Best Buy Co., Inc. (BBY) on Q3 2021 Results - Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's Q3 FY2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded for playback and will be available by approximately 11:00 a.m. Eastern Time today. Mollie O'Brien: Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO; Matt Bilunas, our CFO; and Mike Mohan, our President and COO. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release, which is available on our website. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments and expected performance of the Company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the Company's current earnings release and our most recent 10-K for more information on these risks and uncertainties. The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the call over to Corie. Corie Barry: Good morning, everyone, and thank you for joining us. Today, we are reporting strong Q3 results. Our comparable sales grew a remarkable 23% as we leveraged our unique capabilities, including our supply chain expertise, flexible store operating model, and ability to shift quickly to digital, to meet what is clearly elevated demand for products that help customers work, learn, cook, entertain, and connect in their homes. We provided customers with multiple options for how, when, and where they shop with us to ensure it met their definition of safe retailing. The current environment has underscored our purpose to enrich lives through technology, and the capabilities we are flexing and strengthening now will benefit us going forward as we execute our strategy. Our teams showed empathy, ingenuity, and extraordinary execution throughout the quarter. Best Buy has always had a very strong culture. Over the past several years, we have been pairing that strong culture with a purpose-driven approach, and that is showing up in the way we are responding to the current environment. This pandemic as well as the natural disasters and civil unrest of the past several months has been difficult for so many people, physically, financially, and emotionally. I am incredibly proud of the way our teammates are helping not only our customers, but each other and their communities. Matthew Bilunas: Good morning. The demand for our products and services has remained incredibly strong for the past several months, and our Q3 sales were better than our expectations. As Corie highlighted, technology has taken on an increased importance in all of our lives. And while we are clearly seeing sales growth from consumers looking for ways to navigate through the pandemic, the fundamental reliance on technology has also grown and strengthened our purpose. On enterprise revenue of $11.9 billion, we delivered non-GAAP diluted earnings per share of $2.06 or an increase of 82% versus last year. Our non-GAAP operating income rate of 6.1% increased 190 basis points as we saw leverage from the higher sales volume on our fixed expenses. This was partially offset by a 30 basis point decline in our gross profit rate. In our Domestic segment, revenue for the total quarter increased 21% to $10.9 billion. The increase was driven by comparable sales growth of 23%, which was partially offset by the loss of revenue from stores that were permanently closed in the past year as part of our normal course of business. As Corie mentioned, October included the benefit of our Prime Day-related sales, which shifted out of July this year and an earlier start to holiday promotions. This helped push October comp sales up to 33%, our highest monthly comparable sales growth of the quarter. From a merchandising perspective, we saw broad-based strength across most of our categories with the largest comparable growth coming from computing, home theater and appliances. This growth was partially offset by decline in the mobile phone category. In addition, comparable sales in our services category grew 13% during the third quarter. Similar to the broad-based strength in our product categories, our services category had positive revenue growth from both Total Tech Support and our Warranty business. In our International segment, revenue increased 25% to $1 billion. The increase was driven by a comparable sales growth of 27%, which was partially offset by 140 basis points of negative foreign currency impact. The growth was primarily driven by Canada where we experienced similar trends as our Domestic segment from a consumer demand standpoint. Turning now to gross profit. The domestic gross profit rate declined 30 basis points to 24%. The decrease was primarily driven by supply chain costs associated with higher mix of online revenue. As Corie noted, our online sales were 35% of our overall domestic sales in the quarter, which compared to 16% last year. We also saw lower profit sharing revenue from our private label and co-branded credit card arrangement. These pressures were partially offset by a promotional environment that was more favorable compared to both last year and our expectations going into the quarter. Our international non-GAAP gross profit rate increased 10 basis points to 22.6%, primarily due to a less promotional environment, partially offset by increased supply chain costs from a higher mix of online sales. Moving to SG&A. Domestic non-GAAP SG&A increased $146 million compared to last year, and as a percentage of revenue, decreased 210 basis points. On our last call, we shared our expectation that SG&A dollars in Q3 would be similar to the prior year. The largest drivers of expense increase versus last year were also the areas that were higher than our expectations at the start of the quarter. These were; one, higher incentive compensation for corporate and field employees of approximately $75 million; two, increased variable cost associated with the higher sales volume, which