Ladies and gentlemen, thank you for standing by. Welcome to the Best Buy Second Quarter Fiscal 2016 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 11:00 A.M. Eastern Time today. I would now like to turn the conference call over to Mollie O'Brien, Vice President, Investor Relations.

Good morning and thank you. Joining me on the call today are Hubert Joly, our Chairman and CEO; and Sharon McCollam, our CAO and CFO. This morning's conference call must be considered in conjunction with the earnings press release we issued this morning. Today's release and conference call both contain non-GAAP financial measures that exclude the impact of certain business events. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparison, but should not be considered superior to, as a substitute for and should be read in conjunction with the GAAP financial measures for the period. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release. Today's earnings release and conference call also include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial condition, results of operations, business initiatives, growth plans, operational investments and prospects of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current earnings release and SEC filings for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. In today's earnings release and conference call we refer to consumer electronics industry trends. The consumer electronics industry, as defined and tracked by The NPD Group, includes TVs, desktop and notebook computers, tablets, not including Kindle, digital imaging and other categories. Sales of these products represent approximately 65% of our domestic revenue. It does not include mobile phones, gaming, movies, music, appliances or services. I will now turn the call over to Hubert.

Thank you, Mollie, and good morning, everyone, and thank you for joining us. I'll begin today with an overview of our second quarter results. We'll then provide highlights of the progress we're making against our priorities and then turn the call over to Sharon for additional details on our quarterly results and commentary on our financial outlook. So first, our financial results. The results we're reporting today are strong with both significant top line and bottom line growth in the domestic business. We believe these better-than-expected results are affirmation that our strategy of offering advice, service and convenience at competitive prices is paying off. So more specifically, Enterprise revenue grew 0.8% to $8.5 billion, driven by a 3.9% increase in the domestic segment, partially offset by the impact of the Canadian brand consolidation and 120 basis points of pressure from foreign currency. Better year-over-year performance in the Domestic segment drove a 50-basis-point increase in the Enterprise non-GAAP operating income rate to 3.4%, and a 17% increase in non-GAAP diluted EPS to $0.49. We also returned $321 million in cash to shareholders through share repurchases in addition to $81 million in regular dividends. In the Domestic business, our comparable sales increased 2.7%, excluding the impact of installment billing, driven by continued strong performance in major appliances, large-screen televisions and mobile phones. Online comparable sales increased 17%, as our investments in new capabilities continued to drive increased traffic and higher conversion rates. We also saw industry revenue in the NPD-tracked categories, which represents 65% of our revenue, improved from a decline of 5.3% in Q1 to a decline of 1.3% in Q2. In the International business, while revenue declined due to store closures and foreign currency, we're seeing higher-than-expected retention from the 66 permanently-closed Future Shop locations in Canada. We're now in…

Thank you, Hubert, and good morning, everyone. Before I talk about our second quarter better-than-expected results versus last year, I would like to talk about them versus the expectations we shared with you last quarter. Our Enterprise revenue of $8.5 billion exceeded our expectations due to a stronger-than-expected overall performance in our Domestic business in addition to higher sales retention from previously closed stores in our Canadian brand consolidation. Our non-GAAP operating income rate of 3.4% also exceeded our expectations due to a higher gross profit rate in our computing business, a higher gross profit rate in our services business due to a periodic profit-sharing payment from our externally-managed extended service plan portfolio and an extended warranty deferred revenue adjustment and a better-than-expected performance of our credit card portfolio. As Hubert said, we are extremely proud of the team who drove these better-than-expected results. I will now talk to you about our second quarter results versus last year. Enterprise revenue increased 0.8% to $8.5 billion. Enterprise non-GAAP diluted EPS increased $0.07 to $0.49, driven primarily by stronger year-over-year performance in the Domestic business from higher sales volume, improved gross profit rates and a $0.04 periodic profit-sharing payment in deferred revenue adjustments that we just discussed. These year-over-year increases were partially offset by a negative $0.02 impact from a higher effective income tax rate due to a discrete tax benefit in Q2 fiscal 2015 that did not recur this year. In our Domestic segment, revenue increased 3.9% to $7.9 billion. Our revenue growth was primarily driven by comparable sales growth of 2.7%, excluding the benefit from installment billing, an estimated 110-basis-point benefit associated with installment billing, and a 30-basis-point benefit from the periodic profit-sharing payment and deferred revenue adjustment in services. Our Domestic comparable online revenue increased 17%, driven by increased…

Thank you. We'll go first to Anthony Chukumba from BB&T. Anthony Chinonye Chukumba - BB&T Capital Markets: Good morning. Thanks for taking my question. First off, congrats on a blowout quarter. One thing that jumped out at me or one of the many things that jumped out at me was the 21% comps or sales growth in appliances. I was just wondering what would you attribute that to? And then second off, how sustainable do you think that is going forward – I mean, maybe not at that rate, but the double-digit rate? Thank you.

