BEST BUY CO INC, 10-Q filed on 5/27/2020
Quarterly Report
v3.20.1
Document Information Statement - shares
3 Months Ended
May 02, 2020
May 22, 2020
Document Information [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date May 02, 2020  
Document Fiscal Year Focus 2020  
Current Fiscal Year End Date --02-01  
Document Transition Report false  
Entity File Number 1-9595  
Entity Registrant Name BEST BUY CO., INC.  
Entity Incorporation, State or Country Code MN  
Entity Address, Address Line One 7601 Penn Avenue South  
Entity Address, City or Town Richfield  
Entity Address, State or Province MN  
Entity Tax Identification Number 41-0907483  
Entity Address, Postal Zip Code 55423  
City Area Code 612  
Local Phone Number 291-1000  
Title of 12(b) Security Common Stock, $0.10 par value per share  
Trading Symbol BBY  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   258,309,045
Document Fiscal Period Focus Q1  
Entity Central Index Key 0000764478  
Amendment Flag false  
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
May 02, 2020
Feb. 01, 2020
May 04, 2019
Current assets      
Cash and cash equivalents $ 3,919 $ 2,229 $ 1,561
Receivables, net 749 1,149 833
Merchandise inventories 3,993 5,174 5,195
Other current assets 335 305 425
Total current assets 8,996 8,857 8,014
Property and equipment, net 2,291 2,328 2,334
Operating lease assets 2,631 2,709 2,708
Goodwill 986 984 915
Other assets 701 713 579
Total assets 15,605 15,591 14,550
Current liabilities      
Accounts payable 4,428 5,288 4,718
Unredeemed gift card liabilities 257 281 265
Deferred revenue 531 501 409
Accrued compensation and related expenses 213 410 275
Accrued liabilities 769 906 851
Short-term debt 1,250    
Current portion of operating lease liabilities 683 660 639
Current portion of long-term debt 673 14 14
Total current liabilities 8,804 8,060 7,171
Long-term liabilities 694 657 659
Long-term operating lease liabilities 2,076 2,138 2,173
Long-term debt 621 1,257 1,193
Contingencies (Note 10)
Equity      
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none
Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 257 million, 256 million, and 267 million shares, respectively 26 26 27
Additional paid-in capital 15    
Retained earnings 3,126 3,158 3,038
Accumulated other comprehensive income 243 295 289
Total equity 3,410 3,479 3,354
Total liabilities and equity $ 15,605 $ 15,591 $ 14,550
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
May 02, 2020
Feb. 01, 2020
May 04, 2019
Condensed Consolidated Balance Sheets [Abstract]      
Preferred stock, par value (in dollars per share) $ 1.00 $ 1.00 $ 1.00
Preferred stock, authorized shares 400,000 400,000 400,000
Preferred stock, issued shares 0 0 0
Preferred stock, outstanding shares 0 0 0
Common stock, par value (in dollars per share) $ 0.10 $ 0.10 $ 0.10
Common stock, authorized shares 1,000,000,000.0 1,000,000,000.0 1,000,000,000.0
Common stock, issued shares 257,000,000 256,000,000 267,000,000
Common stock, outstanding shares 257,000,000 256,000,000 267,000,000
v3.20.1
Condensed Consolidated Statements of Earnings - USD ($)
shares in Millions, $ in Millions
3 Months Ended
May 02, 2020
May 04, 2019
Condensed Consolidated Statements of Earnings [Abstract]    
Revenue $ 8,562 $ 9,142
Cost of sales 6,597 6,973
Gross profit 1,965 2,169
Selling, general and administrative expenses 1,735 1,835
Restructuring charges 1  
Operating income 229 334
Other income (expense):    
Investment income and other 6 14
Interest expense (17) (18)
Earnings before income tax expense 218 330
Income tax expense 59 65
Net earnings $ 159 $ 265
Basic earnings per share $ 0.61 $ 0.99
Diluted earnings per share $ 0.61 $ 0.98
