01—Abstract
Summary
Summary of the 10-K filed March 28, 2019. Cited figures are marked; the original filing is the authoritative source.
Best Buy Co., Inc. (BBY) reported fiscal 2019 (ended February 2, 2019) revenue of $42.88 billiona, up 1.7% from $42.15 billion in fiscal 2018, which included an extra week worth approximately $760 million of revenue.
Comparable sales grew 4.8%, with the Domestic segment contributing $39.30 billionb of revenue and the International segment $3.58 billion. GAAP operating income rose to $1.90 billion from $1.84 billion, and GAAP diluted EPS increased to $5.20 from $3.26, reflecting lower income tax expense after the Tax Cuts and Jobs Act's $283 million charge in fiscal 2018. Non-GAAP diluted EPS from continuing operations was $5.32, compared with $4.42 in fiscal 2018.
Gross profit rate declined to 23.2% from 23.4%, driven by higher supply chain costs and lower periodic profit-share revenue, partly offset by lower SG&A as a percentage of revenue (18.7% versus 19.0%). The company acquired GreatCall, Inc., a connected health services provider for aging consumers, on October 1, 2018, for net cash consideration of $787 millionc, and closed all 257 remaining U.S. Best Buy Mobile stand-alone stores. Cash and cash equivalents fell to $1.98 billion from $3.13 billion in cash, cash equivalents and short-term investments a year earlier, as the company repurchased $1.49 billion of stock and paid $497 million in dividends.
Operating cash flow was $2.41 billiond. In February 2019 the Board authorized a new $3.0 billion share repurchase program and raised the regular quarterly dividend from $0.45 to $0.50 per share. Management highlighted Best Buy 2020 priorities for fiscal 2020, including growing Total Tech Support membership, expanding the Health business and the In-Home Advisor program, and continuing supply chain transformation.
Cumulative annualized cost reductions reached $500 million toward a $600 million goal by the end of fiscal 2021. Key risks include competition from online and multi-channel retailers, dependence on a small number of large vendors (the five largest suppliers represented approximately 51% of merchandise purchased), and exposure to the fourth fiscal quarter holiday season, which generated a large proportion of revenue and earnings.
02—Key points
Key Highlights
- Revenue of $42.88 billion in fiscal 2019, up 1.7% from $42.15 billion, with comparable sales growth of 4.8%
- GAAP operating income of $1.90 billion (4.4% of revenue) and GAAP diluted EPS of $5.20, up from $3.26 in fiscal 2018; non-GAAP diluted EPS of $5.32 versus $4.42
- Gross profit rate declined to 23.2% from 23.4%, primarily due to higher supply chain costs and lower profit-share revenue; SG&A rate improved to 18.7% from 19.0%
- Acquired GreatCall, Inc. on October 1, 2018 for $787 million net of cash acquired, expanding the health and wellness offering for aging consumers
- Domestic online revenue reached $6.53 billion, up 10.5% on a comparable basis, and represented 16.6% of Domestic segment revenue
- Returned $2.0 billion to shareholders through share repurchases ($1.49 billion) and dividends ($497 million); new $3.0 billion repurchase authorization and quarterly dividend increased to $0.50 per share
- Cash and cash equivalents decreased to $1.98 billion; the company was in compliance with all financial covenants on its $1.25 billion revolving credit facility, which had no borrowings outstanding
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Best Buy kept $0.03.
- Revenue$42.88B100.0%
- Cost of revenue−$32.92B76.8%
- Gross profit$9.96B23.2%
- Operating costs−$8.06B18.8%
- Operating income$1.90B4.4%
- Interest, other & tax−$436.0M1.0%
- Net income$1.46B3.4%
Where FY2019 revenue went
$42.88B- Cost of revenue: $32.92B, 77% of revenue
- SG&A: $8.02B, 19% of revenue
- Net income: $1.46B, 3.4% of revenue
- Interest, other & tax: $436.0M, 1.0% of revenue
Kept 3.4% as net incomeNet income $1.46B · 3.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed March 28, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $42.88B$42.15B | +1.7% |
| Cost of Revenue | $32.92B$32.27B | +2.0% |
| Gross Profit | $9.96B$9.88B | +0.9% |
| SG&A Expenses | $8.02B$8.02B | −0.1% |
| Operating Income | $1.90B$1.84B | +3.1% |
| Interest Expense | $73.00M$75.00M | −2.7% |
| Net Income | $1.46B$1.00B | +46.4% |
| EPS (Basic) | $5.30$3.33 | +59.2% |
| EPS (Diluted) | $5.20$3.26 | +59.5% |
| Shares Outstanding (Basic) | 276.40M300.40M | −8.0% |
| Shares Outstanding (Diluted) | 281.40M307.10M | −8.4% |
05—Questions
Frequently Asked Questions
How did Best Buy's profitability change in fiscal 2019 compared with fiscal 2018?
GAAP operating income rose to $1.90 billion from $1.84 billion, and operating income as a percent of revenue remained at 4.4%. GAAP diluted EPS increased to $5.20 from $3.26, largely because fiscal 2018 included $283 million of provisional tax expense from the Tax Cuts and Jobs Act. Income tax expense fell to $424 million from $818 million, and the effective tax rate was 22.4% versus 45.0%.
What drove the revenue growth in fiscal 2019?
Consolidated revenue increased 1.7%, comprising a 4.4% comparable sales impact, a 2.5% negative impact from non-comparable sales (mainly the extra week in fiscal 2018 and net store closures), and a 0.2% negative impact from foreign currency. Domestic comparable sales growth was led by Appliances (9.9%) and Services (7.7%), while Computing and Mobile Phones, the largest category at 44% of Domestic revenue, grew 4.2%.
What is the impact of the GreatCall acquisition and the Best Buy Mobile closures?
Best Buy acquired GreatCall on October 1, 2018 for $787 million net of cash acquired, and goodwill of $490 million was assigned to the Domestic segment. Goodwill rose to $915 million from $425 million. The company also closed all 257 remaining Best Buy Mobile stand-alone stores in the U.S. during the second quarter of fiscal 2019, recording $47 million of restructuring charges in the Domestic segment.
How much is Best Buy returning to shareholders, and what are its capital allocation plans?
In fiscal 2019 the company repurchased 21.2 million shares for $1.49 billion and paid $497 million in dividends. On February 23, 2019, the Board authorized a new $3.0 billion share repurchase program with no expiration date, superseding the prior $5.0 billion program, which had $1.5 billion remaining. The regular quarterly dividend was increased to $0.50 per share from $0.45.
What are the main risks identified for investors?
The filing cites intense competition from multi-channel and online retailers, which pressures pricing and margins, and reliance on key vendors: the 20 largest suppliers accounted for approximately 64% of merchandise purchased, and five suppliers (Apple, Samsung, Hewlett-Packard, Sony and LG) for approximately 51%. Other risks include dependence on the fourth fiscal quarter holiday season, supply chain and information technology disruptions, the evolving CCPA privacy regime, and exposure to labor cost increases.
06—Continue