Good morning, Anthony. Thank you for your comments. So we are seeing sustained growth now over many, many quarters in our appliance business. This is driven by, number one, the markets. The housing recovery continues to be strong and you're seeing the customers equip their new house or replace their old appliances. That's a very positive factor. And then second, investments in the appliance sector continue to be very strong. The deployment of the Pacific Kitchen & Home stores-within-a-store, in particular, is helping us drive better customer experience and market share, in particular, not only in the extreme high-end but also in the better and best part of the market, which is where a lot of the interesting action is. We're also investing in the customer experience from an appliance delivery and installation standpoint. So these are very fundamental and sustained improvements. Now, Anthony, this may fluctuate a little bit quarter-after-quarter, but we do expect continued traction, including given the competitive environments that I won't elaborate on, but we expect to continue to see positive performance in that segment.

And, Anthony, in addition to that, I'll just add one supply chain driver of this as well. We made a significant change in how we source inventories through our distribution network in the U.S., which unlocked a substantial amount of inventory for both our online business and for our individual stores in market. And that is also a driver of this and that will, too, continue as we move forward. Anthony Chinonye Chukumba - BB&T Capital Markets: Okay. That's helpful. Thank you.

We'll go next to Chris Horvers of JPMorgan.

Thanks. Good morning.

Good morning, Chris.

I wanted to ask about the TV category. It seems like we're in a sweet spot here. How did – the pace of price drops in the category, are they occurring, sort of, in line with expectations? How did performance trend, let's say, in the second quarter relative to the past couple of quarters? And is the elasticity there such that you can continue to see accelerating comps into the back half?

Yes, Chris. The price drops that every one of us, as a consumer can track, are very material. And so the prices at which one can buy a 4K TV now very, very exciting. We expect that this will continue in the second half. As we've mentioned in the prepared remarks, these TVs are becoming very affordable. And, of course, the innovation and the material change in picture quality is very helpful. So we expect the market to continue to do well in large TVs and 4K TVs. And, of course, the second factor, a bit like in appliances, the way we merchandise and the customer experience in our stores, with investments we've made together with some of our key partners, with Samsung, with Sony, with LG, and the Magnolia Design Centers allow us to really perform particularly well in that market. So we see a number of very strong drivers of performance getting into the back half of the year. Now, of course, as we get into the start of the cycle, as you would expect, the margins are not going to continue at the same level, so, factor this in, but it's a very powerful cycle.

And then, as a follow-up, I think, Sharon, last year you talked about some back-to-school timing shifting some demand into July. And we've heard a lot of other retailers talk about this shift unwinding and going the other way into August. So any commentary that you can share on the cadence and your thoughts on August so far and any potential lifts you've seen from shift.

Yeah...

Go ahead...

Oh, go ahead...

Yeah. I was just going to say the outlook that we've provided today on back-to-school in the quarter incorporates what we've seen so far, right, as you would expect. And so the projection reflects what has been happening since the beginning of the quarter. So I think we've made some positive comments on the overall back-to-school in our Q3 in general. So that's reflected.

But, Chris, we also last year – that may have been a discussion from other retailers, but that was not a dialog that we had in our conference call last year.

Okay. Fair enough. Thanks very much.

Thank you, Chris.

We'll go next to Kate McShane of Citi.

Hi. Thank you. Good morning. My question centered around holiday 2015 and the expectations for the promotional environment. Just with some of the robustness, especially, in TVs, do you expect any alleviation in price competition as innovation remains pretty exciting going into the holiday season year-over-year?