included items such as credit card processing fees; and three, the $40 million donation to the Best Buy Foundation. These increased expenses were partially offset by lower store payroll expense. Let me share a little additional color on the lower store payroll expense, which was driven by a fewer labor hours for our associates. This was primarily due to lower store revenue, our reduced store operating hours and efficiencies in our labor model, which were partially offset by additional hours needed to support the fulfillment of online orders. This decline in labor hours was partially offset by higher hourly wage rates as the increase in our starting wage to $15 an hour went into effect at the start of Q3. I would point out that although our Q3 store channel revenue was down approximately 8% to last year, when including the online revenue for store and curbside pickup and ship-from-store, the revenue supported by our stores labor actually increased on a year-over-year basis. On our last earnings call, we shared that about two-thirds of our original 51,000 furloughed employees had returned to work. Any remaining employees that had been on furlough were asked to return to work as seasonal employees for the holidays. Let me next provide more context on the restructuring charges from this quarter. As Corie mentioned, we made the decision during the quarter to close down operations in Mexico. In our Domestic segment, we also took actions to more broadly align our corporate organizational structure in support of our strategy. As a result of these decisions, we incurred approximately $111 million in restructuring charges and an additional $36 million of inventory markdowns in Mexico that were excluded from our non-GAAP results. For context on our Mexico business, its fiscal 2020 annual revenue was approximately $400 million with slightly negative operating income. Moving to the balance sheet. We ended the quarter with $5.7 billion in cash and short-term investments. In the third quarter, we completed a public bond offering for $650 million in 1.95% notes due in October 2030. The net proceeds from the sales will be used to replace the $650 million in 5.5% notes that mature in March 2021, which we expect to retire during Q4 by exercising to park off. At the end of Q3, our inventory balance was approximately 1.5% lower than last year’s comparable period, whereas our accounts payable balance increased 26%. We ended the quarter with inventory down 21% to last year. And although trends progressively improved throughout the quarter, as Corie stated, we still experienced constraints driven by the high demand in several of our key categories. Our capital allocation strategy remains the same. We will first reinvest in the business to drive growth and remain committed to being a premium dividend payer. We will then look to return excess cash to shareholders through share repurchases. During the third quarter, we paid $142 million in dividends. We suspended share repurchases last March in order to conserve liquidity in light of the COVID-related uncertainties, but we now plan to resume share repurchase this month. We anticipate the level of share repurchases in Q4 to be similar to last year’s comparable quarter. As we look to next year, assuming business trends remained favorable, we would expect to spend a higher amount on share repurchases than we have in more recent fiscal years. From a capital expenditure standpoint, we now expect to spend approximately $725 million during fiscal 2021. Lastly, let me finish by sharing a few comments about the fourth quarter. As a result of the ongoing uncertainty, we are not providing financial guidance today. However, I would like to provide some insight into how we are thinking about Q4. As we start the fourth quarter, the demand for the products and services we sell remains at elevated levels. But similar to last quarter, it continues to be difficult for us to predict how sustainable these trends will be. In fact, we are seeing COVID cases surge throughout the U.S. and Canada at the time of significant holiday volume through our stores, online and supply chain. There continue to be other factors to consider, such as potential future government stimulus actions, the current shift in personal consumption expenditures from areas like travel and dining out, the risk of continued higher unemployment and the availability of inventory to match customer demand. From a revenue standpoint, we believe our Q4 sales growth will be positive, but we don’t expect sales trends to remain at the levels we experienced during Q3. While our sales in the first few weeks of November have remained strong, they include the launch of the new gaming consoles from Sony and Microsoft, and also likely a pull forward of sales from later in the holiday season. In addition, inventory constraints are expected to continue in certain key categories. We anticipate that our Q4 gross profit rate will continue to be pressured, and we expect the year-over-year rate decline in Q4 to be higher than it was in Q3. This is due to an expectation that a higher mix of online sales will continue to drive higher supply chain costs, including the increased parcel surcharges from our carrier partners. In addition, we anticipate a higher sales mix from lower margin gaming consoles to negatively impact our rate. As it relates to the promotional environment, while we expect to see continued favorability on a year-over-year basis, we expect it to be less of a tailwind than it has been in the first three quarters of this year. We expect our Q4 SG&A dollars versus the prior year to increase as a percentage in the mid to high single-digit range. The increase in SG&A is expected to be driven by incentive compensation, increased variable costs from the higher expected