Best Buy Co Inc BBY
Q1 2014 Earnings Call Transcript
Transcript Call Date 05/21/2013

Operator: Welcome to Best Buy's First Quarter Fiscal 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded for playback and will be available by 12.00 pm Eastern Time.

I would now like to turn the conference call over to Bill Seymour, Vice President of Investor Relations.

Bill Seymour - VP, IR: 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 are participating in this call in a listen-only mode. This morning's conference call must be considered in conjunction with the press 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-on-year comparisons which should not be considered superior to or at the substitute for, it should be not 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 is discussed in the supplemental schedules in this morning's earnings release.

Today's press 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 operation, business initiatives, growth plans 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 press 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, circumstances that may arise after the date of this call. As a reminder, the first quarter of fiscal 2014 was the 13 week quarter versus 14 weeks in fiscal year 2013. The extra week in fiscal 2013 added approximately $735 million in revenue, including $660 million in domestic and $75 million in international and $0.12 in diluted EPS.

It is also important to note that as a result of our previously announced definitive agreement to sell our 50% interest in Best Buy Europe, financial results for that business are now presented as discontinued operations in our financial statements. To assist investors with the financial modeling of this presentation, we have provided recast financial statements by quarter for fiscal years 2012 and 2013 on our Investor Relations website.

I will now turn the call over to Hubert.

Hubert Joly - President and CEO: Thank you, Bill, and good morning, everyone. Thank you for joining us. I would like to begin today with an overview of our first quarter results as well as an update of our Renew Blue priorities. Then I'll turn the call over to Sharon to provide further details.

But before I do that, I would like to extend our thoughts and prayers to our teams and all of the people in Oklahoma City who have been affected by the tremendous devastation from the tornado yesterday, it is a terrible tragedy, and our heartfelt sympathies and wishes are extended to all of them. At this moment, not all of our employees or employee families have been accounted for and remain in close contact with our regional leadership to ensure we are doing all that we can to support them in the moment of their greatness need and in the days and months ahead.

In the first quarter, we continued to make substantial progress on our Renew Blue priorities. This progress included; number one, driving a 16% increase in Domestic comparable online sales; number two, improving our customer Net Promoter Score by over 300 basis points; number three, reaching an agreement with Samsung to establish Samsung Experience Shops in our retail stores and beginning their roll out; number four, negotiating overall rent reductions for a number of our stores and closing one large format store; and number five, eliminating $175 million in annualized SG&A and supply chain costs in addition to the $150 million last quarter. And we also entered into a definitive agreement to sell our 50% interest in our European joint venture as announced last month.

In addition, we reached an agreement with our founder and largest shareholder, Dick Shulze, to rejoin Best Buy as our Chairman emeritus. Dick has been public in his support of Renew Blue, and while he has decided not to rejoin our Board of Directors, we are thrilled and grateful to have his entrepreneurial mindset in these nearly five decades of experience available to us.

We've also added three new Board members, each strengthening the Board with their important contributions. Russ Fradin, the President and CEO of SunGard is the newest member of our Board. Before taking the helm of SunGard, Russ was CEO of Aon Hewitt and brings substantial experience in operations and executive compensation to the Board. Also joining the Board are two individuals who know Best Buy well and together they bring decades of retail experience to Best Buy. Brad Anderson and Al Lenzmeier of course were instrumental in growing Best Buy into the world's largest consumer electronics retailer. And I speak for the entire Board when I welcome them back to Best Buy as directors.

From a financial perspective during the quarter, while below last year, we delivered better than expected results on both the top and bottom lines. On total Company revenue from continuing operations of $9.4 billion, which excludes Europe, we delivered non-GAAP diluted earnings per share of $0.32.

Now that's important, to eliminate any confusion, revenues including Europe would have been $10.8 billion and diluted earnings per share would have been $0.36. As expected, domestic comparable store sales were down 1.1%, but this was driven by an 80 basis point impact from this year's Super Bowl shifting into last year's fourth quarter and 30 basis point impact from our decision to reduce sales in certain non-core businesses. Excluding these impacts, Domestic comparable store sales were flat despite no new major product launches and late deliveries in the smartphone category. Impactful traffic generating and conversion initiatives, increased investment and price competitiveness drove this stronger than expected sales performance.