Yeah. Good morning, Kate. Let me say one thing about Q4. Because we are the leader in the category and because any comments I would make today are highly sensitive from a competitive standpoint, you're going to find us relatively shy in terms of making comments that could be used against us, if I can put it this way. What we have said in our prepared remarks is that we believe there are powerful trends from a demand standpoint around appliances, around TVs, around health and fitness and wearables and around connected home. The other thing I would say, more broadly speaking, not specific to Q4 from a competitive standpoint, if we step back a little bit and I could have included that in my remarks about the last three years, it feels – I don't know whether all of you will agree with that, but that the competitive landscape has, indeed, changed a little bit in the last three years. There's a number of players, who have decided to de-emphasize or, in some cases, exit their category. And so that's an important factor. It's true that it's a tough category. So here you go. The other thing that has changed in the last three years, that is actually very notable, is the fact that today 89% of the U.S. population lives within states, where one of our online competitor, headquartered in Seattle, now collects the sales tax. And so three years ago, it was less than 50%. It was probably around 40%. So that's a very material change over a period of three years. So, altogether, from a strategic standpoint, we see these growth drivers, and I would add, based on your question that the competitive landscape has changed somewhat in the last three years.

I appreciate that. Thank you. And just another question. I mean, the number of initiatives with the shop-in-shops and some of the new news that you announced with Apple today with AppleCare and the updating of the shop-in-shop, how do you let your customers know about all these changes? And is it something that you're seeing the customers respond to?

Yeah. Thank you, Kate. Marketing, we've not commented on marketing on this call. We've commented on marketing on every one of our previous call. We've had a very material transformation of our marketing efforts in the last three years, with the headline being, of course, more personalized. We went from analog and mass communication to much more targeted, relevant, personalized and digital communications. So as it relates to the shops-within-the-shop, one of the things, of course, is that there's not one of each in every store. So, as an example, we have the ability to target the messages in a relevant fashion, or we have the ability to target previous users of a particular brand and communicate the news and excitement about new product introductions. More broadly speaking, I am very excited about these how these partnerships with our key vendors have evolved. It's more than just about the physical layout in the stores. These are very close partnerships. These leading tech companies invest billions of dollars in R&D. They have some very exciting new products, of course, regularly coming to market. And the collaboration that Best Buy has with some of these, of the foremost companies on the planet in the tech sector, is very inspiring. That includes from a merchandising standpoint, that's from a marketing standpoint and now also from a services standpoint. And so, yes, it's an entire collaboration. And I think we can attribute some of our performance to this more targeted, more relevant communications, customer database Athena has been now busy at work. Athena is a very busy company over the last one or two years. And we had always said it would be a gradual implementation and exploitation. And I think we're getting better and better at this.

Thank you.

We'll go next to David Schick of Stifel. David A. Schick - Stifel, Nicolaus & Co., Inc.: Good morning.

Good morning, David. David A. Schick - Stifel, Nicolaus & Co., Inc.: You talked about the Canadian recapture rate being better than, I think, you had expected. Just a quick question there. Is that conservative assumptions as you planned it, or something that you're doing or adapting to? I'm curious how that's working.

Yeah. I mean, David, in general, we're very pleased with the way the Canadian strategy is being implemented. Our team – this was heavy lifting consolidating two brands into one, closing 66 doors, converting 65 stores and then investing in the customer experience. So, so far, things are really progressing very nicely. The reason we don't give specific numbers, again, in part, for competitive reasons; two, it's early days; and three, as all of you know, North of the border, the economy, which is highly dependent on raw materials and the oil sector in particular has been impacted. The exchange rate is down, which is, of course, increasing the prices of consumer electronics product, which is slowing down demand. So today, the better-than-expected retention is somewhat offset, of course, by the weakness of the Canadian economy. I think we'll be able to assess with reliability the final results once we're through the conversion and once we've upgraded the customer experience. But altogether, it was obviously the right thing to do. And it's progressing quite nicely in a somewhat challenged Canadian economy. David A. Schick - Stifel, Nicolaus & Co., Inc.: Great. As a follow-up question, you talked a little bit about the closer work with vendors and product launches, I think, in response to Kate's prior question. Could you talk about how a product launch from a vendor works today versus a few years ago? How Best Buy's interaction with a vendor on launching a product if we stepped back and looked at it versus three years ago?

David, that's – how much time do you have? David A. Schick - Stifel, Nicolaus & Co., Inc.: (40:37) as long as you keep going.

Because it really varies by vendor base. We have such a variety of vendors. In some cases, we actually work very much upstream, including in terms of product design and the choice of feature functionalities, and then this co-designing, the customer experience and in the marketing. In some cases, it's more about the merchandising and the marketing. So there's a whole range, but it's – in general, what I would highlight is that it is – it happens earlier on. It's more strategic, it's more integrated and it's working. That would be the summary. Now to our conference we would need to schedule separately. David A. Schick - Stifel, Nicolaus & Co., Inc.: Got it. Thanks very much.

