01—Abstract
Summary
Summary of the 10-K filed April 2, 2018. Cited figures are marked; the original filing is the authoritative source.
Best Buy Co., Inc. reported fiscal 2018 (53 weeks ended February 3, 2018) revenue of $42.15 billiona, up 7.0% from $39.40 billion in fiscal 2017, with comparable sales growth of 5.6%.
Operating income was $1.84 billionb, roughly flat versus $1.85 billion in fiscal 2017, as the operating income rate fell to 4.4% of revenue from 4.7%. Net earnings from continuing operations declined to $999 million ($3.26 diluted EPS) from $1.21 billion ($3.74) in fiscal 2017, primarily due to $283 million of provisional tax expense from the Tax Cuts and Jobs Act, along with $80 million of a one-time employee bonus and a $20 million charitable contribution tied to tax reform. Non-GAAP diluted EPS from continuing operations was $4.42, versus $3.51 in fiscal 2017 per the filing's reconciliation.
The Domestic segment generated $38.66 billionc of revenue (up 6.7%), with online revenue reaching $6.0 billion, up 21.8% on a comparable basis. The company declared its Renew Blue transformation complete and introduced its Best Buy 2020: Building the New Blue strategy. On March 1, 2018, Best Buy announced it would close all 257 remaining U.S. Best Buy Mobile stand-alone stores, with pre-tax restructuring charges expected between $55 million and $65 million, and a 32% increase in the regular quarterly dividend to $0.45 per share.
Capital allocation remained shareholder-focused. The company repurchased 35.1 million shares for $2.0 billiond during fiscal 2018, had $3.0 billion remaining under its $5.0 billion February 2017 authorization, and announced intent to repurchase $1.5 billion in fiscal 2019.
Cash and short-term investments totaled $3.13 billion at year-end, down from $3.92 billion, and the company's current ratio was 1.3. The filing also notes that the fourth quarter, which includes the majority of the holiday season, generated approximately one-third of revenue and more than one-half of net earnings historically.
02—Key points
Key Highlights
- Revenue rose 7.0% to $42.15 billion, including approximately $760 million from the 53rd week; comparable sales grew 5.6%.
- Operating income was $1.84 billion, with the operating income rate declining to 4.4% from 4.7%, driven by lower gross profit rate and higher SG&A.
- Net earnings from continuing operations fell to $999 million ($3.26 diluted EPS) from $1.21 billion, mainly reflecting $283 million of Tax Act charges; non-GAAP diluted EPS from continuing operations was $4.42.
- Domestic online revenue reached $6.0 billion, up 21.8% on a comparable basis, representing 15.5% of Domestic revenue.
- Announced closure of all 257 remaining U.S. Best Buy Mobile stand-alone stores, with expected pre-tax restructuring charges of $55 million to $65 million.
- Repurchased $2.0 billion of stock (35.1 million shares) in fiscal 2018 and raised the quarterly dividend 32% to $0.45 per share, with $1.5 billion of repurchases planned for fiscal 2019.
- Year-end cash and short-term investments were $3.13 billion, and the company expects fiscal 2019 cash capital expenditures of $850 million to $900 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Best Buy kept $0.02.
- Revenue$42.15B100.0%
- Cost of revenue−$32.27B76.6%
- Gross profit$9.88B23.4%
- Operating costs−$8.03B19.1%
- Operating income$1.84B4.4%
- Interest, other & tax−$843.0M2.0%
- Net income$1.00B2.4%
Where FY2018 revenue went
$42.15B- Cost of revenue: $32.27B, 77% of revenue
- SG&A: $8.02B, 19% of revenue
- Net income: $1.00B, 2.4% of revenue
- Interest, other & tax: $843.0M, 2.0% of revenue
Kept 2.4% as net incomeNet income $1.00B · 2.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed April 2, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $42.15B$39.40B | +7.0% |
| Cost of Revenue | $32.27B$29.96B | +7.7% |
| Gross Profit | $9.88B$9.44B | +4.6% |
| SG&A Expenses | $8.02B$7.55B | +6.3% |
| Operating Income | $1.84B$1.85B | −0.6% |
| Interest Expense | $75.00M$72.00M | +4.2% |
| Net Income | $1.00B$1.23B | −18.6% |
| EPS (Basic) | $3.33$3.86 | −13.7% |
| EPS (Diluted) | $3.26$3.81 | −14.4% |
| Shares Outstanding (Basic) | 300.40M318.50M | −5.7% |
| Shares Outstanding (Diluted) | 307.10M322.60M | −4.8% |
05—Questions
Frequently Asked Questions
Why did net earnings decline despite revenue growth?
Net earnings from continuing operations fell to $999 million from $1.21 billion, mainly due to $283 million of provisional tax expense from the Tax Cuts and Jobs Act, including a $209 million deemed repatriation tax charge and a $74 million charge from revaluing deferred tax assets and liabilities. Fiscal 2018 also included an $80 million one-time employee bonus and a $20 million charitable contribution linked to tax reform, and the gross profit rate declined to 23.4% of revenue from 24.0%.
How is Best Buy's growth being driven?
Comparable sales grew 5.6%, led by Domestic comparable sales of 5.6% and International comparable sales of 6.3%. Online growth was a key driver, with Domestic online revenue up 21.8% on a comparable basis. Strong categories included Appliances (up 11.4% comparable in the Domestic segment) and Entertainment (up 12.6%, driven by gaming hardware).
What is changing in the store footprint?
Best Buy announced on March 1, 2018, its intent to close all 257 remaining U.S. Best Buy Mobile stand-alone stores, with most expected to close during the first half of fiscal 2019. The company expects pre-tax restructuring charges of $55 million to $65 million, primarily related to store lease terminations. The filing states that the mobile model has been integrated into core stores and the online channel.
How is Best Buy returning capital to shareholders?
In fiscal 2018, Best Buy repurchased and retired 35.1 million shares for $2.0 billion and paid $409 million in dividends. At February 3, 2018, $3.0 billion remained under the $5.0 billion February 2017 authorization. On March 1, 2018, the company announced plans to repurchase $1.5 billion of shares in fiscal 2019 and increased its regular quarterly dividend 32% to $0.45 per share.
What are the main risks highlighted in the filing?
The filing emphasizes intense competition from multi-channel and online retailers, dependence on a small number of key vendors (the 5 largest suppliers accounted for approximately 56% of merchandise purchased in fiscal 2018), reliance on a few mobile carriers, and the seasonal concentration of earnings in the fourth quarter. It also cites data security, supply chain disruption, and the potential impact of changes to credit ratings. Credit ratings at March 29, 2018 were BBB (S&P, Stable), Baa1 (Moody's, Stable), and BBB- (Fitch, Positive).
06—Continue