Best Buy Co. Inc (BBY) — Q4 2019 Earnings Call Transcript

Thank you and good morning everyone. Joining me on the call today are Hubert Joly, our Chairman and CEO; and Corie Barry, our CFO. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earning release, which is available on our website, investors.bestbuy.com. Some of the statements we'll make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial conditions, business initiatives, growth plans, investments, and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current earnings release and our most recent 10-K for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. As a reminder, the fourth quarter we are reporting today includes 13 weeks compared to last year's 14-week quarter. We estimate the extra week last year was approximately $760 million in revenue and approximately $0.20 of non-GAAP diluted EPS. Last year's extra week is excluded from our comparable sales calculations. I will now turn the call over to Hubert.

Good morning everyone. And thank you for joining us. I will begin today with a review of our fourth quarter and our fiscal 2019 annual performance, will provide an update on our progress as we implement our Best Buy 2020, building the New Blue strategy. And I will discuss our priorities for fiscal 2020. I will then turn the call over to Corie for additional details on our quarterly results and our financial outlook. But first, we are very proud of the financial results we've just delivered. In the fourth quarter, we grew our Enterprise comparable sales by 3%, which is on top of 9% last year. We also expanded our non-GAAP operating income rate by 30 basis points and delivered non-GAAP diluted EPS of $2.72, which is up 23% compared to last year excluding the extra week on a reported basis. Including last year's extra week, our non-GAAP EPS was up 12%. On a full year basis, we grew our Enterprise comparable sales by 4.8% on top of 5.6% in fiscal 2018. This is the best two-year stacked comparable sales in 14 years. We expanded our operating income rate approximately 10 basis points and grew our non-GAAP EPS by 26% on a 52-week comparable basis. I note that with the annual revenue of $42.9 billion and non-GAAP operating income of $2 billion we just delivered, we essentially met our fiscal 2021 target provided at our Investor Day in 2017, two years earlier than we said we would. From a capital allocation standpoint, we returned $2 billion to our shareholders through dividends and share repurchases. And our non-GAAP return on invested capital now stands at 25.8%, indicating that our formula of investments in our future, revenue growth and cost takeout is producing very attractive returns. In addition to these strong financial results, during fiscal 2019, we also made significant progress implementing our Best Buy 2020 strategy to enrich lives through technology and further develop our competitive differentiation. Let me provide some highlights starting with our customers. Our customers are noticing the improved experience we provide them as they interact with us digitally, in stores, or in their homes. For the year, our Net Promoter Score increased more than 300 basis points and our brand love with our core customer segment also rose more than 300 basis points. We saw our customers increasingly interact with us across all of our channels, driving revenue growth in our stores, online, and in our in-home channel. I note in particular that 22% of the domestic business in Q4 came through the online channel. Our success with our customers is driven by the enthusiasm and the talent of our employees. Our employee engagement scores remain remarkably high, and we further reduced turnover rates in our stores to new record lows. Strategically, we've made progress in expanding what we do for our customers and how we interact with them. Here are a handful of examples. The first example is the launch of our Total Tech Support program. Having a service that provides members unlimited Geek Squad support for all their technology no matter where or when they brought it is a compelling and unique value proposition for our members. We continue to be pleased with the customer enrollment and ended the year with more than 1 million members. Another example is the expansion of our In-Home Advisor program. During fiscal 2019, we expanded the program from 300 to approximately 530 advisors and provided more than 175,000 free in-home consultations to customers across the nation. The revenue per order that we generate from these interactions continues to be much higher than in the store and online and it tends to have a higher gross profit rate as well due to the basket and higher attach rate of paid services. Both employees and customers love it, the Net Promoter Score is high and the advisor employee turnover is low. In health, we acquired a leading connected health services provider for aging consumers, GreatCall, and took a tangible step forward in our strategy to have seniors live longer in their homes with the help of technology. Since we acquired the company in October, the integration has been seamless, and the value creation opportunities we envision have begun to materialize. During fiscal 2019, we continued to elevate the customer experience around product fulfillment, enabled by the advancement of our supply chain transformation for small products through a combination of initiatives including expanded partnerships and automation. We continue to improve our speed of delivery to customers and expanded next-day and same-day delivery options. We now offer same-day delivery on thousands of items in 40 metro areas and next day in 60 metro areas. And of course, customers also have the option to pick up their products in our stores within one hour of placing their order. For large products like appliances and TVs, we expanded our distribution center capacity and brought locations closer to customers, which is driving significant improvements in the quality of our delivery and installation service. In parallel to the customer experience work, we continued to drive efficiencies and reduced costs in order to fund investments and offset pressures. During fiscal 2019, we achieved $265 million in annualized cost reductions and efficiencies, bringing the cumulative total to $500 million since Q2 fiscal 2018. This is towards our fiscal 2021 goal of $600 million, and since the launch of Renew Blue in 2012, we have now taken $1.9 billion of cost out. In addition to these accomplishments, we're very proud of our progress in advancing our corporate social responsibility and sustainability efforts. In fact, we were just named number one on Barron's annual 100 Most Sustainable Companies list. So in summary, we're very pleased with the results we are producing as we implement our Best Buy 2020 strategy, and I so appreciate the hard work of our associates as well as our partners in driving these terrific results. And I want to recognize them publicly here. So as we look forward, we are excited about the opportunities ahead of us. Before I say more about these, let me say a few words about the economic environment. There has been much discussion about the economy. I would note that the latest Bloomberg composite forecast, which aggregates a basket of economic forecasts calls for consumer spending to increase 2.7% in 2019, which is similar to 2018 levels, and another 2.1% in 2020. So on this basis, we expect to continue to operate in a positive consumer environment in 2019. Now beyond this, what drives our performance is