| Revenue | Q2 FY15 | Q2 FY14 | ||||
| Revenue ($ in millions) | $8,896 | $9,266 | ||||
| Comparable sales % change1 | (2.7%) | (0.6%) | ||||
| Domestic Segment: | ||||||
| Comparable sales % change | (2.0%) | (0.4%) | ||||
| Comparable online sales % change | 22.0% | 10.5% | ||||
| International Segment: | ||||||
| Comparable sales % change | (6.7%) | (1.8%) | ||||
| Operating Income | Q2 FY15 | Q2 FY14 | ||||
| GAAP operating income as a % of revenue | 2.7% | 4.5% | ||||
| Non-GAAPoperating income as a % of revenue2 | 2.9% | 2.2% | ||||
| Diluted EPS | Q2 FY15 | Q2 FY14 | ||||
| GAAP diluted EPS from continuing operations | $0.42 | $0.69 | ||||
| Impact of net LCD settlements3 | $0.00 | ($0.43) | ||||
| Impact of non-restructuring asset impairments | $0.02 | $0.03 | ||||
| Impact of restructuring charges | $0.00 | $0.01 | ||||
| Impact of gain on sale of investments | $0.00 | ($0.03) | ||||
| Benefit of income tax impact of Best Buy Europe sale | $0.00 | $0.05 | ||||
| Non-GAAP diluted EPS from continuing operations2 | $0.44 | $0.32 | ||||
Joly continued, Like other retailers and as reflected in this quarters performance, we continued to see a shift in consumer behavior: consumers are increasingly researching and buying online. As a result, traffic to our brick and mortar stores continued to decline, yet our in-store conversion and online traffic continued to increase due to the execution of our Renew Blue strategy which is in direct alignment with this shift. Our Renew Blue strategy is designed to (1) grow our online business; (2) enhance our in-store customer experience; and (3) leverage our multi-channel capabilities; all to deliver to our customers great advice, service and convenience at competitive prices in the channel they want to be served.
During the quarter, we continued to make progress against this strategy, including (1) increasing our Net Promoter Score across channels by 400 basis points year-over-year; (2) improving our in-store experience by rolling out over 800 new Samsung and Sony home theater, 18 Pacific Kitchen and Home and 7 Magnolia Design Center stores-within-a-store; and (3) leveraging our new ship-from-store and digital marketing capabilities to drive a 22% increase in Domestic comparable online sales.
Joly concluded, Looking ahead, our goal is to continue to create a differentiated multi-channel customer experience such that every interaction customers have with us, regardless of channel, makes them a promoter of the Best Buy brand. In support of this, we will be intensifying our investments in customer-facing initiatives across both channels in the back half of the year.
Sharon McCollam, Best Buy EVP, CAO and CFO, commented, As Hubert remarked, industry-wide sales are continuing to decline in many of the consumer electronics categories in which we compete. We are also seeing ongoing softness in the mobile phone category ahead of highly-anticipated new product launches. Therefore, absent any change in these declining industry trends and with limited visibility to new product launch quantities, we continue to expect comparable sales to decline in the low-single digits in both the third and fourth quarters. From an operating income rate perspective, we are expecting the following business drivers versus last year in the third and fourth quarters: (1) a similar promotional competitive environment, with better internal promotional effectiveness; (2) a greater mix of online revenue that will put pressure on the overall operating income rate due to a higher mix of lower-margin hardware sales and lower attach rates on services and accessories; (3) continued industry softness and higher promotionality in Canada and China; and (4) a net positive impact from our Renew Blue SG&A and COGS expense reductions which will more than offset our structural pricing investments, the remaining negative impact of our new credit card agreement, and the new incremental investment of $10 to $15 million in Q3 and $30 to $35 million in Q4 versus our original plan to intensify the investments in customer-facing initiatives that Hubert just referenced (a total of $40 to $50 million or $.07 to $0.09 per diluted share in the second half of FY15). As such, and particularly in light of the fixed cost deleverage that would accompany an expected low single-digit comparable sales decline, we are expecting the non-GAAP operating income rate in Q3 and Q4 to increase in line with the year-over-year improvement that we saw in the first half. Additionally, the estimated diluted earnings per share impact of the known discrete tax items that we discussed last quarter continue to be in the ranges of flat to negative $0.01 in Q3 FY15 and negative $0.09 to $0.10 in Q4 FY15.
