Welcome to the Best Buy's Conference Call for the Second Quarter of Fiscal 2012. [Operator Instructions] And as a reminder, this call is being recorded for playback and will be available by 12:00 p.m. Eastern Time today. [Operator Instructions] I would now like to turn the conference over to Mr. Bill Seymour, Vice President of Investor Relations. Please go ahead.

Thank you, Alicia. Good morning, everyone. Thank you for joining us on our fiscal second quarter 2012 conference call. We have 2 speakers today, Brian Dunn, our CEO; and Jim Muehlbauer, our CFO. And after our prepared remarks, we should have plenty of time for your questions. Before I pass the call over to Brian, I'd like to take care of a few housekeeping items. [Operator Instructions] And let me remind you that comments made by me or by others representing Best Buy may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. With those housekeeping items aside, I'd like to turn the call over to Brian Dunn.

Good morning, everyone, and thanks for joining us on our second quarter earnings conference call. My comments this morning will focus on our second quarter performance, how we're progressing on our strategic priorities and how we see the rest of the year playing out. But before I jump into my comments on the quarter, I would like to thank our employees for another quarter of outstanding effort in bringing the Connected World to life for our customers across all of our channels and geographies. I'm especially proud of the way our teams in London pulled together to ensure the safety of their employees and customers during the riots in London last month and how our U.S. employees helped their communities and each other through the extreme difficulties of Hurricane Irene and the recent battering of the East Coast. We continue to execute on our strategy in times of challenge and continue to see opportunity. We're responding to the needs of our customers in each segment and channel where we conduct business. Before I turn it over to Jim for more specific details, I want to put our results and outlook in the context of our overall business strategy. As you know, our strategy is to drive the 3 elements: one, our financial strength and flexibility; two, a unique multichannel approach that allows us to connect wherever and whenever people shop; and three, optimizing our scale to drive growth through new categories, new store formats and share gains in key categories. Let's begin our look at the financial strength that is enabling us to continue to invest and return value to our shareholders. Looking at the big picture worldwide, we're still facing an uncertain macro environment with volatile consumer shopping behavior, and this was evident in our results for the second…

Thanks, Brian, and good morning, everyone. Today, I'd like to cover the financial highlights of our second quarter results and provide you with a progress update on several of our key initiatives for the year. I will also discuss some of the background around the changes we announced to our annual EPS outlook this morning based on what we have observed so far this year. Earlier, Brian touched on what we are seeing in the macro environment and its dampening impact on consumer spending and the CE industry. Together, we have seen this play out through the first half in various industry data points as well as in the commentary of some of our vendor partners and competitors. Viewed in the context of these current macro and industry headwinds, our business faired comparatively well. But still, our Q2 results were below our original expectations. With this as important context, our second quarter revenue came in about flat to last year. The favorable impact of foreign currency and new store growth were offset by a comparable store sales decline of 2.8%. In the Domestic segment, sales declined 1.5% and comparable store sales were down 2.7%. These results were relatively consistent with the sales trends we experienced in the first quarter of the year. The biggest positive drivers in the Domestic comp included tablets, appliances and e-readers. Total mobile computing had strong comparable store sales growth of 9% in the quarter. The growth was driven by a very strong tablet sales supported by the benefits of implementing our Tablet Central model, which leverages a broad assortment of devices side by side with dedicated expert labor. Also in computing, it's worth noting that traditional notebook comp trends, while still negative, improved again during the quarter. Appliances continued its momentum with strong comp sales…

[Operator Instructions] Our first question is from the line of Peter Keith with Piper Jaffray.

I know you provided some background information on the International segment performance, but that overall was perhaps the biggest delta with your results relative to what I was expecting. It sounds like some areas that you are looking for improvement did get better, specifically with China and perhaps Canada. But I guess it looked like in terms of an operating profit growth that it took a turn for the worse relative to Q1, where you did show nice improvement, and it seemed like it was SG&A dollars embedded in there. I'm wondering if you could just provide a little more discussion around what happened in International and if things changed within the last 6 months, or if you would anticipate that becomes more of a operating profit driver going forward here in the back half of the year.

