What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2023-03-17 compared with 2022-03-18 · 125 added, 137 removed, 348 unchanged (43% of the section changed)

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Purchases of Equity Securities by the Issuer and Affiliated Purchasers

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

On February 28, 2022, our Board approved a new $5.0 billion share repurchase authorization, replacing the then-existing program, which had $1.6 billion remaining available for repurchases as of January 29, 2022.

On February 28, 2022, our Board approved a $5.0 billion share repurchase authorization, 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.

During fiscal 2023, we repurchased and retired 11.8 million shares at a cost of $1.0 billion.

On March 3, 2022, we announced our plans to spend approximately $1.5 billion on share repurchases in fiscal 2023.

Between the end of fiscal 2022 on January 29, 2022, and March 16, 2022, we repurchased an incremental 2.4 million shares of our common stock at a cost of $239 million.

For additional information, see “Share Repurchases and Dividends” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 9, Shareholders’ Equity , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

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Total Number of Shares

‎ Purchased as Part of Publicly Announced Program

‎ Purchased as Part of Publicly

‎ Announced Program

Approximate Dollar Value

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4,419,000,000

28, 2021 through Jan.

27, 2022 through Dec.

4,125,000,000

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4,125,000,000

(1) On February 28, 2022, our Board approved a new $5.0 billion share repurchase authorization, replacing the existing program approved in February 2021.

Share repurchases prior to February 28, 2022, will be made under the February 2021 share repurchase program and thereafter will be made under our February 2022 share repurchase program.

Best Buy Stock Comparative Performance Graph

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The S&P Retailing Group is a capitalization-weighted index of domestic equities traded on the NYSE and NASDAQ and includes high-capitalization stocks representing the retail sector of the S&P 500.

The graph assumes an investment of $100 at the close of trading on January 28, 2017, the last trading day of fiscal 2017, in our common stock, the S&P 500 and the S&P Retailing Group.

The graph assumes an investment of $100 at the close of trading on February 2, 2018, the last trading day of fiscal 2018, in our common stock, the S&P 500 and the S&P Retailing Group.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

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Fiscal Years Ended

January 28, 2017

February 3, 2018

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January 29, 2022

January 28, 2023

Best Buy Co., Inc.

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Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended January 30, 2021, for discussion of the results of operations for the year ended January 30, 2021, compared to the year ended February 1, 2020, which is incorporated by reference herein.

Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended January 29, 2022, for discussion of the results of operations for the year ended January 29, 2022, compared to the year ended January 30, 2021, which is incorporated by reference herein.

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 .

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

and our Best Buy Health business, and includes the brand names Best Buy, Best Buy Ads, Best Buy Business, Best Buy Health, CST, Current Health, Geek Squad, Lively, Magnolia, Pacific Kitchen and Home and Yardbird and the domain names bestbuy.com, currenthealth.com, lively.com and yardbird.com.

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 operations in Canada under the brand names Best Buy, Best Buy Mobile and Geek Squad and the domain name bestbuy.ca.

and our Best Buy Health business, and includes the brand names Best Buy, Best Buy Ads, Best Buy Business, Best Buy Health, CST, Current Health, Geek Squad, Lively, Magnolia, Pacific Kitchen and Home, TechLiquidators and Yardbird and the domain names bestbuy.com, currenthealth.com, lively.com, techliquidators.com and yardbird.com.

The International segment is comprised of all operations in Canada under the brand names Best Buy, Best Buy Mobile and Geek Squad and the domain name bestbuy.ca.

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

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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).

Comparable sales excludes the impact of revenue from discontinued operations, the impact of profit-share revenue from our services plan portfolio and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only).

All periods presented apply this methodology consistently.

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

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

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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 CST were included in our comparable sales calculation beginning in the third quarter of fiscal 2021, and the results of Current Health and Yardbird are excluded from our comparable sales calculation until the first quarter of fiscal 2024.