primarily two factors: technology innovation and the relevance of our strategy and quality of our execution. In this context, we are excited by the opportunities related to technology innovation that has the potential to drive customer demand over the next several years. This kind of increase expanded penetration of existing technology, introduction of new technology in existing categories, and expansion of consumer technologies in new areas. Notably in existing categories like Home Theater, we see opportunities relating to increasing the penetration of large screen sizes 4K and OLED, and from the introduction of new technologies such as 8K. In mobile, we see new technology innovation in areas like wireless power, security, and accessibility. We're also excited to watch as foldable phones emerge over the next several months, and of course, we'll be actively participating in the rise of 5G, which has a potential to unlock very interesting use cases over the next several years. In computing, the interest in gaming continues to accelerate and the performance necessary for this is driving innovation across both hardware and accessories. We also see significant opportunities in Smart Home technology. Notably, the US retail market size of Internet of Things connected hardware is forecasted to triple by 2025. This growth is buoyed by products like Smart Home connected cameras, which according to a recent report from a consulting firm are expected to grow from 18% penetration of US homes in 2018 to more than 50% penetration by 2022. We also believe that digital health is an exciting area with enormous opportunities from the use of technology to help customers with their health, fitness, sleep, etc., across multiple age groups from babies to seniors. As an illustration of the opportunity, the number of digital health exhibitors at the Consumer Electronics Show in January was up almost 25% versus last year. The next reason we're excited about the opportunities ahead of us is we believe the purpose driving our strategy is extremely relevant. Our purpose is to enrich lives through technology by addressing key customer needs in areas such as entertainment, productivity, communications, food, security, and health and wellness. We are encouraged by the first steps we have taken in this direction and see the potential from expanding this focus to build deeper lasting customer relationships. In parallel to this, we continue to be excited by the potential for further cost reduction opportunities that can help us fund the investments in our strategy and offset pressures in the business. Finally, I am particularly excited by the power of our incredibly talented people, who are engaged, customer-oriented, and driven by our purpose and strategy. As you know, we've recently realigned senior roles, responsibilities, and resources to better align with the strategy, and we can already see this has the potential to accelerate our pace. Altogether, this gives us the sense that now is the time to play offense to play to win and to accelerate our transformation both from a customer and revenue standpoint and from an efficiency standpoint. So with this as a backdrop, let me talk about our priorities for fiscal 2020. At the highest level, our priorities to continue to transform the company in support of our purpose to enrich lives through technology by bringing to market solutions that solve real customer needs and by building customer relationships. As such, we will continue to expand what we do for customers. So as it relates to Total Tech Support, we plan to grow the member base and improve the experience by adding new capabilities around self-service and proactive support. We will continue to expand our health business by scaling both the GreatCall consumer devices and services and the commercial monitoring service with a focus on the senior population. As children of aging parents, many of us would appreciate the potential power of our health monitoring service that enables seniors to live longer in their homes while reducing related healthcare costs. We're currently in pilots with a number of managed care organizations. And over time, we believe this could become a material growth opportunity for us. Now we're not the only company that is interested in the digital health space, but we believe our unique focus that combines our technology solution, our talent, and our ability to go to people's homes gives us a unique advantage. In support of our strategy, we'll continue to work with our vendor partners in new and expanded ways that leverage our unique capabilities to meet the needs of our customers. For example, we've partnered with several vendors to create offers for our Total Tech Support members, and many partners are engaged and in line to train, support, and create solutions for our In-Home Advisors. In parallel, we will continue to evolve the way we interact with our customers. In the home channel, we will continue to expand our In-Home Advisor program including adding advisors and investing in tools to maximize their productivity. Our In-Home Advisor program is just one of the ways that we deliver experiences in the home today. And so we are developing a holistic home channel strategy to leverage all of the ways we currently interact with customers in the home to create meaningful relationships and further differentiate Best Buy. From a digital standpoint, we'll continue to innovate and design multi-channel experiences that serve customer needs across our website, app, and other channels in ways that continue to improve the experience across online and physical shopping. We will continue with our supply chain transformation, including using technology, automation, and process improvements to expand fulfillment options, increase delivery speed, and improve delivery and installation. And we will continue to enhance both the proficiency of our associates and optimize the way they work in order to get stronger to drive stronger customer relationships and fulfill our customers' unique needs. In addition, as has been our brand over the last several years, we will keep driving cost reductions and efficiencies throughout the business. We've been on a run rate of more than $250 million in annualized reductions for the past two years. And we're not planning to slow down. So in conclusion, we are energized by our results, our momentum, and our opportunities as we implement our Best Buy 2020 strategy. As we look at our fiscal 2020 guidance, specifically we’re expecting comparable sales growth of 0.5% to 2.5%. This growth expectation is of course on top of the best two-year stack in 14 years and reflects factors such as the anticipated cyclical slowdown of the console gaming category and the continued maturation of the mobile phone category. We are again planning to hold our operating income rate constant reflecting our focus on balancing investments in our strategy, processing the business and efficiencies. We like the continued rate of technology innovation and the capabilities technology can bring to people's lives. We like our opportunity to offer customers a more consultative approach to truly address their needs, provide them an increasing range of services and solutions, expand our relationship with them, and become a bigger part of their lives. And we particularly like the opportunities we have in the connected house space following the acquisition of GreatCall. And now, I'd like to turn the call over to Corie for more details on our Q4 performance and our fiscal 2020 guidance.

