BEST BUY CO INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” refers to Best Buy Co., Inc. and its consolidated subsidiaries. Any references to our website addresses do not constitute incorporation by reference of the information contained on the websites. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (including the information presented therein under Risk Factors ), as well as our other reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited. Overview We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life . We accomplish this by leveraging our combination of technology and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes. We have two reportable segments: Domestic and International. The Domestic segment is comprised of our operations in all states, districts and territories of the U.S. and our Best Buy Health business. The International segment is comprised of all our operations in Canada. Our fiscal year ends on the Saturday nearest the end of January. Our business, like that of many retailers, is seasonal. A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season. Comparable Sales Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric used by management to evaluate the performance of our existing stores, websites and call centers by measuring the change in net sales for a particular period over the comparable prior period of equivalent length. Comparable sales includes revenue from stores, websites and call centers operating for at least 14 full months. Revenue from online sales is included in comparable sales and represents sales initiated on a website or app, regardless of whether customers choose to pick up product in store, curbside, at an alternative pick-up location or take delivery direct to their homes. Revenue from acquisitions is included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition. Comparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. Revenue from stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, is excluded from comparable sales until at least 14 full months after reopening. Comparable sales excludes the impact of certain periodic warranty-related profit-share revenue, the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only) and the impact of the 53 rd week (applicable in 53-week fiscal years only). Comparable sales is based on our fiscal calendar and is not adjusted to align calendar weeks. All periods presented apply this methodology consistently. Consistent with our comparable sales policy, revenue from Best Buy Express locations rebranded as a result of our previously announced collaboration with Bell Canada is excluded from our comparable sales calculation until locations have been operating for at least 14 full months. 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. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers’ methods. 15 Table of Contents Non-GAAP Financial Measures This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), as well as certain adjusted or non-GAAP financial measures, such as 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, 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 sales of subsidiaries and 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 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. dollars for reporting purposes. We also may use the term “constant currency,” which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates. Refer to the Non-GAAP Financial Measures section below for detailed reconciliations of items impacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS in the presented periods. Business Strategy Update In the third quarter of fiscal 2025, we continued to manage our profitability through strong execution despite revenue declines. We made progress on our fiscal 2025 priorities, grew our paid membership base and drove improvements in our prioritized customer experiences. We continued to deliver sales growth in our Domestic computing and tablet categories as our market position, expert sales associates and compelling merchandising allowed us to capitalize on demand driven by our customers’ desire to replace or upgrade their products combined with new innovation. We also continue to focus on the following four priorities: (1) invigorate and progress targeted customer experiences; (2) drive operational effectiveness and efficiency; (3) continue our disciplined approach to capital allocation; and (4) explore, pilot and drive incremental revenue streams. This year, we have been focused on improving and refreshing our App and small view experiences – including enhanced personalization, new features like digital wallet, deal alerts and gift finders, along with a more stream-lined checkout process and faster content loading times. We have grown both customer ratings for our App and growth in active users. We believe this is an important way to engage our customers on their entire shopping journey, and our data shows that customers who use our App frequent us more often and thus spend more. In our stores, we are making enhancements to every store in the chain in some fashion this year, improving both our merchandising and ease of shopping for customers. This includes working with many of our vendors to implement new and enhanced in-store experiences across the store. To continue to elevate the expert service we provide customers, we have added fully dedicated labor expertise to our in-store computing and have begun the process of doing so in our home theater and major appliances departments in