Q1 2021 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Best Buy's first quarter fiscal 2021 earnings call.
This time, all participants are in listen only mode.
Sure we will conduct a question answer session.
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As a reminder, through school is being recorded for playback and will be available by approximately 11 am eastern time today.
If you need assistance on the course any time. Please press star zero, operator will assist you I will now turn the conference over to multi O'brien, Vice President President of Investor Relations.
Thank you and good morning, everyone. Joining me on the call today, our Corie, Barry our CEO no luminous, our CFO and Mike Mulheren, our president and COO during the call today, we will be discussing both GAAP and non-GAAP financial measures 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 got bestbuy dot 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 condition business initiatives growth plans investments unexpected performance of the company and are subject to risks and uncertainties that could cause actual results could 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 this call.
I will now turn the call over to Corey.
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 that site I want to extend our sincere appreciation and gratitude to all those were on the front lines working to keep unsafe or maintain a central services, we offer our hearts folks sympathy to all those who have lost someone to this virus or worse sick with cobot 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 67 cents compared to a dollar two cents last year. The Q1 non-GAAP operating income rate up 2.9.
First time, we're 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 had to change the way, we work burn care for ourselves and importantly connect with each other against that backdrop. Our purpose has never been more relevant to enrich slide through technology. It is because of that purpose that we were in virtually every jurisdiction with a stay at home order in place designated.
And the central retailer because of the products and services we offer.
I wanted to take a moment for share held back by husband, responding and we'll continue to respond to the crisis, we all agree.
There are scenarios equally important business leaders and then or events. That's simply do not have a playbook. This is one of those times and our leadership team has been responding to a bad but the focus on keeping our customers and our employees phase while we meet our customers are essential me.
At the same time, we're committed to ensuring that as the football best buy is well positioned to thrive in what will almost certainly be a new and very different environment.
On March 22nd we proactively moved all our stores to a contact with curbside only model.
Well enough to safely serve customers and comply with government orders and recommendations.
We also hope it all in home installation repair and consultation surfaces choosing to lead the product at or near the door stuff.
We did this even in jurisdictions, where we were not require too because we believed it was the best way at the time to keep our customers and employees as safe as possible.
I am so incredibly proud of our teams ingenuity and execution be seamlessly implemented a new and highly affected operating model in a matter of 48 hours across our entire stories.
As a result, we've retained 81% of last year sales during the last six weeks up the corner as we operated in the new model, that's 81% sales retention, even though not a single customer set forth in our stores.
The strong sales for attention is a testament to the strength of our multichannel capabilities and the strategic investments, we have been making over the past several years.
It is also a testament to the best buy culture, and our focus on the customer experience as the entire organization pivoted to execute and support this new model.
More than ever we're fulfilling essential technology needs for customers.
In March we began to see surge in demand for products that people needed as they comply with stay at home orders that to me I'm continued even after we closed our stores to customer traffic for the quarter. We saw strong sales growth in computing gaming and small appliances.
Like many other retailers we saw sales benefit during the last three weeks at the corner as customers undoubtedly chose to spend some of their government stimulus money on the products and services we provide.
As we entered the second quarter, we continue to shift our operating model as we responded to the evolving environment.
On may 4th we'd again welcoming customers back into our stores to shock that site and innovative ways that follows strict social distancing practices and use proper protective equipment.
Typically we're offering a new consultation service to our customers in our stores by appointment only.
Service allows customers who need to purchase more complex items 'cause scheduling appointments with one of our sales associates at their local backed by store, where they can get advice tailored to their specific techniques customers can schedule appointments by phone online alright, simply driving or walking up to a store.
We started with approximately 200 stores and now have almost 700 or about 70% of our domestic stores operating this way.
Most of the remaining stores are still operating in the curbside only model and approximately 40 stores remain completely closed mainly due to our own decision, making criteria regarding employee and customer safety.
Customers have responded very positively to this new way of interacting with us in our stores with 98% of customer surveyed indicating we made them feel safe during the experience.
It's very early but still part of the demand has been highest for large appliances and home theater categories.
We're also back and customers' homes, providing valuable services like large product delivery installations and in home repairs and approximately 80% of U.S. difficult.
We are doing this in a new and innovative ways using 60 guidelines before during and after an in home visit that meet or exceed the centers for disease control and prevention guidance.
A key of course is that we're providing options that let customers choose what works best for them.
Foreseeable future, we will likely employ a variety of models using our local level promise to customize operations to the local situation.
We will continually evolve those operating model based on guidance from state and local governments as well as our own point of view on the proliferation of the virus and our ability to operate in a way that a safer employees and customers.
I want to take some time to talk about or employees clearly the company's most important asset.
The very first days of the pandemic, we told anyone feeling sick or quarantined, but they would keep their job and be paid we told any employees, whose child with home from school that they too would be paid.
We gave all field employees, who are still serving customers are working in our distribution centers, a temporary to increase and for all others. We paid their normal salaries for a full month as we took the time to determine how to move forward.
Throughout this difficult time of uncertainty and fast paced change we have been committed to communicating as often as possible with our employees.
