Best Buy Co., Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's first quarter fiscal 2021 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 have a question you will need to press star 1 on your phone. If you choose to be taken out of the question 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 will 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 Corey Berry, our CEO. Matt Malunis, 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. Before we get into the details of our results, on behalf of all of us at Best Buy, I want to extend our sincere appreciation and gratitude to all those who are on the front lines working to keep us safe or maintain essential services. and we offer our heartfelt sympathy to all those who have lost someone to this virus or who are sick with COVID-19. Today, we are reporting Q1 revenue of $8.56 billion, which is a decline of 6.3% from the first quarter of last year. Our Q1 non-GAAP earnings per share were 67 cents compared to $1.02 last year. The Q1 non-GAAP operating income rate of 2.9% was down 90 basis points from last year, primarily due to the operational disruptions caused by the pandemic, which Matt will provide more details on later. This pandemic has changed the way we work, learn, care for ourselves, and importantly, connect with each other. Against that backdrop, our purpose has never been more relevant, to enrich lives through technology. It is because of that purpose that we were, in virtually every jurisdiction with a stay at home order in place, designated an essential retailer because of the products and services we offer. I wanted to take a moment to share how Best Buy has been responding and will continue to respond to the crisis we all face. There are scenarios you plan for as business leaders, and then there are events that simply do not have a playbook. This is one of those times, and our leadership team has been responding to events with a focus on keeping our customers and our employees safe while we meet our customers' essential needs. At the same time, we are committed to ensuring that, as this evolves, Best Buy is well positioned to thrive in what will almost certainly be a new and very different environment. On March 22nd, we proactively moved all our stores to a contactless, curbside-only model, allowing us to safely serve customers and comply with government orders and recommendations. We also halted all in-home installation, repair, and consultation services, choosing to leave the product at or near the doorstep. We did this even in jurisdictions where we were not required to because we believed it was the best way at the time to keep our customers and employees as safe as possible. I am so incredibly proud of our team's ingenuity and execution. They seamlessly implemented a new and highly effective operating model in a matter of 48 hours across our entire store base. As a result, We retained 81% of last year's sales during the last six weeks of the quarter as we operated in the new model. That's 81% sales retention, even though not a single customer set foot in our stores. The strong sales retention is a testament to the strength of our multi-channel capabilities and the strategic investments we have been making over the past several years. It is also a testament to the Best Buy culture and our focus on the customer experience as the entire organization pivoted to execute and support this new model. More than ever, we are fulfilling essential technology needs for customers. In mid-March, we began to see a surge in demand for products that people needed as they complied with stay-at-home orders. That demand continued even after we closed our stores to customer traffic. For the quarter, we saw strong sales growth in computing, gaming, and small appliances. Like many other retailers, we saw sales benefit during the last three weeks of the quarter as customers undoubtedly chose to spend some of their government stimulus money on the products and services we provide. As we entered the second quarter, we continued to shift our operating model as we responded to the evolving environment. On May 4th, We began welcoming customers back into our stores to shop Best Buy in innovative ways that follow strict social distancing practices and use proper protective equipment. Specifically, we are offering a new consultation service to our customers in our stores by appointment only. This service allows customers who need to purchase more complex items to schedule an appointment with one of our sales associates at their local Best Buy store, where they can get advice tailored to their specific tech needs. Customers can schedule appointments by phone, online, or by simply driving or walking up to a store. We started with approximately 200 stores and now have almost 700 or about 70% of our domestic stores operating this way. Most of the remaining stores are still operating in the curbside-only model, and approximately 40 stores remain completely closed, mainly due to our own decision-making criteria regarding employee and customer safety. Customers have responded very positively to this new way of interacting with us in our stores, with 98% of customers surveyed indicating we made them feel safe during the experience. It is very early, but so far the demand has been highest for our large appliances and home theater categories. We are also back in customers' homes, providing valuable services like large product delivery, installations, and in-home repairs in approximately 80% of U.S. zip codes. We are doing this in a new and innovative way using safety guidelines before, during, and after an in-home visit that meet or exceed the Centers for Disease Control and Prevention guidance. The key, of course, is that we are providing options that let customers choose what works best for them. For the foreseeable future, we will likely employ a variety of models using our local level prowess to customize operations to the local situation. And we will continually evolve those operating models based on guidance from state and local governments, as well as our own point of view on the proliferation of the virus and our ability to operate in a way that is safe for employees and customers. I want to take some time to talk about our employees, clearly the company's most important asset. From the very first days of the pandemic, we told anyone feeling sick or quarantined that they would keep their job and be paid. We told any employee whose child was home from school that they too would be paid. We gave all field employees who are still serving customers or working in