Best Buy Co., Inc.

Good morning, everyone. My name is Molly O'Brien, and I'm head of investor relations at Best Buy. We are very happy to welcome you all this morning. Thank you for joining us. Hopefully, you were able to review our earnings press release from this morning. This press release and a downloadable PDF of today's slide presentation can be found on our IR website, investors.bestbuy.com. Today, you will hear from several Best Buy executives, including Corey Berry, our CEO, Matt Balunis, our CFO, Jason Bonfig, our Chief Merchant, Damian Harmon, our EVP of Omnichannel, and Deborah DeSanzo, our President of Best Buy Health. Here is our agenda for the morning. First, Corey and Matt will recap our Q4 and Fiscal 22 financial results, as well as our Fiscal 23 outlook. Then we will begin the strategic update portion of the event. Corey will start with the strategic setup and discuss our membership program. As part of the strategic setup, Jason will talk about technology innovation and merchandising. Damian will follow them with a review of our omnichannel initiatives. Then Debra will provide an update on Best Buy Health. After that, Matt will come back to the stage for the financial discussion. Corey will provide a quick wrap-up before we break. We expect to take a 10-minute break at approximately 9.20 a.m. Eastern Time. After the break, we will start our Q&A session. Before we begin, I would like to note that our presentation today contains non-GAAP financial measures that exclude the impact of certain business events. GAAP to non-GAAP explanations and reconciliations can be found in our earnings release and our presentation materials available on our website. Today's presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and the company undertakes no obligation to update or revise such statements to reflect events or circumstances that may arise after today's event. Again, thank you so much for joining us. We are looking forward to a great meeting. And now, I could not be more excited to turn the meeting over to Corey Berry, CEO of Best Buy.

Thank you so much, Molly. Good morning, everyone. We are so pleased you could join us today as we report our fiscal 22 results and take this opportunity to update our longer-term strategy and our multi-year financial outlook. Today, we will discuss how our business has evolved and how we're planning to drive value over the next few years. We're not planning to cover all our initiatives or all our business units. We've tried to be as succinct as possible to focus on the topics and initiatives that we believe are most important for you to understand about our business, our plans, and where we believe we're headed, both for fiscal 23 and for the longer term. First, let's discuss our fiscal 22 results. Fiscal 22 was another record year. addition to record revenue and earnings our leaders continue to drive new ways of operating and our employees continue to do amazing things in the face of unprecedented challenge and change to support our customers technology needs in knowledgeable fast and convenient ways as we discussed when we entered the year we anchored on three concepts we believe to be permanent and structural implications of the pandemic that were and are shaping our strategic priorities and investments one Customer shopping behavior will be permanently changed in a way that is even more digital and puts customers entirely in control to shop how they want. Our strategy is to embrace that reality and to lead, not follow. Two, our workforce will need to evolve in a way that meets the needs of customers while still providing more flexible opportunities for our employees. And three, technology is a need and is playing an even more crucial role in people's lives. And as a result, our purpose, to enrich lives through technology has never been more important. With these concepts in mind, we piloted numerous store formats to test and learn in the past year. We advanced our flexible workforce initiative and invested in our employees' well-being. We introduced new technology tools designed to support both our customers and also our employees. And we also launched a bold new membership program called Best Buy Total Tech, designed to significantly elevate our customer experience and drive incremental sales. We will be talking more about all these topics today. All of this was against a constantly evolving backdrop. During the year, we navigated supply chain and transportation challenges, uncertainty as virus peaks rolled across the country, and then most recently, the disruption from the Omicron wave. Our teams did an amazing job against that backdrop, expertly managing supply chain challenges since the beginning of the pandemic to bring in products our customers needed. During the year, we continued serving our customers digitally at much higher rates. Our online revenue was 34% of our domestic revenue. And while it declined versus last year, it was up 115% or $8.8 billion compared to two years ago. At the same time, we also reached our fastest package delivery speeds ever. We are an industry leader in fast and convenient product fulfillment for our customers. In fact, The percent of online orders we delivered in one day was twice as high as pre-pandemic levels, despite the significant increase in volume during that same timeframe. These record results are driven by the investment decisions we have made in the last several years in supply chain, store operations, our people, and technology, many of which we discussed at our investor updates, both in 2017 and 2019. More importantly, These results are driven by our amazing associates across the company. Over the past 24 months, they have flexibly dealt with rapidly changing store operations as we responded to impacts of the pandemic. They created safe environments for our customers, and they worked tirelessly to provide excellent service. In fact, despite all the changes we went through in the last year, we delivered MPS improvements both online and in our stores. I am truly grateful for and continue to be impressed by our associates' dedication, resourcefulness, and