Includes conducting surveys on their need for flexibility as well as their feelings on returning to work. So we can continue to recoup improve our processes facilitate the deliberate and measured returned to corporate work spaces.
Accommodate those with pre existing conditions or safety concerns.
Likewise, we built the protocols for returning to customers home and welcoming them back into our stores jointly with our field employees.
We have created a robust feedback loop and we conduct regularly with other field employees to hear how things are going and solicit immediate feedback to challenges they face it reading experience as we go.
We also continued our focus on providing crucial employee benefits and resources like those for mental and financial health recognizing that the circumstances, we each phase are far more stressful than any of US me fully realized.
Like most companies, we have had to make tough decisions, including those Matt will touch on regarding the ways in which we have got costs and preserve liquidity to ensure that at the end of this crisis backed by remains a strong vibrant company.
I personally want to touch on the difficult decision to for a little employees.
While we were pleased to retain more than 80% of our revenue while our stores were closed to customer traffic. The factory names that we did that's without a single store open to customers. Given this fact it is clear that the current models. We are operating simply don't require the staffing our stores had before this crisis began.
In that context on April 19th we furloughed approximately 51000 domestic hourly store employees, including nearly all part time employees, we retained approximately 82% of our full time store and field employees on our payroll, including the vast majority of in home advisors and Geek squad agents.
Additionally, some corporate employees are participating in voluntary produced workweeks, and resulting pay as well as voluntary furloughs.
We have done our path to provide these employees with resources and tools to help them navigate a situation that is undoubtedly new to all of them.
In keeping with our view that all of us or in this together I am for going 50% of my base salary and the members of the board of directors are for going 50% of their cast retainer fees.
Company executives reporting directly to me are also taking a 20% reduction in base salary.
The money saved from these temporary pay reductions is being added to the employee hardship fun, we established with our founder Dick shops. This fund was initially created for our furloughed employees as a way of providing them emergency funds should they be required.
I would now like to provide an update from a strategic land.
Last September we hosted in Investor update meeting to provide additional insights into our strategy.
Despite the disruption and uncertainty related to cope with 19, we remain focused on executing our building the new blue strategy in many ways. Our current way of life in our homes reliance on technology has only reinforced our belief in our strategic direction.
We firmly believe our strategy when uniquely position us over the long term by leveraging our unique combination of tech and touch to me everyday human needs and build more in deeper relationships with customers.
Many of these capabilities and initiatives, we laid out on stage in September our the multiples we are flexing right now.
Our multiyear supply chain transformation has been focused on moving facilities closer to our customers and using automation and process improvements to expand fulfillment options increased delivery speed and improve the delivery and installation experience. This has included significantly improving the buy online pickup in store experience for our cut.
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At the same time, we have been innovating and designing digital experiences that solve customer needs across online and physical shopping as a result, the team was very quickly able to stand up a robust and seamless customer experience for both the curbside pickup process and the new in store consultation process.
All of this culminated in domestic online girls of 155% for the quarter and during the six weeks. We ran our curbside only model domestic online sales were up more than 300% compared to last year.
Almost 50% of those sales were from customers choosing to pick up their products curbside out or stores.
Customer satisfaction scores for the curbside pickup experience remains strong with more than 83% of those surveyed indicating they are extremely likely to recommend bestbuy based on their current site experience.
As it relates to supply chain, let me say first that since beginning of the pandemic, we've taken a variety of steps to create the safe as possible experience for the employees and our distribution centers. While also ensuring that we're still able to deliver to customers with speed. Additionally, the infrastructure and capabilities, we have built to Brian during peak holiday period.
It is serving us well, even with the sustain online growth levels of approximately 350% during the last three weeks up the corridor, we did not have material disruptions and maintain our levels of fast service.
We will continue to invest in all of these capabilities that focus on the customer experience and that are designed to provide choice speed and now safety.
We will also of course continue to bring our deep sea expertise and unique ability to partner with vendors to commercialize their new technology offering customers great products and solutions.
In fact in Q1, we saw significant increase in demand for expanded assortment of digital health and fitness products.
Including things such as at home fitness equipment, and fitness recovery products that truly empower customers to take care of their own health at home.
We believe that not only will technology innovation continue it will accelerate as a result with the pandemic. We believe many of the customer behavior changes, resulting from this time of stay at home orders will continue to exist moving forward.
That's fine and our vendor partners are rapidly adjusting our offerings to support these new needs in areas like video conferencing, food preparation and storage and family Entertainment.
Turning to our in home consultation service in mid March we pivoted to provide consultations on a digital basis only we're proud of the nimble way our team quickly transition to this alternative way of interacting with customers and we're pleased with the number of consultations, but took place this way.
Because of our investments in the technology backbone our in home advisors were able to remain productive. During this time and continue to provide customers a high level of consultation service.
With our Geek squad, we're in a unique position to help people productively work and learn in their home.
Well overall Q1 interactions with our total tech support customers were down compared to last year as our in store and in home services were unavailable our remote technical support provided a critically stable support solution through these challenging times.
In addition, we have cross train or Geek squad agents to work in our call centers, providing crucial phone and shots support to solve a variety of customer needs.