We'll go next to Simeon Gutman of Morgan Stanley.

Good morning. This is actually (41:32) for Simeon. I just have a question around lapping the iPhone 6 sales from last year. Can you measure the incremental traffic that brought to the stores? And then, what do you see as a potential impact from – maybe iWatch is potentially offsetting that?

So your question is, does the launch of an iconic product generate traffic to the stores? The answer is yes. And increasingly, again, that's one of the things we're working on with our key vendors is to make it more dramatic and more unique and more differentiated vis-à-vis any of the other retailers. So I would say yes to that question. As it relates to your second question is, does the Apple Watch momentum compared to the phone – that would be too much detail, I think, at this point. I think I would say we're very excited by, again, the early momentum of Apple Watch in our stores, which, obviously, a triggered decision that we've made with Apple to have an accelerated and expanded rollout. So we think that's a very exciting news. It's also reflective of how these partnerships, the strength of these partnerships lead to more opportunities.

All right. Great. Thanks. But, specifically, around the iPhone 6, are you able to like quantify the incremental traffic from last year?

We didn't release anything last year, Simeon, (43:00) around the traffic, but, obviously, we had substantial traffic associated because, as you'll recall, one of our big callouts in our revenue in Q3 was related to the iPhone 6. But it was actually from a revenue point of view and from a units point of view, if you recall, it was very much about the revenue, and not the units. So when you think about that, because it's higher dollars. So I would say that it was certainly a traffic driver and we are thrilled to have a new traffic driver this year, something very iconic. I think we can all agree the Apple Watch is certainly iconic and having it in all 1,000 stores by the end of September is a big deal for us.

Okay, guys, thanks. And then, my follow-up is around Project Athena and some of your price optimization initiatives. Can you just talk about where you are with those and are they expected to be in place by the holidays?

So there's two components. Athena is really our customer database, which allows us to have this greater personalization and more relevant, more targeted communication. So I think that we'll benefit from that during holiday. I think what you've seen these last couple of quarters is very indicative of our capabilities. And we'll continue to incrementally improve that in the coming quarters. As it relates to the second part of your question, which is the promotional discipline, this is an area we have invested in. I think if I step back over the last three years, we've had several phases. One is we established a price match policy. Two, we have invested significantly in our price competitiveness, starting with hardware and then accessories. You've heard me talk this morning about services. We have previewed that in previous quarter, but with the launch of Geek Squad Protect & Support Plus that's another step forward. And then, the other dimension we're talking about, which we had talked about last year, is the promotional discipline. We're applying more science and more tools to this area to make sure that the return on the promotional dollars is getting better and better. So we're continuing to see improved progress in this area. And we'll continue to deploy this as we move forward. We are a very data and science-driven management team here on matters like that.

And, Simeon, (45:33) going into holiday, though, and Q3 as well, with Athena, Athena is gradually and incrementally getting better and smarter every quarter. We have made substantial investments every single quarter. When you look at these growth investments that we have been making, a significant number of those have been directly in our ability to use Athena and the database. We've also brought in additional talent into the company in that area; some very sophisticated talent. And that, of course, is advancing us. So when we go into holiday this year, we are definitely going to have a more robust experience for our customers coming out of the efforts that we put forward with Athena.

All right. Great. That was very helpful. Thank you.

Thank you.

We'll go next to Mike Baker of Deutsche Bank.

Thanks. Two questions. One, just on your store count, you're about flat year-over-year. I think you've closed maybe 50 stores out of 1,100 stores since you guys became the management team. As I recall from past conversations, you have a lot of leases that come up for renewal in 2016. Can you just update us on your thoughts on what your long-term store count should be?

Yes. So first, the 49 stores that you might be thinking of, actually, were closed prior to us joining the company. So the first point that you made was actually just prior to Hubert joining, so just to round set on that fact. Since then, what we are doing, we do have a significant amount of our leases expiring. It's a substantial number and our strategy has not changed. As we are looking at each lease, we will rationalize as we think is appropriate. Last year, we closed five stores. And this year, we'll walk into the year and we will be assessing the leases and determining what that would look like. But there is no announcement to be made. We consistently have said that targeting a store count, we're targeting rationalization of our footprint, particularly, in our multi-store markets, and to the extent that we have redundancy or stores that we feel should not be in the network long-term. Of course, we'll close those. We're not reluctant to close them. But, right now, as we've talked about consistently, we do not have – look at these numbers – we do not have a list of stores that we have negative cash flows, or significant issues with. So, that's the great news. We don't have a story to tell about our portfolio that is not performing.