sales and investments in both our health business and in technology. We expect these increases to be partially offset by slightly lower store payroll expense. I will now turn the call over to operator for questions. Operator: Thank you, sir. At this time, we will open the floor for questions. Our first question comes from Karen Short of Barclays. Karen Short: Hi. Thanks very much for taking my question. Wanted to just follow-up on your last comments there. I think in 2Q, you had commented that the second half would potentially benefit from a lower or less promotional environment on the gross margin front. So wondering if you could talk a little bit about that as you look to 4Q given the comments you just made on the gross margin. And then also, wondering if you could just give very high-level puts and takes as we look to 2021, because obviously there’s so many moving parts on both the gross margin and the SG&A side. So if you could just give high-level comments on how we should think about both of those into 2021 that would be helpful? Matthew Bilunas: Sure. So for promotions, Q3 was definitely less promotional than last year, but a little bit more than we saw earlier in the year due in part to the early start to the holiday, which occurred in October. Due to the continued demand for products and industry-wide inventory strains, we're still seeing promotionality be less on a year-over-year basis. Our assumption would be that in Q4 promotionality increases a bit relative to Q3, but considering the elevated level of demand and continued constraints in some areas of inventory, we don't expect it to be a year-over-year pressure. So looking into next year from a cost perspective, from a margin and SG&A, I think it's a bit early to know exactly how that manifests next year. We're clearly going to be looking at next year quarter-by-quarter, every quarter this year was a bit different than the others. And so as we enter next year, it's likely that the trends that we're seeing continue on from a demand perspective, at least on the start. And so, we'll look at the early part of the year a little differently probably than the rest. And we'll obviously remain competitive from a pricing perspective throughout the year, but we'll also look to leverage the efficiencies and the learnings we've made this year in terms of the SG&A structure. Karen Short: Great. Thanks. Operator: Thank you. Our next question comes from Simeon Gutman with Morgan Stanley. Simeon Gutman: Thank you. Good morning, everyone. My question, I'll make it in two parts. Maybe first for Corie, thinking about the margin structure of the business over the medium-term. I think you outlined all of those steps you're taking and the experimentation with the stores and the different labor models. I'm wondering you're doing that because you think the margin of the business could end up north of that non-GAAP goal of 5% or are these changes in order to uphold it? And then just the second question is, I think Matt mentioned, look, we still expect comp store sales to be positive for the fourth quarter. I think a lot of us expect that. But given some of the pull forward that you're seeing today, is there any reason we should see a sharp slowdown and do you have a sense of how much that pull forward is affecting the business given how early some of the Black Friday sales have started? Thanks. Corie Barry: Good morning, Simeon. As we go back to the update that we provided last year, you could hear it in the remarks, we feel like the strategy is spot-on, and in fact more relevant than ever. And obviously, the proliferation of consumer electronics is as high as it's ever been. People are just getting more comfortable using connected devices and living a connected life, frankly, across their home. Obviously, you can appreciate we're not going to update the financial targets. I think what we would say is, in the many ways we're ahead of where we thought we would be at this time, we’ve accelerated a massive amount of learnings and investments. And I think you'd also argue many retailers are ahead of where they thought they'd be at this time. I think right now we believe that's all the more reason we need to double down on what makes us unique. Therefore, we're testing, we're learning, and then probably have some suite of investing to do once we understand better the results of those tests and those hypotheses. What's most important, what remains most important is building those fundamentally sound relationships with our customers that keeps us relevant in their consideration set over time. And so, we will continue to make investments around technology, stores, membership. Could we see an EBIT rate higher than the 5% we laid out? Maybe, but that's not the goal. The goal right now is to figure out how customers are shopping differently; and therefore, the role we need to play to build those foundationally sound relationships over time. Matthew Bilunas: And maybe from Q3, a pull forward question that you had, I think, clearly, we outlined October sales benefited from earlier start to the holiday season. It also benefited from a shift of Prime Day from July into October. It's really difficult to predict exactly how much was pulled into Q3 from Q4, but there are a few considerations, and we talked about October being 33% growth in the month. We also talked about the start of the quarter was about 20% growth in the first few weeks. So, clearly with the elevated level of demand in October, it clearly points to a period in between those two that is around 20% or slightly lower, so that's why when we look at Q4, we don't necessarily expect the trend of Q4 to continue on at that Q3 pace. Although, we wouldn't necessarily say we're signaling sharp declines, we're just very thoughtful about the rest of the quarter