Best Buy Co., Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Best Buys Fiscal Year 24th Quarter Earnings 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 choose to ask a question, you will need to press star 1 on your 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 and will be available by approximately 11 a.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 call over to Molly O'Brien, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you, and good morning, everyone. Joining me on the call today are Corey Berry, our CEO, Matt Ballounis, 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, 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 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 Cori.

Good morning, everyone, and thank you for joining us. Today we are excited to report strong Q4 results with revenue of $15.2 billion and non-GAAP earnings per share of $2.90. Our enterprise comparable sales growth for the quarter was 3.2% above the high end of our guidance range and on top of 3% last year. We are posting our 12th straight quarter of comparable sales growth and showing our strength as a successful multi-channel retailer who can meet customers when and where they want. We offered compelling holiday deals that resonated with customers and provided a seamless shopping experience, great inventory availability, and fast, free delivery. Across online, home, and stores, we are fulfilling our purpose to help enrich people's lives with technology while also helping technology companies commercialize their product innovations. Our domestic segment comparable sales were up 3.4%. From a product category standpoint, the comp growth was driven by strength in headphones, computing, appliances, mobile phones, and tablets, partially offset by gaming. We also saw continued growth from our transformative initiatives like total tech support and in-home consultation. The enterprise Q4 non-GAAP operating income rate of 6.5% was better than we expected due to lower SG&A expenses. On the gross profit rate lines, the mix of products we sold in the quarter drove a lower rate than we anticipated. For the full year, we grew enterprise comparable sales 2.1%, expanded our non-GAAP operating income rate 30 basis points, and increased our non-GAAP earnings per share 14% to $6.07. We also returned $1.5 billion to our shareholders through dividends and share repurchases. In summary, we are proud of these results, and I want to thank all of our associates for their hard work, commitment to serving customers, and amazing execution as we navigated ever-increasing customer expectations, a consistently competitive retail environment, and a challenging tariff situation. Against that backdrop, our associates also continue to drive significant progress against our Building the New Blue strategy. We believe our strategy will uniquely position us over the long term by leveraging our combination of tech and touch to meet everyday human needs and build more and deeper relationships with customers. Let me provide some highlights of our progress, starting with how we are better serving our existing customers. We continue to innovate and design digital experiences that solve customer needs across online and physical shopping. This includes enhancing our digital shopping platform with new functionality and evolving our marketing strategies to drive engagement with our customers, with a particular focus on our app. Our app continues to see strong customer ratings, and usage grew significantly through the year. In fiscal 20, customer visits to the app were up 22% overall, and usage of our app within our stores was up approximately 17%. Customers on the Best Buy app engage with us eight times more frequently than those who solely use our website or mobile sites. At the same time, we continue to transform our supply chain using automation and process improvements to expand fulfillment options, increase delivery speed, and improve the delivery and installation experience. We also continue to improve the buy online, pick up in store experience for our customers, including the introduction of curbside pickup and alternate pickup locations. As a result of all the work our teams have done throughout our supply chain transformation, in Q4, we promised free next day delivery on thousands of items all season long to 99% of our customers with no membership or minimum purchase required. And we also promised online customers who wanted to pick up in store that their items would be ready within one hour of placing an order. As a result, store pickup was up over 500 basis points to 42% of online sales in Q4. All of these improvements were made with our customer experiences in mind, and they contributed to continued online growth for the year. We saw particularly strong results in the fourth quarter, where online sales grew 18.7% and represented 25% of our total domestic revenue. For the year, online sales represented almost 20% of our domestic revenue. We also focused on enhancing the in-home experience for our customers. During fiscal 20, we expanded our in-home consultation program from 530 to 725 advisors. This, combined with tools to maximize their productivity, helped us decrease the amount of time customers were waiting for an advisor appointment, a key driver of NPS and close rates, and allowed us to provide more than 250,000 free in-home consultations to customers across the nation. Both employees and customers continue to love it, The net promoter score for purchasers is high at 87, and the advisor-employee turnover remains low. Additionally, we are now seeing a growing percentage of repeat purchases as customers develop and take advantage of their relationship with their advisors. This, of course, was the intent when we began the program, and we're delighted to see these relationships being built as we continue to increase investment in technology that is perfectly suited to this new kind of seamless customer interactions. Providing 24 by 7 support for all their technology needs is another way we build relationships with our customers. Our total tech support program grew steadily during fiscal 20 to end the year with almost 2.3 million members. It continues to get strong customer reviews and members spend more and are twice as likely to use other services than non-members. The average member uses the program approximately 2.5 times per year. During the year, we also rolled out pilots to test new member-requested benefits related to networking, parental controls, and data storage. We also made progress on our initiatives to capture new demand and enter new spaces. In fiscal 20, we became the nation's largest physical destination in terms of points of presence for Apple-authorized repair services, including same-day iPhone repairs. Almost 40% of these Apple repair customers are either new to Best Buy or haven't made a purchase in the last year. Turning to Best Buy Health, during fiscal 20, we continued to advance our initiatives designed to help seniors live longer in their homes with the help of technology. We