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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(“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 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.

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, 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 asset 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

In fiscal 2022, we delivered record revenue and earnings.

Our leaders continued to drive new ways of operating, and our employees continued to support our customers’ technology needs in knowledgeable, fast and convenient ways in the face of unprecedented challenges and change.

As we entered the year, we anchored on three concepts we believed to be permanent and structural implications of the pandemic that were, and are, shaping our strategic priorities and investments:

Customer shopping behavior will be permanently changed in a way that is even more digital and puts customers entirely in control to shop how they want.

Our strategy is to embrace that reality, and to lead, not follow.

Our workforce will need to evolve in a way that meets the needs of customers while we provide more flexible opportunities for our employees.

Technology is a need and is playing an even more crucial role in peoples’ lives, and, as a result, our purpose to enrich lives through technology has never been more important.

With these concepts in mind, we piloted numerous store formats to test and learn in the past year.

We advanced our flexible workforce initiative and invested in our employees’ well-being and we introduced new technology tools designed to support both our customers and our employees.

We also launched a bold new membership program called Best Buy Totaltech, designed to significantly elevate our customer experience and drive incremental sales.

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.

While this new offering introduces pressure to our near-term profitability, we believe Totaltech is a membership experience that customers will love, and in turn, will generate a higher customer lifetime value and drive a larger share of consumer electronics spending to Best Buy.

All of this was advanced against a constantly evolving backdrop.

During the year we navigated supply chain and transportation challenges, uncertainty as COVID-19 peaks rolled across the country and then, most recently, the disruption from the COVID-19 Omicron wave.

Our teams have expertly managed supply chain challenges since the beginning of the pandemic to bring in products our customers needed.

During the year, we continued serving our customers digitally at much higher rates than before the pandemic.

Our online revenue was 34% of our Domestic revenue, compared to 43% last year and 19% two years ago.

And while online revenue declined compared to last year, it was up 115%, or $8.8 billion, compared to two years ago.

At the same time, we reached our fastest package delivery speeds.

The percent of online orders we delivered in one day was twice as high as pre-pandemic levels, despite the significant increase in volume during that same timeframe.

These strong results were driven by the investment decisions we have made in the last several years in our supply chain, store operations, our people and technology.

More importantly, these results are driven by our employees across the company.

Over the past 24 months, they have flexibly dealt with rapidly changing store operations as we responded to impacts of the pandemic, created safe environments for our customers and worked tirelessly to provide excellent service.

In fact, despite all the changes throughout the year, we delivered customer satisfaction improvements both online and in our stores.

As we look to the future, we view technology as a permanent and growing need in the home, and we expect technology to constantly evolve as the world's largest technology companies continue to innovate.

We are investing now to ensure we pivot to meet the needs of our customers, helping enrich their lives through technology in ways we believe no one else can and retaining our unique position in our industry.

During fiscal 2023, our team delivered strong execution and relentless focus on customer service during what continues to be a challenging environment for our industry.

Throughout the fiscal year, we remained committed to balancing our near-term response to current conditions and managing well what is in our control, while also advancing our strategic initiatives and investing in areas important for our long-term performance.

During the first year of the pandemic, we said we believed customer shopping behavior would be permanently changed in a way that is even more digital and puts customers entirely in control to shop how they want.

And our strategy was to embrace that reality, and to lead not follow.

In fiscal 2023, digital sales comprised 33% of our Domestic revenue compared to 19% in fiscal 2020.

Sales via phone, chat and virtual have also remained significantly higher.

Even with that shift, our stores remain a cornerstone of our differentiation.

Not only was 67% of our Domestic revenue transacted in our stores, more than half of our identified customers engaged in cross-channel shopping experiences, and more than 40% of online sales were picked up in stores.

Further, we play an important role for our vendors as the only national consumer electronics specialty retailer who can showcase their products and help commercialize their new technology.

