Best Buy Co., Inc. — Q3 FY2024 Form 10-Q
Business context and reporting period. The quarter ended October 28, 2023; the nine-month period comprised 39 weeks. Best Buy operates Domestic (including U.S. and Best Buy Health) and International (Canada) segments. Results reflect a seasonally important retailer, with a large share of revenue and earnings typically generated in the fourth quarter.
Financial performance and liquidity
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $9.756B | $10.587B | $28.806B | $31.563B |
| Comparable sales | -6.9% | -10.4% | -7.8% | -10.2% |
| Gross margin | 22.9% | 22.0% | 22.9% | 22.1% |
| Operating income | $354M | $365M | $1.013B | $1.198B |
| Operating margin | 3.6% | 3.4% | 3.5% | 3.8% |
| Net earnings | $263M | $277M | $781M | $924M |
| Diluted EPS | $1.21 | $1.22 | $3.57 | $4.07 |
- Q3 gross margin improved, but lower sales and higher SG&A as a share of revenue partly offset the benefit. Domestic gross margin benefited from membership economics, services margins, product margins and lower supply-chain costs. International gross margin fell on lower product margins.
- Nine-month operating cash flow was $290M, versus cash used of $108M a year earlier. Cash used in investing was $600M, including $612M of property and equipment additions; financing used $872M, including $603M of dividends and $270M of share repurchases.
- Cash and cash equivalents were $636M at quarter-end; restricted cash was a further $423M. Current assets were $9.865B and current liabilities $10.010B; the reported current ratio was 1.0.
- Long-term debt, including current portion, was $1.145B on the balance sheet; principal notes totaled $1.15B ($500M due 2028 and $650M due 2030). The $1.25B revolving facility was undrawn. The company reported a 0.8 trailing-twelve-month debt-to-earnings ratio.
Changes versus prior comparable period
- Q3 revenue declined 7.8% and comparable sales declined 6.9%, while the comparable-sales decline moderated from 10.4% a year earlier. Nine-month revenue fell 8.7%.
- Q3 net earnings and diluted EPS were lower year over year. Nine-month net earnings declined to $781M from $924M; GAAP diluted EPS fell to $3.57 from $4.07.
- Domestic Q3 comparable sales fell 7.3%; International comparable sales fell 1.9%. Gaming and services were areas of growth, while appliances, computing, home theater and mobile phones remained pressured in the Domestic segment.
- Cash from operations improved year over year, while cash and cash equivalents were lower than at January 28, 2023, primarily reflecting inventory timing and volume, capital spending and dividends.
Outlook, commentary, risks and unusual items
- Management expected consumer-electronics industry sales to decline again in fiscal 2024, citing high inflation, elevated interest rates, demand pulled forward in prior years, and increased consumer spending outside the home. It cited pandemic-era product replacement cycles and vendor innovation as potential longer-term growth drivers.
- Fiscal 2024 plans included approximately 25 large-format Best Buy store closures (within a stated plan of 20–30), eight Experience store remodels, and 23 Outlet Centers by year-end. Management reported 6.6 million paid members and said the revised membership program was already supporting margin favorability and was expected to lower cost to serve.
- Management expected fiscal 2024 capital expenditures of approximately $825M, compared with $930M in fiscal 2023, and approximately $350M of share repurchases. It stated that liquidity sources were expected to fund operations and planned investment and shareholder returns, while warning that spending could need to be limited if liquidity proved insufficient.
- Q3 non-GAAP diluted EPS was $1.29 versus $1.38 a year earlier; nine-month non-GAAP diluted EPS was $3.66 versus $4.49. These are company-defined non-GAAP measures and should be read alongside GAAP results.
- The company recorded a $21M gain from selling its Mexico subsidiary after exiting those operations. Nine-month restructuring charges included a net credit of $16M, primarily reflecting adjustments associated with higher-than-expected employee retention; management did not expect material future charges from the fiscal 2023 initiative.
- Supplier-finance program obligations included in accounts payable were $680M at quarter-end. Legal proceedings are ongoing; the filing does not provide a clear aggregate amount for potential exposure. Management identified macroeconomic, competitive, vendor, labor, technology, cybersecurity, privacy, foreign-exchange and execution risks.
Important facts for investors to verify
- Whether the expected fourth-quarter holiday demand and full-year industry decline align with subsequent sales and comparable-sales results.
- Whether margin improvement from membership and services can persist amid lower sales, promotions and fixed-cost deleverage.
- Actual fiscal 2024 capital expenditures, share repurchases, store closures and Outlet Center count versus management’s plans.
- Cash conversion and inventory trends, including the level and terms of supplier-finance obligations and the company’s ability to maintain liquidity.
- Developments in legal contingencies, consumer demand, vendor availability, and inflation and interest-rate exposure.