coming and that we're pulling sales further into October and in November, and we have some pretty significant days ahead in terms of Thanksgiving Day being closed, but also Cyber week and the week before Christmas. So, just a lot of factors still there to think through. Simeon Gutman: Okay. Thank you both. Corie Barry: Thank you. Operator: Thank you. Our next question comes from Brad Thomas with KeyBanc Capital Markets. Bradley Thomas: Hi, good morning. Thanks for taking my question. Great results. Question on inventory. Could you just talk a little bit more about where you're seeing shortages? Maybe how much do you think that hurt you in 3Q and how much it might hurt you in 4Q? And when do you think the supply chain may start to catch up with the strong demand? Thank you. Matthew Bilunas: Hey Brad. Thanks for the question. As we announced in our prepared remarks, we started the quarter with the inventory down pretty significantly versus prior year a least matched against our sales trends. And the team and I just need to call it out, did remarkable work. We see more merchandise in our fiscal third quarter I think in the history of Best Buy, which is a feat in itself. The pressures are still in the long lead time categories. Domestically, major appliances saw impacts both on inconsistent demand and then factories shutting down for COVID-related issues. And clearly, there's consumer demand with the housing market that we see as a long tail play. We're excited about being back into the inventory position we need, but we think it's going to remain constrained probably into early next year. The demand in computing has been sustained right since the start of the COVID crisis. And right in the middle of the crisis, we had a back-to-school event. Normally you guys would be asking questions about our back-to-school season. It's been back-to-school or back to work-at-home or back to educating-at-home since March. We're really happy with the supply chain model there. We have great relationships with all of the world's top OEMs and we work with them literally everyday to fulfill the needs, but I think we're going to be – we'll be tighter there than we would appreciate, but it will be enough inventory to support our sales. As we transitioned into next year, I don't see any long tail things. There's some real constraints, obviously, part of this what I was saying on the new gaming consoles, and that will probably be sustained through the holiday season. But there are long product cycle, and I see us getting in a good position fairly quickly after the holiday. Thanks for the question. Operator: Thank you. Our next question comes from Greg Melich with Evercore ISI. Greg Melich: Hi, thanks. My question was about the one area that was down in the quarter, mobile phones. Just curious if that is simply a function of the delay of the iPhone versus a year-ago or is there something else there in terms of replacement cycles that you're seeing in consumer demand? Matthew Bilunas: Hey Greg. Thanks for that question. I think you kind of hit it on the head. There has been a year-over-year change on when new products were launched versus when they were in 2019. That's probably the biggest transition that you have to think about. What we're excited about is on the new devices, the demand for the higher capacity, larger screen and the phones that are purely ready to be 5G enabled are quite good. And the vast majority of the products we are selling are actually 5G enabled. So we like the demand signals going into what the new devices will look like. I think the replacement cycle on phones has been forever changed. And so the role we will play will continually help customers who are seeking out the newest technology to get the best out of their experience. And that's what we're excited about going forward. Greg Melich: And then a follow-up to the same question is on services. How many new customers did you get in Total Tech Services and Home Advisor? You mentioned you had more. So if you could give us a number, that would be great. Corie Barry: Yes. For Total Tech Support, we did grow the member count after holding pretty steady in the first half of the year. We haven't been updating that number quarterly and we're not going to now. But for reference, the last we shared was about 2.3 million members at the end of fiscal 2020. We definitely saw usage of the remote support offering continue to increase during the pandemic. And we also saw improved trends compared to earlier in the year as it relates to things like installation and repair. And we expect that usage to continue to ramp up as the stores are fully open and we're back in homes providing the more fulsome suite of services. To underscore what Mike said, I'd like to give our teams a ton of credit for the work that they have done to creatively find ways to help our customers, who in some cases are pretty desperate to make sure their devices are working together. Greg Melich: That's great. Great job, and have a happy Thanksgiving holidays everyone. Matthew Bilunas: Thank you. Corie Barry: Thank you. You too. Operator: Thank you. Our next question comes from Scot Ciccarelli with RBC Capital Markets. Scot Ciccarelli: Good morning, guys. Wanted to ask about kind of the changes to the operating model, just in terms of shrinking your physical space and some of the shifts you've made to the labor model. And I guess what I'm wondering is, has the shift resulted in lower sales so lower market share, but higher returns and profitability? Is that a win or is that go-forward strategy or do you have to win on both of those fronts? Thanks. Corie Barry: Yes. Thanks for the question, Scot. The point of – so there is kind of two different subjects here. One is a very small test that we're doing right now, four stores are on