Good morning, everyone. Before I talk about our fourth quarter results versus last year, I would like to talk about them versus the expectations we shared with you last quarter. On Enterprise revenue of $14.8 billion, we delivered non-GAAP diluted earnings per share of $2.72. The EPS result exceeded our expectations and our revenue performance was at the high end of our guidance range. From a product category standpoint, we saw better than expected comparable sales results in our wearable and gaming categories and lower than expected sales in mobile phones. Our operating income rate exceeded our expectations, primarily due to strong expense management. I will now talk about our fourth quarter results versus last year. As Mollie stated, this year's fourth quarter included 13 weeks, which compares to last year's 14-week quarter. We estimate the extra week last year was approximately $760 million in revenue and approximately $0.20 of non-GAAP diluted EPS. Enterprise comparable sales increased 3%. Revenue decreased 3.7% to $14.8 billion, primarily driven by the lapping of last year's extra week. Enterprise non-GAAP diluted EPS increased $0.30 or 12% to $2.72. This increase was primarily driven by higher operating income, a $0.22 per share benefit from the net share count change, and an $0.08 per share benefit driven by a lower non-GAAP effective income tax rate. These items were partially offset by non-GAAP diluted EPS of approximately $0.20 from the extra week last year. As we expected and shared with you last quarter, our comparable sales growth of 3% included a positive 50 basis point impact from the calendar shift. As a reminder, our reported comparable sales are computed on like-for-like fiscal weeks and are not shifted to more closely aligned calendar weeks following last year's 53-week year. In our Domestic segment, comparable sales increased 3% and revenue decreased 3.5% to $13.5 billion. This revenue decrease was primarily driven by lapping of last year's extra week and the loss of revenue from 257 Best Buy Mobile and 12 large format store closures in the past year. Partially offsetting these declines were the 3% comparable sales gains and revenue from GreatCall, which was acquired in our fiscal third quarter. From a merchandising perspective, the largest comparable sales growth drivers were wearables, appliances, which include both major and small appliances, Smart Home, and gaming. These drivers were partially offset by declines in our mobile phone category. Domestic online revenue of $2.96 billion was 21.9% of domestic revenue compared to 20% last year. On a comparable basis, our online revenue increased 9.3% on top of 17.9% growth in the fourth quarter of last year, primarily driven by higher conversion and increased traffic. In our International segment, comparable sales increased 2.5% and revenue decreased 5.2% to $1.3 billion. The increase was primarily due to the lapping of last year's extra week, and approximately 470 basis points of negative foreign currency impact. The comparable sales increase was driven by both Canada and Mexico. Turning now to gross profit, the Enterprise gross profit rate decreased 10 basis points to 22.2%. The Domestic gross profit rate was 22.1% versus 22.3% last year. The 20 basis point decline was driven primarily by an approximate 30 basis point negative impact from a lower periodic profit-sharing benefit from the company’s services plan portfolio and an approximately 30 basis point negative impact from higher supply chain costs, including both investments and higher transportation costs. The impact of the profit share was worse than expected, and the higher supply chain costs were in line with expectations. These pressures were partially offset by: One, the impact of GreatCall’s higher gross profit rate; Two, an improved gross profit rate in the services category, which included a refinement in the revenue recognition of the company's Total Tech Support offer; And three, improved product margin rate, which included the benefit of gross profit optimization initiatives. Regarding the revenue recognition refinement, we now have sufficient history of member utilization of the program to move from recognizing revenue on a straight-line basis over the membership contract to recognizing revenue on a usage basis, therefore, better matching the fulfillment cost with the revenue. This refinement of revenue recognition impacted new contracts created during our fiscal fourth quarter. This accelerated both revenue and gross profit recognition compared to our previous revenue recognition timing. This revenue recognition refinement was contemplated in the guidance we provided last quarter, but the actual impact was slightly more favorable than we had estimated in our initial usage analysis. The International non-GAAP gross profit rate increased 50 basis points to 22.9%, primarily due to a higher year-over-year gross profit rate in Canada, which was driven by improved gross profit rates in several product categories and increased revenue in the higher margin rate services category. These improvements were partially offset by an approximate 30 basis point negative impact from a lower periodic profit-sharing benefit and gross profit rate pressure in the mobile phone category. Now turning to SG&A, Enterprise non-GAAP SG&A was $2.29 billion or 15.5% of revenue, which decreased $150 million and 40 basis points to last year as a percentage of revenue. Domestic non-GAAP SG&A was $2.08 billion, or 15.4% of revenue versus $2.22 billion or 15.8% of revenue last year. The $134 million decrease was primarily due to the lapping of last year’s extra week and cost reduction. There were a number of other largely offsetting items as lower expenses associated with incentive compensation and stronger expense management were offset by: growth investments, which include specialty labor and higher depreciation expense; GreatCall operating expenses; and higher variable costs associated with increased revenue. International non-GAAP SG&A was $207 million or 15.9% of revenue versus $223 million or 16.2% of revenue last year. The $16 million decrease was primarily due to the favorable impact of foreign exchange rates, and lapping the extra week last year, which were partially offset by higher payroll and incentive-related expenses in Canada and the impact of new stores opened in Mexico in the past year. On a non-GAAP basis, the effective tax rate decreased to 24.6% from 27% last year. The lower effective tax rate was primarily due to the reduction in the US statutory corporate tax rate as a result of tax reform, partially offset by a larger benefit from the resolution of discrete tax matters in the prior year. As a reminder, the lower statutory tax rate became effective on January 1st, and was applied to our full quarter this year compared to approximately one month in last year's comparable quarter. From a cash flow perspective, we ended the year with a 4% higher inventory balance compared to last year, whereas our accounts payable increased 8%. The lower owned inventory position was primarily due to the timing of inventory receipts over the holiday season. In fiscal 2020, we will adopt a new standard for lease accounting. We anticipate the new standard will materially increase our assets and liabilities, but we expect it will have an immaterial impact on our net earnings. As it relates to capital allocation, our approach has not changed. Our strategy is to fund operations and investments in growth, including potential acquisitions, and then to return excess free cash flow over time to shareholders through dividends and share repurchases while maintaining investment grade credit metrics. We continue to target a non-GAAP dividend payout ratio between 35% and 45%. This morning, we announced that we increased our quarterly dividend 11% to $0.50 per share and provided an outlook for share repurchases of $750 million to $1 billion in fiscal 2020. We also announced that the Board of Directors approved a new share repurchase authorization of $3 billion, replacing the existing authorization from February 2017. I would now like to talk about our full year fiscal 2020 financial guidance. Enterprise revenue in the range of $42.9 billion to $43.9 billion; Enterprise comparable sales up 0.5% to 2.5%; Enterprise non-GAAP operating income rate of approximately 4.6%, which is flat to fiscal '19’s rate; Enterprise non-GAAP diluted EPS in the range of $5.45 to $5.65; a non-GAAP effective income tax rate of approximately 24.5%; and capital expenditures in the range of $850 million to $900 million. I would like to call out a number of assumptions reflected in our annual guidance. Our investments, in particular in specialty labor, technology, and increased depreciation related to strategic capital investments and ongoing pressures in the business will be partially offset by a combination of returns from new initiatives and ongoing cost reductions and efficiencies. Although there may be variations between quarters, our outlook for the full year assumes gross profit as a percent of revenue will be approximately flat to fiscal 2019 as continued investments in supply chain and higher transportation costs are offset by the higher margin rate of GreatCall. SG&A dollars are expected to grow as a percentage in the low single digits and be approximately flat as a percentage of revenues in fiscal 2019. The increased expenses of GreatCall and continued investments in technology and wages are expected to be partially offset by lower incentive compensation expense as we reset our performance targets to align with our fiscal 2020 expectations. As it relates to US tariffs on imports of certain products from China, we told you last quarter that we estimate a $200 billion lift that went into effect in September touches only about 7%, or around $2.3 billion of our total cost of goods sold. Our fiscal 2020 outlook assumes that the tariff stays at the current rate of 10%. I would also like to talk specifically about Q1, where we are expecting the following: Enterprise revenue in the range of $9.05 billion to $9.15 billion; Enterprise comparable sales growth of flat to 1%; Non-GAAP diluted EPS of $0.83 to $0.88; a non-GAAP effective income tax rate of approximately 22.5%; and a diluted weighted average share count of approximately 272 million shares. Finally, as Hubert referenced, we have essentially met our previous revenue and operating income target for fiscal 2021 two years early. We plan to host an Investor Day during our fiscal third quarter, where we will provide an update on the progress of our strategy and share more details on our mid-range financial goals. I will now turn the call over to the operator for questions.