hundreds of stores. These changes are in addition to the actions taken throughout the past year to streamline our leadership model, allowing us to invest in more customer-facing sales associate hours in our stores. While we elevate our customer experiences, we are simultaneously executing on our longstanding commitment to drive operational effectiveness and efficiencies and identify cost reductions, as this is paramount to help offset inflationary pressures in our business and fund investment capacity. For example, in fiscal 2025 we are focused on driving further efficiencies across our forward and reverse supply chain, our Geek Squad repair operations and our customer care experience. We will continue to lean heavily on analytics and technology to achieve these efficiencies. Our third key priority for the year is to continue our disciplined approach to capital allocation. This includes striking the appropriate balance of prioritizing areas that best position us for the future, while prudently dealing with the near-term uncertainty in the consumer electronics industry. 16 Table of Contents Our fourth key priority for fiscal 2025 is longer-term in focus. We will continue to explore opportunities that leverage our scale and capabilities to drive incremental profitable revenue streams over time. As we look to the rest of the year, we are excited for the holiday season in this still uncertain consumer electronics industry. We are well positioned with compelling deals, inspirational in-store and digital merchandising and competitive fulfillment options. We are the largest consumer electronics specialty retailer with what we believe to be a unique range of product assortment and expert services to help humanize tech, especially new innovation, for every stage of our customers’ lives. We intend to strengthen our position in key categories like computing, home theater and major appliances through our differentiated experiences, pointed marketing spend and competitive pricing. Results of Operations Consolidated Results Selected consolidated financial data was as follows ($ in millions, except per share amounts): Three Months Ended Nine Months Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Revenue $ 9,445 $ 9,756 $ 27,580 $ 28,806 Revenue % change (3.2) % (7.8) % (4.3) % (8.7) % Comparable sales % change (2.9) % (6.9) % (3.7) % (7.8) % Gross profit $ 2,217 $ 2,232 $ 6,467 $ 6,602 Gross profit as a % of revenue (1) 23.5 % 22.9 % 23.4 % 22.9 % Selling, general and administrative expense ("SG&A") $ 1,871 $ 1,878 $ 5,418 $ 5,605 SG&A as a % of revenue (1) 19.8 % 19.2 % 19.6 % 19.5 % Restructuring charges $ (4) $ - $ 4 $ (16) Operating income $ 350 $ 354 $ 1,045 $ 1,013 Operating income as a % of revenue 3.7 % 3.6 % 3.8 % 3.5 % Net earnings $ 273 $ 263 $ 810 $ 781 Diluted earnings per share $ 1.26 $ 1.21 $ 3.73 $ 3.57 (1) Because retailers vary in how they record costs of operating their supply chain between cost of sales and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers’ corresponding rates. 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 February 3, 2024. In the third quarter and first nine months of fiscal 2025, we generated $9.4 billion and $27.6 billion in revenue, respectively, and our comparable sales declined 2.9% and 3.7%, respectively, as we continued to operate in a challenged consumer electronics industry and experienced softer customer demand. While our comparable sales declined in the third quarter of fiscal 2025 in categories such as appliances, home theater and gaming, we grew comparable sales in our computing, tablet and services categories. Revenue, gross profit rate, SG&A and operating income rate changes in the third quarter and first nine months of fiscal 2025 were primarily driven by our Domestic segment. For further discussion of our Domestic and International segments, see Segment Performance Summary , below. 17 Table of Contents Store Summary Stores open by reportable segment were as follows: November 2, 2024 October 28, 2023 Best Buy 889 901 Outlet Centers 25 21 Pacific Sales 20 20 Yardbird 23 21 Total Domestic stores 957 963 Canada Best Buy stores 129 128 Canada Best Buy Mobile stand-alone stores 31 32 Total International stores 160 160 Total stores 1,117 1,123 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. In fiscal 2025, we currently expect to reduce our Domestic Best Buy store count by approximately 10 to 12 stores. Earlier this year, we announced our collaboration with Bell Canada to rebrand 167 of its stores to Best Buy Express. These stores, previously part of The Source, a wholly owned subsidiary of Bell Canada, are leased by Bell Canada. Under the arrangement, we provide the curated consumer electronics assortment and Geek Squad services, as well as supply chain, marketing and e-commerce. Bell Canada is the exclusive telecommunications services provider and is also responsible for the store operations . As of November 2, 2024, nearly all of the 167 stores have been rebranded. Income Tax Expense Income tax expense was relatively unchanged in the third quarter of fiscal 2025. Our effective tax rate (“ETR”) decreased to 23.9% in the third quarter of fiscal 2025 compared to 24.7% in the third quarter of fiscal 2024, primarily due to increased tax benefits from green energy incentives. Income tax expense increased in the first nine months of fiscal 2025, primarily due to an increase in pre-tax earnings. Our ETR remained unchanged at 24.8% in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024, primarily due to increased tax benefits from green energy incentives, offset by reduced tax benefits from the resolution of tax matters and stock-based compensation. 