What changed in this filing

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Item 1. Financial Statements

2022-09-08 compared with 2022-06-02 · 295 added, 166 removed, 543 unchanged (46% of the section changed)

2 unchanged sentences

$ in millions, except per share amounts (unaudited)

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Current assets

Cash and cash equivalents

Short-term investments

Receivables, net

34 unchanged sentences

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Cost of sales

3 unchanged sentences

Other income (expense):

Investment income (expense) and other

Investment income (loss) and other

Interest expense

Earnings before income tax expense and equity in income of affiliates

Earnings before income tax expense and equity in income (loss) of affiliates

Income tax expense

Equity in income of affiliates

Equity in income (loss) of affiliates

Basic earnings per share

5 unchanged sentences

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Foreign currency translation adjustments, net of tax

3 unchanged sentences

$ in millions (unaudited)

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

Operating activities

11 unchanged sentences

Purchases of investments

Sales of investments

Total cash used in investing activities

14 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

Balances at April 30, 2022

Net earnings, three months ended July 30, 2022

Stock-based compensation

Issuance of common stock

Common stock dividends, $ 0.88 per share

Repurchase of common stock

Balances at July 30, 2022

Balances at January 29, 2022

Net earnings, three months ended April 30, 2022

Net earnings, six months ended July 30, 2022

Other comprehensive loss:

4 unchanged sentences

Repurchase of common stock

Balances at April 30, 2022

Balances at July 30, 2022

Balances at May 1, 2021

Net earnings, three months ended July 31, 2021

Other comprehensive loss:

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 July 31, 2021

Balances at January 30, 2021

Net earnings, three months ended May 1, 2021

Net earnings, six months ended July 31, 2021

Other comprehensive income:

4 unchanged sentences

Repurchase of common stock

Balances at May 1, 2021

Balances at July 31, 2021

See Notes to Condensed Consolidated Financial Statements.

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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 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.

The first six months of fiscal 2023 and fiscal 2022 included 26 weeks.

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

Other than the Inflation Reduction Act of 2022 that was enacted on August 16, 2022, n o such events were identified for the reported periods.

See Note 10, Income Taxes , for additional information.

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):

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Cash and cash equivalents

1 unchanged sentence

Total cash, cash equivalents and restricted cash

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.

Amounts included in restricted cash are primarily restricted to cover 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

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Fiscal 2023 Resource Optimization Initiative

Mexico Exit and Strategic Realignment (1)

(1) Includes ($ 6 ) million related to inventory markdowns recorded in Cost of Sales on our Condensed Consolidated Statements of Earnings for the six months ended July 31, 2021.

Fiscal 2023 Resource Optimization Initiative

In light of ongoing changes in business trends, during the second quarter of fiscal 2023, we commenced an enterprise-wide initiative to better align our spending with critical strategies and operations, as well as to optimize our cost structure.

We incurred $ 34 million of charges in our Domestic segment related to termination benefits.

We currently expect to incur additional charges through the remainder of fiscal 2023, primarily within our Domestic segment, of approximately $ 40 million to $ 65 million related to this initiative.

All charges incurred related to this plan were from continuing operations and were presented within Restructuring charges on our Condensed Consolidated Statements of Earnings.

There were $ 1 million of cash payments related to this initiative during the second quarter of fiscal 2023, and our remaining termination benefits liability as of July 30, 2022, was $ 33 million.

Mexico Exit and Strategic Realignment

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.

All remaining stores in Mexico were closed in the first quarter of fiscal 2022 and we do not expect to incur material future restructuring charges related to the exit.

All of our former stores in Mexico were closed as of the first quarter of fiscal 2022 .

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

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 May 1, 2021

Cumulative as of April 30, 2022

During the six months ended July 31, 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.

All charges incurred related to this plan were from continuing operations and were presented as follows ($ in millions):

Three Months Ended July 31, 2021

Six Months Ended July 31, 2021

Earnings Location

7 unchanged sentences

Restructuring charges

Cumulative Amount as of July 30, 2022

Earnings Location

International

Inventory markdowns

Cost of sales

Asset impairments (1)

Restructuring charges

Termination benefits

Restructuring charges

Currency translation adjustment

1 unchanged sentence

Restructuring charges

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

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

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

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

We do not expect to incur material future restructuring charges related to the exit from Mexico or strategic realignment initiatives described above, and no material liability remains as of July 30, 2022.

Goodwill and Intangible Assets

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

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Gross Carrying Amount

5 unchanged sentences

International

No impairment charges were recorded during the fiscal periods presented.