So I think, first of all, great results and I think probably played better than people thought. But as we look at the outlook, one of the things that we've struggled with a lot with Best Buy is just how do we grow the business and look at the growth of the business going forward? I mean, obviously, the guidance is fairly de minimis growth on the EBIT line. How should we look at it, over a more multi-year period driving comps over a longer term? And what's that level? I mean, can we think of it as a 2% to 3% comp growth or is that still hard to do?

Thank you for the question and also the compliment on the results. The longer-term outlook, if you go back to the Investor Day that we had in the fall of 2017, we put an outlook out there that said we believe strongly we have the ability to grow in that low single digits range with flattish operating income at least in the mid-term with that point going through fiscal 2021. We delivered a bit ahead of that the last couple of years. Obviously, the guide over the next year is right in line with that. And given the environment, as Hubert talked about the amount of excitement we have about technology, the execution, and just how strongly we feel our strategy is positioned well with our customers, we feel like that line of thinking is appropriate as we look out at least through that 2021 range. And then obviously we'll update you more as we have our Investor Day in Q3 on how we're thinking about any longer term after that. But I think you've seen our guides are consistent with that point of view and we don't see anything in front of us that changes our belief in that trajectory.

Corie, I just want to dig into the margin guidance, so I can appreciate you guys want to stick to the flat EBIT margin year-on-year. However, going into this year, I was thinking you had some easier compares because the Total Tech Support launch was about 15 to 20 basis points of pressure, which was like in my clawback. So can you just walk us through that EBIT margin outlook in the face of these easy compares, what some of the offsets are?

Yes, absolutely. We wanted to ensure we achieved the financial targets we set at our Investor Day in the fall of 2017. While we recognize there's still room for growth in our strategic goals, specifically in enhancing customer solutions and relationships, we've begun that journey with initiatives like the IHA experience and TTS, as well as our early collaborations with GreatCall. However, we believe there is still significant work required to strengthen and establish these relationship-based offerings with our customers. We have planned additional investments since our discussions at Investor Day, knowing they would be necessary over time. Total Tech Support was one component of our investment strategy, launched last year, and ongoing investments in areas like supply chain and specialty labor in our stores are crucial for supporting our strategic goals. We understand that our mid-term outlook communicated in 2017 reflects a multi-year commitment to investment, and while Total Tech Support was one part of that, we anticipate more investments in the future. Of course, we are balancing these investments with ongoing cost reductions. Our aim is to maintain momentum in our investments because we believe in the positive impact they will have on creating unique customer experiences. Therefore, you can expect to see continued focus on this throughout FY '20, ultimately enhancing our customers' experiences.

In other words, Peter, this is a choice. We could decide to slow down the investments and increase the operating income rate. We believe the best way for us to create long-term value for our shareholders is to continue to play to win, invest in our future because we think the reward, the medium-term, long-term rewards of building this unique differentiation, these relationships, these solutions, is very exciting. And so that's why we're managing the business this way.

Okay. But can't argue with the returns you're getting thus far. I may bend the rules a little bit here. I just want to stick on that Total Tech Support. The comp in the services segment, nearly 14% was as high as I can remember. I'm curious if that was due to the change in the revenue recognition policy. And just as we play that forward, should those services kind of run at a above average rate for the next couple of quarters as a result of the change?

About half of the growth we observed in the services segment was due to the refinement in the revenue recognition policy. You can expect to see this continue for the next couple of quarters as we implement it over the past few years in a straight line. This will persist, but the positive aspect is that half of this growth indicates a strong and healthy expansion in the services business.

Thanks. Just looking to see if you could comment a bit further on the changes in the Total Tech Support offer. And then also with respect to the accounting change, Corie, you talked about the impact the next few quarters, will it benefit all of 2020 EBIT rate as it did in the fourth quarter?