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. We update our estimate of the annual ETR each quarter and we make a cumulative adjustment if our estimated tax rate changes. Our quarterly tax provision and our quarterly estimate of our annual ETR are subject to variation due to several factors, including our ability to accurately forecast our pre-tax and taxable income and loss by jurisdiction, tax audit developments, recognition of excess tax benefits or deficiencies related to stock-based compensation, foreign currency gains (losses), changes in laws or regulations, and expenses or losses for which tax benefits are not recognized. Our ETR can be more or less volatile based on the amount of pre-tax earnings. For example, the impact of discrete items and non-deductible losses on our ETR is greater when our pre-tax earnings are lower. 18 Table of Contents Segment Performance Summary Domestic Segment Selected financial data for the Domestic segment was as follows ($ in millions): Three Months Ended Nine Months Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Revenue $ 8,697 $ 8,996 $ 25,523 $ 26,687 Revenue % change (3.3) % (8.2) % (4.4) % (8.8) % Comparable sales % change (1) (2.8) % (7.3) % (3.8) % (8.0) % Gross profit $ 2,049 $ 2,064 $ 5,993 $ 6,108 Gross profit as a % of revenue 23.6 % 22.9 % 23.5 % 22.9 % SG&A $ 1,716 $ 1,727 $ 4,982 $ 5,167 SG&A as a % of revenue 19.7 % 19.2 % 19.5 % 19.4 % Restructuring charges $ (4) $ 1 $ 4 $ (14) Operating income $ 337 $ 336 $ 1,007 $ 955 Operating income as a % of revenue 3.9 % 3.7 % 3.9 % 3.6 % Selected Online Revenue Data Total online revenue $ 2,727 $ 2,754 $ 7,970 $ 8,205 Online revenue as a % of total segment revenue 31.4 % 30.6 % 31.2 % 30.7 % Comparable online sales % change (1) (1.0) % (9.3) % (2.9) % (9.5) % (1) Comparable online sales are included in the comparable sales calculation. Domestic revenue decreased in the third quarter and first nine months of fiscal 2025, primarily driven by comparable sales declines in the appliances, home theater and gaming categories, partially offset by comparable sales growth in the computing, tablets and services categories. Online revenue of $2.7 billion and $8.0 billion in the third quarter and first nine months of fiscal 2025 decreased 1.0% and 2.9%, respectively, on a comparable basis. Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows: Revenue Mix Comparable Sales Three Months Ended Three Months Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Computing and Mobile Phones 47 % 44 % 3.8 % (8.3) % Consumer Electronics 28 % 29 % (5.8) % (9.5) % Appliances 12 % 14 % (14.7) % (15.1) % Entertainment 5 % 6 % (18.8) % 20.6 % Services 7 % 6 % 6.0 % 6.9 % Other 1 % 1 % 12.9 % 4.7 % Total 100 % 100 % (2.8) % (7.3) % Notable comparable sales changes by revenue category were as follows:  Computing and Mobile Phones: The 3.8% comparable sales growth was driven primarily by computing and tablets.  Consumer Electronics: The 5.8% comparable sales decline was driven primarily by home theater.  Appliances: The 14.7% comparable sales decline was driven primarily by large appliances.  Entertainment: The 18.8% comparable sales decline was driven primarily by gaming.  Services: The 6.0% comparable sales growth was driven primarily by growth in our membership programs, as well as delivery and installation services. Domestic gross profit rate increased in the third quarter of fiscal 2025, primarily due to improved financial performance from our services category, including our membership offerings, which was partially offset by lower profit-sharing revenue from our private label and co-branded credit card arrangement and lower product margin rates. Domestic gross profit rate increased in the first nine months of fiscal 2025, primarily due to improved financial performance from our services category, including our membership offerings, which was partially offset by lower product margin rates and lower profit-sharing revenue from our private label and co-branded credit card arrangement. Domestic SG&A decreased in the third quarter of fiscal 2025, primarily due to lower employee compensation expense and lower intangible asset amortization expense, partially offset by higher advertising expense. Domestic SG&A decreased in the first nine months of fiscal 2025, primarily due to lower employee compensation expense, which was primarily store payroll, lower intangible amortization expense and reduced vehicle rental costs . These decreases were partially offset by higher advertising and technology expense. 19 Table of Contents Domestic restructuring charges in the third quarter and first nine months of fiscal 2025 were primarily related to employee termination benefits and subsequent adjustments from higher-than-expected employee retention associated with an enterprise-wide restructuring initiative that commenced in the fourth quarter of fiscal 2024. 