What changed in this filing

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Item 1. Financial Statements

2022-06-02 compared with 2021-12-03 · 203 added, 417 removed, 506 unchanged (55% of the section changed)

2 unchanged sentences

$ in millions, except per share amounts (unaudited)

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Current assets

37 unchanged sentences

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Cost of sales

3 unchanged sentences

Other income (expense):

Investment income and other

Investment income (expense) and other

Interest expense

9 unchanged sentences

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Foreign currency translation adjustments, net of tax

Cash flow hedges

Comprehensive income

2 unchanged sentences

$ in millions (unaudited)

Nine Months Ended

October 30, 2021

October 31, 2020

Three Months Ended

April 30, 2022

Operating activities

Adjustments to reconcile net earnings to total cash provided by operating activities:

Adjustments to reconcile net earnings to total cash provided by (used in) operating activities:

Depreciation and amortization

1 unchanged sentence

Stock-based compensation

Deferred income taxes

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of acquired assets and liabilities:

Merchandise inventories

1 unchanged sentence

Other liabilities

Total cash provided by operating activities

Total cash provided by (used in) operating activities

Investing activities

1 unchanged sentence

Purchases of investments

Sales of investments

Total cash used in investing activities

1 unchanged sentence

Repurchase of common stock

Issuance of common stock

Dividends paid

Borrowings of debt

Repayments of debt

Total cash provided by (used in) financing activities

Total cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) in cash, cash equivalents and restricted cash

Decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

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Accumulated Other Comprehensive Income (Loss)

Balances at July 31, 2021

Net earnings, three months ended October 30, 2021

Other comprehensive income:

Foreign currency translation adjustments, net of tax

Stock-based compensation

Issuance of common stock

Common stock dividends, $ 0.70 per share

Repurchase of common stock

Balances at October 30, 2021

Balances at January 29, 2022

Net earnings, nine months ended October 30, 2021

Other comprehensive income:

Net earnings, three months ended April 30, 2022

Other comprehensive loss:

Foreign currency translation adjustments, net of tax

3 unchanged sentences

Repurchase of common stock

Balances at October 30, 2021

Balances at August 1, 2020

Net earnings, three months ended October 31, 2020

Balances at April 30, 2022

Balances at January 30, 2021

Net earnings, three months ended May 1, 2021

Other comprehensive income:

Foreign currency translation adjustments, net of tax

Cash flow hedges

Stock-based compensation

1 unchanged sentence

Common stock dividends, $ 0.70 per share

Balances at October 31, 2020

Balances at February 1, 2020

Net earnings, nine months ended October 31, 2020

Other comprehensive loss:

Foreign currency translation adjustments, net of tax

Cash flow hedges

Stock-based compensation

Issuance of common stock

Common stock dividends, $ 1.65 per share

Repurchase of common stock

Balances at October 31, 2020

Balances at May 1, 2021

See Notes to Condensed Consolidated Financial Statements.

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and, as applicable, its consolidated subsidiaries.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”).

All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.

During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico.

All stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment is now comprised of operations in Canada.

Refer to Note 2, Restructuring , for additional information.

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag.

Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements.

No such events were identified for the reported periods.

Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico.

Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season.

Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year.

The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

The first nine months of fiscal 2022 and fiscal 2021 included 39 weeks.

In preparing the accompanying condensed consolidated financial statements, we evaluated the period from October 30, 2021, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure.

Other than the acquisitions described in Note 13, Subsequent Events , n o such events were identified for the reported periods.

The first three months of fiscal 2023 and fiscal 2022 included 13 weeks.

In preparing the accompanying condensed consolidated financial statements, we evaluated the period from April 30, 2022, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure.

N o such events were identified for the reported periods.

Total Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash reported on our Condensed Consolidated Balance Sheets are reconciled to the total shown on our Condensed Consolidated Statements of Cash Flows as follows ($ in millions):

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Cash and cash equivalents

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Total cash, cash equivalents and restricted cash

Amounts included in restricted cash are primarily restricted to use for workers’ compensation and general liability insurance claims, and product protection plans provided under our Best Buy Totaltech TM membership offering.

Amounts included in restricted cash are primarily restricted to use for product protection plans provided under our Best Buy Totaltech membership offering and self-insurance liabilities.

Restructuring

Restructuring charges were as follows ($ in millions):

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Mexico Exit and Strategic Realignment

Fiscal 2020 U.S.

Retail Operating Model Changes

(1) Includes inventory markdowns recorded in Cost of sales on our Condensed Consolidated Statements of Earnings of ($ 6 ) million for the nine months ended October 30, 2021, and $ 36 million for the three and nine months ended October 31, 2020.

Mexico Exit and Strategic Realignment

In March 2020 the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic.

The COVID-19 pandemic has had significant impacts on, for example, the economic conditions of the markets in which we operate, customer shopping behaviors, the role of technology in peoples’ lives and the way we meet their needs.

In light of these changes, we are adapting our Building the New Blue Strategy to ensure that our focus and resources are closely aligned with the opportunities we see in front of us.

As a result, in the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico and began taking other actions to more broadly align our organizational structure in support of our strategy.

In the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico and began taking other actions to more broadly align our organizational structure in support of our strategy.

Charges incurred in our International segment primarily related to our decision to exit our operations in Mexico.

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Charges incurred in our Domestic segment primarily related to actions taken to align our organizational structure in support of our strategy.

During the nine months ended October 30, 2021, we recorded a $ 44 million credit primarily due to a reduction in expected termination benefits resulting from adjustments to previously planned organizational changes and higher-than-expected employee retention.

As we continue to evolve our Building the New Blue Strategy, it is possible that we will incur material future restructuring costs, but we are unable to forecast the timing and magnitude of such costs.

During the first quarter of fiscal 2022, we recorded a $ 44 million credit primarily due to a reduction in expected termination benefits resulting from adjustments to previously planned organizational changes and higher-than-expected employee retention.

As we continue to evolve our strategy, it is possible that we will incur material future restructuring costs, but we are unable to forecast the timing and magnitude of such costs.

All charges incurred related to the exit from Mexico and strategic realignment described above were from continuing operations and were presented as follows ($ in millions):

Three Months Ended October 30, 2021

Nine Months Ended October 30, 2021

Earnings Location

International

Inventory markdowns

Cost of sales

Asset impairments

Restructuring charges

Termination benefits

Restructuring charges

Three and Nine Months Ended October 31, 2020

Three Months Ended May 1, 2021

Cumulative as of April 30, 2022

Earnings Location

International

Inventory markdowns

Cost of sales

Asset impairments

Restructuring charges

Termination benefits

Restructuring charges

Cumulative Amount as of October 30, 2021

Earnings Location

International

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Restructuring charges

(1) Remaining net carrying value approximates fair value and was immaterial as of October 30, 2021.

