01—Abstract
Summary
Summary of the 10-Q filed September 1, 2023. Cited figures are marked; the original filing is the authoritative source.
Best Buy Co., Inc. reported results for the second quarter of fiscal 2024 (ended July 29, 2023) in this Form 10-Q filed September 1, 2023.
Revenue was $9.58 billiona for the quarter, down 7.2% from $10.33 billion, and $19.05 billion for the first six months, down 9.2%. Comparable sales declined 6.2% in the quarter and 8.2% for the six months. Gross profit rose to 23.2% of revenue from 22.1% in the prior-year quarter, while SG&A rose to 19.6% of revenue from 18.2%, leaving operating income roughly flat at $348 million versus $371 million.
Net earnings were $274 millionb, or $1.25 per diluted share, compared with $306 million, or $1.35 per diluted share, a year earlier. Management attributed the sales decline to a challenged consumer electronics industry affected by pull-forward of demand in prior years, higher spending outside the home, high inflation and rising interest rates, and expects consumer electronics sales to decline again in fiscal 2024. Cash and cash equivalents were $1.09 billion at July 29, 2023, down from $1.87 billion at January 28, 2023.
Operating cash flow for the first six months was $181 millionc, compared with a use of $709 million a year earlier, driven mainly by inventory and payables timing. Capital expenditures were $395 million for the six months, and management expects fiscal 2024 capital expenditures of approximately $850 million. Shareholders' equity was $2.84 billion, and the company repurchased $150 million of stock in the first half, with $3.98 billion of the $5.0 billion authorization remaining as of July 29, 2023 (the filing also notes $3.975 billion in the Item 2 table).
The company also completed the sale of a Mexico subsidiary after exiting Mexican operations, recognizing a $21 milliond gain. The company's credit ratings were unchanged, at BBB+ (Stable) from S&P and A3 (Stable) from Moody's. The filing states that the company plans to close 20 to 30 large-format Best Buy stores and expand Outlet Centers to approximately 25 by the end of fiscal 2024, and that it has no material future restructuring charges expected from its fiscal 2023 resource optimization initiative.
02—Key points
Key Highlights
- Revenue fell 7.2% to $9.58 billion in Q2 fiscal 2024; comparable sales declined 6.2%, with the Domestic segment comparable sales down 6.3%.
- Net earnings were $274 million ($1.25 diluted EPS) versus $306 million ($1.35) a year earlier; non-GAAP diluted EPS was $1.22 versus $1.54.
- Gross profit rate rose to 23.2% of revenue from 22.1%, while SG&A rose to 19.6% of revenue from 18.2%, leaving operating income at $348 million versus $371 million.
- Operating cash flow improved to $181 million for the first six months from a $709 million use a year earlier, primarily due to inventory and payment timing.
- Cash and cash equivalents declined to $1.09 billion from $1.87 billion at fiscal year-end, and long-term debt totaled $1.15 billion, with no borrowings under the $1.25 billion revolving credit facility.
- Management expects fiscal 2024 capital expenditures of about $850 million and plans to continue share repurchases, with the level slightly higher in the second half.
- Credit ratings were unchanged at BBB+ (S&P, Stable) and A3 (Moody's, Stable).
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Best Buy kept $0.03.
- Revenue$9.58B100.0%
- Cost of revenue−$7.36B76.8%
- Gross profit$2.22B23.2%
- Operating costs−$1.87B19.5%
- Operating income$348.0M3.6%
- Interest, other & tax−$74.0M0.8%
- Net income$274.0M2.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed September 1, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $9.58B$10.33B | −7.2% |
| Cost of Revenue | $7.36B$8.04B | −8.4% |
| Gross Profit | $2.22B$2.29B | −2.9% |
| SG&A Expenses | $1.88B$1.88B | −0.2% |
| Operating Income | $348.00M$371.00M | −6.2% |
| Interest Expense | $12.00M$7.00M | +71.4% |
| Net Income | $274.00M$306.00M | −10.5% |
| EPS (Basic) | $1.25$1.36 | −8.1% |
| EPS (Diluted) | $1.25$1.35 | −7.4% |
| Shares Outstanding (Basic) | 218.60M225.40M | −3.0% |
| Shares Outstanding (Diluted) | 219.00M226.10M | −3.1% |
05—Questions
Frequently Asked Questions
Why did Best Buy's revenue and comparable sales decline this quarter?
Management attributed the decline to a consumer electronics industry challenged by pull-forward of demand from prior years, increased spending outside the home on travel and entertainment, and macroeconomic pressures including high inflation and rising interest rates. Domestic comparable sales fell 6.3%, led by appliances (down 16.1%) and computing and mobile phones (down 6.4%).
How did profitability change despite the lower sales?
Gross profit rate improved to 23.2% of revenue from 22.1%, driven by favorable product margins and improved membership program financial performance. However, SG&A rose to 19.6% of revenue from 18.2% due to decreased leverage on fixed expenses and higher incentive compensation, and operating income fell to $348 million from $371 million.
What is the company's outlook for the rest of fiscal 2024?
The company stated it is preparing for consumer electronics industry sales to decline again this year and that macroeconomic headwinds will likely continue to pressure results. It expects capital expenditures of approximately $850 million for fiscal 2024, plans to close 20 to 30 large-format stores, and expects continued share repurchases.
How is the company's liquidity and balance sheet position?
Cash and cash equivalents were $1.09 billion at July 29, 2023, and the company had no borrowings under its $1.25 billion five-year revolving credit facility. Long-term debt consisted of $500 million of notes due 2028 and $650 million of notes due 2030, and the current ratio was unchanged at 1.0, while the debt-to-earnings ratio rose to 0.9 from 0.8 at fiscal year-end.
How much capital has the company returned to shareholders?
In the first six months, the company repurchased $150 million of common stock and paid $402 million in dividends. As of July 29, 2023, $4.0 billion of the $5.0 billion share repurchase authorization remained available, and the quarterly dividend was raised to $0.92 per share from $0.88.
06—Continue