Weighted-average common shares outstanding    
Basic 258.3 267.6
Diluted 260.4 271.5
v3.20.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
May 02, 2020
May 04, 2019
Condensed Consolidated Statements of Comprehensive Income [Abstract]    
Net earnings $ 159 $ 265
Foreign currency translation adjustments, net of tax (52) (5)
Comprehensive income $ 107 $ 260
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
May 02, 2020
May 04, 2019
Operating activities    
Net earnings $ 159 $ 265
Adjustments to reconcile net earnings to total cash provided by operating activities:    
Depreciation and amortization 207 200
Stock-based compensation 15 36
Deferred income taxes 15 13
Other, net 6 1
Changes in operating assets and liabilities:    
Receivables 383 182
Merchandise inventories 1,136 207
Other assets (12) (14)
Accounts payable (816) (519)
Income taxes 31 10
Other liabilities (297) (379)
Total cash provided by operating activities 827 2
Investing activities    
Additions to property and equipment (178) (193)
Other, net (1) 1
Total cash used in investing activities (179) (192)
Financing activities    
Repurchase of common stock (62) (98)
Dividends paid (141) (134)
Borrowings of debt 1,250  
Other, net 2 6
Total cash provided by (used in) financing activities 1,049 (226)
Effect of exchange rate changes on cash and cash equivalents (18) (1)
Increase (decrease) in cash, cash equivalents and restricted cash 1,679 (417)
Cash, cash equivalents and restricted cash at beginning of period 2,355 2,184
Cash, cash equivalents and restricted cash at end of period $ 4,034 $ 1,767
v3.20.1
Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Millions, $ in Millions
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total
Beginning balances at Feb. 02, 2019 $ 27   $ 2,985 $ 294 $ 3,306
Beginning balances (in shares) at Feb. 02, 2019 266        
Increase (Decrease) in Shareholders' Equity          
Net earnings     265   265
Other comprehensive loss, net of tax:          
Foreign currency translation adjustments, net of tax       (5) (5)
Stock-based compensation   $ 36     36
Issuance of common stock   11     11
Issuance of common stock (in shares) 2        
Common stock dividends   2 (136)   (134)
Repurchase of common stock   (49) (57)   (106)
Repurchase of common stock (in shares) (1)        
Ending balances at May. 04, 2019 $ 27   3,038 289 3,354
Ending balances (in shares) at May. 04, 2019 267        
Increase (Decrease) in Shareholders' Equity          
Cumulative effect of new accounting principle in period of adoption | Adoption of ASU 2014-09 [Member]     (19)   (19)
Beginning balances at Feb. 01, 2020 $ 26   3,158 295 3,479
Beginning balances (in shares) at Feb. 01, 2020 256        
Increase (Decrease) in Shareholders' Equity          
Net earnings     159   159
Other comprehensive loss, net of tax:          
Foreign currency translation adjustments, net of tax       (52) (52)
Stock-based compensation   15     15
Issuance of common stock   6     6
Issuance of common stock (in shares) 2        
Common stock dividends   2 (143)   (141)
Repurchase of common stock   (8) (48)   (56)
Repurchase of common stock (in shares) (1)        
Ending balances at May. 02, 2020 $ 26 $ 15 $ 3,126 $ 243 $ 3,410
Ending balances (in shares) at May. 02, 2020 257        
v3.20.1
Condensed Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) - $ / shares
3 Months Ended
May 02, 2020
May 04, 2019
Condensed Consolidated Statements of Changes in Shareholders' Equity [Abstract]    
Dividends declared per common share $ 0.55 $ 0.50
v3.20.1
Basis of Presentation
3 Months Ended
May 02, 2020
Basis of Presentation [Abstract]  
Basis of Presentation 1. Basis of Presentation

Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.

Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020. The first three months of fiscal 2021 and fiscal 2020 included 13 weeks.

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements. No such events were identified for the reported periods.

In preparing the accompanying condensed consolidated financial statements, we evaluated the period from May 2, 2020, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for the reported periods.

COVID-19

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease ("COVID-19") as a pandemic. Except where otherwise directed by state and local authorities, on March 22, 2020, we made the decision for the health and safety of our customers and employees to move our stores to a contactless, curbside-only operating model. We also suspended in-home delivery, repair and consultation services on March 22, 2020, and resumed these offerings on April 27, 2020, after implementing new safety guidelines.

In light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of our $1.25 billion five year senior unsecured revolving credit facility on March 19, 2020. See Note 4, Debt, for additional information. We also suspended all share repurchases.

Since the pandemic had a significant impact on our store operations, we concluded this was a triggering event to review for potential impairments of our store assets. As a result of this analysis, we recorded an immaterial asset impairment charge for a small number of stores within Selling, general and administrative (“SG&A”) expenses for the three months ended May 2, 2020.

We have goodwill in two reporting units – Best Buy Domestic and Best Buy Health – with carrying values as of May 2, 2020, of $444 million and $542 million, respectively. We test goodwill for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. Our most recent goodwill impairment analysis, completed during the fourth quarter of fiscal 2020, indicated an excess of fair value over carrying value for both reporting units. As a result of the impact of COVID-19 on our business, we completed a review for potential impairments of our goodwill in the first quarter of fiscal 2021. As a result of this analysis, we concluded that no impairment had occurred.

On March 27, 2020, in response to the COVID-19 pandemic, the U.S. Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. As a result of the CARES Act, we intend to defer qualified payroll taxes and claim the employee retention credit, which will be treated as a government subsidy to offset related operating expenses. Based on our preliminary analysis of the CARES Act, we reduced our SG&A expenses for the three months ended May 2, 2020, by $69 million for employee retention credits. We will continue to assess our treatment of the CARES Act to the extent additional guidance and regulations are issued.

The COVID-19 pandemic remains a rapidly evolving situation. The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration and spread of the outbreak within the markets in which we operate and the related impact on consumer confidence and spending, all of which are highly uncertain.

Adopted Accounting Pronouncements

In the first quarter of fiscal 2021, we prospectively adopted the following Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board, all of which had an immaterial impact on our results of operations, cash flows and financial position.

ASU 2016-13, Measurement of Credit Losses on Financial Instruments

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820)

ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

Total Cash, Cash Equivalents and Restricted Cash

The reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totals shown within the Condensed Consolidated Statements of Cash Flows was as follows ($ in millions):

May 2, 2020

February 1, 2020

May 4, 2019

Cash and cash equivalents

$

3,919 

$

2,229 

$

1,561 

Restricted cash included in Other current assets

115 

126 

206 

Total cash, cash equivalents and restricted cash

$

4,034 

$

2,355 

$

1,767 

Amounts included in restricted cash are pledged as collateral or restricted to use for workers’ compensation and general liability insurance claims.

 
v3.20.1
Fair Value Measurements
3 Months Ended
May 02, 2020
Fair Value Measurements [Abstract]  
Fair Value Measurements 2. Fair Value Measurements

Fair value measurements are reported in one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

Recurring Fair Value Measurements

Financial assets and liabilities accounted for at fair value were as follows ($ in millions):

Fair Value at

Balance Sheet Location(1)

Fair Value Hierarchy

May 2, 2020

February 1, 2020

May 4, 2019

Assets

Money market funds(2)

Cash and cash equivalents

Level 1

$

1,153 

$

524 

$

18 

Commercial paper(2)

Cash and cash equivalents

Level 2

-

75 

-

Time deposits(3)

Cash and cash equivalents

Level 2

465 

185 

60 

Money market funds(2)

Other current assets

Level 1

6 

16 

93 

Time deposits(3)

Other current assets

Level 2

101 

101 

102 

Foreign currency derivative instruments(4)

Other current assets

Level 2

6 

1 

-

Interest rate swap derivative instruments(4)

Other current assets

Level 2

11 

-

-

Marketable securities that fund deferred compensation(5)

Other assets

Level 1

45 

48 

46 

Interest rate swap derivative instruments(4)

Other assets

Level 2

107 

89 

28 

Liabilities

Interest rate swap derivative instruments(4)

Long-term liabilities

Level 2

-

-

6 

(1)Balance sheet location is determined by the length to maturity from the current period-end date.

(2)Valued at quoted market prices.

(3)Valued at face value plus accrued interest, which approximates fair value.

(4)Valued using readily observable market inputs. These instruments are custom, over-the-counter contracts with various bank counterparties that are not traded on an active market.

(5)Valued using select mutual fund performance that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.

