Best Buy Tops Forecasts
November 24, 2020
The firm had earnings per share of $2.06, adjusted with only $1.70 expected. On the top line, revenue cam in at $11.85 billion with $11.00 billion anticipated. Best Buy's same-store sales growth was good with a rise of 23% with only 13.6% sought by the Street.
“Today, we are once again reporting strong quarterly results in the midst of unprecedented times,” said Corie Barry, Best Buy CEO. “Our comparable sales grew a remarkable 23% as we leveraged our unique capabilities, including our supply chain expertise, flexible store operating model and ability to shift quickly to digital, to meet what is clearly elevated demand for products that help customers work, learn, cook, entertain and connect in their homes. The current environment has underscored our purpose to enrich lives through technology, and the capabilities we are flexing and strengthening now will benefit us going forward as we execute our strategy.”
Barry continued, “Our teams showed empathy, ingenuity and extraordinary
execution throughout the quarter. I am very proud of the way our teammates are
helping not only our customers, but each other and their communities.”
Domestic Segment Q3 FY21 Results
Domestic revenue of $10.85 billion increased 21.0% versus last year. The increase was primarily driven by comparable sales growth of 22.6%, which was partially offset by the loss of revenue from permanent store closures in the past year.
From a merchandising perspective, the company generated comparable sales growth across most of its categories, with the largest drivers being computing, home theater and appliances. These growth drivers were partially offset by a decline in mobile phone sales.
Domestic online revenue of $3.82 billion increased 173.7% on a comparable basis, and as a percentage of total Domestic revenue, online revenue increased to approximately 35.2% versus 15.6% last year.
Domestic Gross Profit Rate
Domestic gross profit rate was 24.0% versus 24.3% last year. The gross profit rate decrease of approximately 30 basis points was primarily driven by higher supply chain costs as a result of the increased mix of online revenue and lower profit-sharing revenue from the company’s private-label and co-branded credit card arrangement. These pressures were partially offset by a more favorable promotional environment.
Domestic Selling, General and Administrative Expenses (“SG&A”)
Domestic GAAP SG&A was $1.95 billion, or 18.0% of revenue, versus $1.80 billion, or 20.1% of revenue, last year. On a non-GAAP basis, SG&A was $1.93 billion, or 17.8% of revenue, versus $1.78 billion, or 19.9% of revenue, last year. Both GAAP and non-GAAP SG&A increased primarily due to: (1) increased incentive compensation expense; (2) increased variable expense related to the higher sales growth, including items such as credit card processing fees; and (3) a $40 million donation to the Best Buy Foundation. These items were partially offset by lower store payroll expense.
International Segment Q3 FY21 Results
International revenue of $1.0 billion increased 25.4% versus last year. This increase was primarily driven by comparable sales growth of 27.3%, which was partially offset by the impact of approximately 140 basis points of negative foreign currency exchange rates.
International Gross Profit Rate
International GAAP gross profit rate was 19.0% versus 22.5% last year. On a non-GAAP basis, the gross profit rate was 22.6% versus 22.5% last year. The lower GAAP gross profit was primarily due to $36 million of inventory markdowns associated with the company’s decision to exit its operations in Mexico.
International SG&A was $175 million, or 17.4% of revenue, versus $173 million, or 21.6% of revenue, last year. SG&A increased primarily due to higher incentive compensation in Canada.
Restructuring charges of $111 million in Q3 FY21 primarily related to charges associated with the company’s decision this quarter to exit operations in Mexico and actions to better align its organizational structure with its strategic focus.
Dividends and Share Repurchases
In Q3 FY21, the company returned a total of $142 million to shareholders through dividends. On a year-to-date basis, the company has returned a total of $488 million to shareholders through dividends of $426 million and share repurchases of $62 million. The company suspended share repurchases last March in order to conserve liquidity in light of the COVID-related uncertainties and plans to resume share repurchases during Q4 FY21.
Today, the company announced its board of directors has authorized the payment of a regular quarterly cash dividend of $0.55 per common share. The quarterly dividend is payable on January 5, 2021, to shareholders of record as of the close of business on December 15, 2020.
In Q3 FY21, the company completed a public bond offering for $650 million in 1.95% notes due in October 2030. The net proceeds from the sale will be used to replace the $650 million in 5.5% notes that mature in March 2021, which the company expects to retire during Q4 FY21 by exercising its option to redeem the 5.5% notes at par.