Thanks for the question, Peter. It's Jim. I'd be happy to talk a little bit more about the components under our International segment performance. You rightly point out that our operating profits in Q1 in International increased significantly year-over-year. When you would take a look at what happened in Q2, we saw many of the same trends and improved operating profits that we saw in Q1 actually happen in Q2 as well. The primary difference in our operating income performance in Q2 for International was driven by the result in our European business. When I look at the performance of our business in Canada, Five Star and Mexico, coupled with the restructuring activities we did in Turkey and China, our profits actually increased pretty dramatically in the International segment. Europe profits were actually down significantly in Q2 after being up in Q1, primarily driven by 2 factors. Very difficult macro environments in consumer spending in Europe similar to what we've seen in other parts of the world. Quite frankly, that environment is more difficult than what we're experiencing in the U.S. market from a consumer standpoint. The other thing not to be underestimated, and that is the commentary that both Brian and I provided on what's going on with mobile phone connections in Europe, specifically in the U.K. About 1.5 years ago, the carriers in that market switched from 18-month contracts for customers to 24-month contracts. We are now in the middle of that lull period were typically we would have more contracts that are coming up for renewal that aren't available for the marketplace to basically upgrade those customers. So we'll start to see that later towards the tail end of this year, but a combination of the macro environment in Europe and that significant change in contract terms and kind of being in that valley right now is what's driving our European operating profit down.

I would just add one thing. This is Brian, Peter. And that is, and Jim touched on this, the impact of those iconic phone launches being pushed later into the year has an even bigger impact in Europe where it is such a larger percentage of our business there. Thanks for the question.

The next question is from the line of Dan Binder with Jefferies & Company. Daniel T. Binder - Jefferies & Company, Inc., Research Division: I was wondering if you can give us a sense of the type of price and labor investments you'll be making in the back half of this year versus last year. And then as a follow-on, what we should expect inventory to look like in terms of growth over the next 2 quarters.

This Mike Vitelli. Thanks for the question. You asked about price. Did you say price and labor investments? Daniel T. Binder - Jefferies & Company, Inc., Research Division: Yes.

As far as pricing, we intend to continue the competitive actions that we've taken since the fourth quarter of last year into the first and second of this year. We've seen that pay off for us well as we continue to grow share in categories that we've been trying to grow share with, like appliances, gaming. And what we've seen also is as we've been more aggressive on our pricing in categories that do well online like digital imaging and MP3, our aggressive price actions there have really paid off. We're going to continue that as we move to the second half and we expect the second half to be as competitive as it did in the past years and the situation that we're seeing today. As far as labor is concerned, when Jim talked about the SG&A changes that we've been making, we've been very point-ful to not be making any material reductions in our store labor. In fact, just the opposite. We're making investments in our store labor areas by having key labor investments in our gaming area, in our computer, in tablet area, in Best Buy Mobile. All the places where we're seeing the growth, that's where we're putting our labor there. And as far as our inventory is concerned, we've made very good progress in reducing our inventory and getting it in line with what our expectations are on our days of supply, and our inventory positions both at the end of each of the next 2 quarters would be commensurate with the days of supply we'd expect for those periods in time.

Yes, and key for us in that obviously is remaining fluid based on what we see the consumer actually doing in the back half of the year. At this point in time, we've got the opportunity to influence both our inventory purchases on the front end and what we can do after the holiday season. So in large respect, Dan, what we're doing is we're preparing for a wide range of outcomes because when the consumer continues to demonstrates interest in the areas we have seen interest in so far, we're going to make sure we have the right level of inventory in place. And if those demands are a little greater, we'll have opportunities to flex up a little bit. If they turn out to be a little softer in some areas, making sure that we can flex down on that inventory so we can keep the product in the store that's freshest and is actually moving for the benefit of customers.

This is Brian, Dan. And as reflected in our first half margin performance in the commentary Jim made, run-all [ph] we expect in the second half we are not going to hesitate to be where the customer needs us to be and we will not hesitate to let people know that we are the best buy.

The next question is from the line of David Strasser with Janney Montgomery Scott.

I'd like to go back to the question on Europe. It seems you've been struggling there. Obviously, part of that is macro. But what about the Best Buy stores there in particular? I mean, does it cause you or force you to think a little bit about whether that fits into the long-term strategic rationale for you guys? It seems in -- for example, even in China, you kind of cut bait there. You realized that the Best Buy store wasn't the right model and Five Star is a better model, and you seem to be thriving there. So just a just a little thought about that.

