Ladies and gentlemen, thank you for standing by. Welcome to Best Buy’s First Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available by approximately 11 am Eastern Time today. [Operator Instructions] I will now turn the conference over to Mollie O’Brien, Vice President of Investor Relations. Mollie O’Brien: Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO; Matt Bilunas, our CFO; and Mike Mohan, our President and COO. During the call today, we will be discussing both GAAP and non-GAAP financial measures. 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, which is available on our website, investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial conditions, business initiatives, growth plans, investments and expected performance 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 our most recent 10-K 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. I will now turn the call over to Corie.

Good morning, everyone, and thank you for joining us. Before we get into the details of our results, on behalf of all of us at Best Buy, I want to extend our sincere appreciation and gratitude to all those who are on the frontlines working to keep us safe or maintain essential services. And we offer our heartfelt sympathy to all those who have lost someone to this virus or who are sick with COVID-19. Today, we are reporting Q1 revenue of $8.56 billion, which is a decline of 6.3% from the first quarter of last year. Our Q1 non-GAAP earnings per share were $0.67 compared to $1.02 last year. The Q1 non-GAAP operating income rate of 2.9% was down 90 basis points from last year, primarily due to the operational disruptions caused by the pandemic, which Matt will provide more details on later. This pandemic has changed the way we work, learn, care for ourselves, and importantly connect with each other. Against that backdrop, our purpose has never been more relevant to enrich lives through technology. It is because of that purpose that we were in virtually every jurisdiction with the stay-at-home order in place, designated an essential retailer because of the products and services we offer. I wanted to take a moment to share how Best Buy has been responding and will continue to respond to the crisis we all face. There are scenarios we plan for as business leaders, and then there are events that simply do not have a playbook. This is one of those times, and our leadership team has been responding to events with a focus on keeping our customers and our employees safe, while we meet our customers’ essential needs. At the same time, we are committed to ensuring that as this evolves,…

Good morning. As Corie described, the pandemic has dramatically changed how we interact with our customers. We are thoughtfully approaching each decision, balancing the safety of our employees and customers while creating long-term value for our shareholders. Even with the outstanding execution from our employees and a strong customer demand for the essential technology we provide, there is no denying the financial impact the pandemic has had. In Q1, the stay-at-home orders and changes to our operating models resulted in an immediate and complete channel shift that put near term pressure on our operating income rates. Online revenue was up more than 155% year-over-year and was 42% of domestic revenue compared to 15% last year. In a typical quarter, the operating income rate in the store and online channel are very similar, as we find the lower gross profit rate online offset by lower SG&A as a percentage of sales compared to our store channel. In Q1, our enterprise gross profit rate was approximately 70 basis points lower than last year as we incurred higher supply chain costs to fulfill the online sales. In addition, while we took numerous steps to control costs and manage profitability in the quarter, we continued to incur the majority of the cost to run stores, including payroll and rents. In fact, we continued to pay our field associates in some cases at a higher rate through most of the quarter. Therefore, we did not see the SG&A leverage we would expect with a more gradual shift of sales between channels. As a result, our enterprise non-GAAP operating income rate declined 90 basis points was driven by both a lower gross profit rate and unfavorable SG&A rate compared to last year. Before I talk about our first quarter results in more detail, let me start…

Thank you. [Operator Instructions] We will now take our first question from Greg Melich from Evercore ISI. Please go ahead.

Hi. Thanks, and great job pulling this all together. I'd love to dig a little more into the supply chain and the inventory down 23%. Could you go into a little bit more on which categories you've been able to secure products and then which ones that you think it might be more challenging, particularly as we think about back-to-school coming up in a couple of months?

Sure. I'll start and then maybe Mike can jump in. I think, overall we think the teams did an amazing job balancing inventory through the quarter. We've clearly had a number of different sales trajectories through the quarter. So, in the quarter, we likely saw some constraints in some key areas such as computing and gaming, but we were able to manage through that quite well. I think overall, we're pleased with the way the teams managed through inventory. And as we look into Q2, I would say we'll continue to see a little bit of constraints going into the quarter but likely nothing to impact that we saw in Q1. Mike, I don’t know if you have anything?