flat-out determination. From a financial perspective, we delivered record revenue and earnings per share. Our comparable sales growth was 10.4% on top of a very strong 9.7% last year, growing $8 billion over the past two years. Our non-gap earnings per share was just over $10, up 27% compared to last year. And compared to two years ago, We expanded our non-GAAP operating income rate by 110 basis points. Our non-GAAP return on investment improved 840 basis points compared to two years ago. And we drove more than $6.5 billion of free cash flow in the last two years. In fiscal 22, we returned $4.2 billion of that to shareholders in the form of dividends and share repurchases. We also continued to deepen our commitment to the community and the environment. Many of you may have had the opportunity to view the video that was playing before the event started. We continue to believe that our ESG efforts are directly tied to long-term value creation, and I am proud of all our initiatives, but we only have time for me to cover a few examples today. We committed to spend at least $1.2 billion with BIPOC and diverse businesses by 2025. The goal is to create a stronger community of diverse suppliers and to help increase BIPOC representation in the tech industry. We also committed to opening 100 teen tech centers by fiscal 25. During fiscal 22, we opened nine to end the year with a total of 44. These provide teens in disinvested communities access to the training, tools, and mentorship needed to succeed in post-secondary opportunities and careers. In addition, we're building a diverse talent pipeline for jobs of the future. In terms of the environment, In fiscal 22, we were a founding member of the Race to Zero initiative, committing to accelerate climate action within the retail industry. We are also driving sustainability through the unique consumer electronic circular economy. We help keep devices in use longer and out of landfills by leveraging our customer trade-in program, Geek Squad repair services, responsible recycling, and Best Buy outlets. These are initiatives our customers and vendors value and capabilities no one else has at our scale and breadth. And we are honored to be recognized for our work. Notably, we have placed in the top five on Barron's most sustainable companies list for the past five years in a row. This ranking recognizes our strong performance across all aspects of ESG. In addition, we are on the CDP Climate A list for the fifth year, which recognizes leadership in making a positive impact on the environment. Now, let's move on to our Q4 results. I am extremely proud of what we accomplished during the fourth quarter. Our team showed remarkable execution and dedication to serving our customers throughout the important gift-giving season. This was evidenced by the fact that we drove improvement in year-over-year customer NPS metrics across almost all areas, particularly for in-store, online, and chat experiences. In fact, we saw our best ever customer satisfaction scores for our in-store pickup experience. Online sales were almost 40% of domestic revenue compared to 43% last year and 25% in Q4 of fiscal 20. We reached our fastest holiday delivery times ever, shipping products to customer homes more than 25% faster than last year and two years ago. We also completed the purchase of two companies that aligned with our strategy, which Jason and Deborah will talk about later this morning. we are deliberately investing in our future and furthering our competitive differentiation. This, as we expected, is temporarily impacting our profitability. The biggest areas of investment in Q4 were our new membership program, technology, and Best Buy Health, all core to our future growth potential. In the face of unexpected change, I remain inspired by the way our teams across the enterprise remain flexible to ensure our customers were able to find the perfect gift. We remain well positioned as we head into fiscal 23 as the unique technology provider for the home. I'll turn the meeting over to Matt to cover more details on our Q4 results and fiscal 23 outlook. Matt?

Thank you, Corey, and good morning, everyone. Hopefully you were all able to view our press release this morning with our detailed financial results. Our Q4 revenue was $16.4 billion. Our domestic comparable sales declined 2.1%, and our enterprise comp sales declined 2.3%. Revenue grew 8% versus two years ago. It was only slightly below the low end of our revenue guidance for the quarter due to a few factors. The first factor was inventory availability. We expected to have pockets of inventory constraints as we entered the quarter and called out a few areas including appliances, gaming, and mobile phones. As the quarter progressed, inventory was more constrained than we anticipated within a few categories and brands. These constraints included some high-demand holiday items, and the categories most impacted were mobile phones and computing. The second factor impacting our results was Omicron. The Omicron wave and the resulting high levels of employee callouts led to a temporary reduction in our store hours in January and to start fiscal 23. In mid-February, our staffing levels started to improve, and we increased store operating hours for the majority of our stores. Excluding these two factors, our revenue would have been comfortably in the guidance range we provided for the quarter. From a category standpoint, on a weighted basis, the top areas with positive comparable sales growth included appliances, virtual reality, home theater, and headphones. We saw comparable sales declines in gaming, mobile phones, tablets, and services. Turning now to gross profit, our non-GAAP gross profit rate decreased 50 basis points to 20.2%. This was about 20 basis points lower than we expected, primarily due to increased promotionality. When comparing to last year, the largest driver was our services category, primarily driven by total tech. Our product margins were largely flat to last year as the benefit from category sales mix was offset by increased promotions. Higher profit-sharing revenue from our credit