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. Domestic operating income rate increased in the third quarter and first nine months of fiscal 2025, primarily due to favorability in the gross profit rate, partially offset by decreased leverage from lower sales volume, which resulted in an unfavorable SG&A rate . International Segment Selected financial data for the International segment was as follows ($ in millions): Three Months Ended Nine Months Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Revenue $ 748 $ 760 $ 2,057 $ 2,119 Revenue % change (1.6) % (3.4) % (2.9) % (7.9) % Comparable sales % change (3.7) % (1.9) % (3.0) % (4.2) % Gross profit $ 168 $ 168 $ 474 $ 494 Gross profit as a % of revenue 22.5 % 22.1 % 23.0 % 23.3 % SG&A $ 155 $ 151 $ 436 $ 438 SG&A as a % of revenue 20.7 % 19.9 % 21.2 % 20.7 % Operating income $ 13 $ 18 $ 38 $ 58 Operating income as a % of revenue 1.7 % 2.4 % 1.8 % 2.7 % International revenue decreased in the third quarter of fiscal 2025, primarily driven by comparable sales declines in gaming, home theater and appliances, as well as the negative impact of foreign exchange rates. These decreases were partially offset by increased revenue from Best Buy Express locations. International revenue decreased in the first nine months of fiscal 2025, primarily driven by comparable sales declines in gaming, computing and home theater, as well as the negative impact of foreign exchange rates. These decreases were partially offset by increased revenue from Best Buy Express locations and comparable sales growth in mobile phones. International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows: Revenue Mix Comparable Sales Three Months Ended Three Months Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Computing and Mobile Phones 52 % 50 % (0.1) % (1.0) % Consumer Electronics 26 % 26 % (6.1) % (8.4) % Appliances 9 % 10 % (8.1) % 4.0 % Entertainment 6 % 7 % (18.7) % 18.6 % Services 6 % 6 % 4.0 % 2.4 % Other 1 % 1 % (12.7) % (37.5) % Total 100 % 100 % (3.7) % (1.9) % Notable comparable sales changes by revenue category were as follows:  Computing and Mobile Phones: The 0.1% comparable sales decline was driven primarily by computing and tablets, partially offset by comparable sales growth in mobile phones.  Consumer Electronics: The 6.1% comparable sales decline was driven primarily by home theater and home automation.  Appliances: The 8.1% comparable sales decline was driven by both large and small appliances.  Entertainment: The 18.7% comparable sales decline was driven primarily by gaming.  Services: The 4.0% comparable sales growth was driven primarily by growth in our membership programs. International gross profit rate increased in the third quarter of fiscal 2025, primarily driven by growth in the higher margin services category. International gross profit rate decreased in the first nine months of fiscal 2025, primarily driven by lower product margin rates and higher supply chain costs, which were partially offset by growth in the higher margin services category. International SG&A increased in the third quarter of fiscal 2025, primarily driven by expenses associated with new Best Buy Express locations. 20 Table of Contents International SG&A decreased in the first nine months of fiscal 2025, primarily driven by lower advertising expense and lower employee compensation expense, which was primarily incentive compensation. These decreases were partially offset by expenses associated with new Best Buy Express locations . International operating income rate decreased in the third quarter of fiscal 2025, primarily due to an unfavorable SG&A rate, partially offset by a favorable gross profit rate. International operating income rate decreased in the first nine months of fiscal 2025, primarily due to decreased leverage from lower sales volume, which resulted in an unfavorable SG&A rate, and an unfavorable gross profit rate. Consolidated Non-GAAP Financial Measures Reconciliations of operating income, effective tax rate and diluted EPS (GAAP financial measures) to non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS (non-GAAP financial measures) were as follows ($ in millions, except per share amounts): Three Months Ended Nine Months Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Operating income $ 350 $ 354 $ 1,045 $ 1,013 % of revenue 3.7 % 3.6 % 3.8 % 3.5 % Intangible asset amortization (1) 5 15 16 56 Restructuring charges (2) (4) - 4 (16) Non-GAAP operating income $ 351 $ 369 $ 1,065 $ 1,053 % of revenue 3.7 % 3.8 % 3.9 % 3.7 % Effective tax rate 23.9 % 24.7 % 24.8 % 24.8 % Intangible asset amortization (1) (0.1) % - % - % 0.2 % Restructuring charges (2) - % - % - % (0.1) % Non-GAAP effective tax rate 23.8 % 24.7 % 24.8 % 24.9 % Diluted EPS $ 1.26 $ 1.21 $ 3.73 $ 3.57 Intangible asset amortization (1) 0.02 0.07 0.07 0.25 Restructuring charges (2) (0.02) - 0.02 (0.07) Loss on investments - 0.04 - 0.05 Gain on sale of subsidiary, net (3) - - - (0.10) Income tax impact of non-GAAP adjustments (4) - (0.03) (0.02) (0.04) Non-GAAP diluted EPS $ 1.26 $ 1.29 $ 3.80 $ 3.66 For additional information regarding the nature of charges discussed below, refer to Note 1, Basis of Presentation , Note 2, Restructuring, and Note 3, Goodwill and Intangible Assets , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q. (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 related to employee termination benefits and subsequent adjustments from higher-than-expected employee retention associated with enterprise-wide restructuring initiatives. (3) Represents the gain on sale of a Mexico subsidiary subsequent to our exit from operations in Mexico. (4) The non-GAAP adjustments primarily relate to the U.S. and Mexico. As such, the forecasted annual income tax charge on a portion of the U.S. non-GAAP adjustments is calculated using the statutory tax rate of 24.5%. There is no forecasted annual income tax for Mexico non-GAAP items and a portion of U.S. non-GAAP items, as there is no forecasted annual tax benefit/expense