Best Buy’s (BBY) CEO Hubert Joly on Q2 2015 Results – Earnings Call Transcript

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Best Buy Co (NYSE:BBY)

Q2 2015 Earnings Conference Call

August 26, 2014 08:00 ET


Mollie O’Brien – VP, IR

Hubert Joly – President & CEO

Sharon McCollam – CAO & CFO


Simeon Gutman – Morgan Stanley

David Schick – Stifel Nicolaus

Alan Rifkin – Barclays Capital

Aram Rubinson – Wolfe Research

David Magee – SunTrust Robinson Humphrey

Mike Baker – Deutsche Bank

Brian Nagel – Oppenheimer


Welcome to Best Buy’s Second Quarter Fiscal Year 2015 Earnings Conference Call. (Operator Instructions). I would now like to turn the call over to Mollie O’Brien, Vice President, Investor Relations.

Mollie O’Brien

Good morning and thank you. Joining me on the call today are Hubert Joly, our President and CEO; and Sharon McCollam, our CAO and CFO. As usual, the media will be participating in this call in a listen-only mode.

This morning’s conference call must be considered in conjunction with the earnings release that we issued earlier today. They both contain non-GAAP financial measures that exclude the impact of certain business events. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons, but should not be considered superior to as a substitute for and should be read in conjunction with the GAAP financial measures for the period. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning’s earnings release.

Today’s earnings release and conference call also include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial condition, results of operations, business initiatives, growth plans, operational investments and prospects of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company’s current earnings release and SEC filings for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

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In today’s earnings release and conference call, we refer to consumer electronics or CE industry trends. The CE industry, as defined by the NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging, and other categories. Sales of these products represent approximately 65% of our domestic revenue. It does not include mobile phones, gaming, movies, music, appliances or services.

I will now turn the call over to Hubert.

Hubert Joly

Good morning everyone and thank you for joining us. I will begin today with an overview of our second quarter results and then update you on the progress we’re making against our Renew Blue priorities. Then I will turn the call over to Sharon for additional details on our quarterly results and commentary on our financial outlook. So first, our financial results. In the second quarter we delivered $8.9 billion in revenue and $0.44 in non-GAAP diluted earnings per share versus $0.32 last year. The ongoing benefits of our Renew Blue cost reduction and other SG&A cost containment initiatives drove these better than expected results.

On the top line as expected sales in the NPD track consumer electronics category declined 2.5% in-line with our domestic comparable sales decline of 2.0%. Like other retailers and as reflected in this quarter’s performance we continue to see a shift in consumer behavior. Consumers are increasingly researching and buying online. As a result traffic to our brick and mortar stores continue to decline and yet our in-store conversion and online traffic continue to increase due to the execution of our Renew Blue strategy which is in direct alignment with this shift. Our Renew Blue strategy is designed to grow our online business, enhance our in-store customer experience and leverage out multi-channel capabilities or deliver to our customers great advice, service and convenience at competitive prices in the channel they want to be served. Each of these initiatives contributed to our second quarter results.

And so I’m pleased to update you today on the progress we’re making against our renewable transformation road-map which is built around following areas. Merchandising, marketing, online, stores, Geek Squad services, supply chain, cost structure and employee engagement. So first of these areas is merchandising. We believe we’re raising the bar in our retail channel by continuing to roll out compelling and differentiated customer experiences across major categories such as appliances, home theater and mobile. In the appliance category we opened 18 new Pacific Kitchen & Home stores within a store on our on track to end the year with approximately 115 stores versus 67 last year.

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In the Home Theater category we opened seven new Magnolia design center stores within the store and our on track to the end the year with approximately 50 stores versus 33 last year. Both of these premium stores within the store concepts continue to outperform our expectations. We also rolled out over 800 Samsung and Sony Home Theater stores within a store during the quarter. This represents the first major merchandising transformation in Best Buy’s home theater department in almost 10 years. We believe that home theater transformation further solidifies our position as the destination for customers to discover and interact with industry leading home theater technology particularly ultra-high definition or 4k TVs and we’re encouraged by the early consumer response to our expanded ultra-high definition assortments.

We’re excited about the future of this technology even though we believe that the impact to our business this year will be limited.

In the mobile category in the second quarter we began offering customers the option to purchase installment billing plans with the Top 3 U.S. carriers. While mobile phone demand in the second quarter including year-over-year trading volume declined as customers wait for highly anticipated new product launches the penetration of installment billing progressively increased during the quarter and we believe we’re well-positioned to capitalize on the new products when they are introduced.

In the area of marketing, we made progress in our evolution from analog in mass to digital and targeted communications with our customers. During the quarter we continued to shift our marketing investment dollars towards digital media campaigns and away from print and television advertising.

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