Best Buy Co., Inc.

Q2 2021 Earnings Conference Call


spk_0: ladies and gentlemen thank you for standing by welcome to best buys second quarter fiscal year two thousand and twenty two earnings conference call at this time all participants are analysts no new mode later we will conduct or question and answer session at that time if you have a question that you will need to press star lot of by one on your phone if you choose to be taken out of the question que case signal by pressing styrofoam by to as a remote and earth is all as be recorded for playback back and will be available firefox me eleven am eastern time today if you need assistance on the call at any time she's press staff on a by zero and the operator will assist you i'm the know turn to conference call over to mali o'brien vice president of investor relations please go ahead
spk_1: thank you and good morning everyone joining me on the call to their quarry bury our ceo and that balloonist or cfl during the call today we will be discussing the gap and non get financial measures a reconciliation are these non get financial measures to the most directly comparable gap financial measures and an explanation of why did not get financial measures are you still can be found in the mornings earnings release which is available on our website investors that bestbuy dot com some the statements will make today are considered forward looking within the meaning of the private securities litigation or mac of nineteen ninety five these statements may address the financial condition business initiatives growth plans investments and expected performance or the company and are subject to risk and uncertainty that could cause actual results to differ materially from such forward looking statements please refer to the company's current earnings release and are most recent ten k and subsequent ten cues 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 day of this call i will now turn the call over to korea good morning everyone and thank you for joining us today we are reporting record cute you financial results of eleven point eight billion dollars in sales and non gap deluded earnings per share of two dollars and ninety eight cents comparable sales growth with twenty percent and are non gap operating income growth with forty percent we are laughing and unusual quarter last year as our stories were limited to curb curbside service or into our appointment for roughly half the quarter when we compared to two years ago our results are very strong compared to the second quarter of fiscal twenty revenue is up twenty four percent and are non gap operating income is up one hundred fifteen percent clearly customer demand for technology products and services during the quarter remained very strong customers continue to leverage technology can meet their needs and we provided solutions that helped them work learn entertain cook and connect at home the man with also bolstered by an overall strong consumer spending aided by government stimulus improving wages and high savings levels for the merchandising perspective we thought strong comparable sales growth in almost all categories the biggest contributor to the failed drug in the quarter or home theater appliances computing mobile phones and serve it product availability improved in the quarter and except for some pockets and appliances and home theater we do not believe it materially limited our overall sales girl or merchant the man planning and supply chain teams once again it an amazing job managing to that difficult and constantly evolving supply chain environment they worked for typically to bring in as much inventory as possible during the quarter with actions like acquiring additional transportation pulling up product flow and adjusting store third meant based on availability there will continue to be challenges particularly as it relates to congested ports and transportation disruptions but our team can a us that for as strong in inventory position as possible as we move forward into the back half of the year as we think about the holiday period we often have varying degrees of inventory and supply chain challenges and this year will be no different but we feel confident in our ability to serve our customers during the holiday but continued strong demand across retail resulted in an overall left promotional environment which was a significant driver of are better than expected profitability in the quarter during the quarter we provided customers multiple ways to interact with us depending on their needs preference and comfort similar to last quarter customers migrated back into stores to touch and feel products and to seek in person expertise and service at the same time they continue to interact with us digitally at a thing acutely higher rate and pre pandemic as online sales were thirty two percent of domestic revenues compared to sixteen percent in huge you a physical twenty phone and chat volume also remained very high compared to prepare dinner and failed by of these channels continued decline
spk_2: in addition of course we are interacting with customers in their homes making large product deliveries installing solutions repairing products and providing failed consultations in fact overall we are helping our customers with their technology needs in their homes twenty percent more than we did two years ago and cute you
spk_1: a fiscal twenty through all of these interactions across all of these touch points ninety eight percent at thirty customers callously feel very safe which we believe it's still incredibly important at this stage in the pandemic i want to genuinely think our store and in home teams for creating the safe environment for our customers and for continuing to provide exceptional service even and situation for customers resisted following safety guidelines and in some cases for disrespectful for customers purchasing online we delivered product with speed and convenience online failed package delivery was not only much faster than last year it was faster than two years ago furthermore we stack up extremely well vs our competition using a third party service we analyzed competitor website on a daily basis and we consistently lead in the proportion of one day or less for published shipping time across a sample of higher volume zip codes and higher demand item in addition we leveraged are stored to drive asked and convenient for film and of online orders and qq we continue to see about sixty percent of our online revenue for filled by stores including in store or curbside pick up ship from store or best buy employees were delivering product to customers out of more than four hundred and fifty of our stores the percent of online sales picked up by customers at our store with forty two percent similar to last year's second quarter clearly the landscape as it relates to the pandemic had been changing rapidly and we remain keenly focus on keeping our employees and customers thief
spk_3: we are continuing to encourage all employees to get kobe vaccinations by providing them with paid time off when they received the vaccine and providing them absence of time to be used in the event they develop side effects in june we launched an employee three to with more than one hundred thousand dollars in cash prizes to encourage our team members to go