Other performance for the quarter was driven by proactive solid execution and we continue to be encouraged by the intensity, collaboration, and momentum that are Renew Blue priorities are instilling into the organization. To build on this momentum, we are remaining focused on the two problems we have to solve, stabilizing and improving our comparable stores sales and profitability across all OpEx of our business. To solve these problems we're continuing to focus on six renewable priorities that we outlined for you last quarter. Number one, accelerating online growth; number two, accelerating the multi-channel customer experience; number three, increasing revenue and gross profit per square foot, to enhance store space optimization and merchandizing; number four, driving down cost of goods sold to supply chain efficiencies; number five, continuing to gradually optimize the U.S. real estate portfolio; and number six, further reducing SG&A cost. And I will now provide you with an update on each of these priorities.

So, to accelerate online growth. We are focusing on those initiatives that will drive increased traffic and conversion. In Q1 these initiatives included, number one, deploying best-in-class search engine marketing tools and correspondingly increasing our investment page search. Number two, expanding affiliate marketing. And three, adding dynamic product recommendations functionality to the check-out process to win customers back into the shopping path.

Collectively, these initiatives drove a 16% increase in domestic comparable online sales during the quarter. In Q2, initiatives to optimize on natural search or SCO rankings are a top priority. These initiatives include redesigning certain aspects of the website such as navigation, user interface and mobile and tablet experience. Improving the quality structure and uniqueness of our content and enhancing our keyword and tag optimization.

These SEO optimization initiatives are top priority because 80% of all customers who are planning to buy $100 plus hard line product in a retail store are researching the product online before going to the store and using the first page of search results to decide where they are going to buy it. That means that show rooming is not starting in our retail store, it is starting online and we are now showing up today on the first page, our fair share of the time.

Also in Q2 to accelerate online growth, we are retiring our 10 year old onsite search platform and replacing it with new industry leading technology that will produce more relevant results based on the customer specific search criteria. We are creating a consistent customer experience across mobile, tablet, and PC devices including common navigation and product information. We are implementing technology enhancements that will make it easier to add Geek Squad services to the shopping cart and we are adding functionality based on customer browsing behavior that will dynamically recommend products if no item has been added to the shopping cart. Then as we enter Q3 and holiday, we will begin migrating rewards on customers to a seamless (indiscernible) will enhance the in-store pick up customer experience by creating an easier process for customers to add additional products and services to their basket when they arrive in the store and will add new marketplace partners to increase our online-only product assortments.

Now, well many of these online initiatives may sound like just basic functionality upgrades, they are actually game changing when online retailer of our size as we've historically underinvested in the online channel. So, increasing our online investments and implementing these upgrades will significantly improve our online effectiveness and in some cases, like in the area of onsite search take us to industry-leading levels.

The second Renew Blue priority for us this year is to escalate the multi-channel customer experience. Late last year, we introduced a new metric to track the customer experience known as Net Promoter Score or NPS. We use NPS to measure not only the satisfaction of customers who buy, but also the customers who don't. NPS here at Best Buy is tracked on a monthly basis for our individual stores, the online channel and our service organization. It is also a key component of all corporate incentive plans from the store manager to the CEO. And since November, when we first began using NPS as a key performance indicator, we have increased our score by more than 300 basis points. We've also increased year-over-year in-store and online conversion rates.

In addition to the rollout of NPS, we've also invested in two initiatives that we believe over time will have significant impact on our top and bottom lines in the customer experience. The first is our new low-price guarantee initiative that was launched in March as a follow-up program to our first quarter price match program. Another related opportunity to improve our price competitiveness, while not in our control, is of course sales tax equality in the online channel. By the end of the fiscal year, as most states implement their laws, will be collecting sales taxes in states that cover 50% of the U.S. population, and in states that are already collecting, we are seeing an incremental benefit in our online and retail store sales.

The second initiative there is our buy online, ship from store initiative. This initiative is critical in resolving the number one customer pinpoints in our online channel, which is a product not in stock. Depending on the months, 2% to 4% of all of our online traffic does not buy because we do not have the inventory in our online distribution centers and we are telling them it is out of stock, and yet, an estimated 80% of the time we're actually headed in one or more of our retail stores. So as this initiative progresses, we expect to gradually see an increase in online conversion, online sales, and customer satisfaction.

