Best Buy (BBY)

Q4 2012 Earnings Call

March 29, 2012 10:30 am ET


Bill Seymour - Vice President of Investor Relations

Brian J. Dunn - Chief Executive Officer and Director

James L. Muehlbauer - Chief Financial Officer, Executive Vice President of Finance and Chief Financial officer of Best Buy U S

Michael A. Vitelli - President of U.S. Operations and Executive Vice President


Gregory S. Melich - ISI Group Inc., Research Division

Daniel T. Binder - Jefferies & Company, Inc., Research Division

Kate McShane - Citigroup Inc, Research Division

Gary Balter - Crédit Suisse AG, Research Division

David A. Schick - Stifel, Nicolaus & Co., Inc., Research Division

Alan M. Rifkin - Barclays Capital, Research Division

Peter J. Keith - Piper Jaffray Companies, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division



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Ladies and gentlemen, thank you for standing by. Welcome to the Best Buy's Conference Call for the Fourth Quarter of Fiscal 2012. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available by 12 p.m. Eastern Time today. [Operator Instructions] I would now like to turn the conference call over to Bill Seymour, Vice President of Investor Relations. Please go ahead.

Bill Seymour

Thank you. Good morning, everyone. Thank you for joining us on our fiscal fourth quarter 2012 conference call. We have 2 speakers today: Brian Dunn, our CEO; and Jim Muehlbauer, our CFO. And after our prepared remarks, we should have plenty of time for your questions.

A few items before we get started. As usual, the media are participating in this call on a listen-only mode. Let me remind you that 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.

Today's call is scheduled to be 1.5 hours to accommodate the material we are presenting today. We will be showing slides today on the webcast that run concurrently with our presentation, starting after Jim's initial comments. You can also download these slides on our IR site.

As previously announced on November 7, 2011, we began reporting net operating results of certain discontinued operations in our fiscal fourth quarter, primarily related to the Best Buy store closures in the U.K., China and Turkey. You'll find, on our IR site, a file that reconciles the fourth quarter and fiscal 2012 financials from continuing ops to financials that include discontinued ops.

You will also note that our reported results this morning include non-GAAP financial measures, excluding approximately $2.6 billion in charges associated with the purchase of CPW's share of the Best Buy Mobile profit share agreement and related costs; the Best Buy Europe goodwill impairment and restructuring charges, which are largely related to the activities announced on November 7. These results should not be confused with the GAAP numbers we reported this morning in our earnings release or the GAAP numbers we will report in our 10-K. In addition, the 2012 fiscal year adjusted earnings and adjusted earnings per share we'll be discussing today exclude the aforementioned items, as well as the gain on sale of investments previously discussed in Q3. For a GAAP to non-GAAP reconciliation of our reported to adjusted results and guidance, please refer to the supplemental schedules in this morning's news release.

We also refer to free cash flow in today's results in our discussion today. Our definition of free cash flow is operating cash flow minus CapEx.

Finally, as you recall, we are changing our fiscal year, beginning in the first quarter of fiscal 2013. To assist you in your modeling, we have provided a file on our IR site today that provides fiscal 2011 and fiscal 2012 financial statements recast for the new fiscal year with the relevant reconciliations.

With those items out of the way, I'd like to turn the call over to Brian.

Brian J. Dunn

Good morning. I'd like to begin by providing an overview of several of the key items we announced today. First, our Q4 and full year results show that we finished relatively strong and delivered adjusted earnings in the top half of our most recent guidance range. Also, as you recall, we took a number of important actions last year that we expect to pay off in the near and long term.

Despite these actions and results, I'm not satisfied with the pace or degree of improvement in our performance and transformation, especially given the opportunities we have in the marketplace. So today, we're announcing a series of significant steps to drive our transformation in 2013 and beyond, all focused on improving the customer experience and our financial performance. This includes taking $800 million out of our annual cost through fiscal 2015, closing 50 U.S. big box stores this year, opening 100 Best Buy Mobile stores, driving growth in e-commerce in China and improving our customers' experience, among other actions.

We believe that this set of actions will help drive benefits this year and improve earnings and returns over time. I'll come back in a few minutes to tell you more about our planned actions in the year ahead, but first, I'll ask Jim to provide a quick overview of our fourth quarter and the full year results. Here's Jim.

James L. Muehlbauer

Thanks. As Brian mentioned, our fourth quarter and annual earnings results finished in the upper half of our updated guidance expectations. The quarter's highlights included continued strength in our online channel, overall market share gains, strong growth in connectable products, continued focus on expense control and strong cash management.

As noted in our release, there are a large number of additional reporting items in FY '12, which resulted from the proactive measures we took during the year to improve the business. These items include the closure of unprofitable businesses, restructuring costs, the purchase of CPW's interest in the Best Buy Mobile profit-sharing agreement and taking certain noncash impairments.

As Bill mentioned, our release details our GAAP results and our adjusted results of continuing operations for the quarter and the year. You should refer to these numbers for complete information regarding our financial results. In order to be consistent with how we've discussed results all year long and how we have provided guidance and, consequently, to what you have -- likely have in your models, I'll focus my discussion today on our adjusted results of total operations. Specifically, this includes operations that were discontinued in FY '12 and excludes restructuring and other charges. I believe this will be the most straightforward and transparent way to evaluate our FY '12 performance against expectations.

For the year, total company revenue finished at $51.1 billion and comparable store sales declined 1.7%, each falling within the guidance ranges we provided all year long. Revenue dollars were at the low end of our range, while comparable store sales were right in the middle of our expectation of flat to down 3%.

Our Domestic comparable store sales results in the fourth quarter were led by the online channel, which continued to deliver strong revenue growth of approximately 20%, after being up a similar amount in Q3. Online growth was fueled by strong traffic growth and year-over-year improvement in conversion rate, driven by continued competitive pricing, an expanded assortment and free shipping promotions.

Looking at our overall product categories, the biggest positive sales drivers came from our connected product focus areas, including tablets and eReaders with low-triple-digit comps and mobile phones with a comp of 20%. The robust growth achieved in these product categories reflects our continued success where connectivity, innovation and customer demand was strong this year. Appliances also delivered strong growth during the quarter, with comparable store sales growth of more than 10%, driven by increased store labor investments and promotional enhancements to grow our share of this business.

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