spk_1: vaccinated to show our appreciation for their hard work and ongoing efforts in the faith of pandemic fatigue we paid employee gratitude bonuses at the beginning of the quarter in summary arsene had delivered incredible results to all of our associate across the company i thank you for your customer obsession perseverance and ingenuity of course but we were driving these greek you tube belt we were also looking into the future during the quarter we continue to roll out and run several path and pilots and we determine the best path forward to become an even more customer centric digitally focused and efficient company we believe this is crucial to thriving in a new and different environment where customers expect to seamlessly interact with physical and digital channels to out the shopping journey as they seek inspiration research convenience and support last year we introduced a very important membership pilot codified data as a reminder it includes unlimited geek squad technical support on all of the technology in your home no matter where or when you purchase that including twenty four seven vip access to dedicated phone and a team that are only available to members it also includes up to twenty four months of product protection on both purchases from best buy free delivery and standard installation exclusive member pricing a sixty day extended return window and free shipping of online orders all for one hundred ninety nine dollars per year the offer is designed to give our customers but confidence that whatever their technology need are we will be there to help it leverage to our unique strengths and what we can provide customers that no one else can the goal is to create a membership experience that customers will love which in turn result in a higher customer lifetime value and dried the larger share of thief and to death by we aren't very excited about that membership offer and we are encouraged by the pilot result membership acquisition have exceeded our initial forecasts in addition eaters showing that beaten members interact more frequently and have a higher incremental spend that nonmembers given the breadth of the offer it is resonating well across all customer demographics and our members are spewing younger than are too apart membership program in addition arm for you love telling customers about the program we plan to feel the program nationally in stores and online at the end of que three under the new name as i total pack as part of the national rollout we will be converting or three point one million existing political support members to the new program i want to stress that the goal of the program is for customers to find value in the benefits and used them often it is not designed to be a standalone margin driving service offering particularly in the near term in fact as that will discuss later a full rollout as a near term investment which we are confident me will be justified with incremental feels growth and long term customer value as it relates to our physical stores and operating model we are continuing to pilot and have many approaches and formats specifically we are testing more experience or doors how we can leverage are stored and the phillies are more film and purposes and how we can deliver customer experiences with the more flexible digitally supported and engaged workforce we're not going to outline all of our initiative today but i would like to provide a few updates and learning we're big on implementing the pilot of our new holistic market approach in charlotte as we mentioned last quarter this pilot is designed to leverage all our asset in a portfolio threat of the across doors but film it services an outlet lockers or digital app and boat in store and in home consultation labor we will be testing and array of different prototype including remodeling a number of stored to fifteen twenty five and thirty five thousand square foot stored as well as launching a few new smaller five thousand square foot story we expect the full roll out of the pilot to spend a few quarter and federal store remodeled are currently underway including the transition of one door into a new type of outlet our current fifteen outlet stores focused mainly on large appliance and tv open box product with his new outlet pilot we will have open box product from all categories it will also serve as the hub in a new services repair hub and spoke model we're casting at well as an auto attack mega hub for our car hi tech installation of course the reason we are piloting and tempting so much it because we are trying from unique prototype and we need opportunity to learn and a just before we were all more broadly for example in our ford minneapolis cast where we reduce the tropical square footage to fifteen thousand square feet provide more space for film it we have been making adjustments based on customer an employee feedback we've refloat from of the layout added it to help customers understand the changes we are targeting and added assortment in areas like small appliances printing and accessories we will continue to a ball be test or based on learning and feedback as it relates to our houston experiential thirty five thousand square foot door pilot we continue to receive positive feedback from customers and employees on store divine and the way we are showcasing products in addition year to date the store generated higher revenue than control stores in the double digit percent range another pilot that we are fighting to launch pre holiday is our virtual door for this we are building out a physical door in one of our distribution centers that will have merchandising and products and will be staffed by dedicated associate including vendor provided expert labor but it will have no physical customers instead customers can interact with our experts by a chat audio video and friends sharing depending on their preference and be able to see live demos displays and physical product we are excited about the customer use cases with provides for example you could be on our dot com exterior a kind a product you like and be connected via video to a blue shirt in the bath by virtual door and never leave your living room or you could be standing in the store scan the barcode and be taken through your phone directly to the virtual door or an associate could answer your question from of a film in perspective are shipped from store had three piloted last year were very successful and we're continuing to it a read on the model as a reminder while off towards will continue to ship online orders we are driving official the and effectiveness by consolidating ship from store unit in a limited number of toward across the country as we have them about the model overall we are using fewer towards the last year at hub in addition we've begun remodeling a subset of george to deliver an even greater portion of the volume reducing the field for square footage and installing were breed packaging station equipment and supplies leave