Therefore, we are focused on evolving our omnichannel retail strategy over time, including our portfolio of stores, operating model and digital tools, to provide customers with differentiated experiences and enhance our omnichannel fulfillment.

We continue to advance our other strategic initiatives as well.

We are building customer relationships through membership, including evolving our free My Best Buy program and our paid Best Buy Totaltech membership option.

In Best Buy Health, we are essentially nurturing a startup within a large-scale organization and leveraging Best Buy’s core assets, including the Geek Squad, to grow, build and establish the Care at Home space, an emerging part of the healthcare industry .

As we enter fiscal 2024, macroeconomic headwinds will likely result in continued pressure, and we are preparing for sales in the consumer electronics industry to decline again this year.

In particular, our customers are facing economic challenges from the dual pressures of high inflation and the resulting interest rate increases, and it is difficult to predict how such factors will impact us in the near term.

However, we expect several factors to drive the eventual return of industry growth over time, including the natural upgrade and replacement cycles for the technology bought earlier in the pandemic and continued vendor innovation.

In addition, macro technology trends like cloud, augmented reality and expanded broadband access have the potential to drive new products and demand.

While our product categories tend to experience slightly different timing nuances, in general, we believe they are poised for growth in the coming years.

In addition, we are continuing our expansion into newer categories like wellness technology, personal electric transportation, outdoor living and electric car charging.

We remain excited about our industry and our future.

There are more technology products than ever in people’s homes, technology is increasingly a necessity in our lives, and we believe we are uniquely there for our customers as they continue to navigate this innovative space.

Results of Operations

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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 Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

In fiscal 2022, we generated $51.8 billion in revenue and our comparable sales increased 10.4%.

We continued to experience elevated demand for technology products and services throughout most of the year, 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 an operating income rate increase of 0.8% compared to fiscal 2021.

Revenue, SG&A and operating income rate changes in fiscal 2022 were primarily driven by our Domestic segment.

The gross profit rate change in fiscal 2022 was primarily driven by our International segment.

In fiscal 2023, we generated $46.3 billion in revenue and our comparable sales declined 9.9%.

Our comparable sales decline was due to multiple factors, including the following:

(1) the lapping of strong sales in fiscal 2022 and fiscal 2021 that were driven by heightened demand during the pandemic for stay-at-home focused purchases and the benefit of government stimulus payments;

(2) the shift of consumer spending back into service areas such as travel and entertainment and away from durable goods;

and (3) macroeconomic pressures, including high inflation, that resulted in overall softness in customer demand within the consumer electronics industry.

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

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

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(1) Comparable online sales are included in the comparable sales calculation.

The increase in revenue in fiscal 2022 was primarily driven by the 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 $16.4 billion decreased 12.0% on a comparable basis in fiscal 2022, primarily due to channel shifts in customer shopping behavior as a result of the evolution of the COVID-19 pandemic.

The decrease in revenue in fiscal 2023 was primarily driven by comparable sales declines across most of our product categories, particularly computing, home theater, mobile phones and appliances.

Online revenue of $14.2 billion decreased 13.5% on a comparable basis in fiscal 2023.

These decreases in revenue were primarily due to the reasons described within the Consolidated Results section, above.

Domestic segment stores open at the end of each of the last three fiscal years were as follows:

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Total Domestic segment stores

(1) Excludes stores that were temporarily closed as a result of COVID-19.

(1) Excludes stores that were temporarily closed as a result of the COVID-19 pandemic.

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.

In fiscal 2024, we currently expect to close approximately 20 to 30 Best Buy stores and to increase the number of Outlet Centers to approximately 30.

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

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• Computing and Mobile Phones:

The 5.1% comparable sales growth was driven primarily by computing, mobile phones and wearables, partially offset by a comparable sales decline in networking.

The 12.0% comparable sales decline was driven primarily by computing, mobile phones, wearables and tablets.