We also utilize our geek squad agents to support our online customer experience by making same day deliveries to customers homes from 200 of our stores.
As we moved back into homes and welcome customers back into our stores demand for our services has been very high.
Turning to best buy health, our focus on health in particular, helping seniors live more independently with our unique combination of tech and touch has become even more relevant as the world response to the cobot 19 pandemic.
In Q1 to support our base of over 1 million seniors, we moved quickly to adapt our operations. So our carrying center agents could support more than 150000 calls each week, while complying with stay at home orders.
The time spent by our agents on the phone with our customers was above the normal average out over nine minutes per call in many weeks as we took the time to ensure we are answering questions and addressing requests to our full of stability.
Our service during this period average and P.S. with 80, and we're incredibly proud of our carrying center agents agents and the empathy with which they served as vulnerable population, especially during this time.
We also had the opportunity to help our commercial partners manage through this time with the help of technology. A recent example is holiday retirement, a leading senior living community or 29000 residents have been outfitted with our lightly mobile personal emergency response or purse devices.
These devices provide access to our emergency response service at the press a button.
We worked with holiday to leverage these devices to efficiently broadcast timely information and protocols related to cobot and shelter in place to the senior residents.
Lastly, we continued to build out our capabilities as we execute our long term health strategy data is an essential currency of this strategy and we recently entered into an important partnership on that front validic as an industry, leading technology platform that aggregate data from everyday connected devices in the home processes. It and then provide.
Meaningful insights together with Politik, we're bringing to market innovative remote monitoring solutions to better manage chronic health conditions in the home.
In conclusion, we entered the year with financial and strategic momentum and a strong balance sheet. We have a suite of assets that allow us to uniquely and safely serve our customers in whatever way they choose whether thats curbside pickup free next day shipping remote technical advice and support virtual consultations in.
Store appointments in home installation or doorstep delivery.
We know customers and employees will have different shopping expectations anchored and safe environments and processes. We hope to set the standard for safe retailing by constantly adapting our model leveraging and building on our unique suite of assets.
The environment continues to evolve and well there are many models and a great deal of speculation there's still a high level of uncertainty at both the micro and macro level with that said, we are scenario planning and away that addresses a number of variables.
First meaningful unemployment will almost certainly be with us through the fiscal year not necessarily at the level. We are seeing now but enough to like we have a downward macro economic effect.
Second it will be important for us and any retailer to have a flexible enough operating model to accommodate the possibility that some states will continue to relax restrictions well others at the same time may find themselves needing to tighten similar restrictions on how consumers engaged with each other and local businesses.
Finally, we will continue to prioritize customer and employee safety advocating for preventative measures such as social distancing and masks for both customers and employees and our belief that these measures will continue into the foreseeable future and will allow us to do what we promised at the very beginning of this crisis be there for customers in as many.
He ways as possible, while ensuring customers and our employees remain as safe as possible.
As challenging as the current situation is I am certain that's I will remain a strong vibrant company that is well positioned to deliver on our purpose and thrive in a new and different environment. In fact, we've taken the opportunity to faster as this environment accelerates changes in the waste customers want to interact with retailers.
For example, we were already preparing to roll up Curbside service store consultations and certified cross training of employees as such the implementation of these capabilities is not just a response the pandemic. They are in fact, an acceleration of our existing strategy.
Lastly, and very importantly, I want to take this moment to think that thousands of employees that have made this all possible. They have faced immense change with great determination and compassion and have helped us shape our approach to safe retail like many are working with customers every day some of whom are also scared frustrated and a case.
Certainly hospital and this cobot environment to ensure they have access to the products and services they need to work learn entertain and connect from home.
Others are working tirelessly to maintain a supply chain that deliberately speed and keeps our customers at home and so many employees are making technical and operational changes every hour from their home office.
None of this is possible without their dedication and I am truly great deal grateful and feel lucky to be on the team with them now.
Now I would like to turn the call over to Matt for more details on our Q1 financial results.
Good morning. This quarter described the pandemic has dramatically changed how we interact with our customers were thoughtfully approaching each decision balancing the safety of our employees and customers, while creating long term value for shareholders.
Even with the outstanding execution from our employees and the strong customer demand for these central technology, we provide there's no denying the financial impact the pandemic has her.
In Q1 stay at home orders and changes to our operating model resulted in an immediate and complete channel shift, but put near term pressure on our operating income right.
Well in line revenue was up more than 155% year over year. It was 42% of domestic revenue compared to 15% last year.
The typical quarter be operating income rates, because the store and online channel or very similar.
Before the lower gross profit rate online offset by lower estimate as a percentage of sales compared to our store channel.
In Q1.
Over the course gross profit rate was approximately 70 basis points lower there last year as we incurred higher supply chain cost to fulfill the online sales.
In addition, always with numerous steps to control costs and manage profitability in the quarter. We've continued to incur the majority of the cost to own stores, including payroll cigarettes.
So we continue to pay off field associates in some cases at a higher rate goes through most of the core.
Before we did not CBS leverage we would expect with the more gradual shift sales between channels.
The results are going to parse non-GAAP operating income declined 90 basis points driven by both although gross profit unsuitable as she neighborhood compared to last year.
