OREANDA-NEWS. Best Buy Co., Inc. (NYSE: BBY) today announced results for the second quarter ended July 29, 2017 (“Q2 FY18”), as compared to the second quarter ended July 30, 2016 (“Q2 FY17”). The company reported GAAP diluted earnings per share from continuing operations of $0.67, an increase of 20% from $0.56 in Q2 FY17. Non-GAAP diluted earnings per share from continuing operations were $0.69, an increase of 21% from $0.57 in Q2 FY17.

           
      Q2 FY18   Q2 FY171
  Revenue ($ in millions)2        
  Enterprise   $8,940   $8,533
  Domestic segment   $8,272   $7,889
  International segment   $668   $644
  Enterprise comparable sales % change   5.4%   0.8%
  Domestic comparable sales % change   5.4%   0.8%
  Domestic comparable online sales % change   31.2%   23.7%
  International comparable sales % change   4.7%   N/A
  Operating Income:  
  GAAP operating income as a % of revenue   3.6%   3.4%
  Non-GAAP operating income as a % of revenue   3.6%   3.4%
  Diluted Earnings per Share (EPS):  
  GAAP diluted EPS from continuing operations   $0.67   $0.56
  Non-GAAP diluted EPS from continuing operations   $0.69   $0.57

For GAAP to non-GAAP reconciliations, please refer to the attached supporting schedule titled “Reconciliation of non-GAAP Financial Measures”.

“We are pleased today to report strong top and bottom line growth for the second quarter of fiscal 2018,” said Hubert Joly, Best Buy chairman and CEO. “Our higher-than-expected comparable sales of 5.4% were driven by stronger consumer demand for technology products and by the strong execution of our strategy. Against a backdrop of continued healthy consumer confidence, we believe broad-based product innovation is resonating with consumers and driving higher spend. And, with our effective merchandising and marketing activities, combined with our expert advice and service available online, in-store and in-home – we are garnering an increasing share of those dollars.”

Joly continued, “I want to thank all our associates across the U.S., Canada and Mexico for their hard work, dedication and customer focus as we Build the New Blue. Without them, none of this is possible.”

Best Buy CFO Corie Barry commented, “Today we are raising our topline guidance and are now expecting full year FY18 revenue growth of approximately 4.0% versus our previous outlook of 2.5%. On the profitability side, we are now expecting full year non-GAAP operating income growth3 of 4.0% to 9.0% versus our previous outlook of 3.5% to 8.5% growth. This updated guidance reflects stronger-than-originally-expected second half revenue performance with profitability roughly in line with our previous expectations. The increased topline expectations are being driven by the anticipation of continued positive industry and consumer momentum, coupled with the impact of product launches. From a profitability perspective, while our original full year guidance anticipated an increased level of investments for FY18, we have made strategic decisions to proactively make additional Q3 and Q4 investments to continue to drive our Best Buy 2020 strategy forward.”

FY18 Financial Guidance

Note: FY18 has 53 weeks compared to 52 weeks in FY17. The extra week occurs in Q4 FY18.

Best Buy is providing the following Q3 FY18 financial outlook:

  • Enterprise revenue of $9.3 billion to $9.4 billion
  • Enterprise comparable sales growth of 4.5% to 5.5%
  • Domestic comparable sales growth of 4.5% to 5.5%
  • International comparable sales change of flat to 3.0%
  • Non-GAAP effective income tax rateof 32.0% to 32.5%3
  • Diluted weighted average share count of approximately 305 million
  • Non-GAAP diluted EPS of $0.75 to $0.803

Best Buy is updating its full year FY18 financial outlook to the following:

  • Enterprise revenue growth of approximately 4.0%
  • Enterprise non-GAAP operating income growth rate of 4.0% to 9.0%3
  • Enterprise non-GAAP effective income tax rate of approximately 34.5%3
  • On a 52-week basis, Enterprise revenue growth of approximately 2.5%
  • On a 52-week basis, Enterprise non-GAAP operating income growth rate of 2.0% to 6.0%3

Domestic Segment Second Quarter Results

Domestic Revenue
Domestic revenue of $8.3 billion increased 4.9% versus last year driven by comparable sales growth of 5.4%, partially offset by the loss of revenue from 11 large format and 42 Best Buy Mobile store closures.

