What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-19 compared with 2024-03-15 · 167 added, 151 removed, 258 unchanged (55% of the section changed)

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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 28, 2023, for discussion of the results of operations for the year ended January 28, 2023, compared to the year ended January 29, 2022, 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 February 3, 2024, for discussion of the results of operations for the year ended February 3, 2024, compared to the year ended January 28, 2023, 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 .

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 accomplish this by leveraging our combination of tech expertise 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 operations in the U.S.

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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, TechLiquidators and Yardbird;

and our Best Buy Health business, and includes the brand names Best Buy, Best Buy Ads, Best Buy Business, Best Buy Essentials, Best Buy Health, Current Health, Geek Squad, Imagine That, Insignia, Lively, My Best Buy, My Best Buy Memberships, 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 International segment is comprised of all operations in Canada under the brand names Best Buy, Best Buy Express, Best Buy Mobile, Geek Squad and TechLiquidators and the domain names bestbuy.ca and techliquidators.ca.

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

Fiscal 2024, fiscal 2023 and fiscal 2022 ended February 3, 2024, January 28, 2023, and January 29, 2022, respectively.

Unless otherwise noted, references to years in the MD&A section of this report relate to fiscal years, and not calendar years.

Fiscal 2024 included 53 weeks with the 53 rd week occurring in the fiscal fourth quarter.

Fiscal 2025, fiscal 2024 and fiscal 2023 ended on February 1, 2025, February 3, 2024, and January 28, 2023, respectively.

Fiscal 2025 and fiscal 2023 each included 52 weeks.

Fiscal 2024 included 53 weeks with the 53 rd week occurring in the fiscal fourth quarter.

Unless otherwise noted, references to years within the MD&A section of this report relate to fiscal years, not calendar years.

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

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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 online sales is included in comparable sales and represents sales initiated on a website or app, regardless of whether customers choose to have product delivered, or pick up product in store, curbside or at an alternative pick-up location.

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

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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 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 in fiscal 2024.

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.

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Non-GAAP Financial Measures

Beginning in the fourth quarter of fiscal 2025, we renamed our non-GAAP financial measures to adjusted financial measures;

for example, consolidated non-GAAP operating income has been renamed to consolidated adjusted operating income.

The methodology for calculating these measures remains unchanged, and therefore any previously reported non-GAAP financial measures that are renamed to corresponding adjusted financial measures remain unchanged.

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”).

(“GAAP”), as well as certain non-GAAP financial measures, such as consolidated adjusted operating income, consolidated adjusted operating income rate, consolidated adjusted effective tax rate and consolidated adjusted 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.

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

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

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We 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.

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

Business Strategy Update

During fiscal 2024, our teams once again delivered strong execution and showcased their ability to navigate through what continues to be a challenging environment for our industry, while keeping our customers and their experiences as our top priority.

We continue to balance the need to adjust in response to current industry sales trends with the need to invest in our business so that we can capitalize on opportunities as our industry moves through this downturn and returns to expected growth.

In fiscal 2024, digital sales comprised 33% of our Domestic revenue compared to 19% in fiscal 2020.

During these same time periods, the percentage of online sales picked up in our stores by our customers was consistent at just over 40%.

Therefore, we are continuing to adapt our omnichannel capabilities to ensure we maintain a leading position in an increasingly digital age and evolving retail landscape.

We believe our portfolio of stores are crucial assets that provide customers with differentiated experiences, services and convenient multichannel fulfillment.

At the same time, our stores need to be cost and capital efficient to operate while remaining a great place to work.

During fiscal 2024, we closed 24 large format stores and implemented 8 large format Experience store remodels.

As we look to fiscal 2025, we plan to invest back into our store experience.

Customer shopping behavior has evolved in the last four years, and in the near-term we are particularly focused on ensuring we provide the experience that customers expect to have when they take the time to come into our stores.

As a result, our capital investments for fiscal 2025 are concentrated more on existing store updates and refreshes and less on major remodels or store openings.

We continue to advance our omni-channel operating model to align with the ongoing evolution of our industry and marketplace trends with two overarching goals in mind – efficiently allocating our labor cost, considering the channel shift from our physical stores to online, and providing our employees flexibility, predictability and opportunities to gain more skills.

We are focused on balancing the amount of labor hours necessary to deliver the best experience possible for our customers and other stakeholders.

