Best Buy Co., Inc. (BBY)

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Best Buy Co., Inc. (BBY)

F4Q13 Earnings Call

March 1, 2013 9:00 am ET


Bill Seymour – Vice President-Investor Relations

Sharon McCollam – Executive Vice President and Chief Financial Officer

Hubert Joly – President and Chief Executive Officer


Katharine McShane – Citigroup Global Markets Inc.

Anthony Chukumba – BB&T Capital Markets

Gary Balter – Credit Suisse Securities LLC

Chris Horvers – JPMorgan

Joe Feldman – Telsey Advisory Group



Ladies and gentlemen, thank you for standing by. Welcome to Best Buy’s Fourth Quarter Fiscal 2013 Earnings Conference Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session (Operator Instructions). As a reminder this call is being recorded for playback and will be available by 12 p.m. Eastern today. (Operator Instructions) The call will end at 9.50 am Eastern Time.

I would now like to turn the conference over to Bill Seymour, Vice President of Investor Relations.

Bill Seymour

Good morning, and thank you for joining us on our fiscal fourth quarter 2013 conference call. As usual, the media are participating in this call in a listen-only mode. Let me remind you that comments made by me or by others representing Best Buy may contain forward-looking statements regarding what we will expect, plan or intend to do in the upcoming year and beyond. It is important to keep in mind that any such statements remain subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management’s expectations.

Please note that our reported results this morning include non-GAAP financial measures. These results should not be confused with the GAAP numbers we reported this morning in our earnings release or with the GAAP numbers we will report in our 10-K. For GAAP to non-GAAP reconciliations of our reported to adjusted results and guidance, please refer to the supplemental schedules in this morning’s news release.

As a reminder, to assist you with our modeling, fiscal 2013 was a 53 week year versus 52 weeks in fiscal 2012. The extra week in fiscal 2013 was in the first quarter. The extra week of fiscal 2013 added approximately $700 million or 1.5% in revenue or $0.12 or 3% in non-GAAP EPS.

Now, I would like to turn the call over to Hubert Joly, our President and CEO.

Hubert Joly

Well, good morning everyone and thank you for joining us. I would like to begin today with an overview of our fourth quarter results and our priorities for fiscal 2014. Then, I will turn the call over to Sharon McCollam, our new Chief Administrative and Chief Financial Officer to provide further details.

But before we get started, I would like to officially introduce Sharon to all of you in our new role. As many of you know, Sharon joined us in early December. She came out of retirement after serving for many years as the Chief Operating Officer and Chief Financial Officer at Williams-Sonoma. Since she joined us, we’ve expanded her role and she is now leading our finance, IT, real estate, and supply chain operations. And of course, our in-depth expertise in these areas has made her an instantly powerful contributor to our transformation and work field that she is here. So welcome Sharon.

I would now like to talk about our better-than-expected results for the fourth quarter. On revenue growth of 0.2%, we delivered non-GAAP diluted earnings per share of $1.64. Adjusted free cash flow for the year reached $965 million as we aggressively reduced inventories and focused on working capital and cash flow management. We ended the year with $1.8 billion in cash. To deliver these results, renewed momentum in the domestic business more than offset continued softness in international.

Domestic comparable store sales increased 0.9% with an overall 10 basis point decline in the gross profit rate. Domestic online revenue increased 11% and so these better-than-expected results were driven by compelling assortment of new products in key growth categories, increased blue-shirt training, higher customer engagement in our retail stores, and impactful traffic generating marketing initiatives. It was a quarter that was driven, not given. And we are encouraged by the intensity collaboration and momentum that was generated by both our front line and corporate teams as we began to execute against our Renew Blue initiatives.

Now looking on to build on this momentum in fiscal 2014, we remain focused on the true problems we have to solve, stabilizing, and in improving our comparable store sales and increasing profitability, across our global businesses. We recognized however that 2014 is a year of transition, and that further investment will be required to advance our Renew Blue transformation.

To achieve this I’d like to highlight six of our Renew Blue priorities that we will be pursuing in fiscal 2014, including number one, accelerating online growth; number two, escalating the multichannel customer experience; number three, increasing revenue and gross profit per square foot to enhance store space optimization and merchandising; number four, driving down cost of goods sold to supply chain efficiencies; number five, continuing to gradually optimize the U.S. real estate portfolio and number six further reducing our SG&A costs.

In addition, improving the performance of our international businesses will be another key priority. All of these priorities are currently underway and we expect each of them to deliver gradual and incremental operating improvement throughout the year. I’d now like to provide additional color on each of these priorities.

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