successfully integrated two additional acquisitions that have given us unique and essential capabilities and infrastructure, talent, and a base of customer relationships to build from. We are encouraged by the integration with Best Buy and the conversations we are having with potential partners. Of course, our success with customers and the progress we are making on our Building the New Blue strategy is driven by the enthusiasm, talent, and purposeful leadership of our employees. During fiscal 20, we continue to invest in wages, training, and many new employee benefits, including paid time off for part-time employees, paid caregiver leave, expanded mental health benefits, enhanced adoption assistance, and a new surrogacy assistance benefit. Our employee engagement is high, and our turnover rates in our stores remain in the low 30% range, compared to 50% five years ago. Additionally, our average store general manager has been in his or her store for about six years, which is incredibly important from a store leadership and community perspective. In parallel to the customer experience work during fiscal 20, we continued to drive efficiencies and reduce costs in order to fund investments and offset pressure. In the middle of the year, we completed the existing $600 million cost reduction target that we had set in fiscal 18. In September, we announced our new target of an additional $1 billion in annualized cost reductions and efficiencies by the end of fiscal 25. We achieved approximately $160 million toward our new goal in the back half of the year. We are also proud of our progress in advancing our corporate social responsibility and sustainability efforts. In fact, we were just named to the top five on Barron's annual 100 Most Sustainable Companies list for the third consecutive year. You can find more information about our efforts in our annual corporate responsibility and sustainability report, which can be found at investors.bestbuy.com. Similarly, I would like to note our progress related to our teen tech centers, a program we are very proud of and passionate about. These centers are after-school learning spaces equipped with cutting-edge technology where teens learn new tech skills, gain exposure to new career possibilities, and benefit from positive adult and peer relationships. We have added 11 teen tech centers in the past year for a total of 33 locations across the country. Moving forward, we will continue to invest in this program with plans to open 11 new centers this year. And we know this work is making a difference. 91% of teens say they are more optimistic about their futures because of their time at the teen tech centers, and 73% say they are interested or very interested in studying some aspect of STEM in the future. I'm also incredibly proud to report that Best Buy was once again the top partner for the St. Jude Thanks and Giving Campaign, helping raise a record $22 million through customer and employee donations in our stores and online this holiday season. That pushes our cumulative total to more than $100 million raised for the kids of St. Jude since we first partnered in 2013. As we enter fiscal 21, we are excited about our opportunities and are encouraged by our momentum. As a reminder, back in September, we set three fiscal 25 targets focused on employees, customers, and financials. to be one of the best companies to work for in the U.S., exemplified by being named to Fortune's 100 Best Companies to Work For list. Second, double the number of significant customer relationship events to 50 million. This includes total tech support memberships, homes visited, active digital engagement, financial services, and senior lives supported. And third, deliver continued top and bottom line growth over time, specifically to get to $50 billion in revenue and a 5% non-GAAP operating income rate in fiscal 25. We believe our strategy will translate to an economic model that delivers results by better serving existing customers, capturing new demands, entering new spaces, and building capabilities while maintaining profitability over time. I would like to highlight some focus areas for this year. First, in service of our existing customers, we will continue to bring our deep CE expertise and unique ability to partner with vendors to commercialize their new technology, offering customers great products and solutions. In this context, we are excited by the opportunities related to technology innovation over the next several years. As we have discussed previously, these are technologies like 8K, OLED, dual-screen notebook computers, foldable phones, consumer health products, connected fitness, new gaming consoles, and new products that leverage 5G capabilities. We will also launch new categories where we can leverage our digital-first mindset supported by our expertise around curation and supply chain. Some of these will be online only and include areas such as hearing aids, sustainable living products, expanded connected fitness initiatives, and travel and luggage. These are categories that we believe our customers would expect to find at Best Buy. From a digital standpoint, we will continue to drive engagement with customers during their shopping and ownership journey, while making it as seamless as possible for customers as they interact with us across channels. For example, in the app, we will make it much easier for customers to discover and benefit from the support services we offer, including scheduling appointments, which is something that currently requires a separate app download. We also plan to utilize location data to make it even easier and more intuitive for customers in the app to see both product availability and the expanding options for fulfillment. From an in-home standpoint, we will continue to enhance the experience for customers, while at the same time testing new opportunities for growth and becoming more efficient in the way we are serving customers in their homes. As I mentioned earlier, we now have over 720 in-home advisors, and we continue to receive great customer feedback. In fiscal 21, we are testing new tiered advisor roles that will match the right employee with the right customer needs. We are also continuing to enhance our clienteling technology platform to drive better customer experiences. For example, the platform can increasingly help our advisors use knowledge about their client's current and future needs to proactively communicate new promotions and product launches over time that can help meet those customer needs. In addition to our in-home advisors, we also have approximately 900 Magnolia system designers, all of whom are supported by nearly 6,000 Geek Squad agents who are trained in premium home theater and custom installation. Looking forward, we see an opportunity to build upon all of these great resources collectively to enhance the customer experience. Our stores remain incredibly important and must work in tandem with our digital and in-home experiences. In fiscal 21, we will continue to enhance both the proficiency of our store associates