thirteen locations should be rolled out by holiday and take on about twenty five percent of the national ship from store volume as you would expect to various tasks and pilots are intended to identify how our store portfolio should evolve from the role they serve to their look and feel as we learn from these tough we will develop plans that likely include a roll out of investments and more stores and market we have also been evolving or labor model can meet our customers changing shopping behaviors from leave we're designing for more choice flexibility and career opportunity we continue to see momentum with are flexible workforce initiative which is centered on store employees becoming certified to gain expertise to perform roles outside of their primary job function at the end of july eighty percent of our associate were eligible to flex into different work phone and fifty percent of associate have earned four or more job this allowed our employees and off to schedule shifts more flexibly within the door and between channels like virtual failed cat phone remote support or employee product delivery and very soon we will be able to schedule associate the between stores within a market the flexibility is important for all of our third going forward but even more important for smaller stores with left labor this new way of working in power the employees to develop their careers by giving them opportunities to learn new skills broaden their experience and have more flexibility in their job they are equipped and confidently help customers in more ways and our data is showing off that once employed as skills they can to drive a higher customer and yeah it also give team members the ability to earn a different hourly wage depending on the job formed and a potential for working additional chef but otherwise may not have been available in their primary job function we believe are flexible work worth initiative can add to our ability to attract and retain our employees particularly in a tight labor market and in addition to the training and flexibility we offer we have also inducted significantly in compensation and benefits for both yet
spk_4: on top of breathing are starting wage to fifteen dollars last year we provide a wide array of competitive benefit across many dimensions including to with and reimbursement employee product of counts paid time off for part time associates backup childcare child to the reimbursement mental health support
spk_1: and many other overall we are operating with a smaller field workforce and we were pre pandemic which is very reflective how the business model has changed as our online revenue have more than doubled from two years ago we feel like we are largely at the right number as it relates to the strategic evolution of are operating battle the demand we are theme and the nature of our customer interaction what is most important right now is to continue to learn and eatery as you can imagine having a more flexible workforce is a very important component of are operating with a smaller workforce and technology is crucial to it's success as well in fact technology is the underpinning to the success of our company's strategy we need technology tools and capabilities to help us as we transform and a ball the way we operate this fact has been clearly reinforced by all of our pilot there are a myriad of technology projects in development but here to the few examples we will leverage the electronic fine labeled in our story to make it simpler and more seamless for customers to shop especially in our throats with smaller shopping for for it specifically we're adding messaging to the labeled that linux or dot com experience in other words customers will easily be able to see if the product is in fact in that store or in another store nearby and when it could be delivered and install we're also piloting mobile app check out so that customers particularly grabbing oh customers can quickly check out without needing to interact with an associate for our virtual door to really come to life seamlessly for our customers we're building out a new digital communication platform that will combine multiple systems into one experience for call cat video and three and sharing before quickly am seamlessly put our customers in control of how and when they want to be served across the vehicle of course we are also continuing to make significant investments in fundamental technology capabilities like data and analytics and broader cloud migration in order to drive scale efficiency and effectiveness earlier this month that company named to with twenty twenty one left of the one hundred best workplaces for innovator this is our first time on the left which recognizes companies that create a culture of innovation despite the challenges posed by the pandemic during the quarter we continued to expand our assortment a newer categories where we can leverage our ability to commercialize new technology for example in the past year a fitness and wearable wellness and health we have more than doubled our bender partners and grew are you can't buy more than one hundred fifty percent these include new products important to our health strategy specifically those focused unconditional health management that help customers trap blood glucose levels keep tabs on hard data manage wade or even help identify allergens in food furthermore are working with hospital and care centers to a health products for their patience on cobranded landing pages because customers are looking to have to complete their solution we are also expanding two additional a cliff and categories for example we have expanded our thirteen and categories like outdoor living as more and more consumers look can make over or upgrade their outdoor spaces different food products like patio furniture grills fire pits and electric motors to name a few many of these products are available online all me as part of our digital first strategy all together they are a small part of our overall business a growing fast as we continue to add to the advertisement in the back half of the year we expect to add more products in the fitness beauty sleep pain management vision hearing and electric transportation category before i conclude my prepared remarks i want to update you on our ongoing commitment inclusion and diversity and our community during the second quarter we announced our commitment to spend at least one point two billion dollars with by park and diverse businesses by twenty twenty five this pledge include plans to increase all forms of and and with black indigenous and people of color businesses from nearly every corner of the company from how we bring goods and services to store to wear and how we advertise the goal is to create a stronger community of divorce suppliers and help increase by pop representation in the tech industry in addition earlier this month we announced we are investing up to ten million dollars with brown venture group a venture capital firm that focuses exclusively on black latino and indigenous digital technology startups the goal of this investment if help break down the systemic barrier often fifty by by