Best Buy Co. Inc (BBY) — Q3 2020 Earnings Call Transcript

Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO; Matt Bilunas, our CFO; and Mike Mohan, our President and COO. 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 earnings release, which is available on our website investors.bestbuy.com. Some of the statements we will 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. I will now turn the call over to Corie.

Good morning, everyone, and thank you for joining us. Today we have reported $9.76 billion in revenue, expanded our non-GAAP operating income rate by 70 basis points and delivered non-GAAP diluted earnings per share of $1.13, which was up 22% compared to the third quarter of last year. We delivered another strong quarter and are excited about our continued momentum and the opportunities we have ahead of us. Our teams continued to execute well and navigate ever-increasing customer expectations, a consistently competitive retail environment, and the uncertain tariff situation. And they are doing all this while making significant progress against our Building the New Blue strategy, which we believe will uniquely position us over the long term. Specifically, our comparable sales growth of 1.7% was on top of 4.3% last year and above the high end of our guidance range for the quarter. Our Domestic segment comparable sales were up 2%, as we continue to focus on the customer experience across online, stores, and at home. From a product category standpoint, the comp growth was driven by strength in appliances, headphones, tablets, and computing, partially offset by declines in gaming and home theater. The Q3 profitability was better than expected. This was primarily the result of lower SG&A, due to strong expense management, a reflection of the culture we have built around driving cost reduction and efficiencies to help fund investments and offset pressures. The Q3 gross profit rate was flat on a year-over-year basis. Due to the strong Q3 results, we are updating our annual guidance today. Matt will discuss in more detail later in the call, but at a high level we are maintaining the topline guidance we shared last quarter, while raising the non-GAAP EPS guidance. We are now expecting non-GAAP EPS of $5.81 to $5.91. This compares to the original guidance of $5.45 to $5.65 that we provided last February as we entered the year. As it relates to tariffs, our assumptions of the impact on our business are basically unchanged from our last call. As a reminder, our guidance includes our best estimate of the impact of all tariffs, both implemented and planned, including List 3 at 25%, List 4A at 15%, which was implemented on September 1, and List 4B at 15% which is planned for December 15. As we shared at our Investor Update in September, we are entering the second chapter of Building the New Blue. Our purpose remains the same: to enrich lives through technology. Our strategy is to leverage our unique combination of tech and touch to meet everyday human needs, and build more and deeper relationships with our customers. We introduced three five-year goals at our Investor Update focused on employees, customers, and financials. As a reminder, they are: first, to be one of the best companies to work for in the U.S., exemplified by being named to the Fortune 100 Best Companies to Work For list. Second, to double the number of significant customer relationship events to 50 million. This includes total tech support memberships, homes visited, active digital engagement, financial services, and senior life support. And third, to deliver continued top and bottom line growth over time, specifically to get to $50 billion in revenue and a 5% non-GAAP operating income rate in fiscal 2025. We believe our strategy will translate to an economic model that delivers results by better serving existing customers, capturing new demand, entering new spaces, and building capabilities while maintaining profitability over time. Last quarter, we talked about how our penetration by geographic market varies widely, yet our tools and structure have been one-size-fits-all for our local markets. To better serve existing customers, we made strategic changes to our field operations to accelerate growth and to create a more seamless experience across channels, putting single leaders in a position to be accountable for stores, services, supply chain, and home propositions in their market. These leaders are supported by a channel agnostic program centered around insights, data, and analytics, to view market’s largest opportunities and fast-track initiatives that will make a financial impact as well as provide a more seamless customer experience. For example, in the New York area, we are focused on expanding both our fulfillment options and in-home resources. During the quarter, we launched 175 alternate pickup locations for customers in areas where either our store locations are not convenient or the ship-to-home option is not desired. These alternate locations are in UPS stores and CVS stores in the New York market. In New York, as well as in Los Angeles and Chicago, online customers can order as late as 8 p.m. and still receive their products the next day for free. Starting in New York, we are also adding the ability for online customers who want their product the same day to select specific three-hour delivery window for that same day delivery. And for those online customers who prefer to pick up the products themselves, we are beginning the process of rolling out curbside pickup at stores in the New York market, where a Best Buy employee will bring the product directly to the customer’s car. To build awareness of these expanded experiences, we have already kicked off a comprehensive local market marketing campaign that includes stores, train stations, billboards, digital, and email. Based on our data, we believe there is much untapped opportunity to serve New York clients in their homes. To capitalize on that opportunity, we are building capacity by adding additional in-home advisors and also increasing the training for existing advisors. We have combined additional resources from both the field and corporate teams to provide these new advisors an accelerated, locally focused