Yes. Thanks, Matt. And Greg, thanks for the question. And maybe, just a little bit of backdrop. Before the pandemic started, we were dealing with the tariff situation from last year. And so, our teams have been working tirelessly around countries of origin and are sourcing from all of our partners. I felt really good as we entered the year as to where we were from an inventory position. Some of the categories that saw the demand spike, freezer saw demand spike, some network equipment saw demand spike, some of the computing products, monitors. Things that you would actually need to work more from home or learn from home were the ones that got constrained and the ones that we’re working the fastest to be back in stock. Based on what we have visibility to and work with our top partners, we feel really good about our inventory position from here going through the balance of the quarter. We now have to plan back to school during the pandemic, which is also new to all of us too. But, I feel good where we're at with the work with our partners.

And if I could just follow up on that. What would be the ideal amount of inventory? Was any of that reduction just because sales were down, or was it really just to get into the supply? Would you like inventory to be flat year-over-year?

Yes. I think it's a balance to answer that question. We clearly reduced inventory to match the sales trajectory, but we also wanted to make sure we're finding the inventory for the products that were in high demand, like computing. And so, you tend to look for areas that aren’t -- where the trajectory is not as high, and you right size as much as you can and continue to find the products that are in high demand. So, ideally we'd like to have more computing in -- some more inventory in some areas, because we probably could have seen more sales if had -- we had it is the answer.

That's great. Good luck to everyone. Thanks.

Thank you.

Thank you.

We will now move to our next question from Karen Short from Barclays. Please go ahead.

Hi. Thanks for taking my question. And congratulations, obviously, on working through a very volatile time.

Thank you, Karen.

So, I just wanted to ask a little bit on I guess the reintroduction of services. I guess, could you give a little color on the demand you're seeing for IHAs and also total tech support. Because I guess there's two sides of the debate, which is one that pent-up demand that got pulled into 1Q. But then, the other side of it is, people could do wholesale, like home office reconfigurations just beyond a replacement laptop or printer, I mean, even more complicated types of overhaul. So, if you could give a little color on that, and then I had another follow-up.

So, I’ll try to give a little color on both TTS and IHA. So, we talked about it a bit in the script. We did definitely see some usage, but the majority of it was remote or via chats and call, because obviously you couldn't come into the stores and we couldn't go into your homes. And so, not only were we constrained by a bit of what you're talking about, Karen, which is you can only put so much to your home office together, we were also just constrained by the way we were operating. And I think we've talked about this before, this severe of a channel shift makes service sales harder than when we have our stores open and when we have a chance to provide that service. We are definitely seeing pent-up demand as we start to open up our stores to the appointment model. Many of the appointments being made are people who want to come in and bring, especially as you can imagine home office or phone products in for us to help take care of them. And we can also see as we're going back into people's homes where the demand and request for us to come to their homes to fix things like refrigerators, laundry, that has been very high. And so, I think there is definitely pent-up demand there as we’re heading into Q2 and the team is finding new ways to serve that. On the IHA side of things, it was very interesting. The team across all of our in-home businesses has been very flexibly trying to serve customers, either digitally, phone, chat, any way that they can. They moved -- IHA moved to digital consultations in mid-March. Our IHAs are also helping with this really heavy volume of inbound sales calls and chats, and they are also helping with the new in-store consultation model. Before you come to the store, we actually have a pre-call. And our In-Home Advisors in some cases are helping with that pre-call because we can really figure out what it is that a customer needs. I will say, if I just were to give a couple data points, in April, we saw our IHA business was actually up. And over 60% of that was coming from chat and digital channel. And that through those channels, those virtual consultations was at a 91 NPS. So, this idea that we can more flexibly use the in-home resources, not just physically in people's homes, but in a more virtual consultative way is really, really interesting and something that I think will be a muscle we can see the flex as we go forward.

