Best Buy Co., Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's Q4 2019 Fiscal Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press star 1 on your touchtone phone. If you choose to be taken out of the questioning queue, please press star 2. As a reminder, this call is being recorded for playback. It will be available by approximately 1 p.m. Eastern Time today. If you need assistance on the call at any time, please press star zero and an operator will assist you. I'll now turn the conference over to Molly O'Brien, Vice President of Investor Relations.

Thank you and good morning, everyone. Joining me on the call today are Hubert Jolie, our Chairman and CEO, and Corey Berry, our CFO. 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, investors.bestbuy.com. 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 10K 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. As a reminder, The fourth quarter we are reporting today includes 13 weeks compared to last year's 14-week quarter. We estimate the extra week last year was approximately $760 million in revenue and approximately 20 cents of non-GAAP diluted EPS. Last year's extra week is excluded from our comparable sales calculations. I will now turn the call over to you, Bear.

Good morning, everyone, and thank you for joining us. I will begin today with a review of our fourth quarter in our fiscal 2019 annual performance. who will provide an update on our progress as we implement our Best By 2020 Building the New Blue strategy, and I will discuss our priorities for fiscal 2020. I will then turn the call over to Corey for additional details on our quarterly results and our financial outlook. So first, we are very proud of the financial results we've just delivered. In the fourth quarter, we grew our enterprise comparable sales by 3%, which is on top of 9% last year. We also expanded our non-gap operating income rates, by 30 basis points and delivered non-GAAP deluded EPS of $2.72, which is up 23% compared to last year excluding the extra week. On a reported basis, including last year's extra week, our non-GAAP EPS was up 12%. On a full year basis, we grew our enterprise comparable sales by 4.8% on top of 5.6% in fiscal 2018. This is the best. two-year stacked comparable sales in 14 years. We expanded our operating income rate approximately 10 basis points and grew our non-GAAP EPS by 26% on a 52-week comparable basis. I note that with the annual revenue of $42.9 billion and non-GAAP operating income of $2 billion we just delivered, we essentially met our fiscal 2021 targets provided at our investor day in 2017, two years earlier than we said we would. From a capital allocation standpoint, we returned $2 billion to our shareholders through dividends and share with purchases. And our non-GAAP return on invested capital now stands at 25.8%, indicating that our formula of investments in our future, revenue growth and cost takeout, is producing very attractive returns. In addition to these strong financial results during fiscal 2019, we also made significant progress implementing our Best By 2020 strategy to enrich lives with technology and further develop our competitive differentiation. Let me provide some highlights, starting with our customers. Our customers are noticing the improved experience we provide them as they interact with us digitally, in stores, or in their homes. For the year, our net promoter score increased more than 300 basis points, and our brand love with our core customer segment also rose more than 300 basis points. We saw our customers increasingly interact with us across all of our channels, driving revenue growth in our stores, online, and in our in-home channel. I note in particular that 22% of the domestic business in Q4 came through the online channels. Our success with our customers is driven by the enthusiasm and the talent of our employees. Our employee engagement scores remain remarkably high, and we further reduce turnover rates in our stores to new record lows. Strategically, we've made progress in expanding what we do for our customers and how we interact with them. Here are a handful of examples. The first example is the launch of our Total Tech Support Program. Having a service that provides members unlimited Geek Squad support for all their technology no matter where or when they bought it is a compelling and unique value proposition for our members. We continue to be pleased with the customer enrollments and ended the year with more than one million members. Another example is the expansion of our in-home advisor program. During fiscal 2019, we expanded the program from 300 to approximately 530 advisors, and provided more than $175,000 free in-home consultations to customers across the nation. The revenue per order that we generate from these interactions continues to be much higher than in the store and online, and it tends to have a higher gross profit rate as well due to the basket and higher attached rate of paid services. Both employees and customers love it. The net promoter score is high, and the advisor-employee turnover is low. In health, we acquired a leading connected health services provider for aging consumers, Great Call, and took a tangible step forward in our strategy to help seniors live longer in their homes with the help of technology. Since we acquired the company in October, the integration has been seamless, and the value creation opportunities we envision have begun to materialize. During fiscal 2019, we continued to elevate the customer experience around product fulfillments, enabled by the advancement of our supply chain transformation. For small products, through a combination of initiatives, including expanded partnerships and automation, we continue to improve our speed of delivery to customers and expanded next day and same day delivery options. We now offer same day delivery on thousands of items in 40 metro areas and next day in 60 metro areas. And of course, customers also have the option to pick up their products in our stores within one hour of placing their order. For large products like appliances and TVs, we expanded our distribution center capacity and brought locations closer to customers, which is driving significant improvements in the quality of our delivery and installation service. In parallel to the customer experience work, we continued to drive efficiencies and reduce costs in order to fund investments and offset pressures. During fiscal 2019, we achieved $265 million in annualized cost reductions and efficiencies, bringing the cumulative total to $500 million since Q2 fiscal 2018. This is towards our fiscal 2021 goal of $600 million, and since the launch of RenewBlue in 2012, we have now taken $1.9 billion of cost out. In addition to these accomplishments, we're very proud of our progress in advancing our corporate social responsibility and sustainability efforts. In fact, we were just named number one on Barron's annual 100 Most Sustainable Companies list. So in summary, we're very pleased with the results we are producing as we implement our Best Buy 2020 strategy, and I so appreciate the hard work of our associates, as well as our partners, in driving these terrific results, and I want to recognize them publicly here. So as we look forward, we are excited about the opportunities ahead of us. Before I say more about these, let me say a few words about the economic environment. There has been much discussion about the economy. I would note that the latest Bloomberg composite forecast, which aggregates a basket of economic forecasts, calls for consumer spending to increase 2.7% in 2019, which is similar to 2018 levels, and another 2.1% in 2020. So on this basis, we