training program that we believe will speed up their ramp-up time. This will free up capacity for our existing advisors in the market to receive more training designed to strengthen their clienteling skills, which will lead to deeper customer relationships. Based on local market analysis, we have also added capacity across the country where we continue to see strong customer demand for our in-home consultation program. On a national level during the quarter we added 100 in-home advisors to end the quarter with approximately 720 advisors. As we shared at our Investor Updates, 95% of those polled said they would continue working with their in-home advisor and we continue to see higher spend at a higher gross profit rates from our in-home advisor customers versus other customers. We expect our advisors will become more and more productive as we advance our CRM system and enhance our digital tools. Another important way we are better serving customers and building relationships is through our Total Tech Support program. Total Tech Support provides members unlimited Geek Squad support for all of their technology no matter where or when they bought it, in addition to great discounts and installations, protection and in-home services. We have grown the membership to over 2 million members from about 200,000 when we launched nationally in May of last year. It continues to get strong customer reviews and members spend more and are twice as likely to use other services than non-members. We are building on this early success to continue to deliver more benefits our members are asking for. For example, we are piloting a program, we are calling Total Tech Support with networking that includes routers setup and installation, parental controls to manage every device on the network, a subscription to Microsoft Office 365, and 1 terabyte of cloud storage along with all the standard Total Tech Support benefits. We are also continuing to add new services and capabilities that have the potential to attract new customers. As we shared last quarter, Best Buy is now fully certified chain-wide as an Apple authorized service provider, becoming the nation’s largest physical destination in terms of points of presence for Apple authorized repair services including same day iPhone repairs. Almost 40% of these Apple repair customers are either new to Best Buy or haven’t made a purchase in the last year. Our lease to own purchasing option is now fully rolled out in 45 states after we added the last nine states including California and New York just a few weeks ago. This provides another purchasing option in addition to our existing strong credit card offer allowing us to help customers make purchases they might not otherwise be able to. Since we began rolling out the program nationally in March, approximately 65% of lease to own customers are either new to Best Buy or haven’t made a purchase in the last year. We also remain focused on developing digital innovation and marketing strategies to drive engagement with our customers. We continue to enhance our digital shopping platforms both online and on our mobile app, with new functionality and a better customer experience. Our app continues to see strong customer ratings and year-to-date usage of the app is up more than 20%, and usage of our app within our stores is up more than 30%. Our store employees love the app, which has also been improved with their needs in mind. They can now much more quickly see pricing, promotions, inventory and fulfillment times, through features such as Top Deals, which I will discuss in a moment, and expanded availability options. The app also provides employees other recommended products if a certain product is out of stock in their store. During the quarter, we materially changed the way we present product deals to our customers. Several years ago, we created a digital version of our weekly ad as we transitioned away from the paper weekly ad that was distributed every Sunday. We no longer distribute any paper weekly ads, and during Q3, we sun-setted the rigid digital weekly ad technology platform and launched a Top Deals section in our app and on our website. This leverages cost and gives us more flexibility to introduce multiple promotional cycles within the week and ensure we feature our best offers. Most importantly, Top Deals provides a better user experience and helps customers find products faster with fewer clicks, resulting in higher and more consistent traffic throughout the week and better conversion compared to the old experience. At our Investor Update in September, we also spent time talking about the significant opportunity we see in the health space. Specifically, we have reiterated our focus on helping seniors live longer in their homes through our unique combination of tech and touch, thereby reducing their health care costs and bringing greater peace of mind for them and their families and caregivers. We serve approximately 1 million seniors right now and we shared our goal to serve 5 million seniors in fiscal 2025. Today, most of the seniors we serve are utilizing easy-to-use mobile phone products and connected devices that are tailored for seniors and come with a range of relevant services. With our five star service, customers can talk to U.S. based specially trained agents who can connect them to family caregivers, provide concierge services and dispatch emergency personnel. We expect to continue to scale this business over time in order to reach our five-year target. We also expect to advance our commercial business where the services we provide for seniors are paid for by insurance providers. This includes services such as remote monitoring based solutions that provide meaningful insights to improve timely care and reduce the cost to serve frail seniors. As previously discussed, we have successfully closed and integrated three acquisitions that have given us unique and essential capabilities and infrastructure, talent, and a base of customer relationships to build from. We have also hired additional talent to deepen our expertise. That includes Dr. Daniel Grossman, our new Chief Medical Officer for Best Buy Health. He is a practicing emergency medicine physician at a major academic