During fiscal 2024, we continued to grow our membership base and ended the year with a total of approximately seven million paid members.

Our paid members consistently showed higher levels of interaction, with comparatively higher levels of spend at Best Buy and a shift of spend away from competitors.

Last June, we successfully launched significant changes to our membership program that allow customers more freedom to choose a membership that fits their technology needs, budget and shopping preferences.

In addition, we expect the changes to provide more flexibility to evolve our programs while resulting in a lower cost to serve than our previous paid membership program, which we have already seen results in margin favorability.

Although there continue to be macro pressures impacting retail overall and consumer electronics more specifically, we expect fiscal 2025 to be a year of increasing industry stabilization as the pace of innovation increases and consumers begin to upgrade and replace technology products bought earlier in the pandemic.

Our strategy is to focus on sharpening our customer experiences and industry positioning while maintaining, if not expanding, our profitability.

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 navigate this vibrant, ever-changing and innovative space.

Our strategy for fiscal 2026 involves three key priorities:

Omni-channel enhancements

Starting with our digital experiences, we intend to improve our search and discover capability to make it easier for our customers to find what they want and need.

We will leverage artificial intelligence (“AI”) to launch an innovative new search experience across our websites and apps.

We will also leverage AI to enhance personalization, which we believe will drive both customer engagement and sales conversion.

In our physical stores, we expect to prioritize merchandising and store health and appearance updates over large-scale remodels, building on the insights we have gained from testing and changes implemented within our stores in recent years.

From a store labor perspective, we will focus on enhancements and optimization, building on the significant operating model changes we have made in recent years that were designed to provide the experience our customers expect in the most efficient way possible.

Investment in new growth initiatives

We are targeting a mid-fiscal 2026 launch for our new Best Buy Marketplace (“Marketplace”) within our Domestic segment, which we believe will complement our existing product assortment with access to a broader range of products offered by Marketplace sellers.

We believe this will unlock potential new commission and advertising revenue, without requiring our investment in inventory.

We have recently elevated our focus on Best Buy Ads, our retail media network, and we see fiscal 2026 as a pivotal year.

In recent years, Best Buy Ads has primarily served our merchandise vendors.

In fiscal 2026, we will continue this evolution and also expect Best Buy Ads to expand into other areas of opportunity.

In order to support this growth, we plan to invest in technology capabilities, our Best Buy Ads team and other new third-party partnerships.

Operational efficiency

Our third strategic priority for fiscal 2026 is to continue our longstanding commitment to operational efficiency by identifying cost reductions and other savings to help fund investment capacity for new and existing initiatives and offset financial pressures facing our business.

We enter fiscal 2026 facing significant uncertainty regarding the scope, timing and magnitude of tariffs we may experience for the products we sell and the consequent financial impact on our business.

In conjunction with our vendors, we will seek to mitigate the impact of tariffs on our business and our customers.

For more information regarding the potential impacts of tariffs on our business, refer to Item 1A, Risk Factors , of this Annual Report on Form 10-K.

Results of Operations

Consolidated Results

In fiscal 2025, we continued to manage our profitability through strong execution despite revenue declines.

As we entered the year, we were operating in an uneven environment and expected there would be industry pressure.

Our strategy was to focus on sharpening our customer experiences and industry positioning while optimizing our operating income rate.

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

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Restructuring charges

Goodwill impairment

Operating income

Operating income as a % of revenue

Diluted earnings per share

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

In fiscal 2024, we generated $43.5 billion in revenue, including approximately $735 million in revenue from the 53 rd week.

Our comparable sales declined 6.8% in fiscal 2024, as we continued to operate in a consumer electronics industry that is challenged by various macroeconomic pressures, including high inflation, increased spending outside the home in areas such as travel and entertainment, the pull-forward of demand in prior years and lower levels of product innovation .

In fiscal 2025, we generated $41.5 billion in revenue, compared to $43.5 billion in fiscal 2024 that included approximately $735 million in revenue from the 53 rd week.

Our comparable sales declined 2.3% in fiscal 2025, as we continued to operate in a challenged consumer electronics industry and experienced softer consumer demand.

While our comparable sales declined in fiscal 2025 in categories such as appliances, home theater and gaming, we grew comparable sales in our computing, tablet and services categories.