on the income/expenses in the calculation of GAAP income tax expense. Non-GAAP operating income rate decreased in the third quarter of fiscal 2025, primarily due to an unfavorable SG&A rate, partially offset by a favorable gross profit rate. Non-GAAP operating income rate increased in the first nine months of fiscal 2025, primarily due to a favorable gross profit rate in our Domestic segment , partially offset by an unfavorable SG&A rate . Non-GAAP effective tax rate decreased in the third quarter of fiscal 2025, primarily due to increased tax benefits from green energy incentives. Non-GAAP effective tax rate decreased in the first nine months of fiscal 2025, primarily due to increased tax benefits from green energy incentives, partially offset by reduced tax benefits from the resolution of tax matters and stock-based compensation. Non-GAAP diluted EPS decreased in the third quarter of fiscal 2025, primarily due to the decrease in non-GAAP earnings. Non-GAAP diluted EPS increased in the first nine months of fiscal 2025, primarily due to the increase in non-GAAP earnings. ‎ 21 Table of Contents Liquidity and Capital Resources We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, dividends, credit facilities, short-term borrowing arrangements and working capital management. We modify our approach to managing these variables as changes in our operating environment arise. 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. Cash and cash equivalents were as follows ($ in millions): November 2, 2024 February 3, 2024 October 28, 2023 Cash and cash equivalents $ 643 $ 1,447 $ 636 The decrease in cash and cash equivalents from February 3, 2024, was primarily due to dividend payments, capital expenditures and the timing and volume of inventory purchases and payments, partially offset by positive cash flows from operations, primarily driven by earnings. The increase in cash and cash equivalents from October 28, 2023, was primarily due to positive cash flows from operations, primarily driven by earnings, partially offset by dividend payments, capital expenditures and share repurchases . Cash Flows Cash flows were as follows ($ in millions): Nine Months Ended November 2, 2024 October 28, 2023 Total cash provided by (used in): Operating activities $ 561 $ 290 Investing activities (522) (600) Financing activities (892) (872) Effect of exchange rate changes on cash and cash equivalents (2) (12) Decrease in cash, cash equivalents and restricted cash $ (855) $ (1,194) Operating Activities The increase in cash provided by operating activities in the first nine months of fiscal 2025 was primarily driven by the timing and volume of inventory purchases and payments, partially offset by the timing of vendor funding receivables. Investing Activities Cash used in investing activities in the first nine months of fiscal 2025 decreased, primarily driven by lower capital spending. We currently expect capital expenditures to approximate $750 million in fiscal 2025 compared to $795 million in fiscal 2024. Financing Activities The increase in cash used in financing activities in the first nine months of fiscal 2025 was primarily driven by higher share repurchases. Sources of Liquidity Funds generated by operating activities, available cash and cash equivalents, our credit facilities, other debt arrangements and trade payables are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, share repurchases, dividends and strategic initiatives, including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. 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. We have a $1.25 billion five-year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks that expires in April 2028. There were no borrowings outstanding under the Five-Year Facility Agreement as of November 2, 2024, February 3, 2024, or October 28, 2023 . 22 Table of Contents Restricted Cash Our liquidity is also affected by restricted cash balances that are primarily restricted to cover product protection plans provided under our membership offerings and self-insurance liabilities. Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was $295 million, $346 million and $423 million at November 2, 2024, February 3, 2024, and October 28, 2023, respectively. The decrease in restricted cash from February 3, 2024, and October 28, 2023, was primarily due to releases of product protection reserves based on claims and purchasing behaviors of customers participating in our membership offerings. Debt and Capital As of November 2, 2024, we had $500 million of principal amount of notes due October 1, 2028, and $650 million of principal amount of notes due October 1, 2030. 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 February 3, 2024, for additional information about our outstanding debt. Share Repurchases and Dividends We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors (“Board”). The payment of cash dividends is also subject to customary legal and contractual restrictions. 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. 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 $5.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under this authorization. Share repurchase and dividend activity were as follows ($ and shares in millions, except per share amounts): Three Months Ended Nine Months Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Total cost of shares repurchased $ 135 $ 128 $ 285 $ 278 Average price per share $ 95.43 $ 71.61 $ 87.19 $ 74.16 Total number of shares repurchased 1.4 1.8 3.2 3.7 Regular quarterly cash dividend per share $ 0.94 $ 0.92 $ 2.82 $ 2.76 Cash dividends declared and paid $ 202 $ 201 $ 607 $ 603 The total cost of shares repurchased increased in the third quarter and first nine months of fiscal 2025, primarily due to an increase in the average price per share, partially offset by a decrease in the volume of repurchases. We currently expect total share repurchases of up to $500 million in fiscal 2025. Cash dividends declared and paid increased during the third quarter and first nine months of fiscal 2025, due to the increase in the regular quarterly cash dividend per share, partially offset by fewer shares outstanding. 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 November 2, 2024, 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 2024. See our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, for additional information regarding our off-balance-sheet arrangements and contractual obligations. Significant Accounting Policies and Estimates We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, and our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2024. ‎ 23 Table of Contents New or Recently Issued Accounting Pronouncements For a description of applicable new or recently issued accounting pronouncements, including our assessment of the impact on our financial statements, see Note 1, Basis of Presentation , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q. Safe Harbor Statement Under the Private Securities Litigation Reform Act Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as “anticipate,” “appear,” “approximate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “possible,” “project,” “seek,” “should,” “would,” and other words and terms of similar meaning or the negatives thereof. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, our operating model, new strategies and growth initiatives, the competitive environment, consumer behavior and other events. These statements involve a number of judgments and are subject to certain risks and uncertainties, many of which are outside the control of the Company, that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A, Risk Factors , of our most recent Annual Report on Form 10-K, and any updated information in subsequent Quarterly Reports on Form 10-Q, for a description of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: macroeconomic pressures in the markets in which we operate (including but not limited to recession, inflation rates, fluctuations in foreign currency exchange rates, limitations on a government’s ability to borrow and/or spend capital, fluctuations in housing prices, energy markets, jobless rates, the imposition of tariffs, trade wars and effects related to the conflicts in Eastern Europe and the Middle East or other geopolitical events); catastrophic events, health crises and pandemics; susceptibility of the products we sell to technological advancements, product life cycle fluctuations and changes in consumer preferences; competition (including from multi-channel retailers, e-commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers and in the provision of delivery speed and options); our ability to attract and retain qualified employees; changes in market compensation rates; our expansion into health and new products, services and technologies; our focus on services as a strategic priority; our reliance on key vendors and mobile network carriers (including product availability); our ability to maintain positive brand perception and recognition; our ability to effectively manage strategic ventures, alliances or acquisitions; our ability to effectively manage our real estate portfolio; inability of vendors or service providers to perform components of our supply chain (impacting our stores or other aspects of our operations) and other various functions of our business; risks arising from and potentially unique to our exclusive brands products; risks associated with vendors that source products outside of the U.S.; our reliance on our information technology systems, internet and telecommunications access and capabilities; our ability to prevent or effectively respond to a cyber-attack, privacy or security breach; product safety and quality concerns; changes to labor or employment laws or regulations; risks arising from statutory, regulatory and legal developments (including statutes and/or regulations related to tax or privacy); evolving corporate governance and public disclosure regulations and expectations (including, but not limited to, cybersecurity and environmental, social and governance matters); risks arising from our international activities (including those related to the conflicts in Eastern Europe and the Middle East, fluctuations in foreign currency exchange rates, the imposition of tariffs and trade wars) and those of our vendors; failure to effectively manage our costs; our dependence on cash flows and net earnings generated during the fourth fiscal quarter; pricing investments and promotional activity; economic or regulatory developments that might affect our ability to provide attractive promotional financing; constraints in the capital markets; changes to our vendor credit terms; changes in our credit ratings; and failure to meet financial-performance guidance or other forward-looking statements. We caution that the foregoing list of important factors is not complete. Any forward-looking statements speak only as of the date they are made and we assume no obligation to update any forward-looking statement that we may make.