Actually that leads into my next question. I mean, looking at your very strong retention rates that have only gotten better, but also pairing that with the e-com now at 42% of sales, I guess, I'm wondering how you think about evaluating the physical store base going forward, just more broadly?

Yes. I will start with, our stores are absolutely an asset, and they have been an asset throughout this. And I’ll just use a data point in April, 65% of what we sold online, which is the vast majority of what we sold, was either pickup curbside or shipped from a store. And so, this asset of the store base is very real. Now, you can imagine what we're discerning is how might the stores look and work differently in the future? And how might they provide a variety of fulfillment options, a variety of service and high touch consultative options, like this opens a lot of doors for how your stores might work differently. And that's where our focus is at this point.

Great. That's helpful. Thank you.

Thank you.

We will now take our next question from Curtis Nagle from Bank of America. Please go ahead. Curtis Nagle from Bank of America, please ensure you're not on mute. We currently can't hear you.

Apologies. I was on mute. Thanks very much for taking the question. Corie, maybe just quickly, just digging back into the point on sales in May so far. So, down, I guess about only 5% that is an acceleration, really, really impressive numbers. Would you be able to talk about what's driving that? Is that further acceleration in online, better curbside? I mean, what's going on there?

I'll start. And then, maybe Matt can add more color because I'm sure I’ll miss something. I think there's a lot that's going on there. So, curbside, even if you look at the original retention we announced at the beginning of curbside, which is around 70%, you can tell that accelerate because by the end of the quarter, we were already at 81%. And so, just I think the performance overarching, we have curbside, the teams were amazingly creative and thoughtful about how they implemented that and definitely got better and better and better at providing that service. We also were very clear that stimulus dollars that started to flow towards the end of the quarter were absolutely helpful. And those lines strongly believe are carrying in Q2 here. It’s not all the checks have yet been distributed, although the vast majority now of that money is out there. But we definitely see those stimulus starts buoying the level of demand. And then, I think people continue to have more needs as they spend more and more time in their homes. The initial demand will be definitely around working and learning from home. And this new appointment model, what we're starting to see is there is also demand for cooking. And importantly, I think we all feel it, entertaining at home and creating new and different entertaining theaters, kind of what we've seen in gaming. And so, I think there is also that once you layer on a little bit of a point [Technical Difficulty], you also start to see the demand for some of the other aspects of what it means to be sheltering in place time. Matt, I don’t know if you anything to add?

No. I would say, -- I think just in general too, as we become more proficient in our model and customers are more comfortable as they engage with us. I think there's a general improvement in our execution and just how customers learning how to shop in this new environment.

Yes. I think that’s a really good point I would just lift up. Our teams have done an amazing job on awareness to how to shop. If you go to our website, we have literally a whole site that just walks through all the different ways in which you can interact with Best Buy, and then what's applicable depending on your geography. And you can imagine that's going to take some time for our customers to understand and actually have awareness of all the different ways they can shop Best Buy.

Got it. That’s very helpful. And then, maybe just a quick one and perhaps its’ a bit early to comment on. But, could you talk a little bit about some of the changes you might be making in terms of your in-store product assortment to maybe better cater to people living and staying in their homes more? You'd mentioned health products or fitness products as an example. Yes. How could the stores change over the kind of the coming months, years going forward?

