Best Buy Co., Inc. — Q3 Fiscal 2022 10-Q
Reporting period: Third quarter ended October 30, 2021; comparisons are with the quarter ended October 31, 2020. Unless noted, amounts are U.S. dollars. Best Buy sells consumer technology products and services through its Domestic and International segments. After closing its Mexico stores, International operations consisted of Canada.
Financial performance
| Metric | Q3 FY22 | Q3 FY21 | Nine months FY22 | Nine months FY21 |
|---|---|---|---|---|
| Revenue | $11.910 billion | $11.853 billion | $35.396 billion | $30.325 billion |
| Comparable sales growth | 1.6% | 23.0% | 17.5% | 8.1% |
| Gross margin | 23.5% | 23.6% | 23.5% | 23.2% |
| Operating income | $670 million | $561 million | $2.236 billion | $1.358 billion |
| Operating margin | 5.6% | 4.7% | 6.3% | 4.5% |
| Net earnings | $499 million | $391 million | $1.828 billion | $982 million |
| Diluted EPS | $2.00 | $1.48 | $7.23 | $3.74 |
Quarterly revenue was nearly flat year over year, while nine-month revenue increased 16.7%. Third-quarter diluted EPS rose 35%; nine-month EPS nearly doubled. Domestic quarterly comparable sales grew 2.0%, while International comparable sales declined 3.0%. Domestic online revenue fell 10.1% year over year as shopping shifted back toward stores; online sales were 31.3% of Domestic revenue versus 35.2% a year earlier.
For the quarter, Domestic operating income was $609 million versus $612 million; International operating income was $61 million versus a $51 million loss. Nine-month operating income improved in both segments, including a swing to International profit. Quarterly Domestic gross margin weakened, while International margin improved substantially, partly reflecting the exit from lower-margin Mexico operations and prior-year exit-related markdowns.
Cash, debt, and capital allocation
- Nine-month cash from operations was $1.061 billion, down from $3.907 billion. Management attributed the decline mainly to earlier and larger holiday inventory purchases and related payments; higher earnings partly offset the working-capital impact. Capital expenditures were $548 million.
- Cash and cash equivalents were $3.465 billion at October 30, 2021, versus $5.136 billion a year earlier. Merchandise inventory was $8.553 billion, compared with $7.459 billion a year earlier. The current ratio was 1.1.
- Long-term debt was $1.223 billion, plus $15 million current debt; the company had no revolver borrowings and reported $1.25 billion of undrawn revolving capacity through May 2026. Outstanding notes were $500 million due 2028 and $650 million due 2030. S&P rated Best Buy BBB+ with a stable outlook; Moody’s rated it A3, stable.
- Best Buy repurchased $1.757 billion of shares and paid $522 million in dividends during the first nine months. It had $3.362 billion remaining under its $5 billion authorization at quarter-end. From quarter-end through December 1, it repurchased a further 3.6 million shares for $452 million.
Changes, outlook, and risks
- Management cited continued technology demand, channel shifts, supply-chain delays and higher costs. It reported improving product availability and said constraints had not materially limited overall sales growth, while describing steps to secure inventory and transportation ahead of the holiday season.
- Management said the business was positioned to benefit from sustained technology needs, hybrid work and omnichannel capabilities. Best Buy launched its Totaltech membership nationally; associated benefits and costs pressured services margins, and services comparable sales declined partly because some formerly stand-alone services became membership benefits.
- Quarterly gross margin was pressured by lapping unusually low prior-year promotions, product damage and returns, higher inventory shrink attributed partly to theft, and Totaltech service costs. Management also cited higher advertising and technology spending.
- No specific numerical revenue or earnings guidance is provided in the supplied filing text. Management said liquidity sources should be sufficient for operations, investment, repurchases, dividends and strategic initiatives, but cautioned that cash generation or borrowing access could weaken.
- Key stated risks include supply-chain disruption, product availability, inflationary costs, theft and inventory loss, competition, changing consumer demand, employee retention and compensation, cybersecurity, and reliance on vendors and technology systems. Results are seasonal, with a large share of revenue and earnings typically generated in the holiday quarter.
Unusual items and contingencies
The first nine months included a $101 million reduction in unrecognized tax benefits from resolution of discrete tax matters, recorded as a tax benefit. Restructuring activity included a $45 million net credit for the nine months, primarily reflecting adjustments to planned termination benefits and employee retention; management did not expect material further Mexico-exit charges, though future strategic realignment costs remain possible. The filing describes legal proceedings but provides no clear quantified exposure in the supplied text.
After quarter-end, Best Buy completed its approximately $400 million acquisition of Current Health on November 2 and its approximately $85 million acquisition of Yardbird on November 4. Both were expected to be included in consolidated results beginning in Q4 FY22.
Investor facts to verify
- Whether holiday-quarter sales and margins withstand supply constraints, higher costs, and elevated inventory.
- How much Totaltech membership adoption, retention, and service costs contribute to customer value and profitability.
- Whether operating cash flow rebounds after the inventory build and how continued repurchases and dividends affect liquidity.
- The integration, performance, and financial returns of Current Health and Yardbird.
- Any developments in legal contingencies, tax matters, inventory shrink, or restructuring costs.