Yes, sure. I'm happy to, David. So the first -- maybe a little more context on China. You correctly point out that the model that we had launched within Best Buy and the roughly 10 stores we had there wasn't giving the type of benefit that we had expected. We certainly think that there's opportunities that remain in China under some type of Best Buy-branded business. But the reason we started a test there in the first place is to figure out where we could provide a meaningful level of differentiation over time that makes a sense for the current customer there. So we haven't given up on Best Buy in China. As a matter of fact, we think we have other opportunities there. But we are absolutely focused on growing the opportunity that we have right in front of us in the profitable Five Star business in the here and now. In Europe specifically, as I look at the run rate change of operating profits, Q1 to Q2, the biggest driver of that performance is not the big box performance. It's actually the performance of our roughly 2,400 small box stores, driven by once again the macro environment and the carrier contract changes we talked about. As we launched those big box stores in the U.K., we purposely said we want to test to see how that value proposition works with customers. We certainly, as has the rest of the market, have been met with a very challenging macro setup in that space and we certainly -- like all of our tests, we continue to evaluate what makes the most sense in that marketplace from a multichannel approach. And quite candidly, we need to make sure, as we do in all of our businesses both domestically and internationally, that each of those businesses earn its right to future capital in the space. So things we know for sure. We know for sure that our teams in the U.K. have done a great job of landing a model in that place where customers recognize the value that a service environment provides and a customer experience that's differentiated. We're very pleased with what our teams had landed there from a customer and a service perspective. We haven't come to a conclusion yet on what the long-term model should look like for multichannel and big box but, David, we absolutely look at it all the time and think about the best bets that we make to grow the portfolio profitably over time.

David, this is Brian. You and I have discussed this, and we've discussed this on the call. As Jim correctly calls out, we're in the sort of early innings of leveraging our multichannel capability. We have an online business there that is making good progress. We have the 10-store big box test, as Jim called out, and we have a network of 2,400 CPW stores. And what we're really working through is, how do we leverage all of those things to create a network or web that customers can leverage in the multichannel fashion they're living? And again, to reiterate Jim's comment, I think we've got a pretty good track record that all of our businesses have to earn their right to capital over appropriate time horizon or we'll make decisions on it. Thank you.

The next question is from the line of Alan Rifkin with Barclays Capital.

Brian, more of a philosophical question, if I may, for you. We've been strong advocates of companies needing to either increase their run on IC [ph] via share buybacks as you're leaning towards or raising the dividend. And your comment today to commit to $1.5 billion in total, which implies another $600 million in the back half, I'm wondering how you go about deciding to allocate greater capital towards buying back stock in this uncertain environment as opposed to increasing dividends going forward?

Thanks for the question, Alan. The first thing we look at is, as we're looking to deploy our capital, where can we invest our capital that grow -- that will provide growth for our enterprise and payback for our shareholders? So as you know, that's the first place we go. And as we work our way through that, we then look very carefully at where we want to go relative to buyback and dividends. We have a strong track record, as you know, of returning capital to our shareholders. It has largely been through buybacks over the last 5 years. It has been perhaps a bit lumpy and we're a little steadier now on how we deploy it. And we take a hard look at, do we want to invest in buyback? Do we want to invest in dividends? We believe our share price is such that we're undervalued in the market and we think over time that's the best investment and the best deployment in this scenario.

The next question is from the line of Chris Horvers with JPMorgan. Christopher Horvers - JP Morgan Chase & Co, Research Division: I understand your -- the comparisons in wireless clearly played against you in the second quarter. Was it something that you saw coming? And perhaps you can speak to the more near-term general trends in wireless now that the initial launches have passed, you've anniversary-ed that. And then -- and related to that in a bigger picture side, household penetration of smartphones probably reaches near 50% by the end of this year. It seems innovation may be a little more incremental than we've seen in the past. How are you thinking about wireless growth, both in the back half of this year and then longer term into '12, given industry dynamics?