medical center in Rochester, Minnesota, with extensive strategy and business development experiences at leading health tech companies. He has been on all sides of health care, physicians, patients, payer, disrupter and educator. We are excited to have him on our team. As we have reiterated many times, our continued focus on reducing costs and driving efficiencies in order to fund investments and help offset pressures is a key element of our long-term strategy. In September, we announced a new cost reduction and efficiency target of $1 billion by the end of fiscal 2025. We made good progress against this new goal during the third quarter and plan to provide more detailed annual updates on our Q4 call going forward. In addition to our strong business results, we have continued to make strides toward our goal of becoming one of the best companies to work for in the United States. For example, we have recently added a variety of employee benefits, including paid caregiver leave, paid time off for part-time employees, back up childcare, a PTO purchase plan and enhanced mental health resources. We also increased our adoption assistance benefit and introduced a new surrogacy benefit as part of our efforts to support employees who want to grow their families. And finally, last month we announced an updated dress code that allows employees to wear jeans and comfortable shoes. This is something our store employees have been asking for and importantly, saves them money. These changes have all been extremely well-received by our store teams across the country. These are just a few examples of the ways we are continuing to invest in our people and underscore our commitment to being a great place to work and these investments have produced some very positive results. Our store turnover remains in the low 30% range, compared to 50% five years ago and our average store general manager has been in his or her role for about six years. In fact, as we enter Q4, more than 92% of our store general managers already have experience leading their stores through a holiday season. Our progress has also been noticed outside the company. We are proud of the breadth of recognition we have received in recent months, including ranking number 66 on Forbes list of the World’s Best Employers and being named the number one Best Company to Work For during the holiday season by Glassdoor. We are also honored to be ranked one of the top employers for students and graduates of historically black colleges and universities. Our culture at Best Buy is incredibly strong. It’s the reason I am here and I firmly believe it is our competitive advantage. As we look ahead, we are excited about our holiday plans and everything we have to offer our customers this holiday season. Our team has once again put together a best-in-class assortment, prepared an amazing set of deals and ensured we have great inventory availability across all the product categories we carry, and we are supporting that work with a steady drum beat of marketing and promotions that will keep Best Buy top of mind with shoppers throughout the holiday season. Earlier this month, we released our Black Friday ad full of thousands of deals on the hottest tech. Hundreds of those deals were available immediately and we will continue to provide compelling offers throughout the holiday season. On the fulfillment side, we are making it even easier and much faster for customers this year. We are promising free next day delivery on thousands of items all season long with no membership or minimum purchase required. The fact that we are able to make that promise to our customers is a huge testament to all the work our teams have done throughout our supply chain transformation. About 99% of our customers now live in a ZIP code where next day delivery is available, up from 80% last quarter and if a customer lives in an area where free next day delivery isn’t available or they are shopping for an item that isn’t eligible for it, they can still get free standard shipping. As we have shared previously, we also offer same day delivery on thousands of items in 42 markets, and of course, store pick-up remains a fast and convenient option for our customers. More than 70% of Americans live within 10 miles of a Best Buy store and we promise that their items will be ready within one hour of placing an order. And on average 80% of online orders are ready for store pick-up in less than 30 minutes. The NPS score for the experience continues to increase about 40% of our online sales are pick-up in our stores. Finally, as I mentioned earlier, we are offering curbside pick-up in a few stores in New York and other select markets across the country allowing customers to pick-up their without even getting out of the car. Our fulfillment options are all focused on providing customers with the choice and convenience they expect and deserve, and with the digital shopping experience on the Best Buy mobile app, it is now easy and intuitive to see your options for when and where you can get your order whether you opt for delivery or store pick-up. I also want to highlight that once again, this year we are supporting the St. Jude Thanksgiving campaign with customer and employee donations in our stores and online. We have been the program’s top fundraising partner for three consecutive years, helping to raise $80 million for St. Jude’s lifesaving work since we first partnered in 2013. We hope to bring that cumulative total to more than $100 million with this holiday season. In summary, we are pleased to report strong results for the third quarter and our teams are excited and ready to deliver an outstanding holiday season. I want to take a moment to genuinely thank our amazing Best Buy employees in advance for all their hard work this week and throughout the holidays, whether you work in one of our stores, spend your time making house calls to our customers’ homes or work in a distribution center or the corporate office, please know that you are a critical part of what makes Best Buy so special. The holidays can be a fun and very busy time in retail and I want you to know how much we sincerely appreciate all that you do. And with that, I will now turn the call over to Matt.