Hey. Curtis, this is Mike. I’ll start and Matt or Corie can chime in. We look at the customer demand signals all the time. And what I think is interesting during this pandemic, the idea of we’re trying to play and I'm going specific to health, we've always had an insight that acknowledges we’re playing a strong role in helping enrich people's lives, and I was at a predisposition around acquisition of GreatCall, how we thought about that space. And people are really thinking about what else they should or could be doing at home. Things in that space definitely have propped. It’s still a small business for us. But that's why we got into the fitness category last year, because that has been significantly in their demand. But, then things oxygen sensors, thermometers and things that you would want to do to just to check and maintain your health becoming more important because those devices, while they serve a need are now starting to check other things consumers are highly interested in, which I think bodes extremely well for Best Buy. The gaming resurgence was a bit of a surprise, I'll be candid. Everyone had thought that gaming category was going to wait for this fall for the new console resets. But clearly, if you have kids at home and you cannot be the best teacher in the world, a substitute has become a Nintendo Switch or an Xbox or Playstation. And that's new demand. And we think that demand will actually be leading to stronger demand as the year progresses with new devices. And the category that I'm intrigued about as we get back to people working with us that we're going into their homes, so we intend to go back into people's homes with IHAs in early June. But as people come to our stores for consultations, is people thinking about how to update the way they prepare food and store it and how they're thinking about entertainment. So, the categories that we're really good at, these complex, highly consultative sales, I think there's some good opportunities in our assortment there. Maybe more curated but also serving customers’ needs more specifically as they look for doing different things.

The only thing that I would add is to build on Karen Short’s question just a little bit. I think the complex, full home office and learning solutions will also continue. I think, people have been piecing together kind of what they can to make it work, as I believe work from home becomes a more sustainable practice. I think, these more fulsome approaches to home office will be really important.

We will now take our next question from Scot Ciccarelli from RBC Capital Markets, Please go ahead.

Good morning, guys. Scott Ciccarelli. You guys talk about getting a from the stimulus checks. That makes sense. I think a lot of companies did. But, do you have any way to estimate the amount of pull forward demand you may have benefited from in the quarter as you try and kind of think about the balance of the year?

Yes. I’ll start, and maybe Mike or Corie can jump in. I think, we actually don't believe there was much pull forward into the quarter. I think, if you think about the types of products we were selling, there’s continued sustained demand that we're seeing. I think people's lives have also changed in a way that demand that they probably didn't know they had before, they now have in a new world where technology at home is more important, things like monitors at home that you may not have -- would have bought. So, I think -- we actually think a lot of what we’re seeing or most of what we're seeing is not pull forward as much as it is incremental to an otherwise different situation.

I think, Mike’s gaming example is the perfect one, meaning that’s not pull forward demand. That’s demand that would not have existed. People would not have bought those gaming consoles. They would have waited for the next generation of consoles to come in December. But because you're in this unique life situation, there's real incremental demand there. And I think that's the perfect example of what we're seeing.

Okay. And then, as you talk with your vendors, obviously, you've had a lot of discussions with them, given some of your inventory commentary. Everyone's been on hold, right? So, based on what you know at this point, is there any kind of change to what's called the product introduction outlook as you discussed with your vendors, kind of the way they're thinking about the balance of the year? Thanks.

Scot, it's Mike. No, I don't see any change to some of the known parts of everyday. There's lots of things that even we don't know. But, we made a statement in the script. We think innovation is going to accelerate. There are some product categories in the ways that things come to light that I think are meaningful. I mean, literally four months ago, most people who had front-facing video camera on their laptop was putting a piece of paper over it. And now you need a higher resolution camera, and better set of speakers and microphone because you need to be more productive and doing video conferencing. So, I'm actually pretty excited about maybe some additional innovation or some product revs that we could help accelerate and commercialize and bring to market.

Okay. Many thanks.

Thank you.

We will now take our next question from Jonathan Matuszewski from Jefferies. Please go ahead.

Yes. Thanks for taking my questions. Curious, if you could give us an update on your lease to own effort, presumably something that's been more challenging to facilitate with kind of limited store operations. But, how do you see that evolving, especially with underbanked consumers, maybe feeling their wallets pinched a bit? And, any commentary on what you were able to see during the quarter? Thanks.