• Consumer Electronics:

The 15.9% comparable sales growth was driven primarily by home theater, headphones and portable speakers and digital imaging.

The 12.2% comparable sales decline was driven primarily by home theater, digital imaging and headphones.

• Appliances:

The 24.1% comparable sales growth was driven primarily by large appliances.

The 5.7% comparable sales decline was driven primarily by large appliances.

• Entertainment:

The 7.4% comparable sales growth was driven primarily by virtual reality.

The 5.9% comparable sales growth was driven primarily by membership offerings.

Our gross profit rate decreased in fiscal 2022, primarily driven by lower services margin rates, which included pressure associated with our Totaltech membership offering that includes incremental customer benefits, and associated costs, compared to our previous Total Tech Support offer.

The decrease was partially offset by higher profit-sharing revenue from our private label and co-branded credit card arrangement and improved product margins.

Our SG&A increased in 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 the impact of a $40 million donation to the Best Buy Foundation in the prior year.

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

The 5.5% comparable sales decline was driven primarily by virtual reality and gaming software.

The 2.5% comparable sales decline was driven primarily by the launch of our Best Buy Totaltech membership offering that includes benefits that were previously stand-alone revenue-generating services, such as warranty services.

Our gross profit rate decreased in fiscal 2023, primarily due to lower product margin rates, including increased promotions, lower services margin rates, driven by the incremental customer benefits and associated costs from our Best Buy Totaltech membership offering compared to our previous Total Tech Support offer, and higher supply chain costs.

These decreases were partially offset by higher profit-sharing revenue from our private label and co-branded credit card arrangement and an approximately $30 million profit-sharing benefit from our services plan portfolio.

Our SG&A decreased in fiscal 2023, primarily due to lower short-term incentive compensation expense of approximately $455 million compared to the prior year and decreased store payroll expenses.

We were below the required thresholds for most short-term incentive compensation performance metrics in the current year while lapping short-term incentive amounts near maximum levels in the prior year.

The restructuring charges incurred in fiscal 2023 primarily related to employee 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 optimize our cost structure.

Refer to Note 3, Restructuring , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K for additional information.

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

Our operating income rate decreased in fiscal 2023, primarily driven by the unfavorable gross profit rate described above and decreased leverage from lower sales volume on our fixed expenses, which resulted in an unfavorable SG&A rate.

International Segment

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Operating income as a % of revenue

The decrease in revenue in fiscal 2022 was primarily driven by lower revenue in Mexico as a result of our decision in fiscal 2021 to exit operations, partially offset by favorable foreign currency exchange fluctuations and comparable sales growth across most of our product categories in Canada.

The decrease in revenue in fiscal 2023 was primarily driven by lower sales in Canada due to comparable sales declines across most of our product categories and the negative impact from unfavorable foreign currency exchange rates.

International segment stores open at the end of each of the last three fiscal years were as follows:

‎ Fiscal Year

Stores Closed (1)

‎ Fiscal Year

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Total International segment stores

(1) Excludes stores that were temporarily closed as a result of COVID-19.

(1) Excludes stores that were temporarily closed as a result of the COVID-19 pandemic.

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

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• Computing and Mobile Phones :

The 1.6% comparable sales growth was driven primarily by mobile phones, partially offset by a comparable sales decline in tablets.

The 6.1% comparable sales decline was driven primarily by computing and tablets, partially offset by comparable sales growth in mobile phones.

• Consumer Electronics:

The 4.0% comparable sales growth was driven primarily by home theater and health and fitness, partially offset by a comparable sales decline in portable speakers.

The 6.2% comparable sales decline was driven primarily by home theater and health and fitness.

• Appliances:

The 6.2% comparable sales growth was driven by both small and large appliances.

The 0.3% comparable sales growth was driven by small appliances.

• Entertainment:

The 3.5% comparable sales growth was driven primarily by virtual reality, partially offset by a comparable sales decline in gaming.

The 7.9% comparable sales growth was driven primarily by warranty services.