Good morning, and hello, everyone. Before I discuss our third quarter results compared to last year, I want to address them in relation to the expectations we shared last quarter. We achieved Enterprise revenue of $9.76 billion and reported non-GAAP diluted earnings per share of $1.13, both exceeding our expectations. We saw better-than-expected results in the computing category, though home theater underperformed slightly. Our operating income rate surpassed the upper range of our expectations for the quarter, largely due to effective expense management, even though it was partially counterbalanced by a lower-than-expected gross profit rate. As anticipated, recently implemented tariffs on imports from China did not significantly impact our Q3 results. Internationally, we generated slightly higher operating income than expected, even with top line results that fell short. The favorable earnings per share outcome relative to our guidance also included a $0.03 per share benefit from a lower effective tax rate. Now, turning to our third quarter results compared to last year, Enterprise revenue rose 1.8% to $9.76 billion, mainly due to a 1.7% increase in comparable sales. Enterprise non-GAAP diluted EPS increased by $0.20, or 22%, to $1.13. This rise was driven by increased operating income both from a higher rate and higher revenue, as well as a $0.06 per share benefit from changes in net share count. However, these positive impacts were partially offset by a $0.03 per share reduction due to a higher effective tax rate. In our Domestic segment, revenue grew by 2.4% to $8.96 billion, supported by a 2% increase in comparable sales influenced by revenue from GreatCall, which we acquired in October 2018. This growth was partially offset by revenue losses from store closures over the past year. Revenue from GreatCall will factor into our comparable sales starting at the beginning of this fiscal fourth quarter. Within merchandising, appliances, including major and small appliances, along with headphones, tablets, and computing, were the largest contributors to comparable sales growth, though declines were seen in gaming and home theater categories. Comparable sales in services grew by 12.9% year-over-year, partly due to revenue recognition related to our Total Tech Support offer. It's important to note that we will begin to lap this revenue adjustment in Q4, leading to a slowdown in service growth rates compared to Q3. Domestic online revenue reached $1.4 billion, making up 15.6% of Domestic revenue, up from 13.8% last year. On a comparable basis, our online revenue increased by 15% following a 12.6% growth in the same quarter last year, primarily driven by higher average order values. In the International segment, revenue decreased by 4.1% to $800 million, mainly due to a 1.9% decline in comparable sales and roughly 170 basis points of negative impact from foreign currency fluctuations. For gross profit, the Enterprise gross profit rate was 24.2%, unchanged from last year. The Domestic gross profit rate was 24.3%, compared to 24.4% last year, with a slight decline mainly due to a mix shift towards lower-margin products, partially offset by GreatCall’s higher gross profit rate. The International gross profit rate rose by 30 basis points to 22.5%, largely due to improved margins in Canada’s services category. Regarding SG&A, domestic non-GAAP SG&A was $1.78 billion, representing 19.9% of revenue, down from 20.6% last year. SG&A dollars decreased by $24 million, driven by reduced incentive compensation expenses and effective expense management, although these benefits were partially offset by GreatCall's operating expenses. International SG&A totaled $173 million, or 21.6% of revenue, compared to $178 million, or 21.3% of revenue last year, with the decrease primarily due to favorable foreign exchange rate effects. On a non-GAAP basis, the effective tax rate increased to 24.8% from 22.7% the prior year, due to the favorable resolution of certain tax matters previously. We returned a total of $499 million to shareholders through share repurchases of $368 million and dividends totaling $131 million. So far this year, we've invested $700 million in share buybacks, and we expect to be at the higher end of our $750 million to $1 billion share repurchase target. Our ending inventory addition decreased by approximately 7% from last year, mainly due to the timing of Black Friday and Cyber Monday, which are a week later this year compared to last year. Looking ahead, we are still planning capital expenditures for the year to be between $750 million and $800 million. Now, let me discuss our outlook. I will start with some comments specifically regarding tariffs. As mentioned earlier, today’s guidance takes into account the estimated impacts of all tariffs, net of our mitigative actions. These actions include bringing in products ahead of tariff implementations, decisions about vendor and SKU assortment, promotional and pricing strategies, sourcing changes, and collaborating with our vendors. A reminder that the List 4 tariffs are set at a 15% level and have two effective dates. The first took effect on September 1st, impacting categories such as televisions, smartwatches, and headphones. The second date is December 15th, affecting computing, mobile phones, and gaming consoles. Now, returning to our outlook, we are raising our full year non-GAAP EPS range reflecting the strong profitability seen in Q3 and our improved expectations for Q4. As shared last quarter, we anticipated operating income rate expansion in Q3, followed by a decline in Q4. In Q4, we expect a decrease in gross profit rate, while the SG&A rate is projected to be slightly favorable year-over-year, mainly due to lower incentive compensation expense. To clarify the expected gross profit rate decline, we have identified three primary drivers, all of which are roughly similar in size. First, we anticipate a product mix that negatively impacts our product margin rates. Second, we expect more pressure in our services category, primarily driven by increased delivery and installation costs. Third, our outlook also includes the estimated impacts of all tariffs. Regarding the gross profit rate in Q4 from a sequential perspective, I remind you that we will fully lap the acquisition of GreatCall and the revenue recognition refinement related to our Total Tech Support in Q4, which will no longer contribute to gross profit rate expansion as seen in the last four quarters. Specifically, our guidance for the fourth quarter is Enterprise revenue in the range of $14.75 billion to $15.15 billion, with enterprise comparable sales growth projected at 0.5% to 3%, non-GAAP diluted EPS between $2.65 and $2.75, a non-GAAP effective income tax rate of approximately 24%, and a diluted weighted average share count around 261 million shares. For the full year, we are now projecting Enterprise revenue between $43.2 billion and $43.6 billion with enterprise comparable sales growth of 1% to 2%. We expect the Enterprise non-GAAP operating income rate to be slightly above fiscal 2019's rate of 4.6%, a non-GAAP effective income tax rate of approximately 23.3%, and non-GAAP diluted EPS ranging from $5.81 to $5.91, an increase from our previous guidance of $5.60 to $5.75.

Oh! Hi. Thanks for taking my question. I am wondering if you could just give a little bit more color on the puts and takes on what would get you to the low versus the high end of the comp guidance range for the year – or for the fourth quarter. And then kind of looking into what that would imply on the operating margin as well, just some little more color on the puts and takes?

Sure. This is Matt. I will take that question. First, regarding the revenue guidance range, the holiday season is always significant for consumer electronics. Price and convenience matter greatly, and like during any holiday, we approach setting the range with caution, so we believe what we’ve set is appropriate. We're excited about several plans and offers that include strong fulfillment options for our consumers. We believe the consumer remains relatively strong, and the economic indicators look good. Although there has been a slight dip in consumer confidence, we still feel consumers are in a good position, which is positive for us. We expect mobile phones and computing to see some improvement in Q4, and home theater is also anticipated to do better than it has been trending. On the flip side, we know that many other retailers use our category to attract customers during the holiday period, so we take that into account in our guidance range. Additionally, there’s always the potential for inventory constraints. While we don’t see any issues now, that remains a possibility. In gaming, it has been soft all year, which we consider when setting our range. As for gross profit, there are various factors at play. During the holiday season, it’s hard to predict exactly what consumers will buy, and the mix of outlet sales can impact margins positively or negatively. If our services offerings continue to engage consumers during the holiday, that could also guide us favorably.

Okay. Thanks. That’s helpful. And just to follow up on the lease to own, you rolled that out to nine new states and any early read on that, maybe percent of customers new versus existing, and then any color on any impact on the comp although I realize it’s still very small?

I want to share some insights about our lease-to-own offering. We believe it’s a valuable option for our customers. At Best Buy, we typically start with the branded credit card, but we now have an alternative for those who may not want a credit card or who have a more difficult credit history. We discussed this briefly at Investor Day. Currently, it represents a small part of our comparable growth, but it’s significant as it helps attract either new customers or those who had previously lapsed. We are pleased with this opportunity to re-engage those customers. We only introduced the new nine states, including New York and California, a couple of weeks ago, late in the third quarter. We will observe its performance during the holiday season and into next year, which we believe is where we can accelerate growth. Our associates are still getting accustomed to this new type of offer, so it takes some time for them to feel confident in presenting it. We are also working on enhancing our customer experience, both in-store and in the information we gather. Importantly, next year, we plan to offer this online as well, which would be a valuable expansion. We view it as a solid secondary offer, although it remains relatively small in relation to our overall comparable growth.

Great. Thank you.

Good morning, guys. So can you talk about the estimated impact on margins from GreatCall and Total Tech Support? It just seems to me those are higher margin businesses. I guess I would have expected maybe a little better gross margin performance just given the growth of those two segments? Thanks.

Yeah. Thank you. I think in our prepared remarks, we talked about how those were both benefits to us for the last four quarters, so they have been helping on the margins. And I think it’s important to remember that from a GreatCall perspective, it increases the margin rate a bit, but it also increases the operating. So from an OI perspective, it’s still relatively neutral. On TTS, what we called out is a specific part to the revenue recognition refinement that we made. Service is a much bigger category. It includes obviously all the other runoff of legacy system, great legacy support offers, as well as installation and delivery and so when you put them together, we try to think of services in totality, and that is not as we talked about, it is a pressure in Q4. So, that’s kind of the way to think about those two.

I was hoping for some kind of quantification, but should we view it as being similar to the rest of the corporate run rate on an EBIT basis? Are you indicating that there is no significant contribution to the EBIT line?

The EBIT line is relatively neutral for both of those factors when considering all the services related to TTS as well.

Hi. Thanks. Just a follow-up on the operating profit in the fourth quarter and then a more strategic question. Operating rate should be down in the fourth quarter, but on SG&A dollars, I missed what do you expect is part of that, if it wasn’t for the cycling of the incentive comp a year ago. How much would dollars have been up in the third quarter and what would you expect in the fourth quarter?

We are not going to provide specific figures regarding the impact of lower incentive compensation. In the fourth quarter, we anticipate maintaining strong management of SG&A. The factors influencing Q4 include lower incentive compensation, alongside some investments in advertising and labor. While we expect the outcome to be favorable compared to previous periods, we won't disclose specific details about the lower incentives.

Got it. Overall, the comparison looks solid. There are some categories showing consistent growth, like appliances. If we consider the comparisons for the third quarter and look ahead to the fourth quarter next year, what portion of that comparison is influenced by average ticket size and how much is due to ongoing traffic or transaction growth, whether online or in-store?

So the wonderful thing about being more omni-channel now is that tends to be how we look at our organic metric where we are looking at all of our metrics together. And what we saw in Q3 was traffic across all our channels was up as was our average order value. And so those two were up, we thought and total transactions down just a little bit, but broadly like the health we are seeing in broad traffic up and those order values are up as well.

That's great. Regarding tariffs, I want to clarify our discussion on List 4. Do you expect the 15% tariff to take effect in December, or is it considered insignificant since it's so late in the quarter?

Yeah. It’s a little bit of both. We are assuming…

Okay.

That portion is not very significant for this quarter, and it will be more relevant for discussions next year.

That’s great. Well, happy holidays, and good luck, guys.

Thank you.

Hi. Yes. Good morning, everyone. Corie, I wanted to dig into IHA a little bit. You talked about hiring an additional 100 IHAs this quarter, but then you also talked about putting in an accelerated training program for IHAs and it seems like you are building out an infrastructure to maybe meaningfully accelerate the number of IHAs that you have. Can you just dig into that a little bit, am I reading that right? Can you talk more to that? Thank you.

Thank you for your question. Since day one, our focus has been on creating the best in-home experience possible across all interactions with people in their homes. We have emphasized that we will take our time with this process because establishing clienteling at scale is challenging. We want to ensure we exceed customer expectations when we have the opportunity to be in their home. We have learned a lot about effective training, which is now leading to a different training approach. Previously, when onboarding new team members, we relied heavily on experienced IHAs to guide them in understanding expectations, building a business base, and enhancing their clienteling skills. Now, we have developed a more standardized training program that we can implement right away. This allows existing IHAs to grow their clienteling skills while we bring new IHAs up to speed more efficiently. The team is continuing to learn how to onboard new members effectively, prioritize initial training, and assign experienced IHAs to complex tasks. All of this is helping us refine the IHA model. So, rather than just an acceleration, we are continuously integrating our learnings at a pace that aligns with current demand. It’s also important to highlight that in certain markets, such as New York, we see a stronger relevance for this offering. The data shows us how people prefer to interact with us and seek help in their homes, presenting us with a unique opportunity to assist in these specific markets. Therefore, we are adjusting our ramping and training strategies accordingly.

Thanks for that color. And then just as a follow-up, you talked a lot about your next day same day fulfillment and how you have improved that year-over-year. How do you look at that strategically for the fourth quarter, specifically this holiday season, given that it’s a shorter holiday season? And how does that compare competitively to other people that sell your products, clearly some of your peers have those options, but for the breadth of product that you sell, it would seem like a lot of your competitors just can’t match that?

Hey, Matt. This is Mike. Thanks for the question. I will start with the last part. We feel really good about how we are positioned competitively. Our teams there just call it two-thirds the way through our supply chain transformation and the progress we have seen to-date and the customer response has been fantastic. And we look at all aspects of what the customers see on our site versus competitors and what we are able to deliver. I think what makes it unique at Best Buy is a combination of automation we put in our large facilities, the metro e-commerce facilities that we added to some of our major markets. And then we have been doing in-store fulfillment both in-store pick-up and ship from store, longer than anybody else. And I think we have found ways to refine that so we can actually deliver on promises on the products that people want the most, so these high value consumer electronic items and depending on where you live in the country, we are just as good as anybody at getting you stuff right away. You can come to our stores or you can get stuff the very next day. And what complements that, I think, that has to be said, as you have got to be in stock on these items too, and I think, that’s something that our teams have proven expertise in. And so you put those all together and that’s what lets us deliver on we think a very compelling fulfillment promise, one that doesn’t cost us a lot of extra money, because of the investments we have made and it’s something that, Matt, talked about in his remarks, we are going to lead into help drive the comp in our fourth quarter.

Thanks a lot, Mike. Best of luck everyone.

Thank you.

Thank you.

Thanks, guys. Congratulations on the quarter. I wanted to go back to inventory for a moment. You had mentioned you knew it was down timing related to the holiday, but how should we think about it for the fourth quarter, presumably you have brought in a lot more at this point. But just what type of rate of increase should we expect for the fourth quarter if any?

Sure. This is Matt. I believe we may not see the rate of increase we anticipated by the end of the year. However, the teams feel well positioned for the holiday week. As I mentioned, our inventory was lower at the end of Q3 due to a shift in the holiday timing, being a week later this year. The teams will take the necessary steps to be prepared. We are consistently careful about how much inventory we bring in and the balance between owned and non-owned items. While I won't provide a specific number, I expect us to align inventory with the sales pace we anticipate moving into next year.

Thanks. Can you elaborate on what is driving the continued strength in appliances? Are you gaining market share, and if so, where do you think that's coming from? Additionally, what factors are contributing to such strong performance on top of previous strengths?

Joe, it’s Mike. I will amplify a bit of the fulfillment comments to Matt. That’s part of the reason why we have improved our appliance business with the investments we have made in fulfillment. It wasn’t just speed and small parcel, and leveraging our store network. It was our large product delivery and how we built support with our own teams and with partners, and we have made sure we improved that. And it’s complemented with the investments we have made in training, marketing, the in-store experience and we thought about this category end-to-end. And as I think most of you know, a large percentage of appliance purchases happen with something that you don’t expect occurs, an appliance in your house breaks. And frankly, a few years ago we just weren’t very good at that and we have made some really big improvements on how we can help customers navigate for items they can get a very next day, for things they can take with them from our stores, and then we continue the reinforcement with our in-home advisors the ability to help sell appliances when we are in your homes and continue to expand our assortment. So it’s a suite of investments across the board that helps drive this. And as you know, we are now on our eighth year and counting on consecutive comp growth and we have been awarded JD Power's top honors third year in appliances and we like the category a lot and we like the customer response to what we are doing right now.

Great. Thanks. Good luck with the holiday period.

Thank you.

Yeah. Thanks for taking my questions. So some retailers have called out lengthened purchase decision cycles resulting from tariff-driven price increases. From the strength of your comp, I’d imagine you are not, but maybe just comment on that and speak to how consumers are maybe digesting some of the selected price increases you have instituted and whether you are making an expectation for greater elasticity in 4Q? Thanks.

This one is so difficult and we talked about before there just really isn’t a precedent for where we are right now and there are a lot of moving pieces. And as you can imagine, both our teams and our vendors are employing a number of strategies. In the third quarter specifically, we definitely saw a limited number of small price increases. And if you look at the items that were on the list on 4A things like TVs, and especially, some of the smaller screen size. I think in general what’s difficult, though, is that you now have quite a few items that are on any of the less than elasticities for any given individual item are incredibly difficult. And in fact, I think, it’s even more difficult as you head into Q4, which is a highly promotional season and we will be less about whether or not there’s a tariff on any individual item, it will be about promotional positioning throughout the quarter. And so I give our teams a great deal of credit for pretty carefully navigating thus far and to have really good plans into Q4 and we are seeing a variety of mitigation tactics go into place. We talked about this last time we had the call, obviously, we are thinking about where we assort and who we assort, definitely we are seeing promotional decisions being made by every single retailer out there as we head into this period. Obviously some of these are global vendors and they are thinking about how they move their supply chain, what pieces and parts they put into and how they decide to structure any of their different assemblies and we are already seeing some of the manufacturing move. And so, yes, we saw a little bit of impact into Q3, but as Matt said, it wasn’t material enough for us to quantify our call out. Q4 I think is all about price and promotion, and how you are positioning, and we will see how this evolves as we head into next year.

Great. That’s helpful. And then just you mentioned some exciting new kind of fulfillment options in kind of the New York City area. So just help us think about what’s the timeframe as you think about maybe rolling out some of those options elsewhere in the country?

Yeah. Jonathan, it’s Mike. New York is a great place for us to start primarily because of the density of consumers and our sheer lack of stores in some of the areas we would like to support customers and where we see opportunities from alternative pick-up locations and curbside. Those are primarily the two things we launched in New York first. We see an opportunity to scale those both nationally as we get past this holiday because there are clearly things that add value to the shopping experience at Best Buy and that’s something that we think we can do. So it’s a great question. Thank you for asking it.

Hey, guys. Thanks for taking my questions. So one was a thought about, as we think about next year, it looks like you guys are putting up pretty strong comps even though there’s really not a product cycle going on at least that’s my thought. And as we get into next year, it seems like you would have a number of drivers as we get 8K TVs coming down in price, we get a 5G iPhone, and we have two new gaming consoles. So how are you guys thinking about this year versus next year and are my thoughts right?

So, obviously, we are not going to guide for next year yet. But I think what we like about this year is it underscores what has been our strategic point of view and that is people want and need electronics and those are going to continue to evolve over time and we have a very unique offering digitally in our stores and in-home that will help people make the best decisions and keep their products working. As we head into next year, there’s obviously some things to be excited about. And counterpoint to that or at least something else to consider is the ongoing impact of tariffs potentially as we head into next year. So what the teams are doing right now as you can imagine is working through all of that, all the mitigation strategies that I just talked about and thinking about how we can put together the right suite of offers and experiences for our customers next year. I think no matter what, we feel like strategically we are positioned in the right way to capitalize on and commercialize new technology, which consistently we are able to do in a way that is very unique in the marketplace. It’s interesting. We don’t talk about it as much or talk about the M&A in it as much, but if you go into our stores, almost every what we would commercially refer to as department is connected to the next one or could be connected to the next one. And our associates are uniquely well-suited to help people navigate through the compatibility or the ability for people to connect broadly in their homes. 5G we have talked about, it’s going to be a slow roll. It’s going to be market by market. But we have also said, we think there will be some interesting product innovation and that we again uniquely are able to help the consumer through what’s available specifically for them in their market and how could it show up for them in their home in a very seamless and integrated way. And I think, you will see and you have seen the stores continue to evolve in ways that highlight that interconnected capability. And I think, again, our team will, obviously, capitalize on that ability to commercialize any new technology that’s coming down the pipe that will help capitalize on 5G and just processing and information power that it will provide.

Next question, please?

Hey. Good morning. Can you walk us through your view of the impact of some of the Q4 headwinds around six fewer selling days? And then the Intel supply issues and to what extent you have incorporated these items in your outlook?

First, regarding the holiday selling season, all consumer data indicates that shoppers are starting earlier this year in hopes of finishing sooner. While the exact outcomes remain uncertain, the trends show that promotional activities are happening earlier than ever, with an increasing number of ads and deals launching ahead of time. The changes in fulfillment options have significantly altered the competitive landscape, allowing quicker delivery methods like next day, same day, and in-store pickup. This is particularly advantageous for us, given our physical locations and our ability to deliver next day to 99% of ZIP codes. Consequently, we believe that the number of shopping days is less critical than in the past, and consumers will manage their needs in accordance with the available fulfillment options. We like to humorously point out that the time from Halloween to Christmas hasn't changed, and we anticipate that shoppers will meet their needs as they see fit. On the Intel front, our team feels well-prepared for the holiday season, with a strong selection of products. Matt mentioned that our inventory levels are robust, ensuring ample availability in both our stores and online. We will continue to tackle these issues as we move into the next year, and our merchants have a proven track record of effectively managing such situations.

Got it. Thanks, Corie. And then on the gaming category weakness, curious if you could expand on that in a little more detail whether you think it’s primarily innovation driven or if there’s something structural there. Just curious on your thoughts on when the category could turn around?

Yes, it's Mike. I find the gaming category to be still quite exciting. We consider it in a broader context than just the console segment, focusing on how consumers are looking for enhanced experiences. We are approaching a cycle of new devices launching next holiday, providing consumers with various options to consider. While we have mentioned that gaming isn't a major driver for our business, this is reflected in our results. The category remains promotional and generates good foot traffic, as evidenced by the exciting offers for the holiday season, even if there is demand at lower price points than usual. There has been a significant shift that will likely continue, where software enhances the overall experience, as we have observed for some time. Consumers are leaning towards more powerful and connected devices, which aligns well with our ability to provide the right devices and accessories. We believe this will continue to be a strong category for us moving forward.

Got it. I appreciate that. Thanks so much.

Thank you.

Thank you.

Thanks. Good morning. Can you talk about what drove the improvements in the computing category relative to the prior trend, it seems like that perked up which is great for your business. And then as you look to the fourth quarter, how are you thinking about that category and what drives the expected improvement in home theater?

Yeah. Chris, it’s Mike. I will start and then, Corie, and Matt can just chime in. We don’t segment our selling seasons interdependent of our quarters, but we came out of period arguments are really strong back-to-school season for Best Buy. Corie talked about in your remarks about the evolution of our weekly ad to Top Deals, which lets us to be more flexible in how we offer deals to everybody that greatly benefited our back-to-school program with our ability to offer students more directly. We focused on a new marketing segment and went for a younger demographic with where we placed our media. And our team is, we already talked about briefly as they do a fantastic job of finding the right value propositions to get things in play and then get a handful of new products shipped during the quarter, which was excellent and we did a superb job on offering pre-orders and an ability to get rid of your old devices. And so when I look at that for Q3 it plays itself going into Q4 quite well and we are seeing great demand on our holiday products right now, we see no reason why it won’t continue, and so we feel good about that experience. We have been investing in for years continues to pay dividends for us. Corie, would you add anything?

No. I would just emphasize that the team has done an excellent job. Every type of computer you want to see, feel, touch, and get assistance with is available. In times like these, where there is clearly interest in processing power, high-end tablets, and computing, we are in a strong position to take advantage of that. Thank you all for joining us today. We look forward to updating you in our Q4 call in February, and we hope you all have a safe and happy holiday season. Thank you.