Sure. Yes, absolutely. I think, the ability to provide another purchasing option for customers is critically important, especially in this very uncertain time for most people. The reality is in this quarter, currently customers can only purchase through lease to own in our stores. And so, it obviously hasn't made that program advanced too much in the quarter. We're still expecting to launch it online this year and I think that’s in July. So, we're still very pleased about the relationships, we're still very excited about the opportunity to provide and extending more financing to more people and the customers that it might attract. But clearly, in a quarter, a bit of a disruption just due to the fact that our stores were closed to foot traffic for half of it.

Yes. That's helpful. And then, just a quick follow-up. Since the pandemic started, have you seen any evidence of trade down? Obviously, you're seeing indications of demand across categories. But, any indications in terms of moving towards smaller versions of appliances or less features or last year's models, or anything like that that would indicate consumer caution? Thanks.

I’ll start and Mike can pile on. I don't -- we really for the most part have not. Now, back to what Mike said about the need around your home office or the need around learning, when you're purchasing in that very kind of needs-based way, it's less about trying to trade down, it's more about trying to figure out what exactly is going to fulfill the need for you in your home. That's actually we’re seeing in cooking and preparing food at home, we’re seeing it in learning in office at home. And so, I think for us, we're actually right now seeing the demand is across the profile of what we sell, and in fact, in some spaces even higher in some of the higher end computing. I think, one of the things that's selling really well in computing is high computing, that’s gaming computing. In gaming computing, is actually some of the highest end products that we sell. And you can definitely see that people as they get bored in their home are looking for some ways to entertain themselves and have not been looking for the cheapest way to do that.

The only thing I'd add Jonathan is during the timeframe a couple of the mass channel retailers were open. So, from an assortment and a comparability standpoint, consumers didn't have a wholesome shopping experience. There's a couple of examples where on constrained products, there probably was some ASP erosion based on the fact that all you had were lower price items. And that sometimes is very temporary where somebody would trade down, but that's not indicative of a long-term trend in any way, shape or form. The best example is having consultations back in place for the some hundred stores, and the interest level we're seeing for consumers in some of our more complex categories.

Really helpful. Thanks for the color.

Thank you.

We will now take our next question from Joe Feldman from Telsey Advisory Group. Please go ahead.

Yes. Hi. Good morning, guys. I want to follow-up on the CapEx reduction. I know you described a little bit on the call, but -- in the prepared remarks. But can you help us better understand, like, what are you cutting and what are you keeping? I mean, because it's a vast majority of it, you're still going to be spending this year. I'm just wondering where that is relative to the cuts. Thanks.

Sure. I’ll start. And maybe Corie and Mike can jump in. I think where we've tried to cut from a CapEx perspective is mostly around discretionary, non-essential things. And actually, the fact that our stores have been closed to foot traffic for quite a while, I think there's some things that like store remodels don't make as much sense in the middle of what we're dealing with as they would otherwise. So, store remodels have been paused. We've lowered the amount of electronic sign labels that we were going to put in our stores, simply because there's an issue of just when we can actually accomplish that in the year. So, there's more discretionary items that are as essential during this period that we've decided to pull back on. But there's a continuation of strategies because we still believe we are very relevant to the customer and our strategies are very applicable going forward, if not more. So, there's things like automation and just dotcom technology and other things that we are just as passionate as we were before about it. And we will continue to invest where we can to drive and accelerate our strategies.

We said it on the call, our investment in digital and supply chain automation technologies are a huge part of what allowed us to first move to curbside and then set up appointment based scheduling. Both of those required heavy digital builds behind the scenes in order to make an app as an example ready for a customer to make an appointment or for an employee to be able to see who's in the queue waiting for an appointment. And we believe continued investment in those experiences that are going to deliver choice to customers and continue to deliver with speed are absolutely crucial to maintaining our positioning as the year goes on here.

Thanks. And if I could ask you one more? With regard to the 40 stores that are closed, I know you guys decided to close those and they still remain closed. Will those reopen or are you thinking those were kind of weaker stores that you may take advantage of the situation and keep them closed for now?