(1) Remaining net carrying value approximates fair value and was immaterial as of April 30, 2022.

(2) Other charges are primarily comprised of contract termination costs.

Restructuring accrual activity related to the exit from Mexico and strategic realignment described above was as follows ($ in millions):

Termination Benefits

International

Balances at February 1, 2020

Cash payments

Balances at October 31, 2020

Balances at January 30, 2021

Cash payments

Adjustments (1)

Changes in foreign currency exchange rates

Balances at October 30, 2021

(1) Represents adjustments to previously planned organizational changes in our Domestic segment and higher-than-expected employee retention in both our Domestic and International segments.

Fiscal 2020 U.S.

Retail Operating Model Changes

In the second quarter of fiscal 2020, we made changes primarily related to our U.S.

retail operating model to increase organization effectiveness and create a more seamless customer experience across all channels.

All charges incurred were related to termination benefits within our Domestic segment and were presented within Restructuring charges from continuing operations on our Condensed Consolidated Statements of Earnings.

As of October 30, 2021, the cumulative amount of charges incurred was $ 41 million and no material liability remains.

There were no material restructuring charges in the first quarter of fiscal 2023 and no material liability remains.

Goodwill and Intangible Assets

Balances related to goodwill remained unchanged as of October 30, 2021, January 30, 2021, and October 31, 2020, as follows ($ in millions):

Goodwill balances by reportable segment were as follows ($ in millions):

April 30, 2022

January 29, 2022

Gross Carrying Amount

Cumulative Impairment

Gross Carrying Amount

Cumulative Impairment

Gross Carrying Amount

Cumulative Impairment

International

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Definite-Lived Intangible Assets

We have definite-lived intangible assets recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):

October 30, 2021

We have definite-lived intangible assets that are recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):

April 30, 2022

January 29, 2022

October 31, 2020

Weighted-Average

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‎ Amortization

Useful Life Remaining as of October 30, 2021 (in years)

Useful Life Remaining as of April 30, 2022

Customer relationships

2 unchanged sentences

Three Months Ended

Nine Months Ended

Earnings Location

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Amortization expense

8 unchanged sentences

Recurring Fair Value Measurements

Financial assets and liabilities accounted for at fair value were as follows ($ in millions):

Financial assets accounted for at fair value were as follows ($ in millions):

Fair Value at

1 unchanged sentence

Fair Value Hierarchy

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Money market funds (2)

7 unchanged sentences

Interest rate swap derivative instruments (4)

Other current assets

Interest rate swap derivative instruments (4)

Marketable securities that fund deferred compensation (5)

7 unchanged sentences

Fair Value of Financial Instruments

The fair values of cash, receivables, accounts payable and other payables approximated their carrying values because of the short-term nature of these instruments.

The fair values of cash, receivables, accounts payable, short-term debt and other payables approximated their carrying values because of the short-term nature of these instruments.

If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy.

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Long-term debt balances were as follows ($ in millions):

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Carrying Value

4 unchanged sentences

Derivative Instruments

We also use interest rate swaps to mitigate the effect of interest rate fluctuations on our $ 650 million principal amount of notes due March 15, 2021 (“2021 Notes”), prior to their retirement in December 2020, and on our $ 500 million principal amount of notes due October 1, 2028 (“2028 Notes”).

We manage our economic and transaction exposure to certain risks by using foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations and by using interest rate swaps to mitigate the effect of interest rate fluctuations on our $ 500 million principal amount of notes due October 1, 2028 (“2028 Notes”).

In addition, we use foreign currency forward contracts not designated as hedging instruments to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies.

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Contract Type

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Derivatives designated as net investment hedges

4 unchanged sentences

Three Months Ended

Nine Months Ended

Statement of Earnings Location

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Earnings Location

April 30, 2022

Interest rate swap contracts

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The Five-Year Facility Agreement permits borrowings of up to $ 1.25 billion and expires in May 2026.

There were no borrowings outstanding under the Five-Year Facility Agreement as of October 30, 2021, or the Previous Facility as of January 30, 2021, and October 31, 2020.

There were no borrowings outstanding under the Five-Year Facility Agreement as of April 30, 2022, and January 29, 2022, or the Previous Facility as of May 1, 2021.

In conjunction with a solar energy investment, we were advanced $ 110 million due October 31, 2021.

The advance was recorded within Short-term debt on our Condensed Consolidated Balance Sheets as of January 30, 2021, and bore interest at 0.14 %.

The advance was recorded within Short-term debt on our Condensed Consolidated Balance Sheets as of May 1, 2021, and bore interest at 0.14 %.

This advance was repaid on October 29, 2021.

1 unchanged sentence

Long-term debt consisted of the following ($ in millions):

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Notes, 4.45 %, due October 1, 2028

Notes, 1.95 %, due October 1, 2030

Interest rate swap valuation adjustments

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We generate substantially all of our revenue from contracts with customers for the sale of products and services.

Contract balances primarily consist of receivables and liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards, services not yet completed and options that provide a material right to customers, such as our customer loyalty programs.

Contract balances primarily consist of receivables and liabilities related to product merchandise not yet delivered to customers, unfulfilled membership benefits and services not yet completed, unredeemed gift cards and options that provide a material right to customers, such as our customer loyalty programs.

Contract balances were as follows ($ in millions):

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Receivables, net (1)

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Accrued liabilities

(1) Receivables are recorded net of allowances for doubtful accounts of $ 24 million, $ 32 million and $ 30 million as of October 30, 2021, January 30, 2021, and October 31, 2020, respectively.

During the first nine months of fiscal 2022 and fiscal 2021, $ 1,001 million and $ 792 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.

(1) Receivables are recorded net of allowances for doubtful accounts of $ 25 million, $ 31 million and $ 25 million as of April 30, 2022, January 29, 2022, and May 1, 2021, respectively.

During the first three months of fiscal 2023 and fiscal 2022, $ 829 million and $ 684 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.

See Note 11, Segments , for information on our revenue by reportable segment and product category.

3 unchanged sentences

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Weighted-average common shares outstanding

1 unchanged sentence

Weighted-average common shares outstanding, assuming dilution

Potential shares which were anti-dilutive and excluded from weighted-average share computations

Basic earnings per share

1 unchanged sentence

Repurchase of Common Stock

On February 16, 2021, our Board of Directors approved a new $ 5.0 billion share repurchase program .