square footage. And it's more about stores as a real fulfillment hub that can act as a convenient and easy place for our customers to come and get what they want, and both a more limited SKU assortment that is merchandised, but frankly a wide assortment that's available for pickup in the store as well as some services. That's really early, it's small and we're learning. On what we're trying to achieve with our operating model changes, it's interesting. What we're actually trying to achieve is a better customer experience at the end of the day that is enabled through a more flexible and more educated workforce. And the idea in that – the win is actually that we can provide more flexible expertise across the store that you might have one teammate who can work with you across the entire store that we developed the best-in-class curbside and in-store pickup capabilities. But the concept is not about pull out as much cost as possible. The concept is about creating a workforce that is more flexible and can be used across departments and frankly across customer needs. So it's not quite funky moving around in the store. Success then is actually you have a more fulsome in-store experience and your associates have the ability to garner more skills to opt into more flexible schedules and to be able to potentially at some point even move new between stores depending on their availability. Scot Ciccarelli: So we would characterize it as more qualitative rather than quantitative in terms of the scorecard? Corie Barry: I think it's both, honestly, Scot. So I mean, Matt hit on in his prepared remarks, there are some efficiencies that you're able to build in, in terms of hours, but again, that's not the goal in and of itself. The goal is to provide more seamless customer experiences, better employee experiences that actually then continue to create that relationship over time, which also is a quantitative measure. It's just that it's more of a quantitative measure over time. Scot Ciccarelli: Okay. Thanks. Have a great holiday. Corie Barry: Thanks. You too. Operator: Thank you. Our next question comes from Mike Baker with D.A. Davidson. Michael Baker: Hi. Thanks. So a product related question, but two parts, if I could. First, an update on your healthcare initiative, which really hasn't come up too much in this call. Can you talk about products in the GreatCall business, then also, where you are on the commercial side of that as the pandemic slow down discussions with insurance companies? And then the second product question is on gaming. So you said consoles, there is some concerns that that was strong in October and will that continue – excuse the dog in the background. My question is will that continue into the fourth quarter as well? Another question gaming consoles also be very strong in the fourth quarter. And so why would that slow down? Thanks. Corie Barry: Absolutely. I'll start with some color around the health business. I think it's obvious, but it bears repeating what we're living through right now with the pandemic completely underscores our strategy and what we're trying to do, and that is to help seniors live more independently with the help of technology. I think we do that through this unique combination of technology and touch and our ability to both have the right products, to your point, but also have the services wrapper cycle around it. The consumer business was impacted earlier in the pandemic with the closure of the stores. Obviously, we sell a lot of those devices through the stores where you have a chance to really interact with the customer and explain the unique capabilities of those products. Obviously, as we've opened the stores more broadly, those trends have improved materially and we're definitely seeing that kind of GreatCall consumer side of the business ramp up. There is also just a question of broader health and fitness kind of writ large. And again, you probably know it from your own life, there are more people using technology devices whether it's at home fitness, whether it's monitoring and tracking your own fitness, there are more people using those devices. So we continue to like our positioning in the kind of broader health and fitness arena beyond just the kind of aging side of things. And then obviously, we continue to work on our relationships on the commercial side of the business where we work directly with the payers and providers. There continues to be significant interest. But you can imagine, there's a lot going on that side of the business just given the pandemic that we're working through, but the adoption of things like telehealth, the ability and frankly pull from consumers to use more tools like that only underscores the potential in that market we believe from here. Mike, maybe you want to comment on gaming? Michael Mohan: Yes, certainly. Mike, good question on gaming. I think maybe just some clarification. In Q3, we didn't call it out specifically that the gaming category high growth was driven from legacy devices, primarily products from Nintendo, peripherals and accessories. As we moved into Q4, the two new console launches from Microsoft and Sony are off to a great start and they reflected in the comments that Matt had at the start of the quarter. I think the only thing I'm giving perspective on is, there are going to be constrained through the quarter. And there will be more demand than there will be devices, which has been sort of a reoccurring occurrence every six or seven years. This year it's more heightened because more people I think than ever need something to do with their families at home. What we're excited about is the customer experience, steps we took to create the best experience on something constrained. These are two world-class partners, but bless their hearts, they didn't do