Before talking about our first quarter results in more detail. Let me start with a reminder, that on March 21st we would do off the school 21 guidance for both the first quarter and full year due to the uncertainty related to the potential impacts associated with Covance like pandemic.
I would now like to provide additional detailed on our results versus last year, starting with health sales trends it during the quarter.
As we reported in our April 15th press release or enterprise revenue was up 4% year over year for the first seven weeks of the quarter ended March Twentyth.
We'll go ahead of original expectations.
As in mid March we began to see the surge in demand for products that people needed to work or learned from home as well as gaming products.
During these days ended March 20 of our enterprise revenue grew approximately 25% year over year.
While we continue to see heightened demand for these products, we materially change or operating model and therefore, we began to experience overall revenue declines.
As a result in the first three weeks of the new model for March 21st put your school love them revenue declined approximately 30% compared to last year.
The last thing so the quarter from April 12 remain second sales trends improved a stimulus funding begins a circular.
As a result during that time period revenue declined approximately <unk> percent compared to last year.
There are domestic segment revenue for the total quarter decreased 6.7% to $7.9 billion.
Chris was driven by comparable sales declined 5.7 versus the loss of revenue from 24 large format stores.
It was in the past year as part of our normal course of business.
Are comfortable sales calculation includes revenue from all stores that were temporarily closed or operating curbside all the operating model during the period as a as a result golden monkey.
From a merchandise perspective, as Corey mentioned, we saw growth in our computing and Guinea categories.
This growth was more than offset by declines at home theater mobile phones and digital imaging.
In addition, comparable sales in the services category declined 16%.
The decline in services was primarily due to store closures and a corresponding higher because online sales, which has a lower tax refund in store as well as the fact that we spend in the home services midway into the quarter.
In our international segment revenue decreased 2.1% $647 million, primarily driven by approximately 320 basis points of negative foreign currency impact, which was partially offset or revenue from new stores opened in Mexico in the past here.
Our international comparable sales were essentially flat to last year, even though all stores in Canada were closed the customer traffic for approximately 40% of the quarter similar to the U.S.
During the older girls process, the domestic gross profit rate declined 70 basis points to 23%.
As I stated earlier, the decrease was primarily driven by supply chain costs associated with a higher mix of online revenue.
We also saw lower profit sharing revenue from our credit card arrangements and product mix pressure, but these impacts were largely offset by lower promotional activity across multiple categories.
The impact from the lower profit share revenue was approximately 20 basis points compared to last year.
We expect to see continued pressure from lower profit sharing revenue related to our private label and Cobranded credit card arrangement.
The economic ramifications of Kogan messy and are expected to lead to higher credit card default overtime.
International gross profit decreased 130 basis points to 22.3 person, primarily due to lower year over year gross profit rate in Canada. The result of a lower mix higher merchant services revenue and higher supply chain costs.
Moving to US you know domestic non-GAAP EPS, you know decreased $101 billion compared to last year and as a percentage of revenue estimate increased approximately 10 basis points combined pinpoint southern person.
The largest driver of expense decline was lower incentive compensation expense of approximately $70 million.
The majority of this was related to short term incentive compensation as we did not pay or accrued bonuses for first quarter performance.
We also incurred lower store payroll expense due to the federal cares Act employee retention tax credits.
Of course stated we continued to paying all of our store. So students through April 18th whether they were working or not and we paid hourly and set the pace employees, who are working or stores and distribution centers.
We also incurred additional costs such as safety measures and supply associated with actions. We took in response to the pandemic.
In the quarter when crude incur approximately $200 million of costs related to our old or cold and lighting related actions or approximately $131 billion, when including the important pension carbon $69 million.
This employer pension credit as a payroll tax credit for approximately 50% qualified wages and health benefits paid to retain employees not working as a result of kobin like.
Other non-GAAP basis effective tax rate of 27.2% compared to 20.1% last year the increase versus last year was primarily driven by a decrease in a tax benefit from stock based compensation.
All right, it's really non-GAAP diluted bps 67 cents include negative seven cents per share impact from the higher factory in a negative two cents per share impact from higher net interest expense.
Partially offset by a three cents per sure benefit the mixture heritage.
During the first quarter, we returned $203 million to shareholders through $141 million in dividends and $62 million and share repurchases.
As we previously communicated we suspended share repurchases on March 20 Onest.
We have taken and are taking a number of additional actions for both for the balance sheet to provide flexibility, including drawing the full amount or $1.25 billion credit facility in March 19th.
Our actions include growing merchandise receipts to match the man, which resulted in a 23% decline in our Q1, ending inventory balances compared to last year, reducing promotional and marketing spend to align with our temporary operating model.
And so spending or for one K. company matching program.
From a capital exposure standpoint, we are reducing or spend to focus on mandatory maintenance for high value strategic areas.
When we entered the year our outlook, we sure what's the spend between $800 million to $900 million and capital expenditures during fiscal 21.
[noise] you know like the spend in the range of $650 million and $750 million, we remain committed to spend in areas such as technology innovation and our culture.
We are deferring spending there is like store remodels and we are reducing the number of stores receipt electronics finally this year.