The most multi-channel retailers buy online shipped from store is a complex IT and operational undertaking, but we at Best Buy have actually already made the vast majority of the investment necessary to move this initiative forward over the next six to 12 months. This quarter, we began piloting this initiative in 50 of our retail stores and if the pilot is successful, we will extend it to as many stores as necessary to fulfill online demand. So buy online shipped from store has other significant operational benefits as well, it will allow us to improve our inventory management by helping us to more effectively manage new product inventory and more efficiently clear returns, open box and clearance inventory in our stores by being able to display the returned product on the web, but be able to ship it out of the store when it was returned.

The third Renew Blue priority is to increase revenue and gross profit per square foot to enhance store space optimization and merchandizing. As I said last quarter, our plan this year to reduce space allocated to the negative growth and low margin CD and DVD categories, and replace it with higher growth, higher margin categories like mobile, appliances, and accessories, while deepening strategic partnerships with key vendors. These changes are being made in two phases, in phase one which is complete, we have opened 525 Samsung Experience Shops in our large format stores and 390 in our standalone mobile stores. In phase 2, which is expected to be completed by the end of the summer, we will open the remaining Samsung Experience Shops and complete the large format stores-based allocation initiative.

Both of these are expected to enhance our forward profitability in our e-store customer experience by increasing space in higher demand product categories, improving product adjacencies and offering more in depths product knowledge. We are also taking a more holistic approach to managing clearance inventory by creating dedicated clearance zones in selected stores and enabling customers to buy in-store clearance items through the online channel, regardless of where the inventory is located.

The fourth priority for this year is to drive down cost of goods sold through supply chain efficiencies. Our first supply chain initiative is to optimize our retail store inventory replenishment model. In the first quarter, we have enhanced our algorithms to optimize our retail store delivery model for half of the U.S. which has resulted in the improved cubing of our trucks and a corresponding reduction in the number of loads margin driven. The remainder of the U.S. will be addressed in the back half of the year.

Our second supply chain initiative is to continue to expand our online delivery capabilities as we continue to grow the online business, to achieve this in time for holiday and we expect to extent our online fulfillment capabilities to our final 3 of 8 distribution centers. And then reallocate the inventory to the distribution center closest to the customer. We are also rationalizing our population of supply chain vendors and working across the industry to further drive down cost and improve our overall distribution network management.

Another supply chain priority is reverse logistics, which is actually one of the most financially punitive business processes in the Company. Customer returns, replacement and damages are approximately 10% of our revenue, and are costing the company over $400 million a year in P&L losses. To (address) these losses, as I mentioned earlier, we are creating clearance zones in our stores and implementing buy online, ship from store capabilities for this merchandize. We are also implementing in-store procedures to ensure a greater level of diligence around the returns that are accepted from customers, and a high level of rigger around inventory that is then ultimately returned by the stores to our centralized return centers. Our sense of urgency around this initiative is extraordinarily high due to the substantial financial opportunity it represents.

Based on the magnitude of this opportunity and the others we've discussed, and you can see now why we are so confident in our Renew Blue commitment to reduce cost of goods sold by $325 million. To-date, we have delivered $30 million and expect to deliver substantially more over the next several quarters. As this is an area that affects virtually every operating area in the company and carry significant contractual commitments, progress will be gradual and incremental but substantial.

Our fifth Renew Blue priority is to continue to gradually optimize our U.S. real estate portfolio, occupancy cost reduction and retail capital allocation remains a key focus. As such, during the quarter we renegotiated overall rent reductions for a number of our stores and closed one large format store.

As for new store openings, we are continuing to extend the timeframe by which we are measuring the performance of new prototype stores. This includes our Richfield prototype store and our Best Buy Mobile standalone stores. There are, however, a small number of select and opportunistic markets where we are moving forward with new store openings including 10 new Best Buy Mobile standalone stores that were opened in Q1 and two additional Best Buy Mobile standalone stores that will be opened later this year.

Our six Renew Blue priorities to further reduce SG&A cost as we laid out at our Analyst Day in November, we believe there is an opportunity to remove $400 million in SG&A from our North American business and we are making substantial progress. In the first quarter, we eliminated $135 million in annualized SG&A cost including $40 million in Canada, that's in addition to the $150 million in annualized reductions we announced in March. This brings us to $295 million, and we will take out additional cost as the year progresses.