our distribution centers a temporary pay increase. And for all others, we paid their normal salaries for a full month as we took the time to determine how to move forward. Throughout this difficult time of uncertainty and fast-paced change, we have been committed to communicating as often as possible with our employees. This includes conducting surveys on their need for flexibility, as well as their feelings on returning to work, so we can continue to improve our processes, facilitate the deliberate and measured return to corporate workspaces, and accommodate those with preexisting conditions or safety concerns. Likewise, we built the protocols for returning to customers' homes and welcoming them back into our stores jointly with our field employees. We have created a robust feedback loop, and we connect regularly with other field employees to hear how things are going and solicit immediate feedback to challenges they face, iterating the experience as we go. We have also continued our focus on providing crucial employee benefits and resources like those for mental and financial health, recognizing that the circumstances we each face are far more stressful than any of us may fully realize. Like most companies, we have had to make tough decisions. including those Matt will touch on regarding the ways in which we have cut costs and preserved liquidity to ensure that at the end of this crisis, Best Buy remains a strong, vibrant company. I personally want to touch on the difficult decision to furlough employees. While we were pleased to retain more than 80% of our revenue while our stores were closed to customer traffic, the fact remains that we did this without a single store open to customers. Given this fact, it is clear that the current models we are operating simply don't require the staffing our stores had before this crisis began. In that context, on April 19th, we furloughed approximately 51,000 domestic hourly store employees, including nearly all part-time employees. We retained approximately 82% of our full-time store and field employees on our payroll, including the vast majority of in-home advisors and Geek Squad agents. Additionally, some corporate employees are participating in voluntary reduced work weeks and resulting pay, as well as voluntary furloughs. We have done our best to provide these employees with resources and tools to help them navigate a situation that is undoubtedly new to all of them. In keeping with our view that all of us are in this together, I am foregoing 50% of my base salary, and the members of the Board of Directors are foregoing 50% of their cash retainer fees. Company executives reporting directly to me are also taking a 20% reduction in base salary. The money saved from these temporary pay reductions is being added to the employee hardship fund we established with our founder, Dick Schultz. This fund was initially created for our furloughed employees as a way of providing them emergency funds should they be required. I would now like to provide an update from a strategic lens. Last September, we hosted an investor update meeting to provide additional insights into our strategy. Despite the disruption and uncertainty related to COVID-19, we remain focused on executing our Building the New Blue strategy. In many ways, our current way of life in our homes, reliance on technology, has only reinforced our belief in our strategic direction. We firmly believe our strategy will uniquely position us over the long term by leveraging our unique combination of tech and touch to meet everyday human needs and build more and deeper relationships with customers. Many of these capabilities and initiatives we laid out on stage in September are the muscles we are flexing right now. Our multi-year supply chain transformation has been focused on moving facilities closer to our customers and using automation and process improvements to expand fulfillment options, increase delivery speed, and improve the delivery and installation experience. This has included significantly improving the buy online, pick up in store experience for our customers. At the same time, we have been innovating and designing digital experiences that solve customer needs across online and physical shopping. As a result, the team was very quickly able to stand up a robust and seamless customer experience for both the curbside pickup process and the new in-store consultation process. All of this culminated in domestic online growth of 155% for the quarter. And during the six weeks we ran our curbside-only model, domestic online sales were up more than 300% compared to last year. Almost 50% of those sales were from customers choosing to pick up their products curbside at our stores. Customer satisfaction scores for the curbside pickup experience remain strong, with more than 83% of those surveyed indicating they are extremely likely to recommend Best Buy based on their curbside experience. As it relates to supply chains, Let me say first that since the beginning of the pandemic, we've taken a variety of steps to create the safest possible experience for the employees in our distribution centers, while also ensuring that we're still able to deliver to customers with speed. Additionally, the infrastructure and capabilities we have built to thrive during peak holiday periods is serving us well. Even with the sustained online growth levels of approximately 350% during the last three weeks of the quarter, we did not have material disruptions and maintain our levels of fast service. We will continue to invest in all of these capabilities that focus on the customer experience and that are designed to provide choice, speed, and now safety. We will also, of course, 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 fact, in Q1, we saw a significant increase in demand for our expanded assortment of digital health and fitness products, including things such as at-home fitness equipment and fitness recovery products that truly empower customers to take care of their own health at home. We believe that not only will technology innovation continue, it will accelerate as a result of the pandemic. We believe many of the customer behavior changes resulting from this time of stay-at-home orders will continue to exist moving forward. Best Buy and our vendor partners are rapidly adjusting our offerings to support these new needs in areas like video conferencing, food preparation and storage, and family entertainment. Turning to our in-home consultation service, in mid-March, we pivoted to provide consultations on a digital basis only. We