expect to continue to operate in a positive consumer environment in 2019. Now, beyond this, what drives our performance is primarily two factors, technology innovation and innovation the relevance of our strategy and quality of our execution. In this context, we are excited by the opportunities related to technology innovation that have the potential to drive customer demands over the next several years. These come in three shapes, expanded penetration of existing technology, introduction of new technology in existing categories, and expansion of consumer technologies in new areas. Notably, In existing categories like home theater, we see opportunities related to increasing penetration of large screen sizes, 4K, and OLED, and from the introduction of new technologies such as 8K. In mobile, we see new technology innovation in areas like wireless power, security, and accessibility. We're also excited to watch as foldable phones emerge over the next several months. And, of course, we'll be actively participating in the rise of 5G, which has the potential, to unlock very interesting use cases over the next several years. In computing, the interest in gaming continues to accelerate and the performance necessary for this is driving innovation across both hardware and accessories. We also see significant opportunities in smart home technology. Notably, the US retail market size of Internet of Things connected hardware is forecasted to triple by 2025. This growth is buoyed by products like smart home connected cameras, which according to a recent report from consulting firm Activate, are expected to grow from 18% penetration of US homes in 2018 to more than 50% penetration by 2022. We also believe that digital health is an exciting area with enormous opportunity from the use of technology to help customers with their health, fitness, sleep, et cetera, across multiple age groups from babies to seniors. As an illustration of the opportunity, the number of digital health exhibitors at the Consumer Electronics Show in January was up almost 25% versus last year. The next reason we're excited about the opportunities ahead of us is we believe the purpose driving our strategy is extremely relevant. Our purpose is to enrich lives through technology by addressing key customer needs in areas such as entertainment, productivity, communications, food, security, and health and wellness. We are encouraged by the first steps we have taken in this direction and see the potential from expanding this focus to build deeper, lasting customer relationships. In parallel to this, we continue to be excited by the potential for further cost reduction opportunities that can help us fund the investments in our strategy and offset pressures in the business. Finally, I am particularly excited by the power of our incredibly talented people who are engaged, customer-oriented, and driven by our purpose and strategy. As you know, we've recently realigned senior roles, responsibilities, and resources to better align with the strategy, and we can already see this has the potential to accelerate our pace. Altogether, This gives us the sense that now is the time to play offense, to play to win, and to accelerate our transformation, both from a customer and revenue standpoint and from an efficiency standpoint. So with this as a backdrop, let me talk about our priorities for fiscal 2020. At the highest level, our priority is to continue to transform the company in support of our purpose to enrich lives through technology by bringing to market solutions that solve real customer needs and by building customer relationships. As such, we will continue to expand what we do for customers. So, as it relates to total tech support, we plan to grow the member base and improve the experience by adding new capabilities around self-service and proactive support. We will continue to expand our health business by scaling both the great call consumer devices and services and the commercial monitoring service with a focus on the senior population. As children of aging parents, many of us will appreciate the potential power of our health monitoring service that enables seniors to live longer in their homes while reducing related healthcare costs. We're currently in pilots with a number of managed care organizations, and over time, we believe this could become a material growth opportunity for us. Now, we're not the only company who is interested in the digital health space, but we believe Our unique focus that combines our technology solution, our talent, and our ability to go to people's homes gives us a unique advantage. In support of our strategy, we'll continue to work with our vendor partners in new and expanded ways that leverage our unique capabilities to meet the needs of our customers. For example, we've partnered with several vendors to create offers for our total tech support members, and many partners are engaged and in line to train support and create solutions for our in-home advisors. In parallel, we will continue to evolve the way we interact with our customers. In the home channel, we will continue to expand our in-home advisor program, including adding advisors and investing in tools to maximize their productivity. Our in-home advisor program is just one of the ways that we deliver experiences in the home today, and so we are developing a holistic home channel strategy to leverage all of the ways we currently interact with customers in the home to create meaningful relationships and further differentiate Best Buy. From a digital standpoint, we'll continue to innovate and design multi-channel experiences that solve customer needs across our website, app, and other channels in ways that continue to improve the experience across online and physical shopping. We will continue with our supply chain transformation, including using technology, automation, and process improvements to expand fulfillment options, increase delivery speed, and improve delivery and installation. And we will continue to enhance both the proficiency of our associates and optimize the way they work in order to drive stronger customer relationships and fulfill our customers' unique needs. In addition, as has been our brand over the last several years, we will keep driving cost reductions and efficiencies throughout the business. We've been on a run rate of more than $250 million in annualized reductions for the past two years, and we are not planning to slow down. So, in conclusion, we are energized by our results, our momentum, and our opportunities as we implement our Best By 2020 strategy. As we look at our fiscal 2020 guidance specifically, We're expecting comparable sales growth of 0.5% to 2.5%. This growth expectation is, of course, on top of the best two-year stack in 14 years and reflects factors such as the anticipated cyclical slowdown of the console gaming category and the continued maturation of the mobile phone category. We are again planning to hold our operating income rate constant, reflecting our focus on balancing investments, in our strategy, pressures in the business and efficiencies. We like the continued rate of technology innovation and the capabilities technology can bring to people's lives. We like our opportunity to offer customers a more consultative approach to truly address their needs, provide them an increasing range of services and solutions, expand our relationship with them and become a bigger part of their lives. And we particularly like the opportunities we have in the Connected Health space following the acquisition of Great Call. And now, I'd like to turn the call over to Corrie for more details on our Q4 performance in our fiscal 2020 guidance.