park entrepreneurs including lack of access to funding and empowering the next tech generation can make a difference in our local communities we are passionate about building out our team text and opprobrium these provide teens and different ethnic communities access to the training tools and mentorship needed to feed and post secondary opportunities and careers we are also building a diverse talent pipeline for jobs of the future during the second quarter we launched our first ever opportunity for customers to donate to the best by foundation in support of teen tech centers between july eleventh and september eleventh customers can choose to donate when they make a purchase including at about by store bestbuy dot com or that up am we also just published or sixteenth annual yeah she report which outlines how we're working across the company to have a positive impact on our planet employees customers and community interpret the environment if past year we exceeded our goal to reduce carbon emissions in our operations by sixty percent or investment in renewable energy and operational improvement we're on track to reduce our carbon emissions seventy five percent by twenty thirty and we find the climate pledge can lead to be carbon neutral by twenty forty a decade faster that our previous call of twenty fifty we also have a robust and program that brings a youthful second like the products that might otherwise that idol and comes home or end up in a landfill for products that need to be recycled we continue to operate the most comprehensive consumer electronics and appliances pick that program in the us taking back more than two billion pounds since two thousand and nine available on our corporate website or yes she report also outlines the wait we support our employees and communities in summary we have delivered a remarkable first half against a volatile backdrop i am so proud of the execution of our teams as they continue to safely meet the needs of our customers in ways that i would argue no one else can based on the strength of the business and our expectations for continued customer demand we are raising our failed outlook for the back half of course the environment as it relates to the pandemic is still rapidly evolving and there is uncertainty as to the associated impact on many important factors including consumer shopping behavior sure of wall it on services like dining and travel returned to office and returned to school furthermore we continue to believe the holiday season will remain unique against that backdrop that being said our teams have proven they can and will continue to proactively navigate these factors and they remain ready to respond and address a business as the environment potentially changes over the longer term we are fundamentally in a stronger position that we expected to be in just two years ago there has been a dramatic and structural increase in the need for technology and we now third a much larger install base of consumer electronics with customer to have an elevated appetite to upgrade to the constant technology innovation and needs that reflect permanent life changes like hybrid work and streaming entertainment content this is only underscored by the recent send a package of the infrastructure bill which will provide even more access to broadband and give us the opportunity to serve the needs of currently underserved communities our unique omni channel assets including our ability to inspire would it be possible across the breadth of the products as well as our ability to keep all working together the way customers want truly differentiate of going forward and the new landscape
spk_5: now i would like to turn the call over the map for details on our results and invites other outlook for the next quarter and a full year good morning everyone we are once again reporting very strong financial results and the demand for the products and services we provide remained high during the quarter on enterprise revenue eleven point eight billion dollars we delivered non gap deluded earnings per share of two dollars ninety eight cents an increase of seventy four percent versus last year or non gaap operating income rate for six point nine percent increased a hundred basis points this rate expansion which earned by and eighty beef with point improvement and are gross profit right despite lacking action to reduce or as you need to spend last year we were able to leverage or as you may twenty basis points on the higher sales volume in addition a lower effective tax rate and a forty seven percent favorable here earlier impact on our non gap deluded the ps as a reminder in queue to last year or stores were closed the customer traffic for about half the quarter while we were helping customers to a curbside service and install appointments we also made several parts reduction decisions last year to align with a lower sales and channel children's we were seeing and expecting to continue at that point it's core he mentioned when comparing a result against two years ago where the second quarter of our fiscal twenty total revenue more than twenty four percent also our domestic through channel of do with higher than two years ago despite almost fifty fewer stores and online rugby world of almost one hundred and fifty percent in that timeframe as a result of the higher revenues and adjusting or big smile to a new customer shopping behavior or enterprise non gap operating income rate was two hundred ninety base
spk_2: with point higher this quarter and the comparable quarter from two years ago
spk_5: let me know sure if you comment on how are cute to performance compared to the outlook we shared on our last call enterprise comparable feel group or twenty percent was a bug or estimate of approximately seventeen percent are non gap gross profit rate improved any basis points vs last year compared to our outlook of approximately flat of course he stated that better than expected gross profit read performance was primarily driven by a more favorable promotional environment lastly non gaap as she knew dollars group eighteen percent compared to last year which was slightly favorable to our outlook of approximately twenty percent growth let me now share more details specific to our second quarter in our domestic segment revenue for the quarter increased twenty one percent to eleven billion dollars are comparable sales growth was also twenty one percent for the quarter in recent quarters or revenue growth has been lower than are comparable sales growth due to loss of revenue from stores that were permanently closed in the past year although that was still true that folder that impact was partially offset by revenue growth from stores that were close for remodel as a result the last year's unrest and fall outside of are comparable same calculation as a reminder are comparable field calculation include revenue from all stores they were temporarily closed were operating in our curbside only opry model during the period this year we expect the close approximately thirty you stores compared to roughly twenty closures in each of the last two years consistent will approve practice we