On February 28, 2022, our Board of Directors approved a new $ 5.0 billion share repurchase program, which replaced the $ 5.0 billion share repurchase program authorized on February 16, 2021 .

There is no expiration date governing the period over which we can repurchase shares under this authorization.

We temporarily suspended all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties.

On August 24, 2021, we announced our plan to repurchase more than $ 2.5 billion of shares in fiscal 2022.

Information regarding the shares we repurchased was as follows ($ and shares in millions, except per share amounts):

On May 24, 2022, we reaffirmed our plans to spend approximately $ 1.5 billion on share repurchases in fiscal 2023.

Information regarding the shares we repurchased and retired was as follows ($ and shares in millions, except per share amounts):

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Total cost of shares repurchased

1 unchanged sentence

Number of shares repurchased

As of October 30, 2021, $ 3.4 billion of the $ 5.0 billion share repurchase authorization was available.

Between the end of the third quarter of fiscal 2022 on October 30, 2021, and December 1, 2021, we repurchased an incremental 3.6 million shares of our common stock at a cost of $ 452 million.

Unrecognized Tax Benefits

Our income tax returns are routinely examined by domestic and foreign tax authorities.

During the second quarter of fiscal 2022, we reduced our unrecognized tax benefits by $ 101 million relating to multi-jurisdiction, multi-year non-cash benefits from the resolution of certain discrete tax matters, all of which resulted in a tax benefit in the second quarter.

As of April 30, 2022, $ 4.7 billion of the $ 5.0 billion share repurchase authorization was available.

Contingencies

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Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Revenue by reportable segment

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Total International revenue

Operating income (loss) by reportable segment and the reconciliation to consolidated earnings before income tax expense and equity in income of affiliates was as follows ($ in millions):

Operating income by reportable segment and the reconciliation to consolidated earnings before income tax expense and equity in income of affiliates was as follows ($ in millions):

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

International

1 unchanged sentence

Other income (expense):

Investment income and other

Investment income (expense) and other

Interest expense

1 unchanged sentence

Assets by reportable segment were as follows ($ in millions):

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

International

Subsequent Events

On October 10, 2021, we signed a definitive agreement to acquire Current Health Ltd.

(“Current Health”), a care-at-home technology platform that brings together remote patient monitoring, telehealth and patient engagement into a single solution for healthcare organizations, for approximately $ 400 million.

The acquisition was completed on November 2, 2021, and will be included in our consolidated results beginning in the fourth quarter of fiscal 2022.

On October 18, 2021, we signed a definitive agreement to acquire Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”), an outdoor furniture company, for approximately $ 85 million.

The acquisition was completed on November 4, 2021, and will be included in our consolidated results beginning in the fourth quarter of fiscal 2022.

Management's Discussion and Analysis of Financial Condition and Results of Operations

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Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude.

Our MD&A is presented in the following sections:

 Business Strategy Update

 Results of Operations

 Liquidity and Capital Resources

 Off-Balance-Sheet Arrangements and Contractual Obligations

 Significant Accounting Policies and Estimates

 New Accounting Pronouncements

 Safe Harbor Statement Under the Private Securities Litigation Reform Act

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (including the information presented therein under Risk Factors ), as well as our other reports on Forms 10-Q and 8-K and other publicly available information.

All amounts herein are unaudited.

Our purpose is to enrich lives through technology.

We do this by leveraging our unique combination of tech expertise and human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes.

We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life .

We accomplish this by leveraging our combination of technology and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes.

We have two reportable segments:

Domestic and International.

The Domestic segment is comprised of operations, including our Best Buy Health business, in all states, districts and territories of the U.S.

The International segment is comprised of all operations in Canada and Mexico.

During the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico.

All stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment is now comprised of operations in Canada.

Refer to Note 2, Restructuring , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.

The Domestic segment is comprised of our operations in all states, districts and territories of the U.S.

and our Best Buy Health business.

All of our former stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment is now comprised of all our operations in Canada.

Our fiscal year ends on the Saturday nearest the end of January.

Our business, like that of many retailers, is seasonal.

A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico.

A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season.

Comparable Sales

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Comparable sales includes revenue from stores, websites and call centers operating for at least 14 full months.

Stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, are excluded from comparable sales until at least 14 full months after reopening.

Acquisitions are included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition.

Revenue from online sales is included in comparable sales and represents sales initiated on a website or app, regardless of whether customers choose to pick up product in store, curbside, at an alternative pick-up location or take delivery direct to their homes.

Revenue from acquisitions is included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition.

Comparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable.

Revenue from stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, is excluded from comparable sales until at least 14 full months after reopening.

Comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only).

Online sales are included in comparable sales.

Online sales represent those initiated on a website or app, regardless of whether customers choose to pick up product in store, curbside, at an alternative pick-up location or take delivery direct to their homes.

All periods presented apply this methodology consistently.

On May 9, 2019, we acquired all outstanding shares of Critical Signal Technologies, Inc.

Consistent with our comparable sales policy, the results of CST are included in our comparable sales calculation beginning in the third quarter of fiscal 2021.

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic.

All stores that were temporarily closed as a result of COVID-19 or operating a curbside-only operating model are included in comparable sales.

On November 24, 2020, we announced our decision to exit our operations in Mexico.

As a result, all revenue from Mexico operations has been excluded from our comparable sales calculation beginning in December of fiscal 2021.

On November 2, 2021, we acquired all outstanding shares of Current Health Ltd.

(“Current Health”).

On November 4, 2021, we acquired all outstanding shares of Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”) .

Consistent with our comparable sales policy, the results of Current Health and Yardbird are excluded from our comparable sales calculation until the first quarter of fiscal 2024.

We believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores, websites and call centers versus the portion resulting from opening new stores or closing existing stores.

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Non-GAAP Financial Measures

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), as well as certain adjusted or non-GAAP financial measures, such as constant currency, non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted earnings per share (“EPS”).

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S.

(“GAAP”), as well as certain adjusted or non-GAAP financial measures, such as constant currency, non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted earnings per share (“EPS”).

We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance.

For these reasons, our internal management reporting also includes non-GAAP financial measures.

Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, price-fixing settlements, gains and losses on investments, intangible asset amortization, certain acquisition-related transaction costs and the tax effect of all such items.

Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill and intangible impairments, price-fixing settlements, gains and losses on certain investments, intangible asset amortization, certain acquisition-related costs and the tax effect of all such items.