So I'll start with the last question. It won't be the entire year because obviously we're going to lap the change necessarily when we get to Q4, so you'll see some of it as you run the early part of the year but you'll ultimately lap the change. Your first question was to expand a little bit on the change and exactly why we refined the methodology. Basically, we have sufficient history now. We've had the program long enough. We ran a full rollout last year around May. And once we have the sufficient history it was much easier for us to actually match the revenue with the actual usage, because we had enough history for us to know that customers were using it a bit more upfront than ratably over the life of the contract, which is how we were initially recognizing it. And so that means you pull a bit more of the revenue to match more precisely with the fulfillment cost early in the life of the contract versus ratably over the contract. We'll keep watching the usage and make sure we're continuing to match the revenue with the usage. Because the truth is, all the things the team is working on is to make sure people are using it more consistently over the life of the contract. And so I think you'll see us continue to tweak the offering and tweak what do those customers get in a way that will help us drive more consistent usage throughout the life of the contract, but for now we're really, it’s just a matching principle making sure that the revenue is in line with the fulfillment cost.

If the customers are front-loading the usage of Total Tech Support, is there a risk that data renewal rate could drop more than you would expect because they're probably not using Total Tech Support in maybe months 10, 11, and 12?

The renewal rates are aligning with our expectations. During my prepared remarks, I mentioned our commitment to enhancing the customer experience to foster stronger relationships. This includes increasing self-service options and providing proactive support, such as notifying you when a firmware upgrade is needed or offering tips to optimize your computer’s performance, as well as guidance on parental controls and security. Additionally, I discussed our efforts to expand vendor partnerships in new areas of service. We will keep innovating, as one of our key objectives is to deepen customer relationships in a way that makes them more enduring over time. Overall, we are in line with expectations, but there is potential for us to further develop our customer relationships.

So I just wanted to kind of take a step back because I was little looking through my notes. When we had this call a year ago, you're coming off of your best year in quite some time. You did that 9% comp in the fourth quarter of 2017. That was your best comp, I believe, in 13 years. And you got it to $4.80 to $5 a share on EPS and a zero to 2% comp for the full year. You did $5.32 in EPS and a 4.8% comp. And that was with flowing iPhone sales that was with Amazon carrying more Apple products. So I'm just trying to understand like clearly there's a lot that broke right in 2018. I would just love your comments just in terms of what went right in 2018 that maybe you weren't expecting or are you just being very conservative when you guided to the $4.80 to $5 and the zero to 2% comp.

At the beginning of the year, we discussed a few factors that actually materialized positively. We noted our concern that the gaming cycle might slow, especially after the strong results from the Switch. However, we did not foresee the impact of Fortnite and the social gaming trend, which significantly influenced not only console sales but also gaming-related products and peripherals. This surge was unexpected and represented a substantial shift from our initial projections. In terms of the broader business, as Hubert mentioned, we were excited about our position. There was an execution aspect regarding our strategy that initially didn't align with our early expectations. A favorable consumer environment certainly played a part, and alongside that, our improved execution in delivering relationship-based experiences across stores, homes, and online outperformed what we anticipated at the start of the year. When you combine a positive consumer landscape with enhanced execution and a faster pace of strategy implementation, it leads to unexpectedly strong results.

Can you break down your outlook, your comp outlook for 2020 in terms of what you expect the consumer electronics market to grow at and what you think your share gains are going to be in the year ahead? Also, you rolled out a new leasing program, lease to own, how much have you factored into your guidance that, that will contribute in the year ahead?

Let's begin with the first question regarding the industry's outlook. Over the past few years, there have been some fluctuations from quarter to quarter, but overall the industry has remained relatively stable or slightly improved. It's important to consider a broad view of the industry, which includes gaming, smartphones, appliances, and Apple products. There has been a slight upward trend. As mentioned by Hubert in his opening comments, we don't anticipate any significant changes in the industry's trajectory moving forward. Thus, we expect our results to remain within a similar range, possibly flat or with slight growth, which aligns with our guidance. Therefore, our market share could stay consistent or see minor gains throughout the year. Regarding the leasing program, we have been testing an expanded version in several markets and are pleased with the outcomes we've observed, leading us to extend this solution to more stores. This approach allows us to reach customers who may not have access to credit or our products otherwise, thereby expanding our customer base. This new initiative is reflected in our guidance, and we believe it will enhance the opportunities we can provide to a wider audience that may not typically have the chance to buy our products.

If I could just sneak one last question in. We're getting the question, what was the contribution from the accounting change around Total Tech Support in the fourth quarter?