Domestic Segment Second Quarter Results
Domestic Revenue
Domestic revenue of $7.59 billion declined 2.4% versus last year. This decline was primarily driven by (1) a comparable sales decline of 2.0%; and (2) a revenue decline of $20 million, or 25 basis points, due to the less favorable economics of the new credit card agreement.
Domestic online revenue was $581 million and comparable online sales increased 22.0% due to (1) substantially improved inventory availability made possible by the chain-wide rollout of our ship-from-store capability that was completed in January 2014; (2) a higher average order value; and (3) increased traffic driven by greater investment in online digital marketing.
From a merchandising perspective, growth in gaming, computing, appliances and televisions was more than offset by declines in other categories, including mobile phones, tablets, and services.
Domestic Gross Profit Rate
Domestic gross profit rate was 23.4% versus 27.3% last year. Excluding prior year legal settlements discussed in the Q2 FY14 earnings release, non-GAAP Domestic gross profit rate was 23.4% versus 23.9% last year. This 50-basis point decline was primarily due to (1) a mix shift into the lower-margin gaming and computing categories; (2) structural investments in price competitiveness, particularly in accessories; and (3) a 20-basis point negative impact related to the less favorable economics of the new credit card agreement. These declines were partially offset by (1) an increased mix of higher-margin large screen televisions and (2) the realization of our Renew Blue cost reductions and other supply chain cost containment initiatives.
Domestic Selling, General and Administrative Expenses (SG&A)
Domestic SG&A expenses were $1.52 billion or 20.1% of revenue versus $1.70 billion or 21.9% of revenue last year. On a non-GAAP basis, Domestic SG&A expenses were $1.51 billion or 19.9% of revenue versus $1.66 billion or 21.3% of revenue last year. This 140-basis point (or $147 million) rate decline was primarily driven by (1) the realization of Renew Blue cost reduction initiatives; and (2) tighter expense management throughout the company.
International Segment Second Quarter Results
International Revenue
International revenue of $1.31 billion declined 12.1% versus last year. This decline was primarily driven by (1) a comparable sales decline of 6.7% driven by China, Canada, and Mexico; (2) the negative impact of foreign currency exchange rate fluctuations; and (3) the loss of revenue from large-format store closures in China.
International Gross Profit Rate
International gross profit rate was 21.1% versus 22.3% last year. This 120-basis point rate decline was primarily driven by our Canadian business due to increased promotional activity and an increased mix of the lower-margin gaming category.
International SG&A
International SG&A expenses were $291 million or 22.2% of revenue versus $334 million or 22.4% of revenue last year. On a non-GAAP basis, International SG&A expenses were $290 million or 22.1% of revenue versus $332 million or 22.3% of revenue last year. This 20-basis point (or $42 million) rate decline was primarily driven by Renew Blue cost reductions and tighter expense management in Canada, and to a lesser extent, in China.
Renew Blue Cost Reduction Initiatives Update
Since our Q1 FY15 earnings release, Renew Blue annualized cost reductions have increased an additional $40 million, bringing the total Renew Blue annualized cost reductions to $900 million ($670 million in SG&A expenses and $230 million in cost of goods sold). This $40 million in cost reductions ($25 million in SG&A and $15 million in cost of goods sold) is primarily driven by (1) efficiency improvements in the US and Canada; (2) supply chain efficiencies; and (3) lower costs associated with returns, replacements and damages.
Dividends
On July 3rd, 2014, the company paid a quarterly dividend of $0.17 per common share outstanding, or $59 million.
No comments:
Post a Comment