In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors.

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We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates.

We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors when there are significant fluctuations in currency rates.

Refer to the Consolidated Non-GAAP Financial Measures section below for detailed reconciliations of items impacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS in the presented periods.

We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.

Refer to the Non-GAAP Financial Measures section below for detailed reconciliations of items impacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS in the presented periods.

Business Strategy Update

Throughout the third quarter of fiscal 2022, we provided customers multiple ways to interact with us depending on their needs, preference and comfort.

Similar to the first half of fiscal 2022, customers migrated back into our stores to touch and feel products and to seek in-person expertise and service.

At the same time, they continued to interact with us digitally at a significantly higher rate than before the pandemic.

Online sales were 31% of Domestic revenue compared to 16% in the third quarter of fiscal 2020, growing by more than $2 billion during that time.

During the third quarter, we reached our fastest small-product delivery times ever as same-day delivery was up 400% and we nearly doubled the percentage of products delivered within one day compared to last year.

Product availability continued to improve throughout the quarter.

While we had areas of product constraints, we do not believe this materially limited our overall sales growth.

We are proactively navigating supply chain challenges, including delays and higher costs, by making strategic sourcing and inventory decisions earlier in the year to set us up well heading into holiday, pulling up product flow, adjusting store assortment based on availability and acquiring additional, alternative transportation.

In addition, we believe the deep, longstanding relationships we have with our transportation and logistics partners and our product vendors have been instrumental in helping us manage through the difficult supply chain environment.

We believe we have made the right investment decisions to position us as a leader in omnichannel retailing.

We also believe there are even more opportunities ahead of us and that it is important to build on our position of strength to become even more customer-centric, digitally-focused and efficient.

During the quarter, we launched our new membership program, Best Buy Totaltech TM , nationally and online.

Totaltech leverages our strengths across merchandising, fulfillment, installation, tech support and product repair and is designed to give our customers the confidence that whatever their technology needs are, we will be there to help.

Members receive product discounts and priority access to certain in-demand products, free delivery and standard installation, free technical support, up to 24 months of product protection on most purchases with active membership and other benefits.

The goal of Totaltech is to create a membership experience that customers will love, and in turn, to generate a higher customer lifetime value and drive a larger share of consumer electronics spending to Best Buy.

We also continued to conduct several store tests and pilots during the quarter to continue our omnichannel evolution in a way that provides equal focus on all the ways customers shop with us.

At the same time, we are piloting and evolving our labor models to meet our customers’ changing shopping behaviors.

That means leveraging technology in stores that do not have as much labor and developing a much more flexible workforce.

This is a workforce that not only provides expert help across product categories both in-store and virtually, but also flexes into other activities like curbside fulfillment, and this approach also empowers employees with the flexibility to pick up shifts at other stores or at our distribution centers.

We continue to believe that we are fundamentally in a stronger position than we expected to be in just two years ago.

We believe there has been a structural increase in the need for technology, and that we now serve a larger install base of consumer electronics with customers who have an elevated appetite to upgrade due to constant technology innovation and needs that reflect structural life changes, like hybrid work and streaming entertainment content.

We believe our significant omnichannel assets, including our ability to inspire what is possible across the breadth of consumer electronics, as well as our ability to keep it all working together the way customers want, truly differentiate us going forward in this new landscape.

Our teams have shown a strong ability to develop and execute plans to adapt to the changing environment over the past two years and to the more recent macro-economic conditions.

Throughout the first quarter of fiscal 2023, our teams navigated the uncertain macro environment and drove higher customer satisfaction scores while keeping energy and excitement going around the initiatives that we believe will drive longer-term opportunities.

We grew our Best Buy Totaltech membership, increased momentum in our Health business, launched new product categories and reached our fastest ever first quarter average online sales delivery speed.

As previously stated, we expect our fiscal 2023 financial results to look different as the prior year included stimulus and other government support, our industry experienced unusually strong demand over the last two years, and we expect to leverage our position of strength to continue to invest in our future.

In addition, we have previously stated that we expected promotional activity to increase and supply chain expenses to be a pressure.

Therefore, the drivers of our first quarter fiscal 2023 financial results were largely as we expected.

Macro conditions worsened since we provided guidance in early March, including higher inflation and the war in Ukraine, which resulted in our sales being lower than our expectations and supply chain costs higher than we planned.

Our investment in Totaltech at approximately 100 basis points of gross margin pressure was in line with our expectations and profit-sharing revenue from our private label and co-branded credit card arrangement was higher than anticipated.

Even with the expected slowdown this year, we continue to be in a fundamentally stronger position than we were before the pandemic from both a revenue and operating income rate perspective.

We are confident in the strength of our business and excited about what lies ahead.

We believe we have a compelling value creation opportunity and are investing now, as we have successfully invested ahead of change in our past, to ensure we are ready to meet the needs of our customers and retain our unique position in our industry.

We firmly believe that technology is more relevant today than ever.

Every aspect of our lives has changed with technology, and we know how to make it human, in our customers'

homes, right for their lives.

From our expertly curated assortment to in-home consultations, all the way to tech support when our customers’ tech is not working the way they want, or trade-in and recycling when customers want to upgrade, we believe we have an ability to inspire and support customers in ways no one else can.

Results of Operations

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag.

Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a lag.

Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements.

No such events were identified for the reported periods.

Consolidated Performance Summary

Consolidated Results

Selected consolidated financial data was as follows ($ in millions, except per share amounts):

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Revenue % change

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For additional information regarding costs classified in cost of sales and SG&A, refer to Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

In the third quarter and first nine months of fiscal 2022, we generated $11.9 billion and $35.4 billion in revenue, and our comparable sales grew 1.6% and 17.5%, respectively.

We continued to experience demand for technology products and services, as consumers continued to leverage technology to meet their needs, and we provided solutions that help them work, learn, entertain, cook and connect at home.

Our performance resulted in operating income rate increases of 0.9% and 1.8% during the third quarter and first nine months of fiscal 2022, respectively.

See the Segment Performance Summary below for discussion of our Domestic and International segments’ performance.

In the first quarter of fiscal 2023, we generated $10.6 billion in revenue and our comparable sales decreased 8.0% as we lapped strong comparable sales last year, which were driven by the timing of government stimulus payments, temporary store closures due to the COVID-19 pandemic and heightened demand for stay-at-home focused purchases.

In addition, our gross profit rate was impacted by our Totaltech membership offering and increased promotional activity and supply chain expenses.

Our performance resulted in an operating income rate reduction of 230 basis points compared to the first quarter of fiscal 2022.