So remember, not an accounting change. It is a refinement of how we're recognizing the revenue just to be very clear. We haven't called out exactly what the amount is, but I would think about it as roughly enough to kind of offset the impact that we saw or about half the impact that we saw from our warranty program. So the downside of the warranty, about half of that was offset by the upside from the refinement of the revenue recognition on Total Tech Support.

So can you help us understand how you're thinking about the impact of Apple's expanded distribution on a 1P basis to Amazon and Costco, obviously, they're an incredibly important partner of yours. And just trying to think about the potential dilutive impact of their expanded distribution on your business?

Yes, thank you, Scot. In our Q4 report, we recorded comparable store sales at the top end of our expected range of 3%, which included the effects of expanded distribution for Apple. We are pleased with this outcome. I want to emphasize that we collaborate closely with our key vendor partners to ensure that the customer experience we provide is distinctive and meets their expectations. Specifically, regarding Apple, we take pride in the experience we deliver both in our stores and through the 900 Apple Stores within our locations. We have 3,000 Apple experts on staff and have also broadened our partnership regarding services. We are likely the largest reseller of Apple Care and offer Apple service in some of our stores. As with all our key vendor partners, we will continue to innovate and develop our relationship in ways that align with their objectives and enhance the customer experience. We compete with some of the world's leading companies, which keeps our environment exciting. These advancements encourage us to keep progressing because we provide a unique customer experience and foster innovation for our customers.

Just to be clear it looks like mobile phones actually declined in the quarter. Is the expectation as we kind of roll through calendar '19, mobile is in kind of a perpetual decline situation or was this kind of like the initial impact and you guys expect to your share and obviously fail in mobile to continue to ramp?

To clarify, I want to differentiate between the mobile discussion and the expanded distribution discussion. The issue we are seeing in mobile is distinct. There has been a lot of commentary about the maturity of the mobile cycle, with longer replacement cycles for individuals purchasing mobile phones, and general softness in the market. We don’t believe this is primarily about losing market share due to distribution changes. Instead, it’s more about how frequently consumers are buying what are now very fashionable phones and replacing them. We have recognized this trend and adjusted our projections for next year accordingly. Our expectations for the mobile business have remained quite consistent over the last couple of years.

I wanted to follow up on the operating margin question, which is clearly a focal point. Corie, can you share how the operating margin expanded on a 52-week versus 52-week basis? Presumably, if it was up 30 against the 53-week or the 14-week, it would have been up something higher than that. The question for '19 is basically whether investments are accelerating, since it doesn't seem like the expense opportunity is slowing, or if the level of comp is perhaps the difference. If you achieved a 3% comp in '19, like you did in the fourth quarter, would you actually see operating margin expansion?

So for the year, if I were to adjust, FY19 versus FY18 on a 52 to 52 week basis, we have 10 basis points of operating income rate expansion. If you remember at the beginning year, we had guided flat on a 52-week basis, which would have been the 4.5%. We had 10 basis points of operating income rate expansion. And that was on a pretty significantly higher top-line than we expected, obviously, almost the 5% comp on the top-line. And so I think as you look into next year, obviously we gave you the range and we believe that will lead to a flattish operating income rate. I wouldn't say the investments have accelerated; I think it goes back to the original conversation we were having, which is we continue to make targeted investments in the places that we told you in the fall of '17 that will help us accelerate our progress on our initiatives. They are different really in pace than we had expected at the beginning. And we feel pretty comfortable that we actually like the pacing in they are in line with what we had thought at the time that we gave the original guidance. And so to your question, yes, if you massively outperform the top line, obviously, we may come back to you with a different economic equation. But from what we see in front of us, I feel pretty comfortable about what we're showing. It takes into account both the cost reductions we see in front of us and the investment profile.

Understood. As a follow-up, there's a lot of discussion about tax refunds. Can you remind us if the delays a few years ago had any impact on your business, and are you noticing anything now with tax refund amounts being lower year-over-year that would lead you to expect a recovery in the latter part of the quarter?

So it was two years ago we actually specifically commented, as to exact time, I remember the call distinctly, on there being a slowdown in the quantity of tax returns. In that year what we saw was actually most of that did come back to us and most of it back in Q1 as the quantity of tax returns evened out throughout the quarter. We're feeling a little bit of softness right now due to what has very clearly publicly been both a quantity of tax returns being down but also the amount for return right now is down. And what we're keeping an eye on is not as much even just the quantity question but also the amount for return and how that ultimately will impact our business over the quarter. The good news is at the end of the day, people will see reductions in their tax rates meaning their take-home pay throughout the year no matter what the amount of the return is in and of itself. So it kind of becomes a timing question throughout the year. But we're definitely watching and have incorporated some of those thoughts into the Q1 guide.