Restructuring charges in fiscal 2025 were primarily comprised of adjustments to employee termination benefits related to previously planned organizational changes and higher-than-expected employee retention associated with an enterprise-wide initiative that commenced in the fourth quarter of fiscal 2024.

Refer to Note 2, 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.

The goodwill impairment in fiscal 2025 was related to our Best Buy Health reporting unit.

The impairment primarily arose from downward revisions of our revenue growth rates and margin rates compared to projections used in prior years.

Refer to Note 3, Goodwill and Intangible Assets , 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.

Operating income rate decreased in fiscal 2025, primarily due to the goodwill impairment and unfavorable SG&A rate, partially offset by favorability in the gross profit rate and lower restructuring charges.

Diluted EPS decreased in fiscal 2025, primarily due to lower operating income.

Revenue, gross profit rate, SG&A and operating income rate changes in fiscal 2025 were primarily driven by our Domestic segment.

For further discussion of our Domestic and International segments, see Segment Performance Summary , below.

Store Summary

Stores open by segment were as follows:

February 1, 2025

February 3, 2024

January 28, 2023

Best Buy Outlet Centers

Pacific Sales

Total Domestic stores

Canada Best Buy stores

Canada Best Buy Mobile stand-alone stores

Total International stores

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 2026, we currently expect to reduce our Domestic segment Best Buy store count by approximately 5 to 10 stores.

In fiscal 2024, 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 and therefore excluded from our store count.

Under the arrangement, we provide the curated consumer electronics assortment and Geek Squad services, as well as supply chain, marketing and e-commerce support.

Bell Canada is the exclusive telecommunications services provider and is also responsible for the store operations.

By the end of fiscal 2025, all of the 167 stores have been rebranded.

Income Tax Expense

Income tax expense increased in fiscal 2024, primarily due to reduced benefits from the resolution of tax matters and stock-based compensation, partially offset by the impact of decreased pre-tax earnings.

Our effective tax rate increased in fiscal 2024, primarily due to reduced tax benefits from the resolution of tax matters and stock-based compensation, partially offset by the impact of lower pre-tax earnings.

Income tax expense decreased to $372 million in fiscal 2025 compared to $381 million in fiscal 2024, primarily due to the impact of decreased pre-tax earnings, partially offset by the impact of certain expenses that are not tax deductible.

Our effective tax rate increased to 28.7% in fiscal 2025 compared to 23.5% in fiscal 2024, primarily due to the impacts of certain expenses that are not tax deductible and lower pre-tax earnings, partially offset by increased tax benefits from green energy incentives.

Segment Performance Summary

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Gross profit as a % of revenue

SG&A as a % of revenue

Restructuring charges

Operating income

Operating income as a % of revenue

Adjusted SG&A (2)

Adjusted SG&A as a % of revenue (3)

Adjusted operating income (2)

Adjusted operating income as a % of revenue (4)

Selected Online Revenue Data

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

Domestic revenue was $40.1 billion in fiscal 2024, including approximately $675 million of revenue from the 53 rd week.

The decrease in Domestic revenue in fiscal 2024 was primarily driven by comparable sales declines in home theater, large appliances, computing and mobile phones, partially offset by comparable sales growth in gaming hardware.

(2) Represents Domestic segment Adjusted SG&A and Domestic segment Adjusted operating income as reported in accordance with the adoption of Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

See Note 1, Summary of Significant Accounting Policies , and Note13, Segment and Geographic Information , 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.

(3) Adjusted SG&A as a % of revenue is calculated as Domestic segment Adjusted SG&A divided by Domestic segment Revenue.

(4) Adjusted operating income as a % of revenue is calculated as Domestic segment Adjusted operating income divided by Domestic segment Revenue.

Domestic segment revenue decreased in fiscal 2025, primarily driven by comparable sales declines in appliances and home theater and by the extra week of revenue totaling approximately $675 million in fiscal 2024.

These decreases were partially offset by comparable sales growth in computing.

Online revenue of $13.0 billion decreased 0.8% on a comparable basis in fiscal 2025.

These decreases in revenue were primarily due to the factors 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:

‎ Fiscal Year

Outlet Centers

Pacific Sales

Total Domestic segment stores

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 close approximately 10 to 15 Best Buy stores.

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 7.8% comparable sales decline was driven primarily by computing, mobile phones and tablets.

