Best Buy Co., Inc. (BBY)

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Best Buy, (BBY)

Q2 2012 Earnings Call

September 13, 2011 10:00 am ET

Executives

Bill Seymour - Vice President of Investor Relations

Michael A. Vitelli - Executive Vice President and President of Americas-Enterprise

James L. Muehlbauer - Chief Financial Officer, Executive Vice President of Finance and Chief Financial officer of Best Buy U S

Brian J. Dunn - Chief Executive Officer and Director

Analysts

Daniel T. Binder - Jefferies & Company, Inc., Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Gary Balter - Crédit Suisse AG, Research Division

Colin McGranahan - Sanford C. Bernstein & Co., Inc., Research Division

Alan M. Rifkin - Barclays Capital, Research Division

Peter J. Keith - Piper Jaffray Companies, Research Division

Michael Lasser - UBS Investment Bank, Research Division

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

David S. Strasser - Janney Montgomery Scott LLC, Research Division

Presentation

Operator

Welcome to the Best Buy's Conference Call for the Second Quarter of Fiscal 2012. [Operator Instructions] And as a reminder, this call is being recorded for playback and will be available by 12:00 p.m. Eastern Time today. [Operator Instructions] I would now like to turn the conference over to Mr. Bill Seymour, Vice President of Investor Relations. Please go ahead.

Bill Seymour

Thank you, Alicia. Good morning, everyone. Thank you for joining us on our fiscal second quarter 2012 conference call. We have 2 speakers today, Brian Dunn, our CEO; and Jim Muehlbauer, our CFO. And after our prepared remarks, we should have plenty of time for your questions.

Before I pass the call over to Brian, I'd like to take care of a few housekeeping items. [Operator Instructions] And let me remind you that comments made by me or by others representing Best Buy may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations.

With those housekeeping items aside, I'd like to turn the call over to Brian Dunn.

Brian J. Dunn

Good morning, everyone, and thanks for joining us on our second quarter earnings conference call. My comments this morning will focus on our second quarter performance, how we're progressing on our strategic priorities and how we see the rest of the year playing out. But before I jump into my comments on the quarter, I would like to thank our employees for another quarter of outstanding effort in bringing the Connected World to life for our customers across all of our channels and geographies. I'm especially proud of the way our teams in London pulled together to ensure the safety of their employees and customers during the riots in London last month and how our U.S. employees helped their communities and each other through the extreme difficulties of Hurricane Irene and the recent battering of the East Coast. We continue to execute on our strategy in times of challenge and continue to see opportunity. We're responding to the needs of our customers in each segment and channel where we conduct business.

Before I turn it over to Jim for more specific details, I want to put our results and outlook in the context of our overall business strategy. As you know, our strategy is to drive the 3 elements: one, our financial strength and flexibility; two, a unique multichannel approach that allows us to connect wherever and whenever people shop; and three, optimizing our scale to drive growth through new categories, new store formats and share gains in key categories.

Let's begin our look at the financial strength that is enabling us to continue to invest and return value to our shareholders. Looking at the big picture worldwide, we're still facing an uncertain macro environment with volatile consumer shopping behavior, and this was evident in our results for the second quarter. Despite that, we generated significantly more cash in Q2 and ended the quarter with more than $2 billion of cash on hand. Our free cash flow was $1.1 billion in the first half. This has helped us to continue to fuel our share repurchase strategy and we were on target -- we are on target to buy back approximately $1.5 billion for fiscal year 2012. We remain disciplined in our use of capital while continuing to invest for growth geographically, by channel and by category.

Geographically, in China, we are continuing our rapid rollout of Five Star stores. We added 7 more stores in the second quarter, taking us to a total of 178. In addition, Five Star's continuing operations were once again a highlight of the quarter, delivering 7% comps and increased margins. In Canada, where we are facing a challenging economic environment very similar to that of the U.S., the team did a great job of delivering solid gross margin rate improvement. And we continue to see solid performance in Mexico. While the contributions of our Mexican operations are still relatively small within the context of our enterprise, we are pleased with the growth in revenue and gross profit rate the team posted this quarter. Our performance in Europe reflected the challenging economic situation and the resulting effect on consumer spending.

In our Domestic segment, we've made solid progress on the strategic initiatives we introduced earlier this year while prudently managing our business. Beginning with our channels, last week we launched the Best Buy Marketplace. That allows third-party sellers to offer thousands of additional products through BestBuy.com and enables us to expand our range of assortments, price points and brands. Marketplace is one step in our plan to double our domestic online revenue in the next 3 to 5 years.

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