Moving to international, improving the performance of our international businesses is also one of the key priorities for us. We announced last quarter and we are making progress there too. To this end, as I said earlier, we have agreed to sell our 50% interest in Best Buy Europe to Carphone Warehouse. This transaction allows us to simplify our business, substantially improve our return on invested capital which is one of the five pillars of our Renew Blue transformation, and of course, strengthen our balance sheet. We continue to expect that this transaction will close in June 2013.

Also in international, we are rolling out our Renew Blue priorities this year. To lead us in our international Renew Blue transformation, we have recently hired new leaders in both Canada and China.

I will now turn the call over to Sharon to cover more details on our Q1 financial performance and our outlook for the year. Sharon.

Sharon McCollam - EVP, Chief Administrative Officer and CFO: Thank you, Hubert, and good morning everyone. Non-GAAP financial results for the quarter were above expectations; they were also below last year. The highlights of the financial quarter were as follows; enterprise revenue excluding the additional week last year declined 2.6% to $9.38 billion and non-GAAP diluted earnings per share declined to $0.32. These declines were primarily driven by a significantly greater investment in price competitiveness and the year-over-year impact of high velocity product launches that occurred in the first quarter of last year that did not recur this year. These impacts were partially offset by the impact of companywide SG&A and cost containment initiatives.

Domestic revenue, excluding the additional week last year, declined 2.2% to $7.98 billion. This decline was driven by the loss of revenue from 49 large format stores that were closed last year and a comparable store sales decline of 1.1% that Hubert described earlier. Domestic comparable online sales increased 16.3%; this increase was driven by higher traffic and higher conversion across all online platforms.

From a merchandizing perspective, strong growth in mobile phones and appliances was more than offset by declines in home theater and gaming. International revenue, excluding the additional week last year and our European discontinued operations declined 5.1% to $1.4 billion. This decline was primarily driven by the loss of revenue from 15 large format stores that were closed last year in Canada and a comparable store sales decline of 2.8%. Comparable store sales were negatively impacted by ongoing competitive pressure in Canada partially offset by effective promotions that drove positive comparable store sales in China.

Turning now to gross profit, the enterprise gross profit rate for the first quarter was 23.1% versus 249% last year, a decline of 180 basis points. If you exclude the additional week last year the enterprise gross profit also declined 180 basis points.

The domestic gross profit rate was 23.4% versus 25.3% last year, a decline of 190 basis points. Excluding the additional week last year, the domestic gross profit rate additionally declined 190 basis points. This decline was primarily driven by a greater investment and price competitiveness including higher promotional activity in mobile and computing, higher inventory shrinkage and increased product warranty related cost. These impacts were partially offset by proceeds from legal settlements.

The international gross profit rate was 21.3% versus 22.6% last year, 130 basis point decline, excluding the additional week last year, international gross profit also declined 130 basis points. This decline was primarily driven by a higher mix of China revenue that carried a lower gross profit rate in a more promotional environment in China.

Now turning to SG&A. Enterprise level non-GAAP SG&A was $1.98 billion or 21.2% of revenue versus 21% last year an increase of 20 basis points. Excluding the additional week last year, however, non-GAAP SG&A as a percentage of revenue declined 10 basis points.

Domestic non-GAAP SG&A was $1.64 billion or 20.6% of revenue versus $1.80 billion or 20.4% of revenue last year, an increase of 20 basis points. Excluding the additional week last year, domestic non-GAAP SG&A as a percentage of revenue declined 10 basis points again. This 10 basis point decline was primarily driven by lower payroll and incentive compensation costs and tighter expense management throughout the company.

International non-GAAP SG&A expenses were $340 million or 24.3% of revenue versus $381 million or 24.6% of revenue last year, a decline of 30 basis points. Excluding the additional week last year, international non-GAAP SG&A expenses as a percentage of revenue also declined 30 basis points. This decline was primarily driven by SG&A leverage in China.

As we look forward to the second quarter, while not providing financial guidance we believe that the ongoing investment and price competitiveness that contributed to our gross profit and EPS declines in the first quarter will continue into the second quarter. Additionally, disruptions caused by the physical deployment of the Samsung Experience Shops and the optimization of our retail floor space are expected to have short-term operational impacts during second quarter. We also expect to see a greater negative impact from our Renew Blue capital and SG&A investments in the second quarter in the areas of online, mobile, the multi-channel customer experience and the replatforming of from which substantial financial benefits are not expected to be realized until fiscal '15 and beyond.