will make every effort to retain employees from the closing locations the moment with kittens perspective the strongest sales growth was in may and expected to live monthly come up with the lowest of the quarter as we laughed the reopening of our stores in june of last year turning out a gross profit the domestic non gap gross profit rate increased ninety basis points for twenty three point seven percent the higher gross profit rate was driven by improved product margin rates rate leverage from our supply chain costs and higher profit sharing revenue from our private label and cobranded kept credit card arrangement overall the promotional mix and sales discounts for the full quarter were once again lower than the levels we experienced last year however our comparisons are now beginning to lap periods of a very low promotional activities last year in july the overall commercial activity increase the vs lasher both still below the levels we experience during fiscal twenty moving next that you know the method non gap as sinead increase nineteen percent compared to last year and decreased thirty basis points as a percentage of revenue as expected the largest drivers of the expense increase vs last year were first higher instant a compensation for corporate and field employs approximately one hundred million dollars which is partially due to suspension of a short term incentive programme last year second highest or peril cost changes in our opry model last year and third the impact of lapping are cold related impact flasher that resulted in higher cost is here for advertising expand medical claimed expense and are four one k company match lastly we increased investment this year in support of our technology initiative when comparing to two years ago domestic nine gap as sunni increased ninety four million dollars in decreased three hundred and ten basis points as a percentage of revenue the largest drivers of the increase vs fiscal twenty were higher and cent of compensation technology investments and increased variable costs due to the higher sales volume partially offsetting the loans was a lower store peril expense on a non get bases be effective tax rate was eight point four percent versus twenty three percent last year the lower que to fiscal twenty two raid was primarily due to a multi jurisdictional multiyear noncash benefit from the resolution of certain the street tax matters moving to the balance sheet we ended the quarter with four point three billion dollars in cash at the end of due to our inventory balance with fifty five percent higher the last year's comparable period and was twenty three percent higher than our cue to ending him into a balance from two years ago the interest inventory represent our plans to support the current demand for technology as well as last year's unusually low inventory balance the health and our inventory remains very strong i mean next share more color on our outlook for the second half of fiscal twenty two and are updated assumptions for the full year as we entered the year we expected revenue growth to be positive in the first half of the year and a negative in the back half as we laughed a strong can't world in que three into due for a fiscal twenty one our regional outlook also reflected a scenario in which could customers would resume or accelerates and in areas that were slow during the pandemic such as travel and dining out although we are seeing some shit and can sumer spending a curve impact have been less pronounced than we previously anticipated we now expect are comparable sales growth to be down three percent the flat to last year in the back half which is a significant improvement from the high single digit decline be expected entering the like other companies we continue to monitor the evolving impacts of the pandemic and supply chain pressures driven by global demand we continue to be confident in our ability to navigate the ever changing environment for the second half of the year we expect nine gap gross proper a to be down approximately thirty basis points to last year which compares the sixty based point expansion in the first half of the year a primary drivers of the sequential decrease include the impact of rolling out total tax increase promotional activity and left leverage on our supply chain caught in the experience in the first happened this year cause the gross proper a pressure of our new membership offering primarily relates to the incremental customer benefits and the associated costs compared to our previous total tech support offer this pressure is expected to have a larger impact or fourth quarter than in the third quarter now i will provide some colored specific to i'll look for third the third quarter we expect comparable sales to be in the range of down three percent to down one percent to last year which is on top of our twenty three percent comparable sales growth in the third quarter of last year a revenue growth to start this quarter has been approximately flat to last year for the first three weeks from a gross profit or a we are planning for non gap rate that is approximately thirty basis points below last year's race from a naga as unique standpoint were playing dollars to be approximately flat compared to last year as we expect the lapping of last years to as we expect the lapping lashes forty million dollar donation to that by foundation and lower and cent of compensation to be largely offset by increased technology investment and higher advertising expense during to our full year i'll look we expect the following enterprise revenue in a range of fifty one billion dollars to fifty two billion dollars comparable sales growth of nine percent to eleven percent and a non gap gross profit rate slightly higher than last year for us ne we expect the growth of approximately nine percent which compares to the preet prior outlook of six percent to seven percent growth the increased expenses primarily due to higher store peril will cause and other thereby but items associated with a higher sales outlook in addition we expect the incentive compensation for the full year to increase by approximately two hundred and seventy five million dollars or at the high end of our previously provided range we expect our non gap effective tax rate to be approximately twenty percent we expect catholics answers to be in the range of eight hundred million dollars to eat hundred and fifty million dollars and lastly we expect to spend at least two point five billion dollars and share repurchases in closing over the last two years our teams haven't had successfully adapted to various changes to our opry model and a dramatic shift in customer shopping behavior we have seen a surge in reliance and demand for technology and our customers also adapt to their changing needs the result is that we now expect ourselves will surpass fifty one billion dollars this year that is more than seven billion dollars an increase sales over a two year period thank you to all our employees for driving these amazing results
spk_0: i will now to the call over to the operators for questions thank you ladies and gentlemen if you like to ask a question please hang out by pressing star pop up i walk on his style want to give her question