Thanks for the question. I'll tell you what. It's an interesting phenomenon that happens when there's an iconic launch. It's not just the month that it launches. It tends to raise the boat in the entire industry. The phenomenon we're seeing now is customers really are sitting on the sidelines. They read the hype and the whispers and the drumbeats about new iconic launches coming and they start to wait. And relative to the household penetration of 50%, one of the phenomenons that we find most interesting and exciting about this business is the customers' desire to upgrade and the rate at which people are flipping over in the new smartphones. It is at the end of those contracts, that 18 to 24-month window, where consumers are very consistently flipping into new technology, into new phones.

And the other thing I'd like to add is -- this is Mike Vitelli again -- is in the mobile business, we have a relatively moderate share. We're in the 6% to 7% range and we've been increasing that quarter after quarter. We have a lot of runway where we're offering all the smartphones, all of the plans from all of the carriers to customers so they could see them all in one place. That is a value proposition that has been significant for us and still gives us a lot of runway regardless of what happens with the individual flow from one period at a time. I would also add that increasingly, the ability to connect more things than phones is going to be an important part of what our connection strategy is in Best Buy Mobile and throughout the store.

The next question is from the line of Colin McGranahan with Sanford Bernstein. Colin McGranahan - Sanford C. Bernstein & Co., Inc., Research Division: Just thinking about the improved -- your outlook for improving trends into the back half, it sounds like the categories that you're really looking to improve are gaming, mobile and tablets. So kind of drilling down to that. On gaming, can you give us what the comp was in the quarter? It sounded like it was negative. Obviously, you don't have a lot of new releases in the first half, but are you seeing any traction yet on the used gaming? How much is that impacting it? And what kind of improvement relative to the back half are you expecting versus whatever you saw in the second quarter? Moving to mobile, kind of following up on Chris' question, can you help us quantify on what you think the impact of that shift of the iPhone 4 year-over-year was? And then finally on tablets, what's going to drive the improving trend relative to the first half given the iPad 2 launch in this year in the first half? It seems like the trend would be pretty steady going forward unless you expect to get a Kindle tablet or something like that.

Those were several questions, Colin. So let's start with gaming. The comps were down negative mid -- kind of low to mid double digits. That's where the industry were. We actually did better than the industry. We improved our share in that period as we're beginning to have a more compelling offer both with the ability to do pre-owned -- pre-order, rather, and do trade-in and start to sell pre-owned. Pre-owned itself was relatively modest in the first half in the second quarter. What's happening now is we are beginning to do trade-ins. We're doing that successfully by having a really compelling offer on our price points of what we offer for trade-in, that we're starting to build that inventory that will allow us to have those sales in the second half. And the ability to pre-order on new iconic games is going to be impactful. So that's what we see gaming being very different for us in the second half as well as the industry being different, as it has a lot of new releases in the second half. On the tablet question, what we're looking for is continued triple-digit growth that we're seeing there as both the existing products, one that you named and additional products, come to market in the second half. And this has proven to be a very strong second half and holiday item. And that's part of our plan that we have for this year. We're seeing that with -- being one of the places, we have the most tablets that you can see both in our stores and a significant online-only set of SKUs as well. So we're the place where the operating systems come out from different people in the space. We're going to be a great place to be.

I'd add just one thing, Colin, to your exhaustive question. We also see growth from appliances in the second half. And you mentioned the Kindle tablet. You know that we have a thriving e-reader business. Kindle is an important piece to that mix. And obviously, we can't comment on anything that is new and not announced.

I think the last point you made was that your 4-part question was about phones and the impact on phones. There's no question that there was a material impact when we -- just looking at the amount of dollars we did last year in Q2 with the iPhone and with the HTC EVO, it was significant. And as Brian mentioned, not only is it a comparison difference in the sense of what did you sell versus -- 1 year versus another, there it creates a sense of "we're going to wait to see what that is," as that -- some of those iconic phones change from Q2 to Q3. And we believe that's going to be a positive impact both here in the United States, in Canada and in Europe.

The next question is from the line of Gary Balter with Crédit Suisse. Gary Balter - Crédit Suisse AG, Research Division: Your reported results, they were essentially in line with expectations, give or take a few pennies, and your stock's down 8%. It seems like there's a disconnect right now with investors. Investors are hoping that you close stores quicker and that you maybe spend a bit more money on the website. I think, improve it. As you think longer term, what do you think the market's getting wrong about your company at the current time? And ignoring the market because you don't want to work to shareholders. When we hear something like, "The stores, we haven't seen a material lower sales volume," why wouldn't you shrink the store size even quicker given that you've got 40% of the leases coming up? And I'll to the back of that. Can you comment on the tax situation in California and the positive impact that may be?

