Best Buy Co., Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's third quarter fiscal 26 earnings conference call. At this time, all participants are in 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 1 again. As a reminder, This call is being recorded for playback and will be available by approximately 1 o'clock p.m. Eastern time today. If you need assistance on the call at any time, please press star zero and an operator will assist you. I will now turn the conference call over to Molly O'Brien, Head of Investor Relations.

Thank you and good morning, everyone. Joining me on the call today are Corey Berry, our CEO. Matt Ballounis, our Chief Financial and Strategy Officer, and Jason Bonfig, our Chief Customer, Product, and Fulfillment Officer. 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 Form 10-K and subsequent Form 10-Qs 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. And now I will turn the call over to Cori.

Good morning, everyone, and thank you for joining us. Today we are very pleased to report strong results for the third quarter. On revenue of $9.7 billion, we delivered an adjusted operating income rate of 4% and increased our adjusted earnings per share 11% year over year to $1.40. We delivered better than expected comparable sales growth of 2.7%. Our better than expected profitability was due to the higher revenue and lower than expected SG&A expenses. We continue to drive strong sales performance across computing, gaming, and mobile phones. We also saw growth in other categories, including wearables and headphones. This growth was partially offset by declines in the home theater, appliance, and drone categories. In computing, we delivered our seventh consecutive quarter of positive comps, with sales growth coming from across the assortment and price points. This is due to continued momentum driven by customers' need to replace and upgrade products, combined with our unique blend of broad assortment and expert advice, service, and support. We were there for students and their families, no matter their budget, and were pleased with our back-to-school sales performance. We were also focused on helping customers get what they needed to transition to Windows 11 as Microsoft ended support for the Windows 10 operating system mid-October. This contributed to our comparable sales performance, evidenced by strong Windows-based sales overall and almost 30% year-over-year growth in desktop computers. In gaming, we continued to see strong demand for the Nintendo Switch 2, As expected, the growth rate slowed from the more material Q2 launch timeframe. We also continued to see healthy demand for handheld gaming and augmented reality glasses. In mobile phones, we leveraged our expanded partnerships and in-store operating model improvements with the largest carriers to drive strong sales growth across phones. Our Q3 enterprise comparable sales were driven by growth across both our online assets and our stores. Online sales were up for the fourth consecutive quarter due to higher traffic and increased customer adoption of our highly rated app. We also drove our fastest shipping fulfillment speed ever, coupled with our highest on-time rate for a third quarter. According to our five-star surveys, our store customer experience ratings for product availability, store appearance, and associate availability all improved year over year. We were also pleased to see continued year-over-year growth in our overall relationship net promoter score, reflecting improved customer perception on all relationship attributes with the largest gain in meeting my tech needs for the second straight quarter. For the most part, customer shopping behavior in Q3 did not change materially from the commentary we have shared for the past several quarters. Customers remain resilient but deal-focused and attracted to more predictable sales moments, including our back-to-school sales events and our Techtober sales held in close proximity to the October Prime Day event. September, which was relatively quiet outside of the Labor Day sales event, had the slowest growth of the quarter. Importantly, while customers continue to be thoughtful about big-ticket purchases in the current environment, they are willing to spend on high-price point products when they need to or when there is technology innovation. To summarize our Q3 performance, we are flexing the unique strength of our models as customers need to upgrade or replace their CE and new products are coming to market. I want to thank our amazing employees for their dedication to our customers and their strong execution in delivering these Q3 results and setting us up well for an exciting holiday quarter. I would like to provide a few updates on the progress we are making on our fiscal 26 strategy. As a reminder, our strategy is to continue to strengthen our position in retail as a leading omnichannel destination for technology while at the same time building and scaling new profit streams that we believe will drive returns in the future. Our first fiscal 26 strategic priority is to drive omni-channel experiences that resonate with our customers. Last quarter, we provided multiple examples of store refreshes and upgrades planned for the back half of the year, many of which were in partnership with our vendors. A few updates. We launched the latest AI glasses from Meta across all stores. In more than 50 locations, We now have immersive showcase areas staffed by meta-experts to help customers discover and try the technology hands-on. The strong customer demand for in-person demos continues to outpace available appointments. We introduced new experiences with Breville and Shark Ninja that feature expanded assortments for at-home baristas and chefs and innovative health