rate was primarily due to: (1) lower product margin rates, including increased promotions; (2) lower services margin rates, including pressure associated with the Best Buy Totaltech membership offering; and (3) higher supply chain costs. These pressures were partially offset by higher profit-sharing revenue from the company’s private label and co-branded credit card arrangement.

Domestic Selling, General and Administrative Expenses (“SG&A”)

Domestic GAAP SG&A was $1.79 billion, or 18.3% of revenue, versus $1.96 billion, or 17.9% of revenue, last year. On a non-GAAP basis, SG&A was $1.77 billion, or 18.1% of revenue, versus $1.94 billion, or 17.6% of revenue, last year. Both GAAP and non-GAAP SG&A decreased primarily due to lower incentive compensation and store payroll expense.

International Segment Q3 FY23 Results

International Revenue

International revenue of $787 million decreased 14.9% versus last year. This decrease was primarily driven by a comparable sales decline of 9.3% and the negative impact of approximately 480 basis points from foreign currency exchange rates.

International Gross Profit Rate

International gross profit rate was 23.4% versus 25.0% last year. The lower gross profit rate was primarily driven by lower product margin rates and higher supply chain costs.

International SG&A

International SG&A was $150 million, or 19.1% of revenue, versus $171 million, or 18.5% of revenue, last year. SG&A decreased primarily due to lower incentive compensation and the favorable impact of foreign currency exchange rates.

Restructuring Charges

The company incurred $26 million of restructuring costs in Q3 FY23, primarily related to employee termination benefits associated with an enterprise-wide restructuring initiative that commenced in Q2 FY23 to better align its spending with critical strategies and operations, as well as to optimize its cost structure. The company currently expects to incur additional charges through the remainder of FY23 for this initiative. Consistent with prior practice, restructuring costs are excluded from the company’s non-GAAP results.

Share Repurchases and Dividends

In Q3 FY23, the company returned a total of $198 million to shareholders through dividends. On a year-to-date basis, the company has returned a total of $1.06 billion to shareholders through dividends of $595 million and share repurchases of $465 million.

Today, the company announced its board of directors has authorized the payment of its regular quarterly cash dividend of $0.88 per common share. The quarterly dividend is payable on January 3, 2023, to shareholders of record as of the close of business on December 13, 2022.

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