I would like to focus more on the lease to own program, specifically how much it is projected to generate. Additionally, I have a theoretical question about the decision to implement it. While I understand it’s helping, I am aware that there likely won’t be credit risk for you. However, this could be seen as a lower quality business model, and the process might be less sustainable since the customers often have difficulty qualifying for credit or tend to have lower incomes. Do you perceive any risks associated with this?

We are not going to disclose the exact figures included in our guidance, but we have provided some estimates. We tested this in a few markets, and importantly, this is a new group of customers who previously would not have been able to buy products from us. The agreements we have ensure that we do not take on long-term risk. This approach makes a lot of sense for us and even more sense for the customers. Our aim is to serve as many customers as possible and give them access to our products. These customers might not qualify for our existing credit offerings, and this new option allows them to potentially qualify for agreements with Best Buy, which they can pay off over time. We are passionate about this initiative as it opens the door for a completely new customer base. It's not just individuals with poor credit; there are also those with no credit history at all. This can serve as a starting point for them to build their credit, leading to a more substantial credit portfolio down the line. History indicates that very few, less than 1%, of these customers end up delinquent on their agreements. Overall, this is a valuable option that can help many individuals establish credit when they might otherwise struggle to do so.

So this is a customer acquisition play with catching people early on in their credit history and with a view to build relationships over time. So this is actually consistent with our overall strategy of helping customers, we are going to help more customers and allow them to neutralize with technology with a view of a relationship over time. This is not a deviation from the strategy. So we're excited about it, it makes sense from a customer standpoint and obviously from a financial standpoint as well.

And just really quick on the buyback, it looks like guidance is lower than what you did for this year. Is that just some conservatism? It does look like your cash flow probably would support more. So I'm just curious how to think about that?

Obviously behind the scenes we're always taking a look at the cash flow making sure we feel like we have a minimum level of cash that makes sense and would support us through a number of different scenarios. We clearly spent almost $1 billion last year on our GreatCall acquisition and so very in line with our capital allocation strategy. We've always said, we're first going to invest in the business either to fund operations or through acquisition. Second, premium dividend payer. And then third with that access, and by access we mean above and beyond whatever that minimum balance is we feel we need, we will then return that to shareholders and so that's in essence not that we did this year and we'll keep revisiting that every single year depending on the cash flow that we generate, that this seemed like the right amount given what has historically been our capital positioning.

I was wondering Hubert two questions real quick. The first one is just you talk about the customer relationship extensively on this call and creating that relationship with In-Home Advisors. And I was wondering now that the program has been out for well over a year, what efforts have you made in terms of monetizing the tale of that relationship throughout the year? Have you had some success there?

Yes, I believe we are still at the beginning of our journey to cultivate ongoing customer relationships. The In-Home Advisor program offers us an opportunity, and we are still learning and establishing our scale. As a retailer, we have traditionally focused on transactions and selling products. Transitioning to selling solutions and fostering relationships is still in its early phases for us, and while we are excited about the progress we have made, developing that institutional capability will take time. This includes adjusting our focus to new key performance indicators. Instead of just concentrating on transactions, growth rates, and basket size, as a retailer focused on customer relationships, we need to consider factors like the number of households in our local market, how many of those are Best Buy customers with whom we have established relationships, and our share of wallet. The magnitude of this change is significant, and it ties back to the investments we are making, including training and tools. We are just starting on this journey, and personally, I find it very exciting because the potential upside is clear, and we have yet to capture a substantial portion of it. We are still very early in this process.

Thanks for that. And then if I could squeeze one more in, just in terms of mobile, you brought up 5G and you brought up the foldable phone. Could you talk about how that could revitalize the category overall and potentially be a game changer, meaning it seems like with the ASPs of the foldable phone, you might be looking at something similar to historically how tablets impacted your business overall?

And with us on the call we have Mike Mohan, our Chief Operating Officer for the US business. And Mike is going to take that question and then we'll just wrap.

Thanks for the question, Matt. It's an exciting time to see what's happening in technology. Clearly, we have talked about the increasing price of all mobile devices. And so all of this new technology is going to have a fairly limited appeal from an acquisition standpoint, but an extremely high level of interest from consumers, what it can do for them, and how does it solve used cases. So what we're most excited about is showcasing the technology, inviting customers into our stores, onto our site, and even having some of the products in our In-Home Advisor when you go visit people so we can show people what we can do. And I think it positions us in a very unique place to show how technology will continue to help enrich people's lives, and I think that's probably the best way to put our excitement in this area. We will always lean forward on something that will help customers solve a problem, and I think they would expect us to take a leadership position here.

I just want to say thank you Mike. And in closing, I want to again show my hats-off appreciation for the work and talent and passion of all of our associates across all functions in the business. You guys are amazing. And I want to thank you for joining our call and your interest in Best Buy. And we look forward to continue to update you as we continue to move forward. So you have a great day. Thank you.