From a merchandising perspective, comparable sales growth in computing, wearables, smart home, mobile phones and appliances was partially offset by declines in tablets.

Domestic online revenue of $1.1 billion increased 31.2% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 260 basis points to 13.2% versus 10.6% last year.

Domestic Gross Profit Rate
Domestic GAAP and non-GAAP gross profit rates were flat versus last year at 24.0% as improved margin rates across multiple categories, particularly in appliances, tablets and home theater, were offset by (1) margin pressure in the mobile category; (2) the negative impact of higher sales in the lower-margin wearables category; and (3) an approximately 10-basis point negative impact from lapping the $11 million Q2 FY17 periodic profit sharing benefit from our service plan portfolio.4

Domestic Selling, General and Administrative Expenses (“SG&A”)
Domestic GAAP and non-GAAP SG&A expenses were $1.67 billion, or 20.2% of revenue, versus $1.61 billion, or 20.4% of revenue, last year. GAAP and non-GAAP SG&A both increased $61 million primarily due to (1) expected increases in growth investments; (2) higher incentive compensation expenses; and (3) higher variable costs due to increased revenue. These increases were partially offset by the flow-through of cost reductions. The rate decrease was driven by sales leverage.

International Segment Second Quarter Results

International Revenue
International revenue of $668 million increased 3.7% driven primarily by comparable sales growth of 4.7% due to growth in both Canada and Mexico. The comparable sales growth was partially offset by approximately 220 basis points of negative foreign currency impact.

International Gross Profit Rate
International GAAP and non-GAAP gross profit rate was 25.1% versus 25.9% last year. The 80-basis point decline was primarily driven by a lower year-over-year gross profit rate in Canada due to lower rates in the computing and appliance categories.

International SG&A
International SG&A expenses were $161 million, or 24.1% of revenue, versus $165 million, or 25.6% of revenue, last year. Non-GAAP SG&A expenses were $161 million, or 24.1% of revenue, versus $164 million, or 25.5% of revenue, last year. The GAAP and non-GAAP decreases were primarily driven by slightly lower payroll and benefits costs. The rate decrease was primarily driven by sales leverage.

Share Repurchases and Dividends

During Q2 FY18, the company returned a total of $501 million to shareholders through share repurchases and dividends. On a year-to-date basis, the company has returned a total of $979 million to shareholders through share repurchases and dividends.

On March 1, 2017, the company announced the intent to repurchase $3 billion of its shares over a two-year period. In Q2 FY18, the company repurchased 7.3 million shares for a total of $398 million. On a year-to-date basis, the company has repurchased 15.4 million shares for a total of $771 million. The company’s cumulative share repurchases, net of dilution from equity based awards, positively benefitted GAAP and non-GAAP diluted EPS by approximately $0.02 in Q2 FY18.

On July 6, 2017, the company paid a quarterly dividend of $0.34 per common share outstanding, or $103 million.

Income Taxes – Adoption of Stock-Based Compensation Accounting Changes

In Q1 FY18, the company adopted Accounting Standards Update (ASU) 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which now requires all differences between the tax value and the book value for stock-based compensation to be recognized as either income tax expense or benefit as the shares vest or options are exercised or cancelled. The impact of this change on Q2 FY18 was a benefit of approximately $2 million, or $0.01 of non-GAAP diluted EPS. The year-to-date impact as of Q2 FY18 was a benefit of approximately $4 million, or $0.01 of non-GAAP diluted EPS. Future impacts could be positive or negative depending on the stock price, shares vested, or options exercised or cancelled in a given quarter. The company’s current expectation is that the full year impact will be a benefit to income tax expense and, based on current projections, is the primary driver of the lower FY18 non-GAAP effective income tax rate of approximately 34.5% that the company guided today, versus previous guidance of 35.5%.3

Conference Call

Best Buy is scheduled to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on August 29, 2017. A webcast of the call is expected to be available at www.investors.bestbuy.com both live and after the call.