Revenue, gross profit, SG&A and operating income rate changes in the first quarter of fiscal 2023 were primarily driven by our Domestic segment.

For further discussion of each segment’s rate changes, see Segment Performance Summary , below.

Income Tax Expense

Income tax expense remained relatively unchanged in the third quarter of fiscal 2022.

Our effective tax rate (“ETR”) decreased to 25.1% in the third quarter of fiscal 2022 compared to 29.6% in the third quarter of fiscal 2021, primarily due to a decrease in losses for which tax benefits were not recognized.

Income tax expense increased in the first nine months of fiscal 2022, primarily due to an increase in pre-tax earnings, partially offset by the resolution of certain discrete tax matters which occurred during the second quarter of fiscal 2022.

Our ETR decreased to 18.1% in the first nine months of fiscal 2022 compared to 26.4% in the first nine months of fiscal 2021, primarily due to the resolution of certain discrete tax matters which occurred during the second quarter of fiscal 2022, as well as a decrease in losses for which tax benefits were not recognized.

Refer to Note 10, Income Taxes , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.

Income tax expense decreased in the first quarter of fiscal 2023, primarily due to a decrease in pre-tax earnings, partially offset by a decrease in the tax benefit from stock-based compensation.

Our effective tax rate (“ETR”) increased to 24.4% in the first quarter of fiscal 2023 compared to 22.4% in the first quarter of fiscal 2022, primarily due to decreased tax benefits from stock-based compensation and federal tax credits and an increase in losses for which tax benefits were not recognized, partially offset by the impact of lower pre-tax earnings.

Our tax provision for interim periods is determined using an estimate of our annual ETR, adjusted for discrete items, if any, that are taken into account in the relevant period.

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Segment Performance Summary

Domestic Segment

Selected financial data for the Domestic segment was as follows ($ in millions):

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Revenue % change

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(1) Online sales are included in the comparable sales calculation.

The increase in revenue in the third quarter and first nine months of fiscal 2022 was primarily driven by comparable sales growth across most of our product categories, partially offset by the loss of revenue from permanent store closures in the past year.

Online revenue of $3.4 billion and $10.5 billion in the third quarter and first nine months of fiscal 2022 decreased 10.1% and 12.5%, respectively, on a comparable basis, primarily due to channel shifts in customer shopping behavior as a result of the COVID-19 pandemic.

Domestic segment stores open at the beginning and end of the third quarters of fiscal 2022 and fiscal 2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows:

Total Stores at Beginning of Third Quarter

The decrease in revenue in the first quarter of fiscal 2023 was primarily driven by a comparable sales decline across most of our product categories.

Online revenue of $3.1 billion decreased 14.9% on a comparable basis in the first quarter of fiscal 2023.

These decreases in revenue were primarily due to the reasons described above.

Domestic segment stores open at the beginning and end of the first quarters of fiscal 2023 and fiscal 2022 were as follows:

Total Stores at Beginning of First Quarter

Stores Opened

Stores Closed

Total Stores at End of Third Quarter

Total Stores at Beginning of Third Quarter

Total Stores at End of First Quarter

Total Stores at Beginning of First Quarter

Stores Opened

Stores Closed

Total Stores at End of Third Quarter

Total Stores at End of First Quarter

Outlet Centers

Pacific Sales

We continuously monitor store performance.

As we approach the expiration date of our leases, we evaluate various options for each location, including whether a store should remain open.

We continuously monitor store performance as part of a market-driven, omnichannel strategy.

As we approach the expiration of leases, we evaluate various options for each location, including whether a store should remain open.

We currently expect to close approximately 20 to 30 Best Buy stores annually through fiscal 2025, consistent with prior-year trends.

We also expect to increase the number of Outlet Centers to approximately 30 by the end of fiscal 2023.

Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:

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Three Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Computing and Mobile Phones

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Entertainment

Notable comparable sales changes were as follows:

Notable comparable sales changes by revenue category were as follows:

 Computing and Mobile Phones:

The 2.4% comparable sales decline was driven primarily by computing, networking and tablets, partially offset by a comparable sales gain in mobile phones.

The 10.5% comparable sales decline was driven primarily by computing, tablets and wearables.

 Consumer Electronics:

The 5.5% comparable sales gain was driven primarily by home theater, headphones and portable speakers and health and fitness.

The 9.7% comparable sales decline was driven primarily by home theater and digital imaging.

 Appliances:

The 10.9% comparable sales gain was driven primarily by large appliances.

The 2.9% comparable sales growth was driven primarily by large appliances.

 Entertainment:

The 4.1% comparable sales gain was driven primarily by gaming.

The 5.6% comparable sales decline was driven primarily by the launch of our Totaltech membership offering that includes benefits that were previously stand-alone revenue-generating services, such as warranty and installation.

Our gross profit rate decreased in the third quarter of fiscal 2022, primarily driven by lower product margin rates due to lapping low levels of promotions, product damages and product returns last year, as well as increased inventory shrink primarily due to theft.

Our gross profit rate also decreased from lower services margin rates, which included rate pressure associated with our Totaltech membership offering that includes incremental customer benefits, and associated costs, compared to our previous Total Tech Support offer.

The 13.6% comparable sales decline was driven primarily by gaming.

The 12.4% comparable sales decline was driven primarily by the launch of our Totaltech membership offering that includes benefits that were previously stand-alone revenue-generating services, such as warranty .

Our gross profit rate decreased in the first quarter of fiscal 2023, primarily due to lower services margin rates, which resulted in approximately 100 basis points of margin pressure on a weighted basis.

Our Totaltech membership offering was the primary driver of the lower services margin rates, which is primarily due to incremental benefits, and associated costs, compared to our previous Total Tech Support offer.

Lower product margin rates, including increased promotions, and higher supply chain costs also contributed to the decrease in our gross profit rate.

These decreases were partially offset by higher profit-sharing revenue from our private label and co-branded credit card arrangement.

Our gross profit rate increased in the first nine months of fiscal 2022, primarily driven by product margin rate improvement from supply chain costs resulting from a lower mix of online revenue compared to the prior year, higher profit-sharing revenue from our private label and co-branded credit card arrangement and favorability from reduced promotions.

These increases were partially offset by lower services margin rates.

Our SG&A increased in the third quarter of fiscal 2022, primarily due to higher advertising expenses and increased technology investments, which were partially offset by lapping last year’s $40 million donation to the Best Buy Foundation and lower incentive compensation.