The 8.8% comparable sales growth was driven primarily by sporting goods.

Our gross profit rate increased in fiscal 2022, 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 higher inventory markdowns in the prior year associated with our decision to exit operations in Mexico.

Our SG&A in fiscal 2022 was flat compared to fiscal 2021, primarily due to the unfavorable impact of foreign currency rates and increased store payroll and incentive compensation expenses in Canada, offset by lower expenses in Mexico as a result of our decision to exit operations there.

The restructuring charges in fiscal 2022 related to our decision to exit operations in Mexico.

The 8.6% comparable sales decline was driven primarily by gaming and virtual reality.

The 2.1% comparable sales decline was driven primarily by warranty services.

Our gross profit rate decreased in fiscal 2023, primarily driven by lower product margin rates and higher supply chain costs in Canada.

Our SG&A decreased in fiscal 2023, primarily due to lower short-term incentive compensation expense and the favorable impact of foreign currency rates.

Our operating income rate increased in fiscal 2022, primarily driven by lower restructuring charges and the increase in gross profit rate described above.

Additional Consolidated Results

Income Tax Expense

Income tax expense decreased in fiscal 2022, primarily due to multi-jurisdiction, multi-year non-cash benefits from the resolution of certain discrete tax matters, partially offset by the impact of increased pre-tax earnings.

Our effective tax rate decreased in fiscal 2022, primarily due to these non-cash benefits from the resolution of certain discrete tax matters, as well as a decrease in losses for which tax benefits were not recognized.

Income tax expense decreased in fiscal 2023, primarily due to the impact of decreased pre-tax earnings, partially offset by reduced benefits from the resolution of tax matters.

Our effective tax rate increased in fiscal 2023, primarily due to reduced tax benefits from the resolution of tax matters, stock-based compensation and federal tax credits, partially offset by the impact of lower pre-tax earnings.

Non-GAAP Financial Measures

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and Note 11, Income Taxes , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

(1) Represents inventory markdowns recorded within cost of sales associated with the decision to exit operations in Mexico.

(1) Represents inventory markdowns and subsequent adjustments recorded within cost of sales associated with the exit from operations in Mexico.

(2) Represents a price-fixing litigation settlement received in relation to products purchased and sold in prior fiscal years.

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

(4) Represents charges in fiscal 2021 and subsequent adjustments in fiscal 2022 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, and charges and subsequent adjustments associated with U.S.

retail operating model changes in fiscal 2020.

(4) Represents restructuring charges, including:

(1) charges in fiscal 2023 associated with an enterprise-wide initiative to better align our spending with critical strategies and operations, as well as to optimize our cost structure;

and (2) charges in fiscal 2021 and subsequent adjustments in fiscal 2022 associated with actions taken in the Domestic segment to better align the company’s organizational structure with its strategic focus and the exit from operations in Mexico in the International segment.

(5) Represents an increase in the fair value of a minority equity investment in fiscal 2021.

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

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

non-GAAP items for all periods presented.

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

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

and 26.4% for Canada applied to the non-GAAP adjustments of each country.

There is no income tax charge for Mexico non-GAAP items and a minimal amount of U.S.

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 increased in fiscal 2022, primarily driven by an increase in gross profit rate 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 decreased in fiscal 2022, primarily due to multi-jurisdiction, multi-year non-cash benefits from the resolution of certain discrete tax matters.

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

Our non-GAAP operating income rate decreased in fiscal 2023, primarily driven by our Domestic segment’s lower gross profit rate and decreased leverage from lower sales volume on our fixed expenses, which resulted in an unfavorable SG&A rate.

Our non-GAAP effective tax rate increased in fiscal 2023, primarily due to reduced tax benefits from the resolution of tax matters, stock-based compensation and federal tax credits, partially offset by the impact of lower pre-tax earnings.

