Best Buy Co., Inc. — FY2020 Form 10-K
Business context and reporting period. Best Buy is a technology retailer and services provider operating in the U.S., Canada and Mexico through Domestic and International segments. Fiscal 2020 ended February 1, 2020, and included 52 weeks. The filing is an annual report, not a standalone quarterly filing; the fiscal fourth quarter included the holiday season.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $43.638 billion | $42.879 billion |
| Comparable sales growth | 2.1% | 4.8% |
| Gross profit / gross margin | $10.048 billion / 23.0% | $9.961 billion / 23.2% |
| Operating income / operating margin | $2.009 billion / 4.6% | $1.900 billion / 4.4% |
| Net earnings | $1.541 billion | $1.464 billion |
| Diluted EPS | $5.75 GAAP; $6.07 non-GAAP | $5.20 GAAP; $5.32 non-GAAP |
| Cash provided by operating activities | $2.565 billion | $2.408 billion |
| Cash and cash equivalents at year-end | $2.229 billion | $1.980 billion |
| Current ratio | 1.1 | 1.2 |
| Total debt, including current portion | $1.271 billion | $1.388 billion |
Fiscal Q4 revenue was $15.196 billion, operating income $967 million, net earnings $745 million and diluted EPS $2.84; prior-year-quarter figures were $14.801 billion, $978 million, $735 million and $2.69, respectively. The fourth quarter generated a large share of annual earnings.
Cash used in investing activities was $895 million, including $743 million of capital expenditures and $145 million of acquisition spending, net of cash acquired. Cash used in financing activities was $1.498 billion, including $1.003 billion of share repurchases and $527 million of dividends. Outstanding notes had $1.15 billion in principal; reported total debt also included lease obligations and other adjustments. The company recognized $2.7 billion of operating lease assets and $2.8 billion of operating lease liabilities upon adopting new lease accounting guidance.
Material changes versus the prior year
- Revenue rose 1.8%, while comparable sales growth slowed to 2.1% from 4.8%. GAAP operating income rose 5.7% and diluted EPS increased 10.6%; reduced weighted-average shares from buybacks also supported per-share growth.
- Gross margin declined 0.2 percentage points, primarily due to lower product margins; lower SG&A as a share of revenue more than offset this and lifted operating margin by 0.2 points.
- Domestic revenue increased to $40.114 billion, with comparable sales growth of 2.3%. Online revenue rose to $7.640 billion, or 19.0% of Domestic segment revenue, from $6.528 billion, or 16.6%.
- International revenue declined 1.4% to $3.524 billion; comparable sales decreased 0.5%, with foreign exchange also reducing reported revenue.
- Appliances grew strongly in Domestic comparable sales (+13.0%); Entertainment declined 18.5%, driven primarily by gaming. Best Buy acquired CST and BioSensics during FY2020, building on its GreatCall health acquisition in FY2019.
Outlook, management commentary, risks and unusual items
- Management set fiscal 2025 strategic targets of $50 billion in revenue and a 5.0% non-GAAP operating income rate, alongside customer-relationship and employee goals. These are longer-term targets, not near-term earnings guidance.
- COVID-19 developments after the fiscal year-end were a major uncertainty as of the March 23, 2020 filing. Best Buy shifted U.S. stores to enhanced curbside service, suspended in-home installation and repair, moved consultations to virtual formats, and warned of potential sales, profit, supply-chain and response-cost impacts. The extent and duration of the effects were uncertain.
- On March 19, 2020, Best Buy drew the full $1.25 billion revolving credit facility and temporarily suspended share repurchases. It also reported 0.6 million additional shares repurchased for $56 million between year-end and March 18, before the suspension.
- The Board announced a 10% increase in the quarterly dividend to $0.55 per share, effective February 2020. FY2020 share repurchases totaled 14.0 million shares at a cost of about $1.0 billion.
- Key risks include intense price and online competition, dependence on concentrated suppliers (the five largest represented about 56% of merchandise purchases), changing consumer demand and technology cycles, labor costs, service and health-business execution, cybersecurity and privacy, supply-chain disruption, tariffs, and macroeconomic conditions.
- Unusual or notable items included $41 million of restructuring charges, mainly related to U.S. retail operating-model changes, and $72 million of acquired-intangible amortization. Non-GAAP measures exclude certain items and should be considered alongside GAAP results. Adoption of lease accounting materially increased reported assets and liabilities; management said its ongoing earnings and cash-flow impact was expected to be immaterial.
- Auditors issued unqualified opinions on the financial statements and internal controls. Critical audit matters included vendor allowances and valuation of goodwill for Best Buy Health; no goodwill impairment was recorded.
Important facts for investors to verify
- How COVID-19 affected subsequent-quarter revenue, profitability, cash generation, store operations and supply availability; the filing did not provide a clear quantified forecast.
- Whether Domestic comparable-sales and online growth can continue, and whether appliance strength offsets continued weakness in gaming and other categories.
- Progress toward the fiscal 2025 revenue and non-GAAP margin targets, including the contribution and costs of health, membership and in-home service initiatives.
- Liquidity and capital-allocation changes after the full revolver draw and buyback suspension, including any updates to dividends, debt repayment and credit-facility use.
- Exposure to large suppliers, tariffs and vendor funding, and sensitivity of margins to product pricing, promotion and inventory markdown assumptions.
- Lease commitments and tax contingencies: operating lease obligations were $3.060 billion undiscounted, and unrecognized tax benefits were $318 million.