No, they're not weaker stories. These are literally for the most part it’s us looking at kind of spread of the virus and our available employee population. In a lot of cases, they are actually some of the bigger stores, on the East Coast you can imagine are some that we've either closed or in a couple of situations we still have some government mandates. But don’t take those 40 as they're underperforming. These are literally 40 that just it makes a lot of sense based on health, safety and government regulations.

Thanks. And good luck with this quarter, guys. Thanks.

Thank you.

We will now take our next question from Simeon Gutman from Morgan Stanley. Please go ahead.

Good morning, everyone. First, a strategic question on healthcare initiatives. It feels like -- it seems like it's a pretty good moment to advance some of those strategies. Can you talk about anything with regard to user trend, level of interest in those business models and the degree to which you can accelerate some of those -- some of that business segment?

I'm going to start by building on where Mike had left off, on the consumer side of health. And I'm going to think about this writ large, everything from kind of health and fitness, all the way to taking your temperature and blood pressure cuffs. There is significant demand for technology that will help us maintain and monitor our health at home. And we have seen that across the board. And this is just hypothesis. But my personal hypothesis would be back to the point we were talking about earlier, the level of innovation in health at home is only going to accelerate from here. Not just because people want it but also because what you've seen is a change in reimbursement for telehealth at the overarching kind of government level. And so, that combination of things is incredibly powerful on the consumer side. Now, of course, it’s a little tricky there as it relates to specifically our GreatCall devices, the phones, the wearable devices, much of those sales go through our stores. And so, without our stores physically being open, it's little harder to transact that online. So, but in the moment pressure we're feeling is a little bit around our stores not being open. But the potential for devices that are going to keep us connected to our -- especially elderly loved ones right now and also just keep us connected is incredibly high. We hit a little bit on the commercial side in the script. You can imagine there's a great deal of interest around how at a much broader scale we can monitor people's health and take care of them in their homes. If this pandemic has highlighted anything, it is keeping people at home as long as possible, but it's also tracking their vitals, tracking how they're feeling is incredibly important. So, the potential on commercial I think has come to light even faster. And this was our hypothesis that more people would need to have more care in their homes on the back of technology. And I think this has accelerated that hypothesis meaningfully.

Makes sense. Can I follow up on gross margin? The pressure you saw related to supply chain, the mix shift, was that normal course of mix shift or this was a triage situation? And then, the other question is the credit card. Is there any way you can dimensionalize the impact from lower profit share? I realize you did this quarter, but the go forward, if delinquencies grow a certain percentage, we could see a certain percentage impact to your P&L?

Yes. Thank you. On the gross margin side channel, so obviously in the quarter, about halfway through, we shifted to filling mostly through -- or actually selling mostly through online channel and fulfilling through our stores in the large percentage of cases. When that happens, if you incur a much higher personal expense, even though a large number of customers are still deciding to come pick up at our stores, and actually our stores are stilling fulfilling a large percent of those products, almost 65% of what's actually happening in the quarter was either picked up at our stores curbside and/or shipped out of our stores. So, with that parcel costs just go up. That's kind of a variable cost of online. It wasn't abnormal with that shift. It was just the normal shift to that channel when it happens. So, we would expect that to continue as we look into Q2. Obviously half of our Q1 was under the old model, then we had -- saw the dramatic increase. We still expect online, as we said, to be significantly higher in Q2, which would means we would incur some additional parcel costs and more gross profit pressure because of it. We have never given on the financing profit share. We've never given the actual number what the profit share is. We did discuss or say that it was 20 basis points of pressure in Q1. I think, we also believe it will be a pressure in Q2. I would expect it to be pretty consistent, if not, maybe a little bit more in Q2, as you look forward. Hard to know how that plays out for the whole year because a big part of this has to do with the macro and unemployment, and we are -- little too early to tell how much that actually is going to be an impact for the year. But we would expect it to be a pressure.

Okay. Thank you. Good luck.

Thank you so much. And with that, I think that ends our call for today. Thank you all so much for joining us today. And we look forward to updating you on our progress again next quarter.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.