Our non-GAAP diluted EPS decreased in fiscal 2023, primarily driven by the decrease in non-GAAP operating income, partially offset by lower diluted weighted-average common shares outstanding from share repurchases.

Liquidity and Capital Resources

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

For example, at the onset of the COVID-19 pandemic in fiscal 2021, we adopted several measures to preserve cash, such as reducing capital expenditures, suspending share repurchases and temporarily drawing down on our revolving credit facility.

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

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Cash and cash equivalents

The decrease in cash and cash equivalents in fiscal 2022 was primarily due to share repurchases, investments in capital expenditures, dividends paid and the acquisitions of Current Health and Yardbird.

The decrease in cash and cash equivalents in fiscal 2023 was primarily driven by share repurchases, capital expenditures and dividend payments .

These decreases were partially offset by positive cash flows from operations, primarily driven by earnings.

Our cash deposits held at financial institutions may exceed the amount of insurance provided on such deposits.

Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit.

We limit exposure relating to financial instruments by diversifying the financial instruments among various counterparties, which consist primarily of major financial institutions.

Cash flows were as follows ($ in millions):

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Operating Activities

In fiscal 2021, cash provided by operating activities was higher than historical averages, primarily due to higher inventory turnover and the timing of inventory purchases and payments to meet continued higher demand.

The decrease in cash provided by operating activities in fiscal 2022 was primarily due to the timing and volume of inventory purchases and payments, reflecting an earlier build of inventory and greater inventory availability in the fourth quarter of fiscal 2022, which resulted in a higher proportion of inventory purchases having been paid for, compared to fiscal 2021.

This decrease was partially offset by higher earnings in fiscal 2022.

The decrease in cash provided by operating activities in fiscal 2023 was primarily due to lower earnings and higher incentive compensation payments in the current year as a result of strong fiscal 2022 results, partially offset by the timing and volume of inventory purchases and payments.

Investing Activities

The increase in cash used in investing activities in fiscal 2022 was primarily due to the acquisitions of Current Health and Yardbird .

The decrease in cash used in investing activities in fiscal 2023 was primarily driven by the acquisitions of Current Health and Yardbird in fiscal 2022 and a decrease in purchases of investments, partially offset by an increase in capital spending for initiatives to support our business .

Financing Activities

The increase in cash used in financing activities in fiscal 2022 was primarily due to higher share repurchases.

The decrease in cash used in financing activities in 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 January 29, 2022, or under the Previous Facility as of January 30, 2021.

There were no borrowings outstanding under the Five-Year Facility Agreement as of January 28, 2023, or January 29, 2022.

Our ability to continue to access the Five-Year Facility Agreement is subject to our compliance with its terms and conditions, including financial covenants.

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If an event of default were to occur with respect to any of our other debt, it would likely constitute an event of default under the Five-Year Facility Agreement as well.

Our credit ratings and outlook as of March 16, 2022, 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.

Our credit ratings and outlook as of March 15, 2023, 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 to cover self-insurance liabilities and product protection plans provided under our Totaltech membership offering.

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

Restricted cash, which is included in Other current assets on our Consolidated Balance Sheets, was $379 million and $269 million as of January 28, 2023, and January 29, 2022, respectively.

The increase in restricted cash was primarily due to the initial funding related to the national launch of our Totaltech membership offering in October 2021.

The increase in restricted cash was primarily due to our Best Buy Totaltech membership offering and growth in the membership base, partially offset by a decrease in restricted cash for other self-insurance liabilities.

Capital Expenditures

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Non-cash capital expenditures are comprised of additions to property and equipment included in accounts payable, as well as finance leases.

We currently expect to increase our annual capital expenditures to at least $1 billion over the next three fiscal years as we continue to invest in our stores and information technology to further our strategy.

We currently expect capital expenditures to approximate $850 million in fiscal 2024.

Debt and Capital

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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 $5.0 billion share repurchase program.