Okay, Gary, I'll try to unpack those 4 questions again from the "Colin School of One Question." First, I think the core fundamental thesis that investors are missing about us right now is that this world isn't moving to a place where it's digital all by itself or physical all by itself. Neither alone will be sufficient. What we firmly, fanatically believe is that where those things come together in multichannel so you can where the customer needs you to be, wants you to be when they need you there, we believe is the winning proposition for us and for our shareholders and we're -- our faith and confidence in that is unshaken. As to your specific question about square footage, I'm very -- many, many companies talk about what they're going to do with square footage. We're actually doing it and were doing it in a systemic fashion that I absolutely believe is the right pathway for us to take. I have extraordinary confidence in the job our real estate team and our finance team and our U.S. leadership team is taking on a pathway to getting us right size. And in many cases, that doesn't mean smaller stores. And in many cases, it does mean. It's really market by market, and we're working through that. And what was the third or fourth part of Gary's question?

California.

California. We see this as a very positive development. And we see it as a march to the inevitable leveling of what has been an atrociously unfair playing field. And we're very confident that this will act as an accelerant, bringing us to a place that is as American as apple pie where companies can compete on a level playing field. Thanks, Gary.

The next question is from the line of Dan Wewer with Raymond James. Daniel R. Wewer - Raymond James & Associates, Inc., Research Division: Brian, in the Marketplace, you have 2 formidable competitors with Amazon and eBay. From a consumer's perspective, what's different or better about your effort with Marketplace?

I think what's better about it and what it does for our consumers, it allows them access to all the value-added things we're able to do. It allows us access to our customers to Geek Squad. It allows them access our store network and we think in a way that is compelling and differentiating. And again, when consumers think about CE and technology, and we know this from exhaustive research, the first place they think about is Best Buy and we think this opens up a broad array of choices that we're able to offer the consumers now that we weren't able to offer 6 months ago, and we'll be able to continue to grow that broad spectrum. And we think the combination of that and the might of Best Buy standing behind it is a compelling value proposition.

The last question is from the line of Michael Lasser with UBS.

Inherent in the full year gross margin guidance would be a flattish to positive result in the back half of the year. Can you provide greater dimension on this outlook both domestically and internationally, where if the trends from the second quarter continue, would that put downside risk to the expectation?

It's Jim. If the trend from the second quarter continued, which we don't -- we're not planning that it will, it would have lower gross margin rate than what we outlined in the outlook. What I tried to laid out in the commentary and through the follow-up on Q&A, the key things that we see influencing the run rate of gross profit in the back half of the year versus what we saw in the first half of the year is really that increased sales mix of mobile phones, higher mix of gaming titles given industry trends and the things that we've done from a pre-order and a used-gaming business, which carries higher margin in our portfolio. And specific things that we're doing around utilizing that labor attachment that Mike -- that labor investment that Mike Vitelli talked about to improve our attachment rates of solution sales both in mobile phones, gaming and in our computing business overall. We'll see how the mix of sales pans out in the back half of the year with customers. But I'd also remind you that our margin rate comparisons get much easier in the back half of the year than what we saw in the first half of the year as well. So a combination of those factors domestically. Internationally, the biggest change in the expected gross profit rate is really coming from the European business as more of those available upgrades become available. We're going to start to hit the end of that window of the valley of the 18 to 24-month cycle. We'll see the margins in the U.K. business improve as well. That will be a different phenomenon than what we saw in the first half.

Thank you, and thank you, Alicia, and thanks to our audience for participating in our first -- second quarter earnings conference call. As a reminder, a telephone replay will be available from 11:30 a.m. Central Time today through September 20. You can find the dial-in number and PIN information in our earnings press release issued today and available on our website. You can also hear the replay on our website at investors.bestbuy.com. Thank you for your attention. That concludes our call.

Ladies and gentlemen, that does conclude the conference call. You may now disconnect and thank you for your participation.