and beauty solutions. Very early reads are positive, and we are excited to monitor customer response during the holidays. as many of these new experiences will be staffed with expert sales associates to bring this innovation to life for our customers. We expanded the merchandising areas featuring TVs from TCL, Hisense, and LG, which are staffed by dedicated experts to address questions and help customers get what they need. These were not all live for the whole quarter, but very early reads are showing positive results. And earlier this month, we implemented most of the new IKEA pilots we announced last quarter. These 1,000 square foot areas are staffed by IKEA co-workers and showcase kitchen and laundry room settings from IKEA and appliances from Best Buy. While there are only 10 pilot locations, this is the first time IKEA products and services are available through another U.S. retailer, creating innovative ways for both of us to meet customer needs in a changing environment. We continue to drive the digital experience forward as well. Usage of our app is growing every quarter, which helps us recognize more customers as they shop with us and gives us the opportunity to provide better personalization and product recommendations. In addition to launching our marketplace, we continue to make online customer enhancements. A few specific examples. We improved the online TV shopping experience by both lowering the price for our delivery and installation services and improving the digital flow to make it even easier for customers to add the services to their online TV purchase. For shippable products across categories, customers in all our markets can now pick a two-hour window for delivery up to seven days out. This capability was only available in about a third of our markets last year. This is a great option for customers, especially those who may want more security around their high price point purchases. As always, we have a relentless focus on the employee experience and being the best place to work, which is driving engagement, historically low turnover, and healthy applicant pools. This, in turn, allows us to provide our customers the expert service that Best Buy is known for across stores, online, and in homes. On top of that, our vendors have grown their investment in our specialized labor programs to augment our staff. We continue to expect vendor labor investment to be approximately 20% higher than last year in the second half of the year. Our second strategic priority for fiscal 26 is focused on incremental profitability streams. We are excited about our new Best Buy marketplace. We are about three months into the launch and have more than 1,000 sellers and 11 times more SKUs available online for customers than we did before. Now we have more tech options than ever for our customers, both from big names like Samsung, Dell, HP, and Intel, and new vendors that help us level up our tech assortment across categories. We also have hundreds of new brands in new categories, like licensed sporting goods, seasonal decor, and much more. For our sellers, our marketplace provides an additional avenue to increase their reach and build their brands, leveraging our qualified traffic. I will share some early results and learnings. As expected, and an important goal of Marketplace, we are seeing high unit sales in categories like accessories and small appliances. The five-star customer reviews for 3P experiences are similar to those we see for our first-party business. Customer return rates for Marketplace items have been running lower than our first-party return rates. And for customers who do have a return, they are taking advantage of the convenient return-to-store option for more than 80% of product returns. Marketplace ramped through Q3 in terms of sellers, SKUs, traffic conversion rate, and sales. We expect to continue to ramp through Q4. Our Marketplace results had a positive impact on our Q3 gross profit rates. And we expect it to positively impact our Q4 gross profit rate as well. And it is already providing opportunities for Best Buy ads through new advertisers. Speaking of Best Buy ads, during the quarter, we hosted our first ever client showcase in September called We Got Next. It spotlighted our scale, performance, and innovation to key decision makers across agencies, brands, partners, and press. We were encouraged by the reception. Advertisers are particularly excited about our new in-store takeover product. Unique to Best Buy, this high-impact program features both large-format signage across the store and screens across the TV wall and computer monitors. It begins running in January with Meta and ESPN. We continue to invest in strengthening and advancing the technology platform we need to capitalize on the opportunity we see ahead. During the quarter, we launched our self-serve platform, MyAd. which is particularly important for our new marketplace sellers. We also enabled onsite programmatic buying, augmented our reporting capabilities, and expanded our onsite ad supply. We are successfully expanding into new opportunity areas like agencies and demand-side platforms, or DSPs. We are also gaining traction in non-endemic categories, with several partners testing the platform in differentiated ways. Financial services is emerging as a standout vertical, with PayPal, Klarna, and CapOne Shopping all activating campaigns. Other new non-endemic categories include quick-serve restaurants and sports entertainment. Our retail media network is already highly profitable, and our Q3 growth in ad collections had a positive impact on our gross profit rate, and we expect it to positively impact our Q4 gross profit rate as well. We expect a neutral impact on this year's operating income rate compared to last