spk_6: while move onto our first question from stephen forms of security to school had your line of my mom
spk_0: the morning
spk_5: i wanted to focus on the pricing and and promotional environment and something up his ass my two questions or together the for the first part writing as we as we think about the price increases that are being passed through here to the consumer can you sort of provide some context around the magnitude of them and and how the industry the hall and sort of addressing means right right of always does everyone sort of passing and through where do you see and yeah potential increases in commercial activity and and and in the fall of two that is as we think about the holiday period i and yeah in past years right other competitors utilizing the category to drive traffic during the holiday period and you sort of talk about the explication right for holiday in the hall as it relates to frequency and get the promotional activity thank you yeah a lot i started network and jumped and i i think there's it is a few questions in their right overall what we're seeing it was the first headed there was less promotional similar to the trends we experience lad at last her during the pandemic as we as i said in my my cat comments we are starting to see us laugh those periods of very low promotion promotional leave it as in july gradual thing the mix of items on promotion at a discount associate with emotions are actually higher than last year so we're starting to see a bit more returned to of promotion level that's more than last year but still higher than the less promotional than two years ago and so we do feel that increasing and over that period of time or promotions have been lower a customer cabin essentially paying higher prices go with that that the costly we haven't been promoting of much and so that that three part of the part of the aspect also with any pricing we we thoroughly are seeing a little bit of inflation as well as you look at the price of a good in some cases those are being passed on to consumers appliances to example where there has been of increased to the costs of goods which the industry a jail passing on
spk_1: but overall inflation hasn't been a bigger part of our a as be increases it's it's been more on the promotion alley versus or inflation has been relatively small and acting in the first app it might be a little bit more in the back out but i wouldn't expect inflation either like that pricing to be a significant i would have simply underscore our priority and always to be priced competitively and that will be the case no matter what coming through the costly inside of thing been as we headed the holidays specifically to that part of your question we fed even in a prepared remarks we would expect the back half to be more promotional and and that alluded to july being a little bit of
spk_7: that lead into what we're seeing arm and we would expect the product that we fell to be hard for people really want for holiday and therefore that environment to heat up correspondingly and for that is part of what's embedded in the guy going forward
spk_0: thank you are block
spk_5: thank you thank you
spk_8: mom mama long time marks question from peter quito piper summer please go ahead your line is open
spk_1: a when everyone thinks you're much great results here uncertainty to flush out of the more on the membership program it seems interesting gets from same price is it basically upgraded top tech support i can you confirm that could be all stores a year and and and then i would the gross margin pressure you're experiencing did that's something it will be ongoing or more than an annualised the fact is that the problem the up program itself ramped up thank you peter i'll start and the and a little bit about financial ramifications so what was important you are in beta was understanding how can we build on femoral but we're learning and total tech support in terms of what our customers' lives but add onto that what we think will continue to provide them value over time like many membership programs are that continue into law based on what we are learning distinctly from our customers and so while we started testing data actually do for the very beginning of this fiscal year and as we send the prepared remarks were generally for and uptake that is greater than both what we expect their greater than what we were seeing and total tax
spk_5: support and i think it's the combination of feature that we talked about the prepared remarks that are making our customers come to add more frequently and like we also bad as spend a bit more each kind of they're coming to see us because you have that comedy her catherine very sticky to the best buy brand and so this is really an evolution of what we had learned photo tech support started casting the very beginning of the fear and and we plan to actually roll out toward the end of cute degree that will be in place like that that and have a bigger impact for queue for but bit the key for us and that we expect the membership to grow faster than what we find on t other we've been a play out in the pilot and we're going to keep it rating on the offers frankly depending on what it is that customers really value and what it is that keeps them loving our brain and very loyal to the brand or at math have a little bit about the financial implications thank you for the question peter essentially you imagine the the total tech offer is far more inclusive due to up to to benefit to our customers and so with that eat we're seeing more costs associated with total track is just as more enhanced benefits and what we had offering and teachers medal essentially driving the be gross margin prof
spk_9: that rome cause margin impact on the back of those per capita fear the intent of total deck if not to actually drive margin raid on it the intend to total tackles for us to increase sales and therefore leverage more sales into the future i'm so the the the short term impacts earlier going to be a gross proper eight impact and you look for
spk_0: toward the intent is for not to be gross profit accreted because when we want people do the use it more that usage you agree more sales and create more leverage on on on or my in the future not that go you will die but and you imagine the enhanced and have to come with more cause for we believe that will keep people figure and coming back and increase our short while with them
spk_5: okay sounds great thanks for the feedback
spk_10: thank you
spk_5: when von trier next question from like a loss or have you been us to go ahead and line is open the morning people have to beacon my question to you know completely kiki that caught your tongue to the foot down in happen this year was last year you predict when you know newton be more like down hi movie good sound like with people and been made
spk_10: would have yet to lose your your wallet
spk_5: that the category think you would back good in business reflect some permanent change in the he'd you know her
spk_11: gonna happen which is dead