card arrangement was a benefit to gross profit rate compared to last year. Lastly, our international gross profit rate improved 210 basis points to last year, which provided a weighted benefit of approximately 20 basis points to our enterprise results. Our enterprise non-GAAP SG&A dollars grew 5% versus last year, less than our guide of 8% growth, primarily due to lower than anticipated incentive compensation. Within our domestic segment, our SG&A dollars increased $139 million. The largest drivers were one, advertising, which included campaigns for both holiday and to drive awareness for our new membership offering. Two, technology. Three, increased store and call center labor that helped drive the record customer satisfaction scores Corey shared, and four, Best Buy Health, which includes the impact associated with our acquisition. Before I discuss the fiscal 23 financial outlook, let me spend some time on our new Total Tech membership program. Corey will provide a more holistic overview later in her presentation, but I will add some color on the impacts to our Q4 results and for next year. Total Tech is a near-term investment to drive long-term value. The thesis is that over time, we will capture incremental product sales from our members that will lead to higher operating income. But as we discussed in prior earnings calls, it does come with near-term profitability impacts. First, at $199, the standalone membership is profitable. It just isn't as profitable as legacy service memberships due to the breadth of benefits and the cost to fulfill them. Second, there's a loss of revenue and profit from existing revenue streams that are now included as benefits in the program. For example, previously standalone services like extended warranties and products installations are now included within our Total Tech membership. We still offer these services on a standalone basis or to non-members, but you can imagine there is an aspect of cannibalization as members are no longer paying incrementally for these items. So what does all this mean? We expect that the gross profit rate of our services category will reset to a new level going forward that is lower than it was prior to launching Total Tech. The way to drive more operating income despite this lower services gross profit rate is to add far more members than we thought was possible under our previous membership offerings. The key to increased profit will be through increased volume through a combination of more recurring membership revenue and incremental product purchases of our members. The number of memberships grew very nicely in Q4, and our plans for fiscal 23 assumed continued growth, but it will take some time to reach the scale necessary to offset the lower gross profit rate I just described. Therefore, total tech remains a pressure in fiscal 23, but we expect it to be a meaningful driver of both higher sales and operating income dollars in fiscal 25 targets. Now let's talk about our overall fiscal 23 outlook. Our guide is anchored around a comparable sales decline in the range of 1% to 4% and a 5.4% non-GAAP operating income rate. Our non-GAAP diluted EPS outlook is $8.85 to $9.15. Before we discuss the broader assumptions driving our guide, want to touch on our expected tax rate our non-gap effective tax rate is planned at a more normalized level of 24.5 percent in fiscal 23 compared to 19 rate in fiscal 22. as you may recall our q2 results this past year included a 47 cent diluted eps benefit from the resolution of certain discrete matters now i'd like to share a few important assumptions underpinning our guidance first We anticipate the traditional CE industry to decline in the low to mid-single digits next year as we lap the high levels of growth in stimulus actions from this past year. In addition, we anticipate the number of store closures to be in the range of 20 to 30, which is consistent with the trend over the past five years. As I mentioned, our fiscal 23 guidance assumes non-GAAP operating income rate of approximately 5.4% compared to 6% in fiscal 22. To be clear, the biggest driver of the lower operating income rate in fiscal 23 is our investment in total tech. As I just described, this near-term pressure will drive long-term value for our shareholders. There are, of course, other factors that we expect to impact our results that, for the most part, offset each other in fiscal 23. We do expect higher levels of promotional activity to pressure our gross profit rate, which is partially offset by the favorable impact of expected growth in our monetization of our advertising business, or Best Buy ads. We expect our full-year SG&A expense to be lower than fiscal 22 levels. The largest year-over-year variance is lower incentive compensation expense as we reset our plans after paying out at higher levels in fiscal 22 due to the overachieving of our performance targets. We expect the lower incentive comp to be partially offset by a few areas. The first area is higher technology costs primarily due to annualizing spend in fiscal 22. The second area is higher depreciation and store remodel expense, as Damien will discuss later, And lastly, we expect to see higher SG&A dollars in support of our Best Buy. You may have noticed we are not providing quarterly guidance, but I would like to provide some insight on the assumed phasing for fiscal 23. Due to the strong first-half comps last year, we expect our full-year comparable sales decline to be weighted more heavily in the first half of the year. In addition, we expect to see significantly more year-over-year operating income rate pressure in the first half of the year compared to the back half. To summarize, the two largest variables for fiscal 23 financial results are the short-term industry declines as we lap high growth in government stimulus and the investment in our new membership program that will drive long-term value. As we look to fiscal 25, we expect the CE industry will return to the high levels we saw in fiscal 22 and that total tech will drive meaningful growth. I will now turn the meeting back over to Cori to begin our strategic update.