These Renew Blue SG&A investments however are expected to be substantially offset, particularly in the back half of the year by the fiscal 2014 realization of our Renew Blue annualized cost reduction initiatives, including the $175 million we eliminated this quarter, the $150 million we eliminated last quarter and the additional reductions that we expect to announce over the balance of the year.

As we sit here today, we are encouraged by the progress we are making against our Renew Blue priorities and excited about the opportunities that lie ahead for the balance of the year. Our better than expected results in the first quarter following our better than expected results from the fourth quarter are reaffirming what Hubert and I believe since the days we both joined the Company.

Best Buy is the market leader in a highly fragmented and growing market. We have a powerful platform from which to deliver a superior multi-channel shopping and service experience for our customers. While already the 10th largest e-commerce retailer in the U.S., we are underpenetrated from a market share perspective and early investment returns and the momentum we are seeing in the growth of the channel today validates the potential of this significant growth opportunity and the runway to improve financial returns through increased online growth, enhanced retail execution, and extensive structural cost is tremendous.

I'll now turn the call over to the operator for Q&A.

Transcript Call Date 05/21/2013

Operator: David Schick, Stifel Nicolaus.

David Schick - Stifel Nicolaus: I guess, I would ask about, it seems like obviously the calendar of product cycle as you mentioned and your competitors are all talking about these headwinds, and retail overall is talked about quarter with some awful sentiment early in the quarter and translator. Would you agree talked about some of the pressures on the business in the first quarter? Would you agree that the product cycle should start to help you more? And update on how you're thinking about that as the year plays out and probably the consumer as well?

Hubert Joly - President and CEO: I would say a couple of things. Yes, in Q1 the product cycle was at a bit lighter than last year and the rest of the year is more exciting. As the management team though, we’re less focused on headwinds and more focused on what we can control. We continue to believe that overall the market is large and growing and that we have ample opportunities to impact our destiny from that standpoint.

Operator: Peter Keith, Piper Jaffray.

Peter Keith - Piper Jaffray: Little bit on the gross margin and the price competitiveness. Understand if anything changed from Q4 to Q1, it look like the gross margin pressure intensified a little bit. Was there more pressure in Q1 from the price match or would that price competitiveness you did call out mobile and computing, the last quarter you called out home theater. Could you just provide a little more detail on what’s going on there and how we think about that trend going forward?

Hubert Joly - President and CEO: It's a good opportunity for us to clarify what's taking place. And what we've had, we starting in Q4 is greater investment on the part of the company to strengthen its price competitiveness, that’s independent from the price match policy. Meaning we have ensured that our prices are more competitive and we have enhanced our price competitiveness in the marketplace. The cost of the price matching is actually quite low, for two reasons; one, our price is actually now quite competitive and b, the frequency of the price matching is actually low. With the price matching policy and tool is done notably, is enhanced the confidence of our Blue Shirts as the work with the customers to understand their needs and then close the sale eliminated any obstacle to this. So, the impact on the gross profit margin to reiterate is primarily coming from the greater investments starting in Q4 of last year into our price competitiveness.

Operator: David Strasser, Janney Capital Markets.

David Strasser - Janney Capital Markets: Why don't you change the topic a little bit and talk about Samsung, I guess it's in, I don't know how many starts over 500 maybe not quite at 1000 yet. When you look at that what has been, has there been anything that really has jumped out at you to-date either positive or negative about this strategy and about having those stores in there. And as you look at it, do you think there is opportunity for other brand to do similar type things. And I guess the last one, it may be a little sensitive. As our part of this is, as you look at where it's being placed in the storage front and center in the stores. If you heard anything from vendors as far as complains that maybe Samsung is getting too much visibility inside the store being placed so well and so prominently in the store?

Hubert Joly - President and CEO: I think that one thing that struck me the most over the last several months is the feedback from many, many of our vendors about how valuable distribution capability is of course in the stores as well as online in many ways making our real estates in their eyes an asset rather than the liability quite frankly. So, specifically as we did to Samsung, what's really positive is the customer experience. These vendors invest billions of dollars in R&D to develop these great products and showcasing the experience – the functionalities and the experience of the individual products as well across products is very challenging if you don't have the space and the available advice. Best Buy is very unique today in providing the opportunity to do just that. So the customer experience is just terrific. The feedback we are getting from customers is very positive, including in that – relate to your second and third question, because customers can now look at the Samsung set of products and customer experiences as well as other competing universes and ecosystem as some people call these things. So this is a very positive thing. If anything the announcement of Samsung and the deployment of Samsung has triggered more conversations with other vendors who are agreeing that this is a very positive. And the more traffic is attracted to our stores, the better this is for everybody. So there will be more – there's nothing to talk about today, but we are interested in doing more, and we see it as win, win, win. It's winning for the customers, it's winning for the vendors, and it's winning for Best Buy. So this is exciting.