spk_1: nothing that year in more like the twenty twenty two you know you off into the kitchen so he succeeded in any sort of composition of new inventory in the backyard meaning the world of overall of the any interviews with might be a little cheated on him into that would be in our thoughts are team the flock down percent do i will start particularly on the wallet shift quest and and we noted in the prepared remarks that we definitely are seeing that shit happens slower than what we thought and it's like been a shift at actually then we were you a for a while where thing growth and both sides and matt that as that pandemic has
spk_5: i know am redoubled it's efforts between it shifting away a little bit from from the experience as at we had leapt have been that growth continue honestly in both experiences and on the retail side i the i think we're pragmatic can with fat in the prepared to murphy believe at some point that what's that ship will continue to happen i think it it is being pushed out of it but importantly there are also systemic changes that have happened in the way that all of us live right if you think about something like hybrid work models that's not just something that's going to happen in the back half hour and a quarter that is likely a new way of working going forward or streaming in the amount of streaming content that's not just in in the moment change that of the change and how people will consume content going forward and i think honestly that a little bit of both sides here you have a real systemic changes that have happened in a way that we live and their that i think of a pushed out and people really shifting hard that spending two experiences and in part of that to be how healthy the consumer is in terms of still sleeping for a third all time highs and very healthy balance sheet access to credit and all of those fundamental thing really solid i think it's helping to do we added demand across both experiences and our retail yeah and out that a little recorded a great job explaining that consumer side of that i think overall as you as you talked about we are now expecting flat to down three percent in the back half the net much better than we had expected at the end of last quarter which was more closer to down approximately eight percent i think one of the one of things i would add to that situation is a mentor and we feel like we're in a good spot as well as the back half of is here the gasket inventory we are still being part it it into worried but i'm quite honestly were a really healthy strong position in are preparing yourself very very very well for the holiday season for that clearly ad for or optimism to the back half as well there are lot of uncertainties and as you look at it but woke up the people as we go but in my follow points you need done on the emotional bomb good margin he mentioned that july locomotion higher than the one on each one he would build down community were in twenty nine teen have been placard even you good smog in the kitchen for the next of look corner with a promotional environment been be will you be ah high you did or below twenty nine
spk_10: yin and and under what conditions did you see them the other player in the answer to become more promotional money weren't on you know he is need it he'll be starting to flow and a green weakness that
spk_0: yeah i'd i think overall we're always going to the a very aware of what our competitors are doing in the back at back have woodward's back to school holiday season for will always be prepared to adjust to the properly we are very thoughtful about on how we compete and where we compete and and in and being thoughtful managers of the be an l fuel
spk_12: but overall i would say the to prepare promotion algae we would say probably a little bit higher than what we experienced flash your physical twenty one but still glass promotional and we saw in fiscal twenty starting right now or get local look at that and manage it is a good as it comes in as we see darling for the little
spk_1: bit but because we will fundamentally always be competitive but i think generally will be more promotion the last year of probably less promotional than two years ago
spk_12: thank you very much a good one
spk_5: thank you now take our next question from can sure how far can treat for hurts your line open hi thanks very much am couple questions to clarify for saw immigrants margin i'm so it's fair to say them respect to the rollout of as by i totaled fact that that will pressure gross margin and three one three three que of next year omnipotence for clarification on and then my big picture question noise when you think about overall higher installed base and consumer electronics pandemic began wondering if you could give a little color on how you see actually see the acceleration and the innovations like i'm playing out meaning obviously will have shorter and shorter life cycle leading to need to upgrade more frequently but
spk_1: wondering if he could to contextualize that a little bit thanks for the question karen yeah i'll start in the and jumping on the and the last parlor question we're not ready to guide next to yep it's certainly we are expecting total tech to pressure que three of this here in queue for of this year as we roll out and you can appreciate we're still trying to understand usage the rollout level and throw it to a little early for us to talk about where how long that that pressure will adjust their and what line of the bnl and they said the that goal is for it not too actually be created the margin did supposed to be using with that usage will come more cause but overall what we do expected to grow our sales over the long term and increase our improve our experiences increase increase that while yourself it barely to tell how that impacts next year below will obviously up people as learn more on the question of in helping my favorite question and when we definitely are thing more penetration of consumer electronics and in many cases the because people have consumer electronics for multiple locations and use cases in their lives right and a hybrid work model i might have one set up at home i might have one set up at work i might even have one set up for on the girl and so you'd feel a bit deeper penetration and ever in queue up people's homes and live with interesting about that is what you hit on in terms of innovation i mean obviously you've got some of the world's largest companies
spk_12: that had both benefited from that deeper penetration but also of course are going to continue to innovate in a way that will inspire customers to replace and were definitely think if your point both replacement cycled condensing down as new attribute are coming online or really useful to people and people about the evolution of just cameras incomes
spk_0: neutered over the last year because so many people are using video now you got hammered but track you even in tablets and so they're going to be that the constant dry it could be the next new interesting feature that attributes that you add the products and and really what's fascinating is based on survey data that we're looking right at right now in tenth upper