and optimize the way they work in order to drive stronger customer relationships. We are also investing in technology, including the rollout of electronic shelf labels to all of our stores to enhance the customer experience and generate cost savings through added efficiency. Additionally, we will test and learn from a small number of new store and remodel pilots with a focus on fulfillment and differentiated shopping experiences for our customers. We will continue to develop and hone our local market focus by leveraging the strategic changes we made last year to our field operations. Designed to create a more seamless experience across channels, these changes put single leaders in a position to be accountable for stores, services, supply chain, and home propositions in their market. These leaders are supported by a channel-agnostic program centered around insights, data, and analytics to view a market's largest opportunities and fast-track initiatives to accelerate growth. In total tech support, our focus will be on driving new memberships and ensuring our members continue to see the offering as something they can't live without. We know that our members tend to use the offering more in the initial months after becoming a member, and our goal is to continue to see the usage increase over time across their membership. As we shared with our investor update last September, we see an opportunity over time to evolve our many customer memberships. which also includes our millions of My Best Buy customers. We plan to roll up pilots during the year as we work on the best way to simplify offerings and move from managing the economics offer by offer, which is how we look at it today, to a more holistic and streamlined offering that is centered on the customer. Turning to our focus on capturing new demand and entering new spaces, in fiscal 21, we plan to expand our lease-to-own purchase options by building awareness throughout the year and then adding an option for customers to use Lease to Own for online transactions in the third quarter. Now I would like to talk about Best Buy Health. As we've shared before, most of the seniors we currently serve are utilizing easy-to-use mobile phone products and connected devices that are tailored for seniors and come with a range of relevant services. For example, with our health and safety services, customers can talk to U.S.-based, specially trained agents who can connect them to family caregivers provide concierge services, and dispatch emergency personnel. As we enter fiscal 21, there are a number of developments that we believe will accelerate the growth of this direct-to-consumer business. First, we are launching a number of new products and services, including a new mobile medical alert device, also called PERS, a wearable device, and apps designed for both seniors and their caregivers. Second, we are enhancing the customer experience in our Best Buy stores. This includes expanded shelf space and merchandising presentation, as well as the ability for sales associates to help customers activate their devices at the time of purchase, so they can start using the services right away. Third, we have a new distribution agreement with Walgreens to carry our new PERS device in 6,600 Walgreens stores across the country and Walgreens.com. Fourth, We signed a new AARP agreement whereby the organization's 38 million members will get exclusive discounts on our health and safety devices. At the same time, we will continue to focus on the commercial health opportunities, where the services we provide for seniors are paid for by health plans, health systems, and others in the senior care industry. There is a high level of interest in our unique combination of tech and touch. and the potential we have to reduce healthcare costs and bring greater peace of mind for seniors and their families and caregivers. As we expected when we entered the state, the healthcare industry has long sales cycles, and this side of the business will take longer to ramp than the direct-to-consumer side. Turning to supply chain, we will focus on leveraging automation across the supply chain network and offering customers free next-day delivery, which we view as table stakes across the industry. We will also continue to roll out enhancements to buy online pickup in-store to make it even more convenient for our customers to get their products, including alternate pickup locations as well as curbside pickup at Best Buy stores. We have just expanded alternate pickup to approximately 2,000 locations across nine markets and plan to expand to more markets throughout fiscal 21. These alternate pickup locations are in areas where either our store locations are not convenient or the ship-to-home option is not desired. Last quarter, we also introduced curbside pickup at approximately 100 stores, which allows customers to pick up their tech without even getting out of their car. Customers are finding value in this option, as curbside already accounts for 15% of store pickup units at those locations, and we plan to expand this service to the majority of our stores in fiscal 21. Of course, to bring all of the initiatives we have just discussed to light, We will need to invest in technology. It is imperative to the success of our strategy that we continue to improve our clienteling and CRM programs, enhance our data and analytics capabilities, and drive artificial intelligence, machine learning, and automation. Before I turn the call over to Matt, I want to note that we are closely monitoring the developments related to the coronavirus, and our thoughts are with all of those who have been affected. We remain focused on supporting our people and vendor partners during this time. As you all know, this is a very fluid situation that is changing daily, and thus it is very difficult to determine exact financial impacts. Our guidance ranges for both Q1 and the full year reflect our best estimates at this time. Based on what we know today, we have assumed the majority of the impacts occur in the first half of the year. Therefore, we view this as a relatively short-term disruption that does not impact our long-term strategy and initiatives. For the year, we expect comp growth of flat to up 2% and a non-GAAP operating income rate of approximately 4.8%. This guide reflects our continued investment in those areas necessary to make strategic progress and deliver enhanced employee and customer experiences, as well as our continued focus on driving cost savings and efficiency. We remain confident that our Fiscal 21 plan moves us along the path to achieve our Fiscal 25 targets. specifically the financial targets of $50 billion in revenue and a 5% operating income rate. In summary, we are pleased to report strong results for the fourth quarter and full year, and our amazing teams are motivated and ready to deliver on our fiscal 21 initiative. As you can see, we have a lot of exciting work underway and ahead of us. With that, I'll now turn the call over to Matt for more details on our fourth quarter results and our guidance.