http://www.morningstar.com/earnings/55790111-best-buy-co-inc-bby-q2-2014.aspx

Best Buy Co Inc BBY
Q2 2014 Earnings Call Transcript

Transcript Call Date 08/20/2013

The financial highlights of the quarter were as follows. Enterprise revenue for the second quarter declined 0.4% to $9.3 billion and non-GAAP diluted EPS increased 23.1% to $0.32. This EPS increase was primarily driven by strong expense management and Renew Blue cost savings, partially offset by higher year-over-year investment in price competitiveness.

Domestic revenue of $7.8 billion increased 0.1%. This increase was primarily driven by incremental revenue from 57 net new Best Buy mobile stores, partially offset by a comparable store sales decline of 0.4%. Excluding the disruptive comparable store sales impact that Hubert discussed earlier though, domestic comparable store sales were flat to slightly positive for the quarter.

Domestic online comparable revenue increased 10.5% due to increased traffic and a higher average order value, including gaming pre-orders comparable online demand increased over 16%. From a merchandizing perspective, strong growth in mobile phones and appliances was partially offset by declines in other category including gaming and digital imaging. Of note, comparable store sales for the television category were flat in the quarter, which is considerably better than the trend we've seen over the last few years.

International revenue of $1.5 billion declined 2.9%. This decline was due to the loss of revenue from 15 large format stores that were closed in Canada last year and a comparable store sales decline of 1.8% driven by lower demand for consumer electronics and ongoing competitive pressure in Canada, partially offset by increased consumer demand in China due to expiring government subsidies that were supported by increased promotional offers.

Turning now to the gross profit, the enterprise non-GAAP gross profit rate for the second quarter was 23.7% versus 24.2% last year, a decline of 50 basis points. The domestic non-GAAP gross profit rate was 24% versus 24.3% last year, a decline of 30 basis points. This decline was primarily driven by increased product warranty related cost associated with higher claims frequency in the mobile category, and a greater investment and price competitiveness particularly in appliances and mobile.

These impacts were partially offset however by improved overall product mix and the accelerated recognition of previously deferred revenue associated with our Capital One credit card portfolio that will sold to Citibank in the third quarter. The international gross profit rate was 22.3% versus 23.8% last year, a decline of 150 basis points. This decline was primarily driven by a higher mix of China revenue that carries a lower gross profit rate and higher commercial activity in China.

Now turning to SG&A. Enterprise level non-GAAP SG&A was $2 billion or 21.5% of revenue versus 22.3% last year, a decline of 80 basis points. Domestic non-GAAP SG&A expenses were $1.67 billion or 21.3% of revenue versus $1.72 billion or 22.1% of revenue last year, a decline of 80 basis points. This decline was primarily driven by strong expense management, Renew Blue cost savings and the impact of Q2 fiscal year '13 store closures. These reductions were partially offset by our Renew Blue investment and the optimization of our retail floor space and the re-platforming of bestbuy.com.

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