year due to the investments we are making in technology and talent. This brings us to our third strategic priority for fiscal 26, which is a long-standing strategic imperative. Driving efficiencies and identifying cost reductions are crucial to help fund investment capacity for new and existing initiatives and offset pressures in our business. There are many ways we realize these efficiencies, with technology and analytics, through ongoing vendor partnerships and vendor selection throughout the enterprise, and by modifying existing processes or customer offerings. In our customer support capability, We are leveraging AI to streamline interactions and provide new experiences that empower customers with more self-serve content and options. As a result, we drove a 17% decline in the number of customer contacts in Q3 and improved our customer experience scores. By leveraging our new data-driven sourcing solution to choose the most efficient location to fulfill more than 70% of our online orders, we are seeing faster delivery times, better on-time delivery, and lower costs. Going forward, we will continue to use AI augmented optimization across multiple areas of our business, from scam detection to customer support to personalized email marketing. And we are increasingly using AI for product search, product recommendations, and enriching product content, as well as expanding into conversational AI and agentic commerce. We have officially kicked off the holiday season. We feel well-positioned with compelling deals on hot products, strong marketing, and competitive fulfillment options. From a timing perspective, our promotional plans, for the most part, line up with last year. Doorbusters drop every Friday through the holiday, and our Black Friday sales started the week before Thanksgiving. We have something for every budget, with deals across a wide range of price points. Because of our unique position, we can also offer customers great prices for the latest innovation and premium products and assortments that not everyone has. This includes limited quantity hardware, games, and toys, that drive traffic and excitement to our stores and digital properties through invitation only and other exciting launch events. We expect gaming to be a hot holiday gift category with products like the Nintendo Switch 2, the Asus Rogue Xbox Ally handheld gaming system, gaming laptops, and gaming monitors. Other exciting gifts for holiday include AI glasses from Ray-Ban and Oakley, 3D printers, OLED TVs, the new Hyperboot by Nike, limited quantity Pokemon cards and Lego toys, and JBL PartyBox speakers. For those looking for gifts that can be used every day, we have great deals on the new Remarkable Paper Pro and Co-Pilot Plus laptops, small appliances like Ninja Flushing Machines and Breville Barista Espresso Machines, health products like the new Aura Ring 4, and much more. In stores, you can interact with our immersive experiences and demos and get advice from our blue shirts and vendor experts. And every year ahead of holiday, we, like many vendors, hire thousands of seasonal flex employees. This year, we tried something new and brought all the new associates together for a full weekend earlier this month. The event was a resounding success, not only in training the new employees on products, tools and transacting, but immersing new team members in the values, energy and collaboration that define Best Buy's culture. Of course, all the in-store products and more are available for customers who prefer to shop from home. We have our holiday gift ideas page with curated gift lists based on interest and a personalized discover page designed to help customers discover new technology. In addition to great price points, we have our comprehensive trade-in program that we will highlight throughout the holiday to help customers more easily get new technology. For example, customers can save up to $1,200 by trading in their tablets. or up to $1,100 trading in their phones. We also have great no-interest programs available on our credit card, in addition to buy now, pay later options to help customers complete their holiday shopping list. We are excited about our holiday marketing campaign that meets people where they already are across sports, streaming, and social. We're teaming up with more than 200 influencers and Best Buy creators as they highlight the tech that's topping their gift list. And this year, we are going even deeper with sports. We continue to be the official home entertainment retailer of the NFL, and our holiday campaign will have an increased in-game presence across NBC, Peacock, CBS, Fox, and Netflix. We will also have presence on CBSSports.com and across streaming sports content on ESPN. In summary, we are pleased with our Q3 financial results and execution, which included improved share positions. We expect to deliver sales growth for the year. The high end of our Q4 outlook assumes growth in computing, gaming, and mobile. It also reflects trend improvements in TVs driven by a blend of sharp pricing, increased marketing, specialty labor, and improved delivery and install offerings. Our results demonstrate an important aspect of our thesis. Our model really shines when there is innovation. This is because we are the trusted source for the latest and greatest new technology. We have a broad range of assortments and price points for every budget. in addition to unique in-store and digital experiences. We also have Geek Squad services to help our customers. And we are a true partner to our vendors, working with them from early in the product development cycle all the way to launching products on our sales floor. And now I would like to turn the call over to Matt for more details on our Q3 performance and Q4 outlook.