Right. Yeah, excellent point. A second question, if I could, can you quantify the gross profit rate benefit of the change in the mobile warranty plan this quarter? I mean, do you list them in your press release in order of the magnitude? And then, a related question. I think you start to lap up against that in the fourth quarter of this year. Is that right?

Yes. That's right. We do list them in order of magnitude. So that's all the information, because, again, some of this is pretty competitive. But we definitely list them in order. And I think you've got one that was quantified below it. So it's more than that.

Right. Yes. Understood. Okay. Thanks. I'll pass it on to someone else.

Yeah. And, Mike, what I would say amplifying what Sharon just said, you'll find us increasingly prudent about releasing product category detailed information, because we are only focused on technology, because it's natural to ask these questions. And we're very focused on transparency, but we are also thoughtful about the help it provides to our competitors. So, hopefully, you'll understand when we feel that too much information can hurt us as a company, and therefore, can hurt our investors' trade secrets, we think, are valuable to our investors as well.

Thanks. Appreciate it.

We'll go next to Dan Binder of Jefferies.

Hi. Good morning and congratulations on a good quarter.

Thank you.

There were two things I wanted to touch on. First, you talked about increased conversion. I was wondering if you could talk a little bit about the change in the labor model and the dot-com acceleration, I suspect – I think you said it was a function of conversion how maybe average time to customer is coming down, if you could just touch on those two things?

Yeah. Thank you for your question. There's multiple facets in your question. So let's start with the online components. Which we report online sales and it's an important part of our business, but we believe that online and mobile are a much bigger part of the business than just the online sales, because it's really front door to the store. This is where we all notice. This is where the customers start the research. So we are excited about the growth of online. We are excited about the increased traffic and the increased conversion rate. I think the improvements that have been made on the site and in the app over the last three years are just extraordinary. Now we have a long way to go, but I'm very proud now of where we are. Still continued progress to be made in the checkout, in the customer experience, significant improvement from a supply chain standpoint, it's been transformative. The speed at which we're shipping now, in particular, enabled by ship-from-store, that's been a phenomenal transformation. Now the customers may start the journey online, they often go to the stores. Now, we've always believed that as a result of these trends in consumer behavior, the store experience need to be so much better, right? Because when the customer gets to the store, she has done a lot of research and she's much more educated than maybe a few years ago. And so it's maybe that in some cases we see fewer trips to the store, because so much time has been spent before the store. And so the focus in the store is on the customer experience. So first physically and together with these vendors, we've invested significantly in the physical experience in the stores, and candidly, it is so helpful.…

And I'll just add that last year, we talked about the investments that we were going to be making in IST, because our systems and our HR management tools were not set up to manage IST. We've been making progress on that. The stores are able to much more easily see performance individuals, and our stores are being able to see their actual performance and be able to be coached and to be able to work on improving that performance. And we believe, without a question, that the efforts that we have seen related to this in-store are absolutely driving these positive comps. So the implementation of IST last year, if you just go back and look at when we first started talking about IST and you look at the outcomes that we have been seeing in the retail stores, because, remember, that the retail stores delivered significantly positive comps this quarter. So we definitely believe that there is a correlation there and we are optimistic that we will continue to see longer-term improvements, as Hubert described, the proficiency that we're trying to build through this program.

And if I could, just a follow-up on leverage and buyback. Obviously, the results have been showing improvement. Net of cash, you don't have a lot of leverage. Just curious if your thoughts around that are changing in any way.

No, not at – I mean, obviously, in the first quarter, we did repurchase about $321 million worth of shares. When we launched the program last quarter, I believe, we said we were going to do $1 billion over three years. There's no doubt that we are going to achieve that quicker just based on what we did in the second quarter. And we will continue to be there to support our stock. So I don't think anything's changed from our lens around maintaining a strong balance sheet. The performance clearly justifies us accelerating against that $1 billion, which you've already seen us do. So that's how we're going to – that's the best answer I can give you at this point.

Great. Thank you.

At this time, I would like to turn the call back over to Hubert for any additional or closing comments.

Well, thank you so much. In closing, I'll just repeat this. Very proud of the results. We're excited about our prospects and opportunities. Very grateful for the work of our team and continue to be very grateful for your support, as we continue to unfold our story. So we look forward to seeing you first in our stores or online, we'll be there for you, and then on our next call. So thank you very much. Have a great day. Thank you.

That does conclude our conference for today. We thank you for your participation.