As a result will be ongoing uncertainty related to cope with my team, we're not providing financial guidance at this time, however, I would like to provide some insight into how you're thinking about Houston and the rest of year.
Our priority has been and we'll continue to be the safety of our employees and customers, while providing essential products products and services, we're focused on managing a possibility liquidity belting or short term decisions can navigate this unprecedented situation, while preserving elements of our strategy that will ensure we remain vibrant company in the future.
For the remainder of your there are many factors were continuing to way, including one the depth and duration of the pandemic to the impact of current to potential future government stimulus actions.
The impact to consumer and growing unemployment for the evolution of our various operating models and five how and where customers are choosing to interact with us.
It's difficult for us or anyone else for that matter to model. How long this continues and expect to which the comedy moves into a prolonged recession.
The first two weeks of two to be have retained approximately 95% sales compared to last year.
I would expect better Q2 sales growth rate will likely continue to be pressured throughout the quarter.
We also expect their online sales would continue to be high as a percentage overall sales in the second quarter, which will continue to pressure the gross profit rate.
Well, we do expect to see payroll lower payroll and short term incentive costs. We will continue to have some costs associated with a longer term operating level interest all right.
<unk> expense continued rate pressure from lower profit sharing revenue related to a critical arrangement. Therefore, we still expect or Q2 operating income rate will decline on a year over year basis.
Lastly, as Corey mentioned, we will likely employee a variety of operating levels. During the second quarter, all adapted to the local market conditions and emphasizing since before customers and employees.
To the extent, we were able to increase the level of customer traffic in our stores by expanding hours were opening some stores beyond our current appointment only model. We may reduce the operating income was pressured by expanding gross profit gross margins and further leveraging us either.
Well turn call over to the operator for questions.
Thank you.
If you would like to ask a question. Please take note by pressing star have one on your telephone keypad and even sure. Your mute function is turned down to below your signal should be Cherokee.
I just answered by Fannie only ask one question and if possible. Please do not use speaker phones.
Again that is star one ask a question posed for just a moment to allow everyone an opportunity to signal for questions.
We will now take our first question from Greg Melich from Evercore ISI. Please go ahead.
Hi, Thanks, and very job, Oh, you're calling us all together.
I love to dig a little more into the supply chain and the inventory down 23% could you go onto a little bit more on which categories you've been able to secure products.
And the which ones that you think it might be more challenging, particularly.
As we think about that school up a couple of much.
Sure I'll start and then maybe my can jump in I think overall, we think the teams did an amazing job balancing inventory to the quarter Weve clearly had a number of different sales trajectory through the quarter. So in the quarter. We like we saw some constraints in eastern key areas, such as computing gaming, but we were able.
To manage through quite well I think.
Overall, we're pleased with the way that Youve managed to inventory.
As you look into Q2, I would say well continue to see a little bit interest rates, where you know the quarter, but likely nothing too.
Packing yourself.
Okay. Thanks.
Things back and Greg. Thanks for the question, maybe just little bit of backdrop before the pandemic sort of we were doing lists the turf situation from last years or teams have been working.
Tirelessly around countries of origin or sourcing from all of our partners I felt really good as we entered the year as to where we work from an inventory position or some other categories that saw the demand spike a freeze or saw the mass bugs and networking quicker. So the mass, but some of the computing parts monitors things that you would actually need to work work from home or learn from here.
So we're the ones that got constrained in the ones that were working the fastest feedback and stock.
Based on what we have visibility to and work with our top partners, we feel really good voter inventory position.
From here going through the balance for the quarter without for quite a back to school during about during a pandemic, which is also meet all of us too but.
What we're at.
With our partners.
Thank you and.
If I could just follow up on that what would be ideal amount of inventory was any of that reduction just because sales were down or was it really just to get him as the supply would you like inventory to be flat year over year.
Okay, I think it's a good balance.
A question, we clearly reduced inventory to match sales trajectory, but we also wanted to make sure. We're fighting inventory of the products are in high demand like beginning in show you tend to look for areas that Arts district trajectory is not as high and you right size as much as you can continue to fight in products that are in high demand. So.
Ideally, we'd like to have more computing and some a horse inventory in some areas because we probably could as Jean more sales had added.
That's great. Good luck everyone. Thanks.
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We will now move to my next question from Cowen Schorsch from Barclays. Please go ahead.
Hi, Thanks for taking my question and congratulations well they stay on working through a very volatile times.
Eric.
So I just wanted to ask a little bit on I guess, the reintroduction of services.
I guess can you give a little.
Color on the demand you're seeing trying to chase and also total tech support because I guess, there's two sides of the the debate, which is one that you know pent up demand that pulled into Q1 Q, but then the other side of it is you know people couldn't do wholesale like home office Reconfigurations, just beyond a replacement laptop or printer.
I mean, no more contemplated taste of overhauled so you could get a little color on that and then I had another follow up.
So I'll try to give a little color and both TTS and I say so.
We talked quite a bit in the script, we did definitely see some usage, but the majority of but was remote or via chats and call because obviously couldn't come into the stores and we couldn't go into their homes and so not only will be constrained I happen to what you're talking about carrying because you could only put so much of your home office together, we're up it was constrained by the way we were operating.