are proud of the nimble way our team quickly transitioned to this alternative way of interacting with customers, and we're pleased with the number of consultations that took place this way. Because of our investments in the technology backbone, our in-home advisors were able to remain productive during this time and continue to provide customers a high level of consultation service. With our Geek Squad, we are in a unique position to help people productively work and learn in their homes. While overall Q1 interactions with our total tech support customers were down compared to last year, as our in-store and in-home services were unavailable, Our remote technical support provided a critically stable support solution through these challenging times. In addition, we have cross-trained our Geek Squad agents to work in our call centers, providing crucial phone and chat support to solve a variety of customer needs. We also utilized our Geek Squad agents to support our online customer experience by making same-day deliveries to customers' homes from 200 of our stores. As we moved back into homes and welcomed customers back into our stores, demand for our services has been very high. Turning to Best Buy Health, our focus on health, in particular helping seniors live more independently with our unique combination of tech and touch, has become even more relevant as the world responds to the COVID-19 pandemic. In Q1, to support our base of over 1 million seniors, we moved quickly to adapt our operations so our Caring Center agents could support more than 150,000 calls each week while complying with stay-at-home orders. The time spent by our agents on the phone with our customers was above the normal average at over nine minutes per call in many weeks as we took the time to ensure we are answering questions and addressing requests to our fullest ability. Our service during this period averaged an MPS of 80, and we are incredibly proud of our Caring Center agents and the empathy with which they serve this vulnerable population, especially during this time. We also had the opportunity to help our commercial partners manage through this time with the help of technology. A recent example is Holiday Retirement, a leading senior living community where 29,000 residents have been outfitted with our lively mobile personal emergency response or PERS devices. These devices provide access to our emergency response service at the press of a button. We worked with Holiday to leverage these devices to efficiently broadcast timely information and protocols related to COVID and shelter in place to the senior residents. Lastly, we continue to build out our capabilities as we execute our long-term health strategy. Data is an essential currency of this strategy, and we recently entered into an important partnership on that front. Validic is an industry-leading technology platform that aggregates data from everyday connected devices in the home, processes it, and then provides meaningful insights. Together with Validic, we are bringing to market innovative remote monitoring solutions to better manage chronic health conditions in the home. In conclusion, we entered the year with financial and strategic momentum and a strong balance sheet. We have a suite of assets that allow us to uniquely and safely serve our customers in whatever way they choose, whether that's curbside pickup, free next day shipping, remote technical advice and support, virtual consultations, in-store appointments, in-home installation, or doorstep delivery. We know customers and employees will have different shopping expectations anchored in safe environments and processes. We hope to set the standard for safe retailing by constantly adapting our model, leveraging and building on our unique suite of assets. The environment continues to evolve, and while there are many models and a great deal of speculation, there is still a high level of uncertainty at both the micro and macro level. With that said, we are scenario planning in a way that addresses a number of variables. First, meaningful unemployment will almost certainly be with us through the fiscal year, not necessarily at the level we are seeing now, but enough to likely have a downward macroeconomic effect. It will be important for us and any retailer to have a flexible enough operating model to accommodate the possibility that some states will continue to relax restrictions while others at the same time may find themselves needing to tighten similar restrictions on how consumers engage with each other and local businesses. Finally, we will continue to prioritize customer and employee safety, advocating for preventative measures such as social distancing and masks for both customers and employees. It is our belief that these measures will continue into the foreseeable future and will allow us to do what we promised at the very beginning of this crisis. Be there for our customers in as many ways as possible while ensuring customers and our employees remain as safe as possible. As challenging as the current situation is, I am certain Best Buy will remain a strong, vibrant company that is well positioned to deliver on our purpose and thrive in a new and different environment. In fact, We have taken the opportunity to move faster as this environment accelerates changes in the ways customers want to interact with retailers. For example, we were already preparing to roll out curbside service, store consultations, and certified cross-training of employees. As such, the implementation of these capabilities is not just a response to the pandemic. They are, in fact, an acceleration of our existing strategy. Lastly, and very importantly, I want to take this moment to thank the thousands of employees that have made this all possible. They have faced immense change with grit, determination, and compassion and have helped us shape our approach to safe retailing. Many are working with customers every day, some of whom are also scared, frustrated, and occasionally hostile in this COVID environment. To ensure they have access to the products and services they need to work, learn, entertain, and connect from home. Others are working tirelessly to maintain a supply chain that delivers with speed and keeps our customers at home. And so many employees are making technical and operational changes every hour from their home office. None of this is possible without their dedication, and I am truly grateful and feel lucky to be on the team with them. Now I would like to turn the call over to Matt for more details on our Q1 financial results.