On February 28, 2022, our Board approved a new $5.0 billion share repurchase program, replacing the then-existing program, which had $1.6 billion remaining available for repurchases as of January 29, 2022.

Our share repurchase plans are evaluated on an ongoing basis, considering factors such as our financial condition and cash flows, our economic outlook, the impact of tax laws, our liquidity needs, and the health and stability of global credit markets.

The timing and amount of future repurchases may vary depending on such factors.

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 March 3, 2022, we announced our plans to spend approximately $1.5 billion on share repurchases in fiscal 2023.

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

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Cash dividends declared and paid

The total cost of shares repurchased increased in fiscal 2022, primarily due to our announced plan to repurchase more than $2.5 billion shares in fiscal 2022, following the temporary suspension of all share repurchases from March to November of fiscal 2021 to preserve liquidity in light of COVID-19-related uncertainties.

Between the end of fiscal 2022 on January 29, 2022, and March 16, 2022, we repurchased an incremental 2.4 million shares of our common stock at a cost of $239 million.

The total cost of shares repurchased decreased in fiscal 2023 from decreases in the volume of repurchases and the average price per share.

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

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Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities, decreased to 1.0 as of January 29, 2022, compared to 1.2 as of January 30, 2021, primarily due to the decrease in cash and cash equivalents.

Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings, decreased to 0.5 as of January 29, 2022, compared to 0.8 as of January 30, 2021, primarily due to higher earnings.

Our current ratio, calculated as current assets divided by current liabilities, remained unchanged at 1.0 as of January 28, 2023, and January 29, 2022.

Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings increased to 0.8 as of January 28, 2023, compared to 0.5 at January 29, 2022, primarily due to lower net earnings.

Off-Balance-Sheet Arrangements and Contractual Obligations

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Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Other than our adoption of Accounting Standards Update (“ASU”) 2016-02, Leases , in the first quarter of fiscal 2020, we have not made any material changes to our accounting policies or methodologies during the past three fiscal years.

We have not made any material changes to our accounting policies or methodologies during the past three fiscal years.

We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results.

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A 10% change in our vendor funding deferral as of January 28, 2023, would have affected net earnings by approximately $45 million in fiscal 2023.

The overall level of vendor funding deferral has remained relatively stable over the last three fiscal years.

The level of vendor funding deferral has remained relatively stable over the last three fiscal years.

Goodwill is evaluated for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable.

The impairment test involves a comparison of the fair value of each reporting unit with its carrying value.

Fair value reflects the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction.

Fair value reflects our estimate of the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction.

We have goodwill in two reporting units – Best Buy Domestic (comprising our core U.S.

Best Buy business) and Best Buy Health – with carrying values of $492 million and $891 million, respectively, as of January 28, 2023.

Judgments and uncertainties involved in the estimate

Determining fair value of a reporting unit is complex and typically requires analysis of discounted cash flows and market information, such as trading multiples and other observable metrics.

Cash flow analysis requires judgment regarding many factors, such as revenue growth rates, expenses and capital expenditures.

Market information requires judgmental selection of relevant market comparables.

We have goodwill in two reporting units – Best Buy Domestic and Best Buy Health – with carrying values of $491 million and $893 million, respectively, as of January 29, 2022.

There is greater uncertainty surrounding the key assumptions used to estimate the fair value of the Best Buy Health reporting unit and therefore a greater degree of complexity and judgment involved in our impairment analysis.

Our valuation of Best Buy Health incorporates relatively higher levels of revenue growth than our valuation of Best Buy Domestic, and incorporates estimates such as new customer growth, customer retention rates, capital expenditure requirements, advertising and cost-to-serve expenses and weighted-average cost of capital rates, all of which incorporate significant judgment.

Effect if actual results differ from assumptions

A 10% change in the fair value of the Best Buy Health reporting unit as of January 29, 2022, would not have triggered an impairment of goodwill in fiscal 2022.

