Best Buy CEO Discusses Q3 2011 - Earnings Call Transcript
Best Buy Company Inc. (BBY)
Q3 2011 Earnings Call
December 14, 2010 10:00 am ET
Executives
Brian Dunn – Chief Executive Officer
James Muehlbauer – Chief Financial Officer
Michael Vitelli – Executive Vice President, President-Americas
Bill Seymour – Vice President, Investor Relations
Analysts
Gary Balter – Credit Suisse
Christopher Horvers – JPMorgan
Mitchell Kaiser – Piper Jaffray
Matthew Fassler – Goldman Sachs
David Strasser – Janney Montgomery Scott
Bradley Thomas – Keybanc Capital Markets
Greg Melich – ISI Group
Mike Baker – Deutsche Bank
Anthony Chukumba – BB&T Capital Markets
Presentation
Operator
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Good day ladies and gentlemen. Thank you for standing by. Welcome to Best Buy’s Third Quarter FY11 Earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the star followed by the one on your touchtone phone. If you would like to withdraw your question, please press the star followed by the two; and if you are using speaker equipment, please lift the handset before making your selection. This conference is being recorded today, Tuesday, December 14, 2010.
I would now like to turn the conference over to Bill Seymour, Vice President of Investor Relations. Please go ahead.
Bill Seymour
Thank you, Alicia. Good morning everyone and thank you for participating in our fiscal 2011 third quarter earnings conference call. We have two speakers for you today. First, Brian Dunn, our CEO will share his thoughts on the quarter and the rest of the year. Second, Jim Muehlbauer, our CFO will recap the financial performance, then provide you with our perspective on how the balance of the year will play out. And after our prepared remarks, I anticipate we will have ample time for questions.
Before I pass the call over to Brian, I’d like to take care of a few housekeeping items. First, we would like to request that callers limit themselves to a single question during the Q&A portion of the call so we can get to as many questions as possible during the next hour. Second, I’d like to remind you that the comments made by me or by others representing Best Buy may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management’s expectations. Third, as usual, the media are participating in this call in a listen-only mode. And lastly, I’d like to remind you that our fiscal 2010 first quarter results last year included restructuring charges which impacted our net earnings by $25 million or $0.06 per diluted share. The balance of our discussion on this morning’s call will exclude these charges. That means that the comparisons we make will be on an adjusted non-GAAP basis. For a comprehensive GAAP to non-GAAP reconciliation of our reported to adjusted results, please refer to the supplemental schedule in this morning’s news release.
With that, I’d like to turn the call over to Brian Dunn.
Brian Dunn
Good morning everyone and thanks for joining us on our third quarter earnings conference call. First I want to take this opportunity to thank our employees for their tremendous effort this quarter and during the Black Friday weekend, and I want to extend our sincere appreciation to our customers for shopping at Best Buy. I’d also like to wish everyone a Merry Christmas and happy holidays.
Our third quarter results fell short of our expectations in some respects, and I want to address that in detail; but I’d like to begin by emphasizing the many positive trends we’ve identified this year. These trends, which provide further validation of our strategic direction, gained powerful momentum in the third quarter.
Our growth in connections during the quarter led to continued gross margin strength. Margins were up 90 basis points in our domestic business driven primarily by the growth of Best Buy Mobile. Gross margin expansion is a key indicator of our progress in our Connected World strategy, and I’m pleased with the continued gross margin progress this year.
Central to our Connected World strategy is driving gross margin outside of our traditional hardware categories. As a proof point, we had strong connections revenue growth in Best Buy Mobile, computing and TV. Solutions as a percentage of our sales mix increased year-over-year driven by the strength in connections as well as services, accessories, and Black Tie Protection. Going forward, I expect that the growth of Best Buy Mobile as well as the continued momentum of our other Connected World initiatives will continue to drive our margin expansion.
Our expense control was tight in the quarter. Total Company SG&A was up only 1% year-on-year, which is good considering the lower sales than expected. Our in-store execution continues to be solid. Our international business maintained its momentum this year with performance to plan in the third quarter, and we continued to return cash to our shareholders, buying back more than $1.1 billion of stock this year.
Our sales in the U.S., however, were lower than we expected for the quarter, and as a result earnings were less than we anticipated. I’ll walk you through the reasons for this as we see them, starting with a few thoughts on Black Friday weekend.
Our employees in the field and our merchant and supply chain teams all performed at a high level of efficiency. For the weekend, our teams improved close rate, increased units per transaction, delivered a higher average ticket, and increased solutions as a percent of our sales, driven by connectivity. All of these year-on-year metrics were better for the weekend than they were for the whole quarter, which testifies to the razor-sharp focus of our associates.
Another bright spot was our online channel which had more than 40 million site visits from Thanksgiving through Cyber Monday and delivered low double-digit comp sales growth for the period.
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