Investor Day

Best Buy is hosting an investor day on September 19, 2017 from 2:00 to 6:00 p.m. Eastern Time (1:00 to 5:00 p.m. Central Time) at its corporate campus to provide more detail regarding the next phase of Best Buy’s transformation: Best Buy 2020: Building the New Blue. A webcast of the presentations and question and answer session will be available at www.investors.bestbuy.com both live and after the event.

(1) Beginning in Q1 FY18, the company will no longer be excluding non-restructuring property and equipment impairment charges from its non-GAAP financial metrics. When the company began to execute its Renew Blue transformation in Q4 FY13, it adopted a change to non-GAAP reporting to exclude non-restructuring property and equipment impairment charges from non-GAAP results. From that point, until Q4 FY17, the company believed that reporting non-GAAP results that excluded these charges provided a supplemental view of the company's ongoing performance that was useful and relevant to its investors. Now that Renew Blue has ended and Best Buy 2020: Building The New Blue has officially launched, the company believes it is no longer necessary to adjust for non-restructuring property and equipment impairments in its non-GAAP reporting. The company believes that future such impairments will predominantly be immaterial and incurred in the ordinary scope of ongoing operations. Accordingly, commencing in Q1 FY18, the company began to no longer adjust for non-restructuring property and equipment impairments. Prior-period financial information included herein has been recast to conform with this presentation, including applicable income tax effects. A complete GAAP to non-GAAP reconciliation for FY16 and FY17, by quarter, is available on the company's investor relations website at www.investors.bestbuy.com.

(2) On March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website. The Canadian brand consolidation had a material impact on a year-over-year basis on the Canadian retail stores and the website and, as such, all store and website revenue was removed from the comparable sales base and International (comprised of Canada and Mexico) did not have a comparable metric from Q1 FY16 through Q3 FY17. From Q1 FY16 through Q3 FY17 Enterprise comparable sales were equal to Domestic comparable sales.

Beginning in Q4 FY17, the company resumed reporting International comparable sales and as such, Enterprise comparable sales are once again equal to the aggregation of Domestic and International comparable sales.

(3) A reconciliation of the projected non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS, which are forward-looking non-GAAP financial measures, to the most directly comparable GAAP financial measures, is not provided because the company is unable to provide such reconciliation without unreasonable effort. The inability to provide a reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. These GAAP measures may include the impact of such items as restructuring charges; litigation settlements; goodwill impairments; gains and losses on investments; and the tax effect of all such items. Historically, the company has excluded these items from non-GAAP financial measures. The company currently expects to continue to exclude these items in future disclosures of non-GAAP financial measures and may also exclude other items that may arise (collectively, “non-GAAP adjustments”). The decisions and events that typically lead to the recognition of non-GAAP adjustments, such as a decision to exit part of the business or reaching settlement of a legal dispute, are inherently unpredictable as to if or when they may occur. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results.

(4) In Q2 FY17, the Domestic business recorded an $11 million periodic profit sharing benefit from its services plan portfolio. In Q2 FY18, there was no equivalent profit sharing benefit recorded.

BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
($ in millions, except per share amounts)
(Unaudited and subject to reclassification)
                 
    Three Months Ended   Six Months Ended
    July 29,   July 30,   July 29,   July 30,
    2017   2016   2017   2016
Revenue   $ 8,940   $ 8,533   $ 17,468   $ 16,976
Cost of goods sold     6,787     6,471     13,293     12,769
Gross profit     2,153     2,062     4,175     4,207
Gross profit %     24.1%     24.2%     23.9%     24.8%
Selling, general and administrative expenses     1,830     1,773     3,552     3,517
SG&A %     20.5%     20.8%     20.3%     20.7%
Restructuring charges     2     -     2     29
Operating income     321     289     621     661
Operating income %     3.6%     3.4%     3.6%     3.9%
Other income (expense):                
Gain on sale of investments     -     -     -     2
Investment income and other     7     8     18     14
Interest expense     (18)     (18)     (37)     (38)
Earnings from continuing operations before income tax expense     310     279     602     639
Income tax expense     101     97     205     231
Effective tax rate     32.6%     34.8%     34.1%     36.2%
Net earnings from continuing operations     209     182     397     408
Gain from discontinued operations, net of tax     -     16     -     19
Net earnings   $ 209   $ 198   $ 397   $ 427
                 