And I think we've talked about this before this severe other channel shift make service sales harder than when we have our stores open and believe we have a chance to provide that service, we're definitely seeing pent up demand as we start to open up our stores to be appointment model. Many of the appointments being made are people who wants to come in and.
During especially as you can imagine home office or a phone products and for us to help take care of them and we can also theater for going back into People's homes, where they can man's and the request for us to come to their homes to fix things like refrigerators laundry that has been very high and so there I think they.
Only pent up demand there at some heading into Q2 and the team is finding new ways to serve that.
I AJ side of things it was very interesting as the team across all of our in home businesses has been very flexibly trying to serve customers either digitally phone that Chad anyway that they can they moved to idle to digital consultations in that merge our I'd say, they're also helping with.
That's really heavy volume of inbound failed calls and chat and they are also helping with the new in store consultation model before you come to the star, we actually have a pretty call and our in home advisors. In some cases are helping with that pre call because it can really figure out what is that a customer needs and I will say if like it's pretty give a couple of data points in April we saw.
Our IC business was actually up and over 60% of that was coming from chat and digital channels.
And that through those channels those virtual consultations was that a 91 NPS well. This idea that we can more flexibly news the in home resources, not just physically in people's homes, but and I'm more virtual consultative way is really really interesting and something that I think will be a muscle the country the flexes and go forward.
Actually that leads into my next question I mean looking at your very strong retention rates should have only gotten better but also parent paring that would be E. Com now 42% himself I guess I'm wondering you know how do you think about evaluating the physical store base going forward just more broadly.
Yeah, I would start with our stores are absolutely an asset and they have been an asset throughout this isn't I just knew that data point in April 65% of what we sold online because the vast majority of what we sold was either picked up curbside or shipped from store and so this this asset of the store base is very.
Real now you can imagine what where discerning as how might the stores look and working differently given it seems there and how might they provide a variety of fulfillment options a variety of service and high touch console paid of options like this opens a lot of doors for how your source might work differently.
And that's where our focus is at this point.
That's helpful. Thank you.
Thank you.
Given that take our next question from precious Nagle from Bank of America. Please go ahead.
Okay.
I was just nagle from bank of America piece, ensuring I know from you should be currently can't hear you.
Paul as you saw.
Thanks, very much we're taking the question.
Core maybe just a quick and just getting back into the point on kills emotional floor show you know down just about all the sharper showed that is an acceleration I'm really really impressive numbers would you be able to talk about what's driving that is that no further acceleration in my mind better groups.
<unk> will show what's going on there.
I'll start and then maybe Matt can add more color on control missing something I think there's a lot that's going on there. So curbside. It even if you look at the original attention we announced at the beginning of her five cities like 7% you can tell about accelerating confiding ended the quarter, we were already at 81% and so just I think that before.
And although currently approved by the teams plateau or amazingly creative and thoughtful about how they implement about and definitely got better and better and better at providing that service. We also were very clear the stimulus dollars that started to flow towards the end of the core to what cap really helpful.
Strongly believe us hearing in Q2, two here, it's not all the checks have you have been distributed although the vast majority now about that money is out there, but we definitely feel about stimulus starts doing other level up demand and then I think people continue to.
Capital needs as they spend more and more time in their home like the initial demand definitely around working and learnings and home and this new appointment model what we're starting to see if there is not OCO demand for cooking and importantly, I think we all feel it entertaining at home and creating new and different entertainment uses.
What we see an engaging and so I think there is also that once you layer on a little bit.
Thank you all local sourcing teams there is demand for some of the other aspects of what it means to sheltering interface.
Matt I don't know she have anything to add flushes.
Does that all too as we become more profession are modeled and customers are more comfortable as they engage with us I think there's a general improvement in our execution and just how customers are learning how to shop in this.
Yeah, I think that's a really good point I would just left on our teams have done an amazing job on awareness hotter shop. If you go to our web site, we have literally a whole site that just walk through all the different ways in which you can interact with best buy and then what the applicable depending on your geography and you can imagine that's gonna take some time for our customers to understand and actually have a.
Weirdness on all the different ways they can justify.
Okay very helpful.
Just a quick one of them and pushes a bit [noise].
Early that to comment on but.
[laughter], what about you know seemed to change you might be movies in terms of you're used to ensure quality kishore than.
Moving those two too.
People living in its doing other homes more or what you'd mentioned.
Healthtronics your students phone it shows the joking.
How could you she was June Angelou code in coming months huge lagoon food.
Hey, Kurt as Mike I'll start and then no matter Corey can chime in we look at their customer demand signals. All the time and works I think is interesting during this pandemic.
Yes, so we were trying to play and I'm going to specific to help.
We've always had an insight that well show playing a strong role and hoping numbers people's lives and others.
Predisposition, rather acquisition are grateful I always thought about the space.
You are really thinking about what else they should or could be doing at home.
Things NSP definitely that pop is still small business for us, but that's probably going into the fitness category last year.
This analysis.