Our SG&A increased in the first nine months of fiscal 2022, primarily due to higher short-term incentive compensation, technology investments, advertising expenses and store payroll expenses, which included $81 million of employee retention credits in the prior year period as a result of the Federal Coronavirus Aid, Relief and Economic Security Act.

This was partially offset by lapping last year’s $40 million donation to the Best Buy Foundation.

The restructuring charges in the third quarter and first nine months of fiscal 2021 primarily related to termination benefits associated with actions taken to more broadly align our corporate organizational structure in support of our strategy.

The restructuring credit in the first nine months of fiscal 2022 primarily related to subsequent adjustments to termination benefits resulting from changes in our previously planned organizational changes and higher-than-expected retention rates.

Refer to Note 2, Restructuring , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.

Our operating income rate decreased in the third quarter of fiscal 2022, primarily driven by the unfavorable gross profit rate described above, partially offset by lower restructuring charges and increased leverage from higher sales volume on our fixed expenses, which resulted in a favorable SG&A rate.

Our operating income rate increased in the first nine months of fiscal 2022, primarily driven by the favorability in gross profit rate described above and increased leverage from higher sales volume on our fixed expenses, which resulted in a favorable SG&A rate.

International

Our SG&A decreased in the first quarter of fiscal 2023, primarily due to lower incentive compensation expense, partially offset by higher advertising and increased expense in support of our health initiatives.

Our operating income rate decreased in the first quarter of fiscal 2023, primarily due to the unfavorable gross profit rate and decreased leverage from lower sales volume on our fixed expenses, which resulted in an unfavorable SG&A rate.

International Segment

Selected financial data for the International segment was as follows ($ in millions):

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Revenue % change

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Restructuring charges

Operating income (loss)

Operating income (loss) as a % of revenue

The decrease in revenue in the third quarter of fiscal 2022 was primarily driven by lower revenue in Mexico as a result of our decision in the third quarter of fiscal 2021 to exit operations and a comparable sales decline of 3.0% in Canada.

These decreases were partially offset by the benefit of approximately 4.5% of favorable foreign currency exchange rates.

The increase in revenue in the first nine months of fiscal 2022 was primarily driven by the benefit of approximately 8.0% of favorable foreign currency exchange rates and comparable sales growth of 7.7%.

These increases were partially offset by lower revenue in Mexico as a result of our decision in the third quarter of fiscal 2021 to exit operations.

International segment stores open at the beginning and end of the third quarters of fiscal 2022 and fiscal 2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows:

Total Stores at Beginning of Third Quarter

Operating income

Operating income as a % of revenue

The decrease in revenue in the first quarter of fiscal 2023 was primarily driven by lower revenue in Mexico as a result of our decision in fiscal 2021 to exit operations and a comparable sales decline of 1.4%.

International segment stores open at the beginning and end of the first quarters of fiscal 2023 and fiscal 2022 were as follows:

Total Stores at Beginning of First Quarter

Stores Opened

Stores Closed

Total Stores at End of Third Quarter

Total Stores at Beginning of Third Quarter

Total Stores at End of First Quarter

Total Stores at Beginning of First Quarter

Stores Opened

Stores Closed

Total Stores at End of Third Quarter

Total Stores at End of First Quarter

Best Buy Mobile

Best Buy Express

International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:

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Three Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Computing and Mobile Phones

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Entertainment

Notable comparable sales changes were as follows:

Notable comparable sales changes by revenue category were as follows:

 Computing and Mobile Phones:

The 6.7% comparable sales decline was driven primarily by computing.

The 7.9% comparable sales decline was driven primarily by computing, partially offset by comparable sales growth in mobile phones.

 Consumer Electronics:

The 0.8% comparable sales decline was driven primarily by digital imaging and headphones and portable speakers.

The 3.8% comparable sales growth was driven primarily by headphones and portable speakers and home theater.

 Appliances:

The 1.8% comparable sales decline was driven primarily by large appliances.

The 9.4% comparable sales growth was driven by both small and large appliances.

 Entertainment:

The 15.0% comparable sales gain was driven primarily by gaming and virtual reality.

The 2.2% comparable sales decline was driven primarily by our repair services.

The increases in our gross profit rate in the third quarter and first nine months of fiscal 2022 were primarily driven by improved product margin rates in Canada and sales mixing out of Mexico, which had a lower gross profit rate than Canada.

The increases were also driven by $36 million of inventory markdowns incurred in the prior year associated with our decision to exit operations in Mexico.

Our SG&A decreased in the third quarter of fiscal 2022, primarily due to lower expenses in Mexico as a result of our decision to exit operations, partially offset by the unfavorable impact of foreign currency exchange rates and increased store payroll expense in Canada.

Our SG&A increased in the first nine months of fiscal 2022, primarily due to the unfavorable impact of foreign currency exchange rates and increased incentive compensation and store payroll expense in Canada, partially offset by lower expenses in Mexico as a result of our decision to exit operations.

The restructuring charges for all periods presented primarily related to our decision to exit operations in Mexico.

Refer to Note 2, Restructuring , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.

Our operating income rate increased in the third quarter of fiscal 2022, primarily due to lower restructuring charges and the favorability in gross profit rate described above.

Our operating income rate increased in the first nine months of fiscal 2022, primarily due to the favorability in gross profit rate described above, lower restructuring charges and increased leverage from higher sales volume on our fixed expenses, which resulted in a favorable SG&A rate.

The 7.5% comparable sales decline was driven primarily by gaming, partially offset by comparable sales growth in virtual reality.

The 31.4% comparable sales growth was driven primarily by warranty services.

The increase in our gross profit rate in the first quarter of fiscal 2023 was primarily driven by a larger percentage of revenue from the higher margin services category in Canada, partially offset by a $6 million benefit in the first quarter of fiscal 2022 associated with more-favorable-than-expected inventory markdowns related to our decision to exit operations in Mexico.

Our SG&A decreased in the first quarter of fiscal 2023, primarily due to lower expenses as a result of our decision to exit operations in Mexico.

Our operating income rate remained flat in the first quarter of fiscal 2023, as the increase in gross profit rate was offset by the decreased leverage from lower sales volume on our fixed expenses, which resulted in an unfavorable SG&A rate.

Consolidated Non-GAAP Financial Measures

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Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Operating income

Intangible asset amortization (1)

Acquisition-related transaction costs (1)

Restructuring charges (2)

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Effective tax rate

Intangible asset amortization (1)

Restructuring charges (2)

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Intangible asset amortization (1)

Acquisition-related transaction costs (1)

Restructuring charges (2)

2 unchanged sentences

Non-GAAP diluted EPS

(1) Represents charges associated with acquisitions, including:

(1) the non-cash amortization of definite-lived intangible assets, including customer relationships, tradenames and developed technology;

and (2) acquisition-related transaction and due diligence costs, primarily comprised of professional fees.