No impairment charges were recorded during the periods presented.

Definite-Lived Intangible Assets

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

July 30, 2022

January 29, 2022

July 31, 2021

Weighted-Average

5 unchanged sentences

‎ Amortization

Useful Life Remaining as of April 30, 2022

Useful Life Remaining as of July 30, 2022

Customer relationships

2 unchanged sentences

Three Months Ended

Six Months Ended

Earnings Location

April 30, 2022

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Amortization expense

12 unchanged sentences

Fair Value Hierarchy

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Money market funds (2)

2 unchanged sentences

Cash and cash equivalents

Time deposits (3)

Short-term investments

Money market funds (2)

Other current assets

Time deposits (3)

Other current assets

Interest rate swap derivative instruments (4)

Marketable securities that fund deferred compensation (4)

(1) Balance sheet location is determined by length to maturity.

(2) Valued at quoted market prices in active markets.

(3) Valued at face value plus accrued interest, which approximates fair value.

Interest rate swap derivative instruments (5)

(1) Balance sheet location is determined by length to maturity at date of purchase.

(2) Valued at quoted market prices in active markets at period end.

(3) Valued at face value plus accrued interest at period end, which approximates fair value.

(4) Valued using the performance of mutual funds that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.

(5) Valued using readily observable market inputs.

1 unchanged sentence

See Note 5, Derivative Instruments , for additional information.

(5) Valued using select mutual fund performance that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.

Fair Value of Financial 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.

The fair values of cash, restricted 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.

Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate their fair values.

Fair values for other instruments held at cost are not readily available, but we estimate that the carrying values for these investments approximate their fair values.

Long-term debt is presented at carrying value on our Condensed Consolidated Balance Sheets.

1 unchanged sentence

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

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Carrying Value

2 unchanged sentences

Long-term debt (1)

(1) Excludes debt discounts, issuance costs and finance lease obligations.

(1) Excluded debt discounts, issuance costs and finance lease obligations .

Derivative Instruments

5 unchanged sentences

Contract Type

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Derivatives designated as net investment hedges

4 unchanged sentences

Three Months Ended

Six Months Ended

Earnings Location

April 30, 2022

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Interest rate swap contracts

4 unchanged sentences

Revolving Credit Facility

On May 18, 2021, we entered into a $ 1.25 billion five year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks.

The Five-Year Facility Agreement replaced the previous $ 1.25 billion senior unsecured revolving credit facility (the “Previous Facility”) with a syndicate of banks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021.

We have a $ 1.25 billion, five year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks.

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 April 30, 2022, and January 29, 2022, or the Previous Facility as of May 1, 2021.

There were no borrowings outstanding under the Five-Year Facility Agreement as of July 30, 2022, January 29, 2022, or July 31, 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 May 1, 2021, and bore interest at 0.14 %.

The advance was recorded within Short-term debt on our Condensed Consolidated Balance Sheets as of July 31, 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):

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Notes, 4.45 %, due October 1, 2028

10 unchanged sentences

Contract balances were as follows ($ in millions):

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Receivables, net (1)

3 unchanged sentences

Accrued liabilities

(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.

(1) Receivables are recorded net of allowances for doubtful accounts of $ 21 million, $ 31 million and $ 24 million as of July 30, 2022, January 29, 2022, and July 31, 2021, respectively.

During the first six months of fiscal 2023 and fiscal 2022, $ 1,089 million and $ 866 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.

See Note 12, Segments , for information on our revenue by reportable segment and product category.

3 unchanged sentences

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Weighted-average common shares outstanding

7 unchanged sentences

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 repurchases were paused during the second quarter of fiscal 2023.

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

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Total cost of shares repurchased

1 unchanged sentence

Number of shares repurchased

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

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

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.

Inflation Reduction Act of 2022

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which , among other things, implements a 15 % minimum tax on book income of certain large corporations, a 1 % excise tax on net stock repurchases and several tax incentives to promote clean energy.

Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.

Contingencies

5 unchanged sentences

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Revenue by reportable segment

11 unchanged sentences

Total International revenue

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):

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

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

International

1 unchanged sentence

Other income (expense):

Investment income (expense) and other

Investment income (loss) and other

Interest expense

Earnings before income tax expense and equity in income of affiliates

Earnings before income tax expense and equity in income (loss) of affiliates

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

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

International

27 unchanged sentences

All periods presented apply this methodology consistently.

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.

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(“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.

We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, provide additional useful information for evaluating current period performance and assessing future performance.

For these reasons, internal management reporting, including budgets and forecasts, and financial targets used for short-term incentives are based on non-GAAP financial measures.

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.

We provide reconciliations of the most comparable financial measures presented in accordance with GAAP to presented non-GAAP financial measures that enable investors to understand the adjustments made in arriving at the non-GAAP financial measures and to evaluate performance using the same metrics as management.

These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures.

We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.

Non-GAAP financial measures may be calculated differently from similarly titled measures used by other companies, thereby limiting their usefulness for comparative purposes.

In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S.

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Business Strategy Update

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.

One of our greatest strengths is our ability to adapt to rapidly changing and challenging environments, whether due to changes in technology, macroeconomic trends or a pandemic.

We are currently operating in an unpredictable consumer electronics industry.

As previously stated, we assumed the consumer electronics industry would be lower following two years of elevated growth driven by unusually strong demand for technology products and services and fueled partly by stimulus dollars.

In addition, we expected to see some impact on our business as customers broadly shifted their spending back into experience areas, such as travel and entertainment.

We did not expect these impacts to be compounded by a changing macro environment where consumers are dealing with sustained and record high levels of inflation in some of the most fundamental parts of their daily lives, like food.

While these factors have led to an uneven sales environment, they have not deterred us from continuing to make progress on our initiatives.

During the quarter we drove broad customer satisfaction improvements even compared to pre-pandemic levels, particularly in installation and repair.

We signed up new Best Buy Totaltech members and increased our delivery speed, delivering almost one-third of customer online orders in one day.

We also completed store remodels, opened new outlet stores and began implementing newly signed deals with healthcare companies.

In this environment, we are managing thoughtfully and carefully while still investing in our future.

This includes managing our inventory levels and actively assessing further actions to evolve our operating model, manage profitability and iterate on our growth initiatives.

We have proactively managed our inventory levels and believe they continue to reflect a healthy and evolving mix of products that enables us to positively react to ever-changing consumer needs.

We are planning for lower store payroll expenses and reducing spending in discretionary areas by increasing our rigor around backfilling corporate roles, capital expenditures and travel.

During the quarter, we also commenced an enterprise-wide restructuring initiative to better align our spending with critical strategies and operations, as well as to optimize our cost structure.

While we remain confident in our strategy, the current macroeconomic backdrop has changed in ways that we and many others were not expecting.

We fundamentally believe that technology is more important than ever in our everyday lives, and as a result of the past few years, consumers have even more technology devices in their homes that will need to be updated, upgraded and supported over time.

As our vendor partners continue to innovate and the world becomes increasingly more digital in all aspects, we will be there to uniquely help customers in our stores, online, virtually and directly in their homes.

Results of Operations

2 unchanged sentences

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Revenue % change

8 unchanged sentences

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 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.

In the second quarter and first six months of fiscal 2023, we generated $10.3 billion and $21.0 billion in revenue and our comparable sales decreased 12.1% and 10.1%, respectively, 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, we faced macroeconomic pressures, including high inflation, that have resulted in overall softness in customer demand within the consumer electronics industry.

Revenue, gross profit rate, SG&A and operating income rate changes in the second quarter and first six months 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 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.

Income tax expense decreased in the second quarter of fiscal 2023 primarily due to a decrease in pre-tax earnings, partially offset by the prior year resolution of certain discrete tax matters.

Our effective tax rate (“ETR”) increased to 15.6% in the second quarter of fiscal 2023 compared to 8.0% in the second quarter of fiscal 2022, primarily due to the prior year resolution of certain discrete tax matters, partially offset by the impact of lower pre-tax earnings in the current year.

Income tax expense decreased in the first six months of fiscal 2023 primarily due to a decrease in pre-tax earnings, partially offset by the prior year resolution of certain discrete tax matters.

Our ETR increased to 20.5% in the first six months of fiscal 2023 compared to 15.1% in the first six months of fiscal 2022, primarily due to the prior year resolution of certain discrete tax matters, partially offset by the impact of lower pre-tax earnings in the current year.

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 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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For example, the impact of discrete items and non-deductible losses on our ETR is greater when our pre-tax earnings are lower.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which , among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy.

Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.

Segment Performance Summary

2 unchanged sentences

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Revenue % change

10 unchanged sentences

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

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.

The decrease in revenue in the second quarter and first six months of fiscal 2023 was primarily driven by comparable sales declines across most of our product categories, particularly computing and home theater.

Online revenue of $3.0 billion and $6.0 billion in the second quarter and first six months of fiscal 2023 decreased 14.7% and 14.8% on a comparable basis, respectively.

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

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

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of First Quarter

Total Stores at Beginning of First Quarter

Total Stores at End of Second Quarter

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of First Quarter

Total Stores at End of Second Quarter

Outlet Centers

2 unchanged sentences

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.

We currently expect to close approximately 15 to 20 Best Buy stores in fiscal 2023 and to increase the number of Outlet Centers to approximately 30 by the end of fiscal 2024.

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

2 unchanged sentences

Three Months Ended

April 30, 2022

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Computing and Mobile Phones

5 unchanged sentences

 Consumer Electronics:

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

The 14.7% comparable sales decline was driven primarily by home theater, headphones and portable speakers.

 Appliances:

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

The 1.2% comparable sales decline was driven primarily by large appliances.

 Entertainment:

1 unchanged sentence

The 8.5% 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 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.

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

Our Totaltech membership offering was the primary driver of the lower services margin rates, which is primarily due to incremental customer 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 decreases in our gross profit rates.

These decreases were partially offset by higher profit-sharing revenue from our private label and co-branded credit card arrangement in the second quarter and first six months of fiscal 2023.

Our SG&A decreased in the second quarter and first six months of fiscal 2023, primarily due to lower incentive compensation expense of approximately $135 million and $265 million, respectively, compared to prior-year periods.

We currently expect to be below required financial thresholds for short-term incentive compensation performance metrics in the current year while lapping short-term incentive payments near maximum levels in the prior year.

The restructuring charges incurred in the second quarter and first six months of fiscal 2023 primarily related to termination benefits related to an enterprise-wide restructuring initiative that commenced in the second quarter of fiscal 2023 to better align our spending with critical strategies and operations, as well as to optimize our cost structure.

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 rates decreased in the second quarter and first six months of fiscal 2023, primarily due to the unfavorable gross profit rates and decreased leverage from lower sales volume on our fixed expenses, which resulted in unfavorable SG&A rates.

International Segment

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Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Revenue % change

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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

The decreases in revenue in the second quarter and first six months of fiscal 2023 were primarily driven by comparable sales declines of 4.2% and 2.8%, respectively, in Canada and the negative impact from unfavorable foreign currency exchange rates.

The decrease in revenue in the first six months of fiscal 2023 was also driven by lower revenue in Mexico as a result of our decision in fiscal 2021 to exit operations.

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

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of First Quarter

Total Stores at Beginning of First Quarter

Total Stores at End of Second Quarter

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of First Quarter

Total Stores at End of Second Quarter

Best Buy Mobile

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Three Months Ended

April 30, 2022

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Computing and Mobile Phones

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 Consumer Electronics:

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

The 4.8% comparable sales decline was driven primarily by home theater.

 Appliances:

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

The 6.8% comparable sales growth was driven primarily by small appliances.

 Entertainment:

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.

The 5.8% comparable sales decline was driven primarily by gaming.

The 0.4% comparable sales decline was driven primarily by warranty services.

The 12.6% comparable sales growth was driven primarily by sporting goods.

The decrease in our gross profit rate in the second quarter of fiscal 2023 was primarily driven by lower product margin rates.

In the first six months of fiscal 2023, the decrease in our gross profit rate was primarily driven by lower product margin rates and a $6 million benefit in the first six months of fiscal 2022 associated with more-favorable-than-expected inventory markdowns related to our decision to exit operations in Mexico.

The decrease in the first six months of fiscal 2023 was partially offset by a larger percentage of revenue from the higher margin services category in Canada.

Our SG&A decreased in the second quarter and first six months of fiscal 2023, primarily due to lower incentive compensation expense and the favorable impact of foreign currency exchange rates, partially offset by higher store payroll expense.

Consolidated Non-GAAP Financial Measures

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Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Operating income

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Effective tax rate

Intangible asset amortization (1)

Restructuring charges (2)

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Non-GAAP diluted EPS

(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.

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

(2) Represents charges primarily related to termination benefits in the Domestic segment for the periods ended July 30, 2022, associated with an enterprise-wide initiative that commenced in the second quarter of fiscal 2023 to better align our spending with critical strategies and operations, as well as to optimize our cost structure.

Represents adjustments to previously planned organizational changes and higher-than-expected retention rates in the Domestic segment and charges associated with the exit from operations in Mexico in the International segment for the periods ended July 31, 2021.

(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.