Basic earnings per share        
Continuing operations   $ 0.69   $ 0.57   $ 1.29   $ 1.27
Discontinued operations     -     0.05     -     0.06
Basic earnings per share   $ 0.69   $ 0.62   $ 1.29   $ 1.33
                 
Diluted earnings per share        
Continuing operations   $ 0.67   $ 0.56   $ 1.27   $ 1.26
Discontinued operations     -     0.05     -     0.05
Diluted earnings per share   $ 0.67   $ 0.61   $ 1.27   $ 1.31
                 
Dividends declared per common share   $ 0.34   $ 0.28   $ 0.68   $ 1.01
                 
Weighted-average common shares outstanding        
Basic     304.1     320.8     306.7     322.2
Diluted     310.8     322.9     313.0     324.8
                 
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(Unaudited and subject to reclassification)
         
     
    July 29, 2017   July 30, 2016
ASSETS        
Current assets        
Cash and cash equivalents   $ 1,365   $ 1,861
Short-term investments     2,125     1,590
Receivables, net     965     926
Merchandise inventories     5,167     4,908
Other current assets     456     409
Total current assets     10,078     9,694
Property and equipment, net     2,327     2,295
Goodwill     425     425
Other assets     614     840
TOTAL ASSETS   $ 13,444   $ 13,254
         
LIABILITIES & EQUITY        
Current liabilities        
Accounts payable   $ 5,072   $ 4,800
Unredeemed gift card liabilities     383     369
Deferred revenue     427     380
Accrued compensation and related expenses     309     272
Accrued liabilities     787     840
Accrued income taxes     83     96
Current portion of long-term debt     44     43
Total current liabilities     7,105     6,800
Long-term liabilities     682     794
Long-term debt     1,310     1,341
Equity     4,347     4,319
TOTAL LIABILITIES & EQUITY   $ 13,444   $ 13,254
         
BEST BUY CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited and subject to reclassification)
         
    Six Months Ended
    July 29, 2017   July 30, 20161
OPERATING ACTIVITIES        
Net earnings   $ 397   $ 427

Adjustments to reconcile net earnings to total cash provided by operating activities:

        
Depreciation     329     327
Restructuring charges     2     29
Stock-based compensation     67     57
Deferred income taxes     9     -
Other, net     (2)     (29)
Changes in operating assets and liabilities:        
Receivables     401     239
Merchandise inventories     (285)     161
Other assets     (45)     (29)
Accounts payable     15     355
Other liabilities     (237)     (159)
Income taxes     41     (81)
Total cash provided by operating activities     692     1,297
         
INVESTING ACTIVITIES        
Additions to property and equipment     (296)     (276)
Purchases of investments     (2,221)     (1,388)
Sales of investments     1,806     1,112
Proceeds from property disposition     2     56
Other, net     1     5
Total cash used in investing activities     (708)     (491)
         
FINANCING ACTIVITIES        
Repurchase of common stock     (771)     (271)
Issuance of common stock     125     23
Dividends paid     (208)     (328)
Repayments of debt     (19)     (374)
Other, net     (1)     8
Total cash used in financing activities     (874)     (942)
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH     18     25
DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH     (872)     (111)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD2     2,433     2,161
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD2  

$

1,561

  