The 3.4% comparable sales growth was driven primarily by computing and tablets.

• Consumer Electronics:

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• Entertainment:

The 9.7% comparable sales growth was driven primarily by gaming hardware.

The 8.7% 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 fiscal 2024, primarily due to improved financial performance from our membership offerings, which included higher services margin rates, and an improved gross profit rate from our Best Buy Health business.

Domestic SG&A decreased in fiscal 2024, primarily due to lower store payroll and advertising expense, partially offset by higher incentive compensation expense and the impact of the 53 rd week.

Domestic restructuring charges incurred in fiscal 2024 were primarily comprised of employee termination benefits related to an enterprise-wide initiative that commenced in the fourth quarter of fiscal 2024.

The restructuring initiative is intended to accomplish the following:

(1) align field labor resources with where customers want to shop to optimize the customer experience;

(2) redirect corporate resources for better alignment with our strategy;

and (3) right-size resources to better align with our revenue outlook in fiscal 2025.

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.

Domestic operating income rate decreased in fiscal 2024, primarily due to an unfavorable SG&A rate that was driven by decreased leverage from lower sales volume on our fixed expenses, partially offset by favorability in gross profit rate.

The 11.9% comparable sales decline was driven primarily by gaming.

The 8.4% comparable sales growth was driven primarily by growth in our delivery and installation services, as well as our membership programs.

Domestic segment gross profit rate increased in fiscal 2025, primarily due to improved financial performance from our services category, including our membership offerings, partially offset by lower product margin rates and lower profit-sharing revenue from our private label and co-branded credit card arrangement .

Domestic segment adjusted SG&A decreased in fiscal 2025, primarily due to lower employee compensation expense, which was primarily store payroll, the impact of the 53 rd week in fiscal 2024 and reduced vehicle rental costs.

These decreases were partially offset by higher advertising and technology expense .

Domestic segment adjusted operating income rate increased in fiscal 2025, primarily due to a favorable gross profit rate, partially offset by higher advertising and technology spend on lower sales, resulting in an unfavorable SG&A rate.

International Segment

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Gross profit as a % of revenue

SG&A as a % of revenue

Restructuring charges

Operating income

Operating income as a % of revenue

International revenue was $3.4 billion in fiscal 2024, including approximately $60 million of revenue from the 53 rd week.

The decrease in International revenue in fiscal 2024 was primarily driven by 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

Best Buy Mobile

Total International segment stores

Adjusted SG&A (1)

Adjusted SG&A as a % of revenue (2)

Adjusted operating income (1)

Adjusted operating income as a % of revenue (3)

(1) Represents International segment Adjusted SG&A and International segment Adjusted operating income as reported in accordance with the adoption of ASU 2023-07.

See Note 1, Summary of Significant Accounting Policies , and Note 13, Segment and Geographic Information , 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.

(2) Adjusted SG&A as a % of revenue is calculated as International segment Adjusted SG&A divided by International segment Revenue.

(3) Adjusted operating income as a % of revenue is calculated as International segment Adjusted operating income divided by International segment Revenue.

International segment revenue decreased in fiscal 2025, primarily driven by the negative impact of foreign exchange rates and by the extra week of revenue totaling approximately $60 million in fiscal 2024.

These decreases were partially offset by increased revenue from Best Buy Express locations .

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 0.9% comparable sales decline was driven primarily by computing, partially offset by comparable sales growth in mobile phones.

The 3.4% comparable sales growth was driven primarily by mobile phones.

• Consumer Electronics:

The 9.3% comparable sales decline was driven primarily by home theater and health and fitness.

The 3.3% comparable sales decline was driven primarily by home theater and smart home.

• Appliances:

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• Entertainment:

The 13.2% comparable sales growth was driven primarily by gaming hardware.

The 1.0% comparable sales growth was driven primarily by growth in our membership programs.

International gross profit rate decreased in fiscal 2024, primarily driven by lower product margin rates, partially offset by a higher mix of revenue from the higher-margin services category.

International SG&A increased in fiscal 2024, primarily due to higher incentive compensation expense and the impact of the 53 rd week, partially offset by the favorable impact of foreign currency exchange rates.

International restructuring charges incurred in fiscal 2024 were primarily comprised of employee termination benefits related to the enterprise-wide initiative that commenced in the fourth quarter of fiscal 2024.