(2) Represents charges and subsequent adjustments related to actions taken in the Domestic segment to better align the company’s organizational structure with its strategic focus and the decision to exit operations in Mexico in the International segment.

(3) Represents inventory markdown adjustments recorded within cost of sales associated with the decision to exit operations in Mexico.

(4) The non-GAAP adjustments primarily relate to the U.S.

(1) Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology.

(2) Represents charges and subsequent adjustments related to actions taken in the Domestic segment to better align our organizational structure with our strategic focus and the exit from operations in Mexico in the International segment.

(3) Represents inventory markdown adjustments recorded within cost of sales associated with the exit from operations in Mexico.

(4) The non-GAAP adjustments primarily relate to the U.S., UK and Mexico.

As such, the income tax charge is calculated using the statutory tax rate of 24.5% for all U.S.

non-GAAP items for all periods presented.

There is no income tax charge for the Mexico non-GAAP items, as there was no tax benefit recognized on these expenses in the calculation of GAAP income tax expense.

Our non-GAAP operating income rate decreased in the third quarter of fiscal 2022, primarily driven by a lower gross profit rate in our Domestic segment.

Our non-GAAP operating income rate increased in the first nine months of fiscal 2022, primarily driven by a higher gross profit rate due to favorable supply chain costs resulting from a lower mix of online revenue compared to the prior year, and increased leverage from higher sales volume on our fixed expenses, which resulted in a favorable SG&A rate.

Our non-GAAP effective tax rate remained relatively unchanged in the third quarter of fiscal 2022.

Our non-GAAP effective tax rate decreased in the first nine months of fiscal 2022, primarily due to the resolution of certain discrete tax matters which occurred during the second quarter of fiscal 2022.

Refer to Note 10, Income Taxes , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.

Our non-GAAP diluted EPS increased in the third quarter of fiscal 2022, primarily driven by lower diluted weighted-average common shares outstanding from share purchases.

Our non-GAAP diluted EPS increased in the first nine months of fiscal 2022, primarily driven by the increase in non-GAAP operating income, the lower non-GAAP effective tax rate and lower diluted weighted-average common shares outstanding from share purchases.

There is no income tax charge for UK and Mexico non-GAAP items, as there was no tax benefit recognized on these expenses in the calculation of GAAP income tax expense.

Our non-GAAP operating income rate decreased in the first quarter of fiscal 2022, primarily driven by a lower gross profit rate in our Domestic segment.

Our non-GAAP effective tax rate increased in the first quarter of fiscal 2023, primarily due to decreased tax benefits from stock-based compensation and federal tax credits and an increase in losses for which tax benefits were not recognized, partially offset by the impact of lower pre-tax earnings.

Our non-GAAP diluted EPS decreased in the first quarter of fiscal 2023, primarily driven by the decrease in non-GAAP operating income.

Liquidity and Capital Resources

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Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, credit facilities, short-term borrowing arrangements and working capital management.

Capital expenditures and share repurchases are a component of our cash flow and capital management strategy, which, to a large extent, we can adjust in response to economic and other changes in our business environment.

We modify our approach to managing these variables as changes in our operating environment arise.

For example, c apital expenditures and share repurchases are a component of our cash flow and capital management strategy, which, to a large extent, we can adjust in response to economic and other changes in our business environment.

We have a disciplined approach to capital allocation, which focuses on investing in key priorities that support our strategy.

Cash, cash equivalents and short-term investments were as follows ($ in millions):

October 30, 2021

April 30, 2022

January 29, 2022

October 31, 2020

Cash and cash equivalents

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Total cash, cash equivalents and short-term investments

The decrease in cash and cash equivalents from January 30, 2021, was primarily due to increases in share repurchases, capital expenditures and dividend payments.

This was partially offset by positive cash flows from operations, primarily driven by earnings.

The decrease in cash, cash equivalents and short-term investments from October 31, 2020, was primarily due to increases in share repurchases, the repayment of our $650 million principal amount of notes due March 15, 2021, capital expenditures and dividend payments.

This was partially offset by positive cash flows from operations, primarily driven by earnin g s.

Cash flows from total operations were as follows ($ in millions):

Nine Months Ended

October 30, 2021

October 31, 2020

The decrease in cash and cash equivalents from January 29, 2022, was primarily due to the timing and volume of inventory purchases and payments, and higher incentive compensation payments, share repurchases, capital expenditures and dividend payments.

The decrease in cash, cash equivalents and short-term investments from May 1, 2021, was primarily due to increases in share repurchases, capital expenditures, dividend payments and acquisitions.

The decrease was partially offset by positive cash flows from operations, primarily driven by earnin g s.

Cash flows were as follows ($ in millions):

Three Months Ended

April 30, 2022

Total cash provided by (used in):

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Effect of exchange rate changes on cash

Increase (decrease) in cash, cash equivalents and restricted cash

Decrease in cash, cash equivalents and restricted cash

Operating Activities

The decrease in cash provided by operating activities in the first nine months of fiscal 2022 compared to the prior-year period was primarily due to the timing and volume of inventory purchases and payments, reflecting an earlier and more pronounced build of inventory for the holiday season in fiscal 2022, as we sought to manage supply chain challenges and sustained strong demand in most product categories.

As a result, our inventory balance at the end of the third quarter of fiscal 2022 was materially higher than fiscal 2021, and a larger proportion of inventory purchases had been paid for by the end of the quarter.

These decreases were partially offset by higher earnings in the current-year period.

The increase in cash used in operating activities in the first quarter of fiscal 2023 was primarily driven by lower inventory turnover and the timing and volume of inventory purchases and payments, reflecting an earlier build of inventory in the first quarter of fiscal 2023, which resulted in a higher proportion of inventory purchases having been paid for, compared to the first quarter of fiscal 2022.

The increase in cash used in operating activities was also due to higher incentive compensation payments as a result of strong fiscal 2022 results and lower earnings in the current-year period.

Investing Activities

The decrease in cash used in investing activities in the first nine months of fiscal 2022 compared to the prior-year period was primarily driven by a decrease in purchases of short-term investments.

The decrease in cash used in investing activities in the first quarter of fiscal 2023 was primarily driven by a decrease in purchases of short-term investments, partially offset by increased capital spending for initiatives to support our business.