$

2,050
 

(1) Represents Condensed Consolidated Statement of Cash Flow as of July 30, 2016, recast to present the company's retrospective adoption of Accounting Standards Update (ASU) 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, ASU 2016-15, Statement of Cash Flows: Classifications of Certain Cash Receipts and Cash Payments and ASU 2016-18, Statement of Cash Flows: Restricted Cash. The adoption of the standards drove a $9 million increase to cash provided by operating activities, a $4 million decrease in cash used in investing activities, a $9 million increase in cash used in financing activities, a $185 million increase to the beginning cash balance and a $189 million increase to the ending cash balance.
(2) The beginning and ending cash, cash equivalents and restricted balances are different than the cash and cash equivalents balance on the balance sheet due to the adoption of ASU 2016-18 described above. For FY17, the impact is a $185 million increase in the beginning balance and a $189 million increase in the ending balance. For FY18, the impact is a $193 million increase in the beginning balance and a $196 million increase in the ending balance. Restricted cash is recorded in Other current assets on the Condensed Consolidated Balance Sheet.

BEST BUY CO., INC.
SEGMENT INFORMATION
($ in millions)
(Unaudited and subject to reclassification)
                 
Domestic Segment Performance Summary            
    Three Months Ended   Six Months Ended
    July 29, 2017   July 30, 20161   July 29, 2017   July 30, 20161
Revenue   $8,272   $7,889   $16,184   $15,718
Gross profit   $1,985   $1,895   $3,856   $3,881
SG&A   $1,669   $1,608   $3,242   $3,195
Operating income   $316   $289   $614   $661
                 
Key Metrics                
Comparable sales % change   5.4%   0.8%   3.4%   0.4%
Comparable online sales % change   31.2%   23.7%   26.8%   23.8%
Gross profit as a % of revenue   24.0%   24.0%   23.8%   24.7%
SG&A as a % of revenue   20.2%   20.4%   20.0%   20.3%
Operating income as a % of revenue   3.8%   3.7%   3.8%   4.2%
                 
Non-GAAP Results                
Gross profit   $1,985   $1,895   $3,856   $3,698
Gross profit as a % of revenue   24.0%   24.0%   23.8%   23.5%
SG&A   $1,669   $1,608   $3,242   $3,173
SG&A as a % of revenue   20.2%   20.4%   20.0%   20.2%
Operating income   $316   $287   $614   $525
Operating income as a % of revenue   3.8%   3.6%   3.8%   3.3%
                 
International Segment Performance Summary            
    Three Months Ended   Six Months Ended
    July 29, 2017   July 30, 20161   July 29, 2017   July 30, 20161
Revenue   $668   $644   $1,284   $1,258
Gross profit   $168   $167   $319   $326
SG&A   $161   $165   $310   $322
Operating income   $5   $0   $7   $0
                 
Key Metrics                
Comparable sales % change2   4.7%   N/A   4.4%   N/A
Gross profit as a % of revenue   25.1%   25.9%   24.8%   25.9%
SG&A as a % of revenue   24.1%   25.6%   24.1%   25.6%
Operating income as a % of revenue   0.7%   0.0%   0.5%   0.0%
                 
Non-GAAP Results                
Gross profit   $168   $167   $319   $326
Gross profit as a % of revenue   25.1%   25.9%   24.8%   25.9%
SG&A   $161   $164   $310   $321
SG&A as a % of revenue   24.1%   25.5%   24.1%   25.5%
Operating income   $7   $3   $9   $5
Operating income as a % of revenue   1.0%   0.5%   0.7%   0.4%
     

(1) Beginning in Q1 FY18, the company will no longer be excluding non-restructuring property and equipment impairment charges from its non-GAAP financial metrics. To ensure its financial results are comparable, the company has recast FY16 and FY17, by quarter, to reflect the previously excluded impairments now being included in non-GAAP SG&A. For additional details, please refer to the GAAP to non-GAAP reconciliation for FY16 and FY17, by quarter, which is available on the company's investor relations website at www.investors.bestbuy.com.
(2) On March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website. The Canadian brand consolidation had a material impact on a year-over-year basis on the Canadian retail stores and the website and as such, all store and website revenue was removed from the comparable sales base and International (comprised of Canada and Mexico) did not have a comparable metric from Q1 FY16 through Q3 FY17. From Q1 FY16 through Q3 FY17 Enterprise comparable sales were equal to Domestic comparable sales. Beginning in Q4 FY17, the company resumed reporting International comparable sales as revenue in the International segment was once again determined to be comparable and, as such, Enterprise comparable sales are once again equal to the aggregation of Domestic and International comparable sales.

BEST BUY CO., INC.
REVENUE CATEGORY SUMMARY
(Unaudited and subject to reclassification)
 
    Revenue Mix Summary   Comparable Sales
    Three Months Ended   Three Months Ended
Domestic Segment   July 29, 2017   July 30, 2016   July 29, 2017   July 30, 2016
Consumer Electronics   32%   33%   2.5%   4.0%
Computing and Mobile Phones   47%   46%   6.7%   0.3%
Entertainment   6%   5%   15.4%   (18.0%)
Appliances   11%   11%   5.8%   8.2%
Services   4%   5%   1.5%   (7.2%)
Other   0%   0%   n/a   n/a
Total   100%   100%   5.4%   0.8%
                 
    Revenue Mix Summary   Comparable Sales
    Three Months Ended   Three Months Ended
International Segment1   July 29, 2017   July 30, 2016   July 29, 2017   July 30, 2016
Consumer Electronics   31%   29%   7.3%   n/a
Computing and Mobile Phones   47%   48%   0.3%   n/a
Entertainment   5%   6%   0.5%   n/a
Appliances   9%   7%   30.8%   n/a
Services   6%   8%   (1.3%)   n/a
Other   2%   2%   n/a   n/a
Total   100%   100%   4.7%   n/a
 

(1) On March 28, 2015, the company consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website. The Canadian brand consolidation had a material impact on a year-over-year basis on the Canadian retail stores and the website and, as such, all store and website revenue was removed from the comparable sales base and International (comprised of Canada and Mexico) did not have a comparable metric from Q1 FY16 through Q3 FY17. From Q1 FY16 through Q3 FY17, Enterprise comparable sales were equal to Domestic comparable sales. Beginning in Q4 FY17, the company resumed reporting International comparable sales and, as such, Enterprise comparable sales are once again equal to the aggregation of Domestic and International comparable sales.

BEST BUY CO., INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
CONTINUING OPERATIONS
($ in millions, except per share amounts)
(Unaudited and subject to reclassification)

The following information provides reconciliations of the most comparable financial measures from continuing operations calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”) to presented non-GAAP financial measures. The company believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, internal management reporting also includes non-GAAP measures. Generally, presented non-GAAP measures include adjustments for items such as restructuring charges, goodwill impairments and gains or losses on investments. In addition, certain other items may be excluded from non-GAAP financial measures when the company believes this provides greater clarity to management and investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for the GAAP financial measures presented in this earnings release and the company’s financial statements and other publicly filed reports. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.

The following tables reconcile gross profit, SG&A, operating income, effective tax rate, net earnings and diluted earnings per share for the periods presented for continuing operations (GAAP financial measures) to non-GAAP gross profit, non-GAAP SG&A, non-GAAP operating income, non-GAAP effective tax rate, non-GAAP net earnings and non-GAAP diluted earnings per share for continuing operations (non-GAAP financial measures) for the periods presented.

                 
    Three Months Ended   Three Months Ended
    July 29, 2017   July 30, 20161
    $  

% of
Rev.

   $  

% of
Rev.

Domestic - Continuing Operations

                
Operating income   $316   3.8%   $289   3.7%
Restructuring charges   0   0.0%   (2)   (0.0%)
Non-GAAP operating income   $316   3.8%   $287   3.6%
                 

International - Continuing Operations

                
SG&A   $161   24.1%   $165   25.6%
Other Canada brand consolidation charges - SG&A2   0   0.0%   (1)   (0.2%)
Non-GAAP SG&A   $161   24.1%   $164   25.5%
                 
Operating income   $5   0.7%   $0   0.0%
Other Canada brand consolidation charges - SG&A2   0   0.0%   1   0.2%
Restructuring charges   2   0.3%   2   0.3%
Non-GAAP operating income   $7   1.0%   $3   0.5%
                 

Consolidated - Continuing Operations

                
SG&A   $1,830   20.5%   $1,773   20.8%
Other Canada brand consolidation charges - SG&A2   0   0.0%   (1)   (0.0%)
Non-GAAP SG&A   $1,830   20.5%   $1,772   20.8%
                 
Operating income   $321   3.6%   $289   3.4%
Other Canada brand consolidation charges - SG&A2   0   0.0%   1   0.0%
Restructuring charges   2   0.0%   0   0.0%
Non-GAAP operating income   $323   3.6%   $290   3.4%
                 
Income tax expense   $101       $97    
Effective tax rate   32.6%       34.8%    
Income tax impact of non-GAAP adjustments3   2       -    
Non-GAAP income tax expense   $103       $97    
Non-GAAP effective tax rate   32.6%       34.8%    
                 
Net earnings   $209       $182    
Other Canada brand consolidation charges - SG&A2   0       1    
Restructuring charges   2       0    
Loss on investments, net   5       0    
Income tax impact of non-GAAP adjustments3   (2)       0    
Non-GAAP net earnings   $214       $183    
                 
Diluted EPS   $0.67       $0.56    
Per share impact of restructuring charges   0.01       0.00    

Per share impact of loss on investments, net

   0.02       0.00    

Per share income tax impact of non-GAAP adjustments3

  

(0.01)

      

0.01

    
Non-GAAP diluted EPS   $0.69       $0.57    
                 
    Six Months Ended   Six Months Ended
    July 29, 2017   July 30, 20161
    $  

% of
Rev.

   $  

% of
Rev.

Domestic - Continuing Operations

                
Gross profit   $3,856   23.8%   $3,881   24.7%
CRT/LCD settlements4   0   0.0%   (183)   (1.2%)
Non-GAAP gross profit   $3,856   23.8%   $3,698   23.5%
                 
SG&A   $3,242   20.0%   $3,195   20.3%
CRT/LCD settlement legal fees and costs4   0   0.0%   (22)   (0.1%)
Non-GAAP SG&A   $3,242   20.0%   $3,173   20.2%
                 
Operating income   $614   3.8%   $661   4.2%
Net CRT/LCD settlements4   0   0.0%   (161)   (1.0%)
Restructuring charges   0   0.0%   25   0.2%
Non-GAAP operating income   $614   3.8%   $525   3.3%
                 

International - Continuing Operations

                
SG&A   $310   24.1%   $322   25.6%
Other Canada brand consolidation charges - SG&A2   0   0.0%   (1)   (0.1%)
Non-GAAP SG&A   $310   24.1%   $321   25.5%
                 
Operating income   $7   0.5%   $0   0.0%
Other Canada brand consolidation charges - SG&A2   0   0.0%   1   0.1%
Restructuring charges   2   0.2%   4   0.3%
Non-GAAP operating income   $9   0.7%   $5   0.4%
                 

Consolidated - Continuing Operations

                
Gross profit   $4,175   23.9%   $4,207   24.8%
CRT/LCD settlements4   0   0.0%   (183)   (1.1%)
Non-GAAP gross profit   $4,175   23.9%   $4,024   23.7%
                 
SG&A   $3,552   20.3%   $3,517   20.7%
CRT/LCD settlement legal fees and costs4   0   0.0%   (22)   (0.1%)
Other Canada brand consolidation charges - SG&A2   0   0.0%   (1)   (0.0%)
Non-GAAP SG&A   $3,552   20.3%   $3,494   20.6%
                 
Operating income   $621   3.6%   $661   3.9%
Net CRT/LCD settlements4   0   0.0%   (161)   (0.9%)
Other Canada brand consolidation charges - SG&A2   0   0.0%   1   0.0%
Restructuring charges   2   0.0%   29   0.2%
Non-GAAP operating income   $623   3.6%   $530   3.1%
                 
Income tax expense   $205       $231    
Effective tax rate   34.1%       36.2%    
Income tax impact of non-GAAP adjustments3   2       (49)    
Non-GAAP income tax expense   $207       $182    
Non-GAAP effective tax rate   34.1%       36.1%    
                 
Net earnings   $397       $408    
Net CRT/LCD settlements4   0       (161)    
Other Canada brand consolidation charges - SG&A2   0       1    
Restructuring charges   2       29    
(Gain) loss on investments, net   5       (2)    
Income tax impact of non-GAAP adjustments3   (2)       49    
Non-GAAP net earnings   $402       $324    
                 
Diluted EPS   $1.27       $1.26    
Per share impact of net CRT/LCD settlements4   0.00       (0.50)    
Per share impact of restructuring charges   0.01       0.09    
Per share impact of (gain) loss on investments, net   0.01       (0.01)    

Per share income tax impact of non-GAAP adjustments3

  

(0.01)

      

0.16

    
Non-GAAP diluted EPS   $1.28       $1.00    
 

(1) Beginning in Q1 FY18, the company will no longer be excluding non-restructuring property and equipment impairment charges from its non-GAAP financial metrics. To ensure its financial results are comparable, the company has recast FY16 and FY17, by quarter, to reflect the previously excluded impairments now being included in non-GAAP SG&A. A complete GAAP to non-GAAP reconciliation for FY16 and FY17, by quarter, which is available on the company's investor relations website at www.investors.bestbuy.com.
(2) Represents charges related to the Canadian brand consolidation initiated in Q1 FY16, primarily due to retention bonuses and other-store related costs that were a direct result of the consolidation but did not qualify as restructuring charges.
(3) Income tax impact of non-GAAP adjustments is the summation of the calculated income tax charge related to each non-GAAP non-income tax adjustment. The non-GAAP adjustments relate primarily to adjustments in the United States and Canada. As such, the income tax charge is calculated using the statutory tax rates of 38.0% for the United States and 26.6% for Canada, applied to the non-GAAP adjustments of each country, which are detailed in the Domestic and International segment reconciliations above, respectively.
(4) Represents cathode ray tube (CRT) and LCD litigation settlements reached, net of related legal fees and costs. Settlements relate to products purchased and sold in prior fiscal years. Refer to Note 12, Contingencies and Commitments, in the Notes to Consolidated Financial Statements included in the company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017, for additional information.

Return on Assets and Non-GAAP Return on Invested Capital

The following table includes a reconciliation to the calculation of return on total assets ("ROA") (GAAP financial measure), along with the calculation of non-GAAP return on invested capital (“ROIC”) for total operations, which includes both continuing and discontinued operations (non-GAAP financial measure) for the periods presented.

The company defines non-GAAP ROIC as non-GAAP net operating profit after tax divided by average invested capital using the trailing four-quarter average. The company believes non-GAAP ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of the use of capital and believes non-GAAP ROIC is an important component of shareholders' return over the long term. This method of determining non-GAAP ROIC may differ from other companies' methods and therefore may not be comparable to those used by other companies.

Calculation of Return on Assets ("ROA")
         
    July 29, 20171   July 30, 20161
Net earnings   $ 1,198   $ 1,031
Total assets     13,699     13,723
ROA     8.7%     7.5%
         
Calculation of Non-GAAP Return on Invested Capital ("ROIC")
         
    July 29, 20171   July 30, 20161

Net Operating Profit After Taxes (NOPAT)

        
Operating income - continuing operations   $ 1,814   $ 1,662
Operating income - discontinued operations     2     28
Total operating income     1,816     1,690
Add: Operating lease interest2     233     231
Add: Non-GAAP operating income adjustments3     12     (132)
Add: Investment income     41     15
Less: Income taxes4     (786)     (684)
Non-GAAP NOPAT   $ 1,316   $ 1,120
         

Average Invested Capital

        
Total assets   $ 13,699   $ 13,712
Less: Excess cash5     (3,133)     (2,892)
Add: Capitalized operating lease obligations6     3,880     3,847
Total liabilities     (9,245)     (9,269)
Exclude: Debt7     1,358     1,534
Average invested capital   $ 6,559   $ 6,932
         
Non-GAAP ROIC     20.1%     16.2%