And with a map with them things like Washington sensors at the moment errors and things that you would want to do just to truck and maintain your health, becoming more important because those devices will just sort of a need are now starting to get to other things consumers are highly interested in which I think bodes extremely well thus far.
The gaming resurgent slows a bit of a surprise will be candidate you ever want to talk to the gaming category was going to wait for this fall for the new causal resets, but clearly if you have kids at home and you cannot be the best teacher in a world.
Substitute has become a Nintendo switch hurt us blocks for Playstation and that's new demand and we think that demand will actually are moving into stronger demand as your progress with new devices.
The categories that I'm and I'm intrigued about as we get back to people working with us whether we're going into their homes. So we tend to go back into People's homes with allergies and in early June but as people come to our stores for consultations is people thinking about how to update the way to prepare food and stored and how they're thinking about entertainment. So categories that were really good at.
These complex probably console so sales I.
I think there's some good opportunity, but our assortments there may be more curated but also serving customers needs more specifically as it looks for doing different things.
Yes.
The only thing that I would ask to build on care and for questions.
I think the complex full home office and learning solution will also continue I think people than 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.
[noise], that's really helpful. I really appreciate it.
Well ill take it.
[noise], we will now take our next question from stuff some relief from RBC capital markets. Please go ahead.
Good morning, guys Scot Ciccarelli.
You guys talked about getting the benefit from the stimulus checks that makes sense I think go a lot of companies did what do you have any way to estimate the amount of poor demand you may benefit from in the quarter as you try and kind of pick about the balance of the year.
Yeah I can certainly my report can jump in I think.
We actually don't believe there's much pull forward into the quarter. I think you spoke about the types of products were showing there was just continues to sustained demand that we're seeing I think people's lives and also changed in a way that demand that need probably didn't know if he had before they now have any new world were technology at home is more important things like monitors at home.
I would have bought so I think.
We actually got a lot of what we're seeing are most we're seeing is not pull forward as much as incremental too.
Otherwise different situation I think Mike do you mean example isn't being perfect widen meaning that's not pull forward demand that's going in that would not have existing people would not have fossil gaming consoles. They would have waited for the next generation of console to come in December but because you're in this unique lights situation, there's real incremental demand there and I think that's a perfect example overseas.
Okay, and then as you as you talk with your vendors, obviously, you've had a lot of discussions with them you know given some of your inventory commentary.
Everyone's been on hold right. So it based on what you know at this point is there any kind of change to whats called the product introduction.
Outlets came away as you discuss with your vendors kinda weighed they're thinking about the balance of the here. Thanks.
Yeah, Scott as Mike I.
I don't see any change to.
Some of the middle part delivery days, there's lots of things so even though we don't know, but we made a statement in the script.
Innovation is going to accelerate there are some product categories in ways that things come to light I think are meaningful I mean literally four months ago. Most people, let us on season video camera on their laptop is putting a piece of people over it and now you need a high resolution camera or better set of speakers at microphone, because you need to be more productive.
And do a video conferencing, so I'm actually pretty set I thought maybe some additional innovation or some park reps up you can help accelerate and commercialize it Britain the market.
Many thanks.
Thank you.
We will now take our next question from Jonathan Mashinsky from Jefferies. Please go ahead.
Yeah. Thanks for taking my questions I'm curious if you could give us an update on your lease to own effort, presumably something that's been a more challenging too.
I would say, which can eliminate store operation, but how do you see that of all the especially with kind of under banked consumers may be dealing their wallets pinched a bit and any commentary on.
We were able to see during the quarter. Thanks.
Sure.
Thanks.
The ability to provide another purchase option for.
Customers is critically important, especially in this very uncertain time for most people eye.
The reality is in this quarter you know currently Christmas going away purchase through at least own Jared stores sorted out obviously has it means that program advance too much in the quarter, we're still expecting to launch a it online this year and I think that in July so we're still very pleased.
Walter relationships, we're still very excited about the opportunity that it provides a next anymore financing to more people customers that it might attract but clearly you mentioned a quarter a bit of disruption just factors our stores were closed.
First a foot traffic for half of it.
Yeah. That's helpful. Then just a quick follow up keep no since the pandemic started have you seen any evidence trade down obviously you've seen them.
Yeah indications as demand across categories, but in any indications in terms of moving towards.
Smaller versions of appliances are less features or last year's models or anything like that that would indicate a consumer caution. Thanks.
I'll start and making pile on I know.
We really for the most part have not now back to what Mike said about the need around your home office, where they need around learning when when you're purchasing and that very kind of need to me way. It's it's less about trying to trade down it's more about trying to figure out what exactly is going to feel the need for you in your home that's actually we're seeing in cooking in preparing food at home or seeing.
And learning in office at home.
And so I think for US we're actually right now seeing that the demand is across the profile of what we found in fact in some places even higher in some of the higher and computing I mean, one of the things that selling really well computing is high in computing that the gaming computing and gaming computing is actually some of the highest and product that we sell and you can definitely if he does 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.
Hello.
Jonathan as during that timeframe.
Couple of the mass channel.
For opening so from an assortment and it compared they'll be standpoint customers didn't have a whole some shopping experience. He was a couple of examples where unconstrained products.