Operator: Brian Nagel, Oppenheimer.

Brian Nagel - Oppenheimer: So my question is on I guess recent sales trends. A competitor of yours last night, a smaller regional competitor, when they reported their quarterly results, talked very clearly about a pick-up in sales trends really throughout this year and then in particularly the recent month or so. And this was – they didn't specify specifically between consumer electronics and appliances, but are you seeing – is Best Buy seeing that in your business as well?

Hubert Joly - President and CEO: Brian, so your question is, are we seeing an acceleration of trends from a market standpoint? I personally find that months to months it's little bit hard to track, because there is so much noise in the system related to new product introductions. The governing start we have Brian is that we see the market as being a large growing market, and that's the – if anything, the next few months and quarters, we'll see a number of exciting new product introductions that will help the market. This is one of the extraordinary things about this industry is that new products keep coming up, and of course, we don't do so well in VCRs anymore, so you have to be focused on the new categories. But so, yes, we see a positive environment, a very competitive environment as well, but we don't want to give the impression of the rosy picture, but one where we have a very fair opportunity to compete and drive – for stabilize, and then begin increasing comps, which is in our profitability, which has been our theme since November.

Operator: Bradley Thomas, KeyBanc Capital Markets.

Bradley Thomas - KeyBanc Capital Markets: I wanted to ask about the opportunity to improve cost of goods sold. You guys have been very clear about the savings that you have realized on the SG&A side of things. You have also mentioned I believe it was $30 million that you have seen already on the cost of goods sold side. Could you just help quantify for us maybe what that run rate is today and the timing with which you could start to see more benefits on that side of the equation?

Hubert Joly - President and CEO: Hey Sharon, would you like to take this?

Sharon McCollam - EVP, Chief Administrative Officer and CFO: Absolutely, yes Brad I'd be happy to. The cost of goods opportunity is actually one of the most compelling cost reduction opportunities that we have in the Company right now. In Hubert's prepared remarks he talked about the biggest of those opportunities, which is this returns replacement and damages. Today, the reverse logistics process in the Company is resulting in a business model that is losing well over $400 million a year on a revenue base, reverse logistics revenue base returned from customers of over $3.5 billion. Well, best Buy has focused on a lot of things over the years. This particular area is one where it has received virtually no focused attention. As the Company had been growing and growing, the reverse logistics side of it are not obviously the primary focus. But today it is our number one priority to address this. So, when we look at that we quantify that for you clearly, you got to get your arms around what portion of those losses you can affectively go after but it is clearly a substantial opportunity and you bear even went on to point out that because of the magnitude of this talent, the confidence that we had in achieving that is extraordinarily high. The other place in the supply chain that we have significant opportunity is in the optimization of our shipping lane. We again have opportunity through systems enhancements and other areas to be able to further cube out our retail replenishment model which is a substantial cost when you think about our cube. Another area of that we are aggressively going after is the vendor selection, vendor management aspects of the supply chain and that is an area again where there has been less focus in some of the other areas in the company. So, collectively when you look at that and you think about what we shipped here between the flat drives and the flat screens. It is a very large cubic endeavor. So, going forward now let's talk about how you get there, and I think in your question, that you are looking at the SG&A and saying we have taken out substantially more SG&A than we have cost of goods. When you are talking about the supply chain what you need to be thinking about is a gradual and incremental ongoing improvement in the process. Remember the supply chain touches every operational activity that we have in the company and a lot of that business is contractually committed at any point in time. So in order to make progress on that, you have to work through those contractual obligations. So what you need to expect from us every single quarter is – just as we've said with SG&A, is a consistent and gradual recovery of this tremendous amount of cost, but there is nothing structural in the Company right now that would indicate anything other than this is all about execution and going to get it.

Operator: Alan Rifkin, Barclays.

Alan Rifkin - Barclays: My question will focus on the SG&A side of the cost reduction efforts. In only six months, you have very admirably realized about 75% of the targeted SG&A reductions. I was wondering if the opportunity exists for those reductions to actually be over and above the $400 million. And then the second question if I may is with the disposition of Europe, and it seems like for now, you are certainly committed to China. I know, up till now, you've been reluctant to talk about the cost reduction opportunities on the international front, but Hubert or Sharon, can you maybe just address what you think those opportunities could be?

Hubert Joly - President and CEO: Alan, thank you for your very kind comments, and I'll ask Sharon who of course is leading our work on SG&A to answer your question.

Sharon McCollam - EVP, Chief Administrative Officer and CFO: Alan, our $400 million target, I believe, is one that just like I just explained on the cost of goods side, is evident and extremely achievable. As Hubert and I learn more and more about the organization, and quite frankly, what I would tell you is when you look at the results even of the first quarter, this has become an organizational mission on SG&A. The results that we delivered this quarter was a collective effort of this entire organization and the leaders in Best Buy have embraced these initiatives at a level that you could only hope you could accomplish in such a short period of time. So, while I am extraordinarily encouraged about the potential, today, when I get to $400 million, I'll starting talking to you about bigger numbers, but what I can tell you is that we see nothing that says that you don't put that $400 million in the bank over time.

Alan Rifkin - Barclays: On the international cost reduction opportunity?

Sharon McCollam - EVP, Chief Administrative Officer and CFO: On the international side, I would say that we are in early innings. Hubert mentioned in his prepared remarks that Canada did take out $40 million of SG&A in the first quarter, but as we've discussed in previous calls and continue to discuss, we have only just begun to instill our Renew Blue priorities in our Canadian and China businesses. So I believe that that opportunity continues to be significant as well, and as we get more deeply into it, of course, we'll continue to communicate on our progress there. We have two extraordinarily wonderful new leaders, one in Canada and one in China, and they have come in blazing. And I think that they are going to lay the foundation for very similar progress against Renew Blue that we are seeing here in the U.S.

Operator: Anthony Chukumba, BB&T Capital Markets.

Anthony Chukumba - BB&T Capital Markets: Just had a quick question, just want to kind of circle back to the price investments. Would you say that those are largely behind the Company or should we expect some additional level of price investments going forward?

Hubert Joly - President and CEO: Your question is, do we plan to expand the investments. Certainly I would say we plan to maintain the investments. We feel that being price competitive is utmost important at this particular time. It's possible that we will selectively increase the investments as we look ahead. Of course it's going to be a balancing act, Anthony, between this price investments and then the capture of the cost of goods sold – cost reduction opportunities that Sharon highlighted. So I'm not giving you very specific guidance, but rather a general sense of direction of the importance we place on these investments and also the fiscal responsibility we feel to over time balance this. So, I think as we look ahead in the next quarter's we will continue to update you of course on this, but count on us to be in there fighting to attract and keep customers.

Sharon McCollam - EVP, Chief Administrative Officer and CFO: I will just add to that Anthony, that the one area that we'll add to the margin impact of the investments that we're making in price will be the optimization of our footprints in our retail stores and focusing on balancing that mix along with all of the other initiatives that Hubert is talking about. By the end of the summer, we are going to be complete with our first phase of the four phase optimizations and of course, once we have made those changes, we will be tweaking that going forward, and we think that that is a very important opportunity for us as we focus on the balance that Hubert mentioned between the investment in price and the optimization of our margin well having to invest in price.

Anthony Chukumba - BB&T Capital Markets: So, altogether as we wrap this conference call, first of all I wanted to thank you for your attention and your support. I want to convey the fact that this continue to be very exciting times for Best Buy. I feel very encouraged by the actions we have been taking in this third quarter. The opportunities we have but I think we tried to detail it on the call today as we look ahead and the early results in our efforts to stabilize and begin improving the performance of the business. So, these are very intensive and exiting times for us, and we look forward to continued dialogue. So, Bill over back to you.

Bill Seymour - VP, IR: That’s the end of the call operator. Thank you.

Operator: Thank you. Ladies and gentlemen, that concludes the first quarter Best Buy earnings conference call. As a reminder this call is being recorded for playback and is available after 12 pm Eastern Time, by dialing 800-406-7325 and entering the access code 4617853 followed by the pound. That you for using ACT, you may now disconnect.