Fair Value of Financial Instruments

The fair values of cash, receivables, accounts payable, short-term debt and other payables approximated their carrying values because of the short-term nature of these instruments. With the exception of short-term debt, if these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy; short-term debt would be classified as Level 2. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate their fair values.

Long-term debt is presented at carrying value on our Condensed Consolidated Balance Sheets. If our long-term debt were recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. Long-term debt balances were as follows ($ in millions):

May 2, 2020

February 1, 2020

May 4, 2019

Fair Value

Carrying Value

Fair Value

Carrying Value

Fair Value

Carrying Value

Long-term debt(1)

$

1,315 

$

1,268 

$

1,322 

$

1,239 

$

1,213 

$

1,173 

(1)Excludes debt discounts, issuance costs and finance lease obligations.

 
v3.20.1
Goodwill and Intangible Assets
3 Months Ended
May 02, 2020
Goodwill and Intangible Assets [Abstract]  
Goodwill and Intangible Assets 3. Goodwill and Intangible Assets

See Note 1, Basis of Presentation, for impairment considerations for the three months ended May 2, 2020, due to COVID-19. No impairment charges were recorded during the fiscal periods presented.

Goodwill

Balances related to goodwill were as follows ($ in millions):

May 2, 2020

February 1, 2020

May 4, 2019

Gross Carrying
Amount

Cumulative
Impairment

Gross Carrying
Amount

Cumulative
Impairment

Gross Carrying
Amount

Cumulative
Impairment

Domestic

$

1,053 

$

(67)

$

1,051 

$

(67)

$

982 

$

(67)

International

608 

(608)

608 

(608)

608 

(608)

Total

$

1,661 

$

(675)

$

1,659 

$

(675)

$

1,590 

$

(675)

Indefinite-Lived Intangible Assets

During the three months ended May 2, 2020, we made the decision to phase out our Pacific Sales tradename in our U.S. Best Buy stores over the coming years. Consequently, we reclassified the tradename from an indefinite-lived intangible asset to a definite-lived intangible asset and have no indefinite-lived intangible assets remaining as of May 2, 2020. The carrying value of the tradename was $18 million as of February 1, 2020, and May 4, 2019, respectively, and was recorded within Other assets on our Condensed Consolidated Balance Sheets.

Definite-Lived Intangible Assets

We have definite-lived intangible assets which are recorded within Other assets on our Condensed Consolidated Balance Sheets as follows ($ in millions):

May 2, 2020

February 1, 2020

May 4, 2019

Weighted-Average

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Useful Life Remaining as of

May 2, 2020 (in years)

Customer relationships

$

339 

$

83 

$

339 

$

70 

$

258 

$

29 

6.9

Tradenames

81 

13 

63 

10 

63 

5 

5.5

Developed technology

56 

18 

56 

15 

52 

6 

3.3

Total

$

476 

$

114 

$

458 

$

95 

$

373 

$

40 

6.3

Amortization expense was as follows ($ in millions):

Three Months Ended

Statement of Earnings Location

May 2, 2020

May 4, 2019

Amortization expense

SG&A

$

19 

$

17 

Amortization expense expected to be recognized in future periods is as follows ($ in millions):

Amortization Expense

Remainder of fiscal 2021

$

61 

Fiscal 2022

80 

Fiscal 2023

79 

Fiscal 2024

54 

Fiscal 2025

16 

Fiscal 2026

16 

Thereafter

56 

v3.20.1
Debt
3 Months Ended
May 02, 2020
Debt [Abstract]  
Debt 4. Debt

Short-Term Debt

We have a $1.25 billion five year senior unsecured revolving credit facility agreement (the “Facility”) with a syndicate of banks. In light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a seven-day draw on the full amount of the Facility on March 19, 2020, and rolled this into a three-month draw on March 26, 2020. The Facility remained fully drawn as of May 2, 2020, at an interest rate of three-month LIBOR plus a margin rate of 1.015%. There were no borrowings outstanding as of February 1, 2020, or May 4, 2019.

Information regarding our short-term debt for the three months ended May 2, 2020, was as follows ($ in millions):

Average Amount Outstanding

Maximum Amount Outstanding

Weighted Average Interest Rate

Short-term debt

$

618 

$

1,250 

2.3