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

There is no income tax charge for the 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 second quarter and first six months of fiscal 2023, primarily driven by our Domestic segment’s lower gross profit rates and decreased leverage from lower sales volume on our fixed expenses, which resulted in unfavorable SG&A rates.

Our non-GAAP effective tax rate increased in the second quarter and first six months of fiscal 2023, primarily due to the prior year resolution of certain discrete tax matters, partially offset by the impact of lower pre-tax earnings in the current year.

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 decreased in the second quarter and first six months of fiscal 2023, primarily driven by the decreases in non-GAAP operating income.

Liquidity and Capital Resources

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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):

April 30, 2022

Cash and cash equivalents were as follows ($ in millions):

July 30, 2022

January 29, 2022

July 31, 2021

Cash and cash equivalents

Short-term investments

Total cash, cash equivalents and short-term investments

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.

The decrease in cash and cash equivalents from January 29, 2022, was primarily due to lower inventory turnover and the timing and volume of inventory purchases and payments, higher incentive compensation payments in fiscal 2023 as a result of strong fiscal 2022 results, share repurchases, capital expenditures and dividend payments, partially offset by earnings.

The decrease in cash and cash equivalents from July 31, 2021, was primarily due to share repurchases, lower inventory turnover and the timing and volume of inventory purchases and payments, capital expenditures, dividend payments and acquisitions, partially offset by earnings.

Cash flows were as follows ($ in millions):

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

Total cash provided by (used in):

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Operating Activities

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.

The increase in cash used in operating activities in the first six months of fiscal 2023 was primarily driven by lower earnings in the current year period, lower inventory turnover and the timing and volume of inventory purchases and payments, which resulted in a higher proportion of inventory purchases having been paid for compared to the first six months of fiscal 2022.

The increase in cash used in operating activities was also due to higher incentive compensation payments in the first six months of fiscal 2023 as a result of strong fiscal 2022 results.

Investing Activities

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.

The increase in cash used in investing activities in the first six months of fiscal 2023 was primarily driven by increased capital spending for initiatives to support our business.

Financing Activities

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

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

Sources of Liquidity

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There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.

On May 18, 2021, we entered into a $1.25 billion five year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks.

The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the “Previous Facility”) with a syndicate of banks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021.

We have a $1.25 billion, five year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks.

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 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 .

There were no borrowings outstanding under the Five-Year Facility Agreement as of July 30, 2022, January 29, 2022, or July 31, 2021.

Our credit ratings and outlook as of September 6, 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

5 unchanged sentences

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.

Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $312 million, $269 million and $134 million at July 30, 2022, January 29, 2022, and July 31, 2021, respectively.

The increases in restricted cash from January 29, 2022, and July 31, 2021, were primarily due to the national launch of our Totaltech membership offering in October 2021 and growth in the membership base, partially offset by a decrease in restricted cash for self-insurance liabilities.

Debt and Capital

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.

As of July 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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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 repurchases were paused during the second quarter of fiscal 2023.

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

Three Months Ended

April 30, 2022

Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Total cost of shares repurchased

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Cash dividends declared and paid

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.

The total cost of shares repurchased decreased in the second quarter and first six months of fiscal 2023, primarily due to decreases in the volume of repurchases.

Cash dividends declared and paid increased in the second quarter and first six months of fiscal 2023, primarily due to increases in the regular quarterly cash dividend per share.

Other Financial Measures

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 .

Our current ratio, calculated as current assets divided by current liabilities, was 1.0 as of July 30, 2022, and January 29, 2022, and 1.2 as of July 31, 2021.

The decrease from July 31, 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 increased to 0.7 as of July 30, 2022, compared to 0.5 as of January 29, 2022, and July 31, 2021, primarily due to lower net earnings .

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 April 30, 2022, 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 July 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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Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following:

the duration and scope of the COVID-19 pandemic and its resurgences and the impact on demand for our products and services;

levels of consumer confidence;

interruptions and other supply chain issues;

macroeconomic pressures in the markets in which we operate (including but not limited to the effects of COVID-19;

increased inflation rates;

increased levels of inventory loss due to organized crime, petty theft or otherwise, fluctuations in housing prices, energy markets, and jobless rates and those related to the conflict in Ukraine);

supply chain issues;

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 and those related to the conflict in Ukraine);

future outbreaks, catastrophic events, health crises and pandemics;

the duration and scope of the COVID-19 pandemic and its resurgences and the impact on demand for our products and services;

catastrophic events, health crises and pandemics;

susceptibility of our products to technological advancements, product life cycles and launches;

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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