International operating income rate decreased in fiscal 2024, primarily due to an unfavorable SG&A rate that was driven by decreased leverage from lower sales volume on our fixed expenses and an unfavorable gross profit rate.

The 13.3% comparable sales decline was driven primarily by gaming.

The 5.3% comparable sales growth was driven primarily by growth in our warranty services and membership programs.

International segment gross profit rate in fiscal 2025 remained unchanged from fiscal 2024 .

International segment adjusted SG&A decreased in fiscal 2025, primarily due to the favorable impact of foreign exchange rates and the impact of the 53 rd week in fiscal 2024, partially offset by expenses associated with new Best Buy Express locations.

International segment adjusted operating income rate in fiscal 2025 remained relatively unchanged from fiscal 2024.

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), respectively, were as follows ($ in millions, except per share amounts):

Reconciliations of consolidated operating income, effective tax rate and diluted EPS (GAAP financial measures) to consolidated adjusted operating income, adjusted effective tax rate and adjusted diluted EPS (non-GAAP financial measures), respectively, were as follows ($ in millions, except per share amounts):

Operating income

Restructuring - inventory markdowns (1)

Intangible asset amortization (1)

Restructuring charges (2)

Acquisition-related transaction costs (2)

Non-GAAP operating income

Goodwill impairment (3)

Adjusted operating income

Effective tax rate

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Restructuring charges (2)

Non-GAAP effective tax rate

Restructuring - inventory markdowns (1)

Goodwill impairment (3)

Adjusted effective tax rate

Intangible asset amortization (1)

Restructuring charges (2)

Goodwill impairment (3)

Gain on sale of subsidiary, net (4)

Loss on investments

Acquisition-related transaction costs (2)

Income tax impact of non-GAAP adjustments (5)

Non-GAAP diluted EPS

For additional information regarding the nature of charges discussed below, refer to Note 2, Acquisitions ;

Adjusted diluted EPS

For additional information regarding the nature of charges discussed below, refer to Note 1, Summary of Significant Accounting Policies ;

Note 2, Restructuring ;

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and Note 10, 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 and subsequent adjustments recorded within cost of sales associated with the exit from operations in Mexico.

(2) Represents charges associated with acquisitions, including:

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

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

(3) Represents restructuring charges primarily related to the Fiscal 2024 Restructuring Initiative, the Fiscal 2023 Resource Optimization Initiative and the Mexico Exit and Strategic Realignment.

(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 to previously planned organizational changes and higher-than-expected employee retention associated with enterprise-wide restructuring initiatives.

(3) Represents the non-cash goodwill impairment charge related to our Best Buy Health reporting unit.

(4) Represents the gain on sale of a Mexico subsidiary subsequent to our exit from operations in Mexico.

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

As such, the income tax charge on the U.S.

non-GAAP adjustments is calculated using the U.S.

statutory tax rate of 24.5%.

Non-GAAP operating income rate decreased in fiscal 2024, primarily due to unfavorable SG&A rates in our Domestic and International segments, partially offset by a favorable gross profit rate in our Domestic segment.

Non-GAAP effective tax rate increased in fiscal 2024, primarily due to reduced tax benefits from the resolution of tax matters and stock-based compensation, partially offset by the impact of lower pre-tax earnings.

Non-GAAP diluted EPS decreased in fiscal 2024, primarily driven by the decrease in non-GAAP operating income, partially offset by lower diluted weighted-average common shares outstanding.

As such, the income tax on a portion of the U.S.

non-GAAP adjustments is calculated using the statutory tax rate of 24.5%.

There is no income tax for a portion of the U.S.

non-GAAP adjustments, as there is no tax benefit on the expenses in the calculation of GAAP income tax expense .

Adjusted operating income rate increased in fiscal 2025, primarily due to a favorable gross profit rate in our Domestic segment, partially offset by an unfavorable SG&A rate in our Domestic segment.

Adjusted effective tax rate decreased in fiscal 2025, primarily due to increased tax benefits from green energy incentives.

Adjusted diluted EPS in fiscal 2025 remained unchanged from fiscal 2024, as the decrease in adjusted earnings was offset by lower diluted weighted-average common shares outstanding.

Liquidity and Capital Resources

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February 1, 2025

January 28, 2023

February 3, 2024

Cash and cash equivalents

The decrease in cash and cash equivalents in fiscal 2024 was primarily driven by dividend payments, capital expenditures and share repurchases .

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

The increase in cash and cash equivalents in fiscal 2025 was primarily due to positive cash flows from operations, primarily driven by earnings .

These increases were partially offset by dividend payments, capital expenditures and share repurchases.

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

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Effect of exchange rate changes on cash

Decrease in cash, cash equivalents and restricted cash

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

Operating Activities

The decrease in cash provided by operating activities in fiscal 2024 was primarily due to the timing and volume of inventory purchases and payments, higher income tax payments and lower earnings.

This was partially offset by lower incentive compensation payments in the current year as a result of less favorable fiscal 2023 results, and higher vendor funding collections.

Cash provided by operating activities increased in fiscal 2025, primarily driven by the timing and volume of inventory purchases and payments, partially offset by the timing of vendor funding receivables.

Investing Activities

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Financing Activities

The decrease in cash used in financing activities in fiscal 2024 was primarily driven by lower share repurchases.

Cash used in financing activities increased in fiscal 2025, primarily driven by higher 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 April 12, 2023, 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 entered into in May 2021 and scheduled to expire in May 2026, but was terminated on April 12, 2023.

The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in April 2028.

There were no borrowings outstanding under the Five-Year Facility Agreement as of February 3, 2024, or the Previous Facility as of January 28, 2023.

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

The financial covenants require us to maintain certain financial ratios.

As of February 3, 2024, we were in compliance with all financial covenants.

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 February 1, 2025, or February 3, 2024.

The Five-Year Facility Agreement contains a covenant that requires the company to maintain a maximum quarterly cash flow leverage ratio.

The Five-Year Facility Agreement contains customary default provisions, including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.

As of February 1, 2025, we were in compliance with all covenants.

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 13, 2024, remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, and are summarized below.

Our credit ratings and outlook as of March 17, 2025, remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, and are summarized below.

Rating Agency

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Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time.

Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position and changes in our business strategy.

Factors that can affect our credit ratings include, but are not limited to, changes in our operating performance;

the economic environment, regulatory and political environment;

conditions in the retail and consumer electronics industries;

our competitive standing within the industries we operate;

our financial position;

and changes in our business strategy.

If changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs.

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 other self-insurance liabilities.

Restricted cash, which is included in Other current assets on our Consolidated Balance Sheets, remained relatively stable in fiscal 2024, with balances of $346 million and $379 million as of February 3, 2024, and January 28, 2023, respectively.

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 Consolidated Balance Sheets, was $290 million and $346 million as of February 1, 2025, and February 3, 2024, respectively.

The decrease in restricted cash was primarily due to releases of product protection reserves based on claims and purchasing behaviors of customers participating in our membership offerings.

Capital Expenditures

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Share Repurchases and Dividends

We repurchase our common stock and pay dividends pursuant to programs approved by our Board.

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.

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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, which replaced the $5.0 billion share repurchase program authorized on February 16, 2021.

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.

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Cash dividends declared and paid

The total cost of shares repurchased decreased in fiscal 2024 from decreases in the volume of repurchases and the average price per share.

We currently expect to spend approximately $350 million on share repurchases in fiscal 2025.

The total cost of shares repurchased increased in fiscal 2025 from increases in the volume of repurchases and the average price per share.

Cash dividends declared and paid increased in fiscal 2025, primarily due to an increase in the regular quarterly cash dividend per share, partially offset by fewer shares outstanding.

On February 29, 2024 , we announced the Board’s approval of a 2% increase in the regular quarterly cash dividend to $0.94 per share.

Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities, remained unchanged at 1.0 as of February 3, 2024, and January 28, 2023.

Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings over the trailing twelve months increased to 0.9 as of February 3, 2024, compared to 0.8 at January 28, 2023, primarily due to lower net earnings.

On March 4, 2025 , we announced the Board’s approval of a 1% increase in the regular quarterly cash dividend to $0.95 per share.

Off-Balance-Sheet Arrangements and Contractual Obligations

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and Note 12, Contingencies and Commitments , 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) Purchase obligations include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased;

(1) Purchase obligations primarily include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased;

fixed, minimum or variable price provisions;

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Purchase obligations do not include agreements that are cancelable without penalty.

Additionally, although they do not contain legally binding purchase commitments, we included open purchase orders in the table above.

Additionally, although they do not contain legally binding purchase commitments, we include open purchase orders in the table above.

Substantially all open purchase orders are fulfilled within 30 days.

(2) Lease obligations exclude $118 million of legally binding fixed costs for leases signed but not yet commenced .

(2) Operating lease obligations exclude payments to landlords covering real estate taxes and common area maintenance.

These charges, if included, would increase total operating lease obligations by $0.7 billion as of February 1, 2025.

Operating lease obligations also exclude $19 million of legally binding fixed costs for leases signed but not yet commenced .

(3) Long-term debt obligations represent principal amounts only and exclude interest rate swap valuation adjustments.

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We receive funds from our merchandise vendors through a variety of programs and arrangements, primarily in the form of purchases-based or sales-based volumes and for product advertising and placement .

We recognize allowances based on purchases and sales as a reduction of cost of sales when the associated inventory is sold.

Allowances for advertising and placement are recognized as a reduction of cost of sales ratably over the corresponding performance period.

We recognize vendor allowances based on purchases and sales as a reduction of cost of sales when the associated inventory is sold.

Vendor allowances for advertising and placement are recognized as a reduction of cost of sales ratably over the corresponding performance period.

Funds that are determined to be a reimbursement of specific, incremental and identifiable costs incurred to sell a vendor's products are recorded as an offset to the related expense within SG&A when incurred.

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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 revenue 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.

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

DCF analysis requires 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 2024 and fiscal 2023.

For our Best Buy Domestic reporting unit, fair value is primarily derived from market data and exceeded carrying value by a substantial margin in fiscal 2025, fiscal 2024 and fiscal 2023.

Barring a fundamental, material deterioration of macroeconomic 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.

For fiscal 2024, the fair value of the Best Buy Health reporting unit exceeded its book value by approximately 30%, compared to approximately 40% in fiscal 2023.

The primary reason for the decrease in this excess was lower revenue projections.

Further declines in the excess of fair value over book value could arise in future years, which could lead to an impairment of goodwill.

Factors that drive this uncertainty include macro-economic conditions, the regulatory environment, competitor actions, technology changes and trends in the health and care sectors.

In fiscal 2025, we recorded a goodwill impairment of $475 million for the Best Buy Health reporting unit.

The impairment was identified during the fourth quarter as a result of our annual impairment review.

This coincides with our annual review of performance against financial and strategic goals, and the annual update of our budget and long-range financial projections.

Fair value for the Best Buy Health reporting unit is estimated primarily based on DCF analysis.

The impairment primarily arose from downward revisions of our revenue growth rates and margin rates compared to projections used in prior years, as the market has not scaled as we originally forecasted.

Our Best Buy Health reporting unit is subject to a greater level of uncertainty compared to our Best Buy Domestic reporting unit, since it operates in a more uncertain environment.

Factors that drive this uncertainty include macro-economic conditions, the regulatory environment, government funding programs, competitor actions, technology changes and other trends in the health and care sectors.

Changes in any of these factors could lead to further lowering our expectations, which could result in further goodwill impairment.

Inventory Markdown

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Markdown adjustments involve uncertainty because the calculations require management to make assumptions and to apply judgment about the expected revenue and incremental costs we will generate for selling current inventory.

Such estimates include the evaluation of historical recovery rates, as well as factors such as product type and condition, forecasted consumer demand, product lifecycles, promotional environment, vendor return rights and the expected sales channel of ultimate disposition.

Such estimates include the evaluation of historical recovery rates, as well as factors such as product type and condition, forecasted consumer demand, product lifecycles, promotional environment, regulatory actions, vendor return rights and the expected sales channel of ultimate disposition.

We also apply judgment in the assumptions about other components of net realizable value, such as vendor allowances and selling costs.

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Effect if actual results differ from assumptions

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected.

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A favorable tax settlement may reduce our effective income tax rate in the period of resolution.

See 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 for additional information.

Service Revenue

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A 10% change in the amount of services membership deferred revenue as of February 1, 2025, would have affected net earnings by approximately $43 million in fiscal 2025.

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 Total membership offering, which resulted in higher membership sales and the initial deferral of more revenue than under the previous offerings.

The level of services membership deferred revenue has remained relatively stable over the last three fiscal years.

New Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis