Best Buy Co., Inc. — Fiscal 2023 Form 10-K
Reporting period: Fiscal year ended January 28, 2023 (52 weeks), compared primarily with fiscal 2022 ended January 29, 2022. Best Buy operates Domestic (U.S., including Best Buy Health) and International (Canada) segments, selling consumer technology products and services through stores, online channels and in-home services.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $46.298 billion | $51.761 billion |
| Comparable sales change | (9.9)% | 10.4% |
| Gross profit / margin | $9.912 billion / 21.4% | $11.640 billion / 22.5% |
| Operating income / margin | $1.795 billion / 3.9% | $3.039 billion / 5.9% |
| Net earnings | $1.419 billion | $2.454 billion |
| Diluted EPS | $6.29 | $9.84 |
| Operating cash flow | $1.824 billion | $3.252 billion |
| Capital expenditures | $930 million | $737 million |
- Domestic revenue declined 10.5% to $42.794 billion; comparable sales fell 10.3%. International revenue declined 10.9% to $3.504 billion; comparable sales fell 5.4%. International results also faced unfavorable currency translation.
- Gross margin contracted by 1.1 percentage points. Management cited heavier product promotions, lower services margins associated with Totaltech benefits, and higher supply-chain costs. Lower sales also reduced operating leverage.
- GAAP diluted EPS was $6.29; adjusted non-GAAP diluted EPS was $7.08, down from $10.01. FY2023 non-GAAP operating income was $2.028 billion, versus $3.092 billion.
- Cash and cash equivalents were $1.874 billion, down from $2.936 billion. Restricted cash was an additional $379 million. Cash from operations decreased, primarily with lower earnings and higher incentive-compensation payments; inventory and payables movements partly affected the year’s cash flow.
- Current assets were $8.802 billion and current liabilities $8.979 billion; the reported current ratio was 1.0. Total long-term debt, including finance-lease obligations, was $1.176 billion. This included $1.150 billion principal on notes due 2028 and 2030. The $1.25 billion revolver was undrawn, and the company reported covenant compliance.
- Shareholder returns included $1.001 billion of repurchases and $789 million of dividends. The quarterly dividend was raised from $0.88 to $0.92 per share in March 2023, after fiscal year-end.
Material changes and unusual items
- Revenue and comparable sales reversed the prior year’s growth, reflecting unusually strong pandemic-era comparisons, a shift in consumer spending toward services such as travel and entertainment, and inflation-related softness in electronics demand.
- Best Buy recorded $147 million of restructuring charges, primarily employee termination costs from an enterprise-wide cost-alignment initiative begun in the second quarter. Management did not expect remaining FY2024 charges from this initiative to be material.
- Domestic online revenue was $14.212 billion, or 33.2% of segment revenue, compared with 34.4% in FY2022. Management reported that more than 40% of online sales were picked up in stores.
- FY2023 share repurchases were substantially lower than FY2022’s $3.504 billion. The company repurchased 11.8 million shares in FY2023 versus 32.2 million in FY2022.
Outlook, management commentary and risks
- Management expected macroeconomic headwinds to continue and prepared for another annual decline in consumer-electronics industry sales in FY2024. It cited high inflation and rising interest rates, while anticipating that technology replacement cycles and vendor innovation could support industry growth over time. The filing does not provide a clear numerical FY2024 revenue or earnings guidance range.
- Management expected FY2024 capital expenditures of approximately $850 million, and currently expected to close about 20–30 Best Buy stores while increasing Outlet Centers to approximately 30.
- Management emphasized evolving the omnichannel model, membership programs and Best Buy Health’s care-at-home business. The filing reports goodwill of $891 million for Best Buy Health; management said its impairment risk is higher than for the core Domestic reporting unit because of the business’s less mature, rapidly changing environment, though no impairment was recorded.
- Key disclosed risks include consumer-demand weakness, price competition and margin pressure, vendor concentration (five suppliers accounted for approximately 57% of merchandise purchases), supply-chain disruption, labor costs and availability, cybersecurity and privacy exposures, and execution and regulatory risks in health services. Approximately 25% of FY2023 revenue was transacted using branded cards; changes in financing-program economics could affect sales and profit-share income.
- Legal proceedings and tax matters are discussed in the filing, but the provided text does not give a clear aggregate exposure value for legal contingencies. The company reported no off-balance-sheet arrangements. Deloitte issued unqualified opinions on the financial statements and internal controls; management reported effective internal controls and no material weaknesses.
Important facts for investors to verify
- Whether sales, comparable-sales trends and gross margins stabilize after the FY2023 downturn, particularly in computing, consumer electronics and appliances.
- Whether management’s FY2024 industry outlook, approximately $850 million capital-spending plan and planned store closures remain consistent with subsequent disclosures.
- Whether the $891 million Best Buy Health goodwill balance remains supported by forecasts and assumptions, given the segment’s higher disclosed impairment risk.
- How Totaltech membership economics, services margins and credit-card profit sharing develop, including the effect of benefits replacing formerly separate service revenue.
- Whether cash generation and liquidity support dividends, repurchases and investment needs while maintaining the company’s investment-grade credit profile.