It probably was from a if you erosion based on the fact that all your higher or lower priced items and that sometimes is very careful where somebody would trade down, but that's kind of kick it over the long term trend in any way shape or form.
Yes, exactly having consulting she's back in place for this older stores.
Interest level, we're seeing for consumers and some of our more complex categories.
Really helpful instead of color.
Thank you.
Hey, when I take our next question from Joe Feldman from Telsey Advisory Group. Please go ahead.
Hi, Good morning, guys wonderful on the Capex reduction I know you described a little bit on the comp.
Hi, good remarks, but can you help us better understand like one 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 cost. Thanks.
Sure Oh started maybe Corey am I can jump in I think where we've tried to hide from a capex perspective is mostly around discretionary not essential things any.
Actually the fact that our stores have been a close the foot driver for quite awhile I think there's some things that like story models don't make as much sense in the middle of what we're dealing with as you would otherwise so store remodels or have been pause we lowered the amount of electronic sign labels that we were going to put our store simply because there's a there's an issue of just what are we could actually a comp.
With that every 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 our were very relevant to the customer at our server clickable going forward if not more so there's things like automation and just dotcom technology another thing.
Things that we are just as passes we were before about it and we'll continue to invest where we can drive accelerator seventies.
Got it on the call our investment in digital and supply chain automation technologies are a huge part of what allowed us to first moved to curb side and that's set up appointment based gradually 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 continued to deliver what speed are absolutely crucial to maintaining our positioning as the year goes on here.
Thanks, and if I guess you one more.
With regardless of the 40 stores that are closed I know you guys decided to close those and they still remain close.
Well those reopen where are you thinking those were kinda weaker stores that you may take advantage of the situation and then keeps them close for now.
Good all they are not what they're not weaker storage fees are literally for the most part it's us looking at the kind of spread out the virus and are available employee population. It a lot of pieces I say from some of the bigger stores on that East coast you can imagine our some that that we've either closed or in a couple situations. We still have some government man.
So at that that don't take about 40 as their underperforming. These are literally 40 that Jeff. It makes a lot of side of things got health safety and government regulations.
Yeah, Thanks, and good luck with this quarter guys. Thanks.
Thank you.
Hi, My take on next question from Simeon Gutman from Morgan Stanley. Please go ahead.
Good morning, everyone first strategic question on health care 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 trends level of interest and those business models and the degree to which you can accelerate.
Some of those are 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.
Large everything from kind of health and fitness all the way to picking your temperature and blood pressure cuts. There is a significant demand for technology that will help us maintaining 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 that point 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 in the change in in reimbursement for Tele health.
At the overarching kind of government level and so that that combination of thing is incredibly power on the powerful on the consumer side now of course with a little tricky there is as it relates to specifically our great call devices, the phone and add the wearable devices much of those sales go through our stores and so without our store visit.
Actually being open it's a little harder to trim back that online so, but that's in the moment pressure with dealing with a little bit around our stores not being opened but that potential for devices that are going to keep us connected to our especially elderly loved ones right now and also just keep us connected I'm incredibly high.
We can 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 that's a pandemic as highlighted anything it is that keeping people at home as long as possible, but also tracking there.
Vital tracking how they're feeling is incredibly important so the potential on commercial I think has come to light even faster I. Just was our hypothesis was that more people would need to have more care in their homes on the back of technology and I think that has accelerated that hypothesis meaningfully.
Makes sense can I follow a bunch on gross margin. The pressure you saw related to supply chain does it make shift was that normal course of mix shift or this was a tree on situation and then the other question is the credit card is there anyway, you can dimensionalize impact from lower profit share I realize you.
This quarter, but the go forward.
Delinquencies grow a certain percentage, we could see sort of a certain percentage impact to your piano.
Yeah. Thank you.
On the gross margin side from a channel. So obviously in the quarter about halfway through me shifted filling mostly through or actually selling smelters are online channel and filling through our stores into large large percentage increases when that happens you incur a much higher personal expense, even though a large number of customers.
Still deciding to come pick up at our stores and actually our stores to fulfilling a large for some of those products.
35% of what's actually happening in the quarter when they get picked up better stores per site and or ship out of our store. So with that personal costs go up that's just kind of a variable cost of online. It wasn't abnormal that shifted it was just the normal shifted that channel win win when it happens.
So we would expect that to continue as you look into Q2.
Obviously have to have more Q1 was under the old model of them yet so all the dramatic increase we still expect online as we said to be significantly higher in Q2, which would.
Neither would incur some additional cost parcel costing more gross profit pressure.
Because of it.
We have never getting on the financing.
Profit share we've never given the actual number of what they know culture. As we just discussed her say that it was 21 basis point to pressure in Q1 I think.
We also believe it will be a pressure in Q2, I wouldn't expect to be pretty consistent if not maybe a little bit more in Q2. If you look for its hard to know how that plays out for the whole year, because a big part of this has to be with the macro and unemployment and real still little still early to tell how much that actually is going to be impact for the year, but we would expect it to get 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.
[noise], ladies and gentlemen. This concludes today's cool. Thank you for your participation you may now disconnect.
[noise].