us any favors the way they launched products. And so when we had pre-order demand, we set up everything from how you queue for it, how you booked an appointment so you wouldn't wait in line when you got your products. And as we get additional inventory during the holiday season, we were at least seeking of the way that you can find it on bestbuy.com and our digital channels and you can actually get it as a customer. We're trying to protect the experience so people who are trying to buy it and resell it or bought, I can't get through our site as easily as perhaps other places. It's a lot of work our technology and customer experience and operations teams are doing, but our goal is to get as many of these products into consumers' hands to delight them. What we can't tell you is how many we'll sell, because I actually don't know how many we're going to get, and that's probably indicative of everybody else you guys cover. I think the long-tail on this is going be pretty strong given the fact people want these devices at home and the early signs on people who are buying from Best Buy are new customers to us, slightly younger and we're excited about their ability to come back and visit us for peripherals and accessories. Hope that helps, Mike? Michael Baker: That does. Thank you. I appreciate it. Operator: Thank you. Our next question comes from Seth Basham with Wedbush. Seth Basham: Thanks a lot, and good morning. My question is around the store model test that you're doing first in Minneapolis and then secondly with piloted the warehouse adjacent or the drive-up. Can you give us some color as to the timing associated with measuring the ROI on that and the potential for rolling that out in 2021 to a broader group of stores? Corie Barry: I think we're going to need to give this one a little bit of time, obviously. And we said in the remarks, this is about a market working together to serve customers in the most effective way possible. And so this is the very first foray into fulfillment stores like this. And my guess – not my guess, I know. We will continue to try additional formats and additional ways that we will approach the market as we head into next year. And so we'll keep you apprised as we learn more, but we definitely want to give this one enough time, especially in a pandemic world where operations are different than what steady state might look like over time. So we are urgent with it, but at the same time, we want to make sure we give it enough time so that we capture as many learnings as possible in this real market-tailored approach. Seth Basham: Got it. Just to clarify, enough time, is that a six or 12-month type timeframe that you're measuring or even longer? Corie Barry: I don't see it being something that looks like three years, certainly. And I think a little bit of this depends on how the business normalizes back through the pandemic, through some of the economic implications. So it's not just about the timeline we set, it's also about making sure that we feel like we're getting accurate and real results for where the business is going to go from here. Seth Basham: I appreciate it. Thank you. Corie Barry: No problem. Operator: Thank you. Our next question comes from Curtis Nagle with Bank of America. Curtis Nagle: Good morning. Thanks very much for taking my question. Maybe just following up on Mike's question on gaming and just kind of how to think about what that business looks like for the rest of the quarter. Clearly, demand for these new consoles is out to control, good, although I think basically sold out at this point. So I guess with those consoles at least in kind of very limited stocks, do you think that suppresses demand or do you think that just booked as a category that people are obviously living into now and will remain maybe a hot gifting category and things remain good. How do you think about that going through the rest of 4Q? Michael Mohan: Hey, Curt. I'll start. I think it's a good question and it's not an easy one to give you an answer on other than the category itself and the desire for people to entertain their families and themselves with gaming type solutions is extremely strong, and that's applicable to things that are constrained like the new consoles from Sony and Microsoft. But we're still seeing incredibly strong demand for all the legacy products that you could argue have been in the market for a year and a half to two years. And what I think you're going to see is, as allocations continue to improve, we've always focused on the customer experience and execution of making sure those who need these devices get them as fast as possible that you could turns into the ability for us to get more products sooner, but this is one of those items that are hard to predict. I don't think you're going to see this pull any drag on demand. I think it will be the highest demand item for this holiday and we're going to work our best to get our unfair share of allocation to take care of as many customers as possible. Corie, would you add anything else to this? Corie Barry: No, that was perfect. Curtis Nagle: Okay. And then maybe just one other quick one. One other quick category question. Just thinking about health and exercise equipment, it's something I think you guys have focused on a little bit more this year for obvious reasons. How they're performing? How do you think that category looks through the holiday and next year? Is that an area of I guess continued expansion? Michael Mohan: That is another great question. We're excited about the category. We talked about it a couple of quarters ago, rolling out some products to our stores as the pandemic had started. As we think about the ability to communicate to consumers in this digital first world, we're more excited right now about expanding the assortment and working on logistics of getting some of these bigger products into people's homes, helping them get set up, in some cases getting stuff out of their homes. That's one of the big paying points people are seeing. I think we've got some excitement in this space, not just for this quarter, but as it moves forward into next year. And I think it's applicable to all these other kind of consumer connected health products that we might think of them as simply as a watch or the Fitbit that you're wearing today. But as you start to put them in concert with other devices that help you live a healthier lifestyle, we're working really hard to help show customers the various options and solutions you can get with a complete suite of things to help with your fitness and wellness needs. So we're very excited about the category. Curtis Nagle: Okay. Thanks, and good luck for the holiday. Michael Mohan: Thank you. Corie Barry: Thank you. Operator: Thank you. Our next question comes from Scott Mushkin with R5 Capital. Scott Mushkin: Hey, guys. Thanks. Thanks for taking my questions. So I was just wondering if you could talk about how you guys are thinking about next year as you're trying to comp this comp? What you can do to make it easier to go over? Matthew Bilunas: Sure. I'll start and Corie or Mike can jump in. I think overarching Corie kind of said this a little earlier, I think it's far too early for us to really comment on sales next year. Right now we're very, very focused on helping our customers meet their demand right now with the premium on safety for both them and our employees. So that's our first objective right now. I think there's still going to be a lot of factors for us to weigh as we move into the beginning of next year. Certainly, there is a continuation of elevated demand for things to work and learn and cook and entertain for home. And it's likely that some of that continues on as we go into the beginning of next year, but may start to subside a bit. There is still a heightened level of unemployment right now and likely to continue into next year as well. And clearly, we're not totally sure on how the vaccine starts to get distributed out to everyone. So there's a lot of factors that we're continuing to weigh in, which is primarily to – as well we have a whole holiday quarter ahead of us. And so we've got to see how that shakes out in addition to that. So I think what we can see, like I said earlier, is I think these elevated trends will likely continue a bit as we go into next year, but we'll likely have to take each quarter individually and look at the demand trends that we saw this year and try to understand what they look like next year. I think fundamentally, we are seeing that role of technology only intensifying people's lives, we've said this before. I think it's really proliferated – we've proliferated devices in people's homes and those devices need to continue to be supported. Those devices needed additional advancement and innovation as we go forward. And so we see a lot of opportunities ahead of us. Each quarter will present its own unique challenges and we'll work through that and we'll give more update on next year as we get towards the end of the year. Scott Mushkin: And kind of along that lines, how are you thinking about the inflation, both from a product perspective, but also from a wage perspective? And I'll yield. Thank you. Matthew Bilunas: Sure. Maybe starting with the wage perspective, this year, we clearly went to move to $15 an hour with our sales within our stores. And so we'll continue to approach increases based on our processes as we go forward. So we've taken a fairly large step forward this year in terms of setting our minimum wage to $15 an hour. So from a wage perspective, we feel like we're very competitive with the wage and all the other benefits that we offer our associates. From a macro perspective, a little early to know exactly how inflation takes hold next year. There is always some level that we're factoring in, but overarchingly, it's not something that we are too worried about at this point. Corie Barry: I think structurally what the team has done an excellent job with is investing in our employees and then finding ways for us to meet the customer needs in the most flexible way possible. I think about this kind of like as efficiencies that are in service of the customer. So whatever the inflation kind of environment looks like, what we're focused on is making sure we find the balance between what we need to do for our people and how we can best operate the business. Corie Barry: And so with that, I'm going to end where we started. I want to thank all of our customers, our employees for the amazing work that they've been doing and the effort that they put forth through really incredibly different and challenging times. And thank you to all of you for joining us today. We hope you have a safe and happy holiday. Operator: Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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Best Buy Reports Strong Q2 Results, But Shares Plummet 5%

Best Buy Co., Inc. (NYSE:BBY) shares plunged more than 5% on Wednesday despite better-than-expected Q2 results and reaffirmed guidance for the balance of 2022.

Q2 EPS came in at $1.54, better than the Street estimate of $1.29. Revenue was $10.33 billion, compared to the Street estimate of $10.29 billion.

The company expects Q3 comp to decline slightly greater than Q2 levels of (12.1%). On a three-year-stacked basis, Q3 guidance implies comps of 11–13%.

While the analysts at Oppenheimer look favorably upon longer-term prospects for the company and admire the efforts of management to reposition the company, they recommend investors await clearer indications of top-line recovery, before moving into shares.