Best Buy Co., Inc. (BBY)

BBY 
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Best Buy (BBY)

Q3 2012 Earnings Call

December 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

Scot Ciccarelli - RBC Capital Markets, LLC, Research Division

Anthony C. Chukumba - BB&T Capital Markets, Research Division

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

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Gary Balter - Crédit Suisse AG, Research Division

David Gober - Morgan Stanley, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Michael Lasser - UBS Investment Bank, Research Division

Michael Baker - Deutsche Bank AG, Research Division

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

Presentation

Operator

Thank you for standing by. Welcome to the Best Buy's conference call for the third quarter of fiscal 2012. [Operator Instructions] 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 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 third 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 hand the call over to Brian, I'd like to take care of a few housekeeping items. [Operator Instructions] 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.

You will also note that our reported results this morning include non-GAAP financial measures excluding the gain on sale of investments as well as the impact of restructuring charges, which are largely related to the restructuring activities we announced on November 7. These results should not be confused with the GAAP numbers we reported this morning in our earnings release and in the GAAP numbers we report in our 10-Q. In addition, the 2012 fiscal year adjusted guidance we'll be discussing today excludes the gain on sale of investments and the impact from restructuring charges, estimated impairment charges and the purchase of CPW share of the Mobile profit share agreement.

For a GAAP to non-GAAP reconciliation of our reported to adjusted results and guidance, please refer to the supplemental schedules in this morning's news release. Also, we refer to free cash flow in today's results in our discussion today. Our definition of free cash flow is operating cash flow minus CapEx.

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

Brian J. Dunn

Good morning, everyone, and happy holidays and thank you for joining us on our third quarter earnings conference call. My comments this morning will focus on our third quarter performance and what we have seen at this early stage in this holiday season. First, I want to take this opportunity to thank our employees for their world-class execution this quarter. I am especially proud of their extraordinary efforts in serving our customers during Black Friday weekend.

For me, the key takeaways of the quarter were: we took decisive actions to drive our business, specifically in revenue and market share, both in-store and aggressively online. These actions, while negatively impacting gross margin, significantly resonated with customers and resulted in improved traffic and comp sales, including a significant increase in our online growth. We still have most of the holiday season in front of us, and we are on track to deliver both our revenue and earnings guidance for the year as adjusted. We remain committed to utilizing our strong cash flow to both invest in the profitable segments of our business and improve returns via share repurchases.

I'd also like to highlight the strategic announcements we made on November 7. These structural changes are critical elements in driving our strategy in the future and improving returns for our shareholders. All of these actions are expected to be accretive to adjusted operating income and EPS next year and beyond.

On balance, we continue to execute well on, and benefit from, the 3 foundational elements of our strategy: one, our unique multichannel approach that allows us to connect with customers wherever and whenever they want to shop; two, optimizing our scale to drive growth to new categories, new store formats and to gain share in key categories; and three, leveraging our financial strength and flexibility.

In a moment, we'll take a closer look at our third quarter results in the context of this strategy. But first, I want to comment briefly on what we saw in the marketplace. We were at the early stage of the holiday season. But as we've all observed so far, retail has been very promotional and consumers have been value-conscious. As we'll talk about later, we purposely plan to take a leadership stance in the marketplace and step up our promotional efforts to do so.

In terms of our Domestic sales performance, our Domestic comp was up 1% for the quarter and was strengthened by November's performance. Our in-store comps on Black Friday were strong, helping us to deliver overall comp of 7% for the day. We're pleased that traffic and comp sales were up across all channels for the quarter, including at the store level and very strong growth in our dot com channel.

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