The fair value of our Best Buy Health reporting unit has remained substantially in excess of its carrying value over the last three fiscal years.

Determining the fair value of a reporting unit requires complex analysis and judgment.

We use a combination of discounted cash flow (“DCF”) models and market data, such as earnings multiples and quoted market prices, for observable comparable companies.

DCF models require detailed forecasts of cash flow drivers, such as revenue growth rates, margin rates and capital investments, and estimates of weighted-average cost of capital rates.

These estimates incorporate many uncertain factors, such as the effectiveness of our strategy, changes in customer behavior, technological changes, competitor actions, regulatory changes and macroeconomic trends.

Effects if actual results differ from assumptions

For our Best Buy Domestic reporting unit, fair value exceeded book value by a substantial margin in fiscal 2023 and fiscal 2022.

Compared to fiscal 2022, the excess of fair value over book value in fiscal 2023 decreased approximately in line with the decline in Best Buy’s market capitalization over the same period, reflecting the macroeconomic factors that affected our fiscal year 2023 performance and our expectations for the future.

Barring a fundamental, material further deterioration of these factors, we believe the risk of future goodwill impairment within our Best Buy Domestic reporting unit is remote.

Our Best Buy Health reporting unit is subject to a greater level of uncertainty, since it operates in a less mature, rapidly-changing and high-growth environment.

In both fiscal 2023 and fiscal 2022, the excess of fair value over book value for this reporting unit was substantial.

In fiscal 2023, the excess decreased more significantly than our Best Buy Domestic reporting unit, primarily due to the effects of macroeconomic factors, driving, for example, lower forecasted revenue growth rates in some categories and higher estimates of weighted-average cost of capital rates.

The risk of further deterioration in these factors, along with the more uncertain environment in which Best Buy Health operates, cause the likelihood of goodwill impairment for our Best Buy Health reporting unit to be higher than for our Best Buy Domestic reporting unit.

Inventory Markdown

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Markdown adjustments reflect the excess of cost over the net recovery we expect to realize from the ultimate sale or other disposal of inventory and establish a new cost basis.

No adjustment is recorded for inventory that we are able to return to our vendors for full credit.

No adjustment is recorded for inventory that we expect to return to our vendors for full credit.

Judgments and uncertainties involved in the estimate

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Service Revenue

We sell membership plans that include access to benefits such as technical support, price discounts on certain products and services, product protection plans and anti-virus software.

We sell membership plans that include access to benefits such as technical support, delivery and installation, price discounts on certain products and services, product protection plans and anti-virus software.

We allocate the transaction price to all performance obligations identified in the contract based on their relative fair value.

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Judgments and uncertainties involved in the estimate

There is judgment in (1) measuring the relative standalone selling price for bundled performance obligations, and (2) assessing the appropriate recognition and methodology for each performance obligation, and for those based on usage, estimating the expected pattern of consumption across a large portfolio of customers.

There is judgment in (1) measuring the relative standalone selling price for bundled performance obligations;

and (2) assessing the appropriate recognition and methodology for each performance obligation, and for those based on usage, estimating the expected pattern of consumption across a large portfolio of customers.

When insufficient reliable and relevant history is available to estimate usage, we generally recognize revenue ratably over the life of the contract until such history has accumulated.

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A 10% change in the amount of services membership deferred revenue as of January 28, 2023, would have affected net earnings by approximately $40 million in fiscal 2023.

While our underlying assumptions have remained relatively consistent, the amount of services membership deferred revenue has increased over the last three fiscal years, primarily due to growth in our membership program offerings.

The amount of services membership deferred revenue has increased over the last three fiscal years, primarily driven by the national launch of our Best Buy Totaltech membership offering, which resulted in higher membership sales and the initial deferral of more revenue than under the previous Total Tech Support offer.

New Accounting Pronouncements

For a description of new applicable accounting pronouncements, see Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.

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-K

Item 5. Market for Registrant’s Common Equity