spk_13: purchase still remains very high in the next twelve month window which to us says you've got people who already are trying to think about what might be that that product either add on or upgrade that's going to help me lived through maybe another year of on and off at home schooling or another extended period of working from home and so as lobby
spk_5: really difficult numbers to get our arms around in terms of the upgrade frequency we are for sure thing a customer that more and more often of looking for those new attributes and then importantly spend your partner to are really working hard to create that next needed for loosens that well kind solve will be just about it being really fundamental structure role changes and how they're living our life waiting thing for much of the color and great quarter thank you remember one time next question of some broad thomas of keep on capital markets to score had mine is open i've been wanting a quarter am i was hoping you talk a little bit more about the outlook palms and you think about categories are obviously and to keep going strong results on a one to your bases across the board
spk_1: with concerning slowed a being need guidance blows of to the are declining in the quarters out here are you thinking about the categories really beach august he just and you
spk_5: yeah i think i can do that
spk_1: a lot of category that will continue to see the opportunity even girl from the back half of the are obviously there's gaming could be an opportunity to look at that the last six months for this year depending upon the level of inventory that we receive are applying to the been a category both large and small been growing for years we are at a time so we do see more opportunities in there are clearly a home theater has opportunities as it always does in the back in in the half of the are specially with a holiday season sort of them have a bigger one i think computing might be an area where it might be a little it by be slowed based on the the been immense the man and a cat over the last several years go him back but there are a number of categories and will continue to grow i think he likely also have some new category and new product introductions about the new category that we talked about that we're expanding and que while not as big definitely provide some some growth opportunity as well as likely from new product launches here in the back half that always stimulate back to the question about constant innovation better way to simulate a little bit i demand as well right and court effect at all about a longer term cautioned that health care and if you just curious and appeared on on our the next your feeling about that growth and the she going forward he didn't mention partnerships in hospitals and from care centers begin working on that are usually could a versus off the and asking a years now trump's me cringe opportunity not
spk_13: care
spk_0: yeah hasn't just as a reminder there are three main aspects to our healthcare strategy but first a the consumer health category we talked a lot about that today which is how you monitor a chronic conditions such as diabetes or heart disease and expanding our assortment of health care products and in the way that only we can
spk_5: when it comes commercializing new technology the second areas activity during which is all about emergency response device based tools that can help those who wish to live independently and their homes some and i built on somebody acquisitions that we've already seen in and the third which is a little bit more nathan it's virtual care and that includes a digital help care center services back to connect patients and physicians to a needle personal care and little piece of monitoring spelling promote nathan's and that will not take the long of to develop and the first sure we remain really ball and you couldn't even here even are prepared to mark the amount of devices that are proliferating right now to help people manage their own care is absolutely incredible and filled i'm a consumer side me feel really strong as well as the activating fide where we're going to feed opposite read honestly if we're trying to see more people come back into our story and i think the app appetite as you think about virtual care actually given the last eighteen months that we've all gone through or and that ability to not always rely on and in person hospital visit that but instead be able to monitor some of your vinyl and i think and you know it obviously didn't even greater use keith now than there were eating month ago so when i put all of that together i think broadly we we were mean really optimistic about how the future of healthcare can be changed through technology and the role that we can play enough not to thank you so much thank you a murmur hunter next question from shop mosque and off our kept capital to score hatch you can i help him gotcha thanks for taking my questions i hadn't done to and then was just trying to get my arms and little bit better run out forcefully water arm and what it might look like i'm an inventory perspective from a margin perspective and from an inflation perspective it just seems no fourth quarter is always a challenge for wonder if you give us a little bit more
spk_1: or maybe what you think may and then i had a longer term on question his mouth and long or shorter the other things that i think called third inquiry my new job on the on the last part there i think overall for the queue for we we're very confident and we're going to have him in tory to meet you support the demands of our our customers there's always a level of constrained inventory when you get into queue for we are still think pod pockets of constraint now we are in a very healthy him into a position clearly we'd like that more in certain areas but we have a high degree of we talked about transferability be too queen categories and within category assortment to to meet customers demand for we're we're feeling good their i think overall for most of them gross product respect or a proper perspective one of the meat we did talk about our we expect to see gross profit rate pressure in queue for the total checking thoroughly the the bigger part of that pressure
spk_14: we will see probably more
spk_5: return to more promotion alley compared to last year but again overall every two years ago it should be laugh but again will watch will i can see where goes and adjust accordingly
spk_1: terrific appreciate the color and amount of my second question but you guys talk about that be holistic market approach gonna charlotte a good you should you for but maybe a little bit more detail or your to be remotely all the stores how many stores to have down there and women will be complete just to any more details around that sounds are very exciting yeah i am excited about what were working on in charlotte because they think it uniquely leverage is all of our efforts across both our physical assets are stores and for the most part we are touching every single store there will be a number every mile but it's not every single one

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