Financing Activities

The increase in cash used in financing activities in the first nine months of fiscal 2022 compared to the prior-year period was driven primarily by an increase in share repurchases, which were temporarily suspended from March to November of fiscal 2021.

Fiscal 2021 also included the issuance of our $650 million principal amount of notes due October 1, 2030.

The decrease in cash used in financing activities in the first quarter of fiscal 2023 was primarily driven by lower share repurchases.

Sources of Liquidity

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The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in May 2026.

There were no borrowings outstanding under the Five-Year Facility Agreement as of October 30, 2021, or the Previous Facility as of January 30, 2021, or October 31, 2020.

Our credit ratings and outlook as of December 1, 2021, are summarized below.

On May 20, 2021, Standard & Poor’s upgraded its rating to BBB+ and confirmed its outlook of Stable.

Moody’s rating and outlook remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 .

There were no borrowings outstanding under the Five-Year Facility Agreement as of April 30, 2022, or January 29, 2022, or the Previous Facility as of May 1, 2021.

Our credit ratings and outlook as of May 31, 2022, remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, and are summarized below .

Rating Agency

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Restricted Cash

Our liquidity is also affected by restricted cash balances that are primarily restricted to use for workers’ compensation and general liability insurance claims, and product protection plans provided under our Totaltech membership offering.

Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $173 million, $131 million and $135 million at October 30, 2021, January 30, 2021, and October 31, 2020, respectively.

The increases from January 30, 2021, and October 31, 2020, were primarily due to the initial funding related to the national launch of our Totaltech membership offering in October 2021.

Our liquidity is also affected by restricted cash balances that are primarily restricted to cover product protection plans provided under our Totaltech membership offering and self-insurance liabilities.

Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $320 million, $269 million and $115 million at April 30, 2022, January 29, 2022, and May 1, 2021, respectively.

The increases from January 29, 2022, and May 1, 2021, were primarily due to the national launch of our Totaltech membership offering in October 2021 and growth in the membership base.

Debt and Capital

As of October 30, 2021, we had $500 million of principal amount of notes due October 1, 2028, and $650 million of principal amount of notes due October 1, 2030.

As of April 30, 2022, we had $500 million principal amount of notes due October 1, 2028, and $650 million principal amount of notes due October 1, 2030.

Refer to Note 6, Debt , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, and Note 8, Debt , of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, for additional information about our outstanding debt.

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Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment-grade credit metrics.

On February 16, 2021, our Board approved a new $5.0 billion share repurchase program .

There is no expiration date governing the period over which we can repurchase shares under this new authorization.

As of October 30, 2021, $3.4 billion of the $5.0 billion share repurchase authorization was available.

On August 24, 2021, we announced our plan to repurchase more than $2.5 billion of shares in fiscal 2022.

On February 28, 2022, our Board approved a new $5.0 billion share repurchase program, which replaced the $5.0 billion share repurchase program authorized on February 16, 2021 .

There is no expiration date governing the period over which we can repurchase shares under this authorization.

On May 24, 2022, we reaffirmed our plans to spend approximately $1.5 billion on share repurchases in fiscal 2023.

Share repurchase and dividend activity was as follows ($ and shares in millions, except per share amounts):

Three Months Ended

Nine Months Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

April 30, 2022

Total cost of shares repurchased

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Cash dividends declared and paid

The total cost of shares repurchased increased in fiscal 2022, primarily due to the temporary suspension of all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties.

The total cost of shares repurchased decreased in fiscal 2023, primarily due to the decrease in planned repurchases.

Cash dividends declared and paid increased in fiscal 2023, primarily due to the increase in the regular quarterly cash dividend per share.

Between the end of the third quarter of fiscal 2022 on October 30, 2021, and December 1, 2021, we repurchased an incremental 3.6 million shares of our common stock at a cost of $452 million .

Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities, remained relatively unchanged at 1.1 as of October 30, 2021, and October 31, 2020, and 1.2 as of January 30, 2021.

Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings over the trailing twelve months decreased to 0.5 as of October 30, 2021, compared to 0.8 as of January 30, 2021, and 1.1 as of October 31, 2020, primarily due to higher earnings.

The decrease from October 31, 2020, was also due to the retirement of our $650 million principal amount of notes due March 15, 2021, in December 2020.

Our current ratio, calculated as current assets divided by current liabilities, was 1.0 as of April 30, 2022, and January 29, 2022, and 1.2 as of May 1, 2021.

The decrease from May 1, 2021, was primarily driven by lower cash and cash equivalents.

Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings over the trailing twelve months remained relatively unchanged at 0.5 as of April 30, 2022, and January 29, 2022, and 0.6 as of May 1, 2021 .

Off-Balance-Sheet Arrangements and Contractual Obligations

Our liquidity is not dependent on the use of off-balance-sheet financing arrangements other than in connection with our $1.25 billion in undrawn capacity on our Five-Year Facility Agreement as of October 30, 2021, which, if drawn upon, would be included in either short-term or long-term debt on our Condensed Consolidated Balance Sheets.

Our liquidity is not dependent on the use of off-balance-sheet financing arrangements other than in connection with our $1.25 billion in undrawn capacity on our Five-Year Facility Agreement as of April 30, 2022, which, if drawn upon, would be included in either short-term or long-term debt on our Condensed Consolidated Balance Sheets.

There has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2022.

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Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies.

"assume,"

"believe,"

"estimate,"

"expect,"

"guidance,"

"intend,"

"outlook,"

"plan,"

"project"

and other words and terms of similar meaning.

With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “guidance,” “intend,” “outlook,” “plan,” “project” and other words and terms of similar meaning.

Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment and other events.

6 unchanged sentences

any material disruption in our relationship with or the services of third-party vendors, risks related to our exclusive brand products and risks associated with vendors that source products outside of the U.S.;

macroeconomic pressures in the markets in which we operate (including but not limited to the effects of COVID-19, increased levels of inventory loss due to organized crime, petty theft or otherwise, fluctuations in housing prices, energy markets and jobless rates);

future outbreaks, catastrophic events, health crises and pandemics;

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risks arising from statutory, regulatory and legal developments (including tax statutes and regulations);

risks arising from our international activities;

risks arising from our international activities (including those related to the conflict in Ukraine);

failure to effectively manage our costs;

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changes in our credit ratings;

and general economic uncertainty in key global markets and worsening of global

economic conditions or low levels of economic growth.

and general economic uncertainty in key global markets and worsening of global economic conditions or low levels of economic growth.

We caution that the foregoing list of important factors is not complete.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements