Q1 2022 Best Buy Co Inc Earnings Call
Non-GAAP.
[music].
Ladies and gentlemen, thank you for standing by welcome to Best buy Q1, FY 2022 earnings Conference call.
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I will now turn the conference call over to Mollie O'brien, Vice President of Investor Relations.
Thank you and good morning, everyone. Joining me on the call today are Corie, Barry our CEO, Matt <unk>, 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 dot com.
Some of the statements we will make today are considered forward looking within the meaning of the private Securities Litigation Reform Act over 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 to differ materially from such forward looking.
Statements.
Please refer to the company's current earnings release on our most recent 10-K and subsequent 10 Qs 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 Corey.
Good morning, everyone and thank you for joining US today, we are reporting record Q1 financial results, which include comparable sales growth of 37% and non-GAAP earnings per share growth of more than 230%. We are lapping an unusual quarter last year that included both periods of high demand and periods when our stores were.
Close to customer traffic when we compared to 2 years ago. Our results are very strong compared to the first quarter of fiscal 'twenty revenue is up 27% and our earnings per share are up more than 100%.
Customer demand for technology products and services during the quarter was extraordinarily high Bill.
Demand is being driven by continued focus on the home, which income taxes, many aspects of our lives, including working learning cooking entertaining redecorating and remodeling.
The demand was also bolstered by government stimulus programs and the strong housing environment.
Our teams across the organization not that demand with remarkable execution from our merchant and supply chain teams working behind the scenes to our blue shirts, and Geek squad agents on the front lines. Our employees once again showed amazing flexibility and execution managing extraordinary volume. Most importantly, they provided exceptional customer service.
In a safe environment.
From a merchandising perspective, we saw strong comparable sales across virtually all product and service categories. The biggest contributors to the sales growth in the quarter were home theater computing and appliances.
With the extraordinarily high customer demand as well as production and distribution disruptions product availability constraints continue to be athene. During Q1 as they have been throughout the pandemic, particularly on large appliances computing TV and gaming are.
Our teams collaborated closely and effectively with our vendors to bring in as much inventory as possible.
<unk> is a testament to the trust and unique relationships that our merchants had built with vendors over decades of partnership.
Our results. This quarter also highlight the strength of our supply chain, we were able to efficiently move the amount of inventory necessary to drive 37% comp sales growth, while navigating record demand across retail container shortages and port congestion.
We also improved our speed to customer as our online sales package delivery was not only much faster than last year. It was faster than 2 years ago pre pandemic and.
In fact same day delivery to customers homes was up 90% on a year over year basis.
In addition, we continue to leverage our stores to drive fast and convenient fulfillment of online orders in Q1 about 60% of our online revenue was either picked up in store or curbside shipped from a store or delivered by store employee, which is becoming an increasingly important aspect of our delivery experience.
The percent of online sales picked up by customers at our stores was 44% similar to last year's first quarter.
This strong performance would not have been possible without an amazing and resourceful team of people and the multiyear investments we have made in our supply chain transformation.
Best buy has a unique ability to inspire and support customers in ways no 1 else can and as the impacts of the pandemic have evolved customers across all age demographics are feeling more comfortable coming back into stores to see products firsthand seek expert advice from our associates or get technical support from our Geek squad agents.
At the same time sales originating online continued to be much higher than pre pandemic and we're 33% of our domestic sales compared to 15% 2 years ago in Q1 of fiscal 'twenty.
In addition, we continue to innovate as we help customers buy a phone and chat.
A great deal last year by bringing more of our expert blue shirts on to our digital and phone platforms to support our customers.
In fact, most aspects of our unique and full suite of services have rebounded to pre pandemic levels for.
For example, install delivery and in store and in home repair volume is all up over last year and higher than 2 years ago.
Active my best buy loyalty program members have grown considerably and members are using the program more than last year and 2 years ago. Our total tech support membership acquisition metrics such as sales per store per day have rebounded and are even higher than what they were 2 years ago. In addition, total usage of the program is up more than last year and 2 years ago.
During Q1, we saw strong growth from engaged and Reengage customers starting at the beginning of the pandemic through March we saw elevated growth in new customers in total new customer growth was about 50% higher than pre pandemic levels. These new customers gained during the pandemic have slightly different demographics from our historical new.
Such a slightly younger slightly more female and slightly lower income.
We are encouraged by the fact that we are retaining these new customers at rates similar to historical levels. Considering they are not only a slightly different demographic, but they also represent a much larger group of new customers than we have historically seen.
As I mentioned earlier online sales were 33% of domestic sales this quarter compared to 15% 2 years ago in Q1 of fiscal 'twenty for the year, we have updated our working assumption regarding the mix of online sales and now expect it to be in the mid 30% range from our original expectation of approximately 40% this compare.
Chris to 19% for the full year 2 years ago in fiscal 'twenty. Nevertheless, clearly the pandemic has accelerated the evolution of customer shopping behavior.
Our research indicates our customers look to best buy to serve 4 distinct shopping needs inspiration research convenience and support.
And customers expect to be able to seamlessly interact with physical and digital channels. We have a unique ability to serve all of these needs at all times in all channels.
We are currently looking at how we can best to play our team on our physical assets to meet these customer expectations and needs.
As we discussed in our past few earnings calls we are taking the opportunity to test and pilot a range of models on initiatives to better understand how we can leverage our stores and facilities for more fulfillment purposes, and how we can deliver customer experiences with a more flexible and engaged workforce.
Late last year, we launched a pilot in Houston to test a much more experiential store for example from an inspire and support standpoint, it has new PC gaming headphones and fitness experiences as well as fully remodeled premium home theater and appliance experiences. In addition, it has a much bigger geek squad presence in the store from a.
Fulfillment standpoint, we reoriented the location of the store warehouse to be adjacent to our new covered drive up curbside experience and lockers.
Early results from this pilot show higher NPS and sales relative to its group of control stores.
Late last year, we also began piloting new store formats to test our hypothesis of stores as more primary fulfillment hubs and for Minneapolis locations in.
In these locations, we reduced the shuffle square footage to provide incremental space for staging product for in store pickup and to support ship from store transactions.
The product assortment on the sales floor still includes the primary categories. These locations had before the remodel but the merchandise SKU count is reduced to focus on the most popular items.
Accordingly, the pilot store type fewer store associates, and we are testing a queue functionality for customers, who would like to consult with an associate.
And 1 of the 4 locations we are utilizing some of the available space to increase the previous allocation to our <unk> business.
Our goal is to retain customers and improve customer satisfaction, while reducing selling square footage improving speed and convenience and operating a more efficient model.
We will continue to refine and iterate to learn and evolve our hypothesis.
Later this year, we will be piloting a new market approach to best address local customer needs, we will leverage all our assets in our portfolio strategy across stores fulfillment services and outlet lockers, our digital app and both in store and in home consultation labor.
From a physical store standpoint in this market, we will be testing an array of different prototypes, including 15, 25% and 35000 square foot stores, a new outlet store and even smaller 5000 square foot stores. Our goal is to improve customer penetration by delivering new more efficient and still experiential store.
Or formats that are more proximate and relevant to customers.
In addition, we believe we can operate more efficiently for example by reducing total retail square footage across the market, reducing open box costs and improving utilization of our repair and auto tech capability.
We also continue to refine our ship from store hub concept, while all stores will continue to ship online orders, we are driving efficiency and effectiveness by consolidating ship from store units and a limited number of stores across the country.
In addition to our physical stores are operating model is evolving to meet our customers changing shopping behaviors that have been accelerated by the pandemic Bill.
Sudden and lasting shift customers had made to shopping more regularly and seamlessly across all of our channels has amplified the need to look at how we get our work done.
As we think about our labor operating model, we are designing for employee choice flexibility and career opportunity. Our response to the pandemic has shown our ability to be successful in broadening the scope of responsibility of our associates and has highlighted the importance of ongoing flexibility and adaptability.
A core aspect of our strategy going forward as Upskilling and Reskilling field employees. The benefits of this go beyond just a more flexible workforce, yes. It allows our employees and us to schedule shifts more flexibly within the store and between channels like virtual sales chat phone and remote support.
But just as importantly, our employees are gaining skills that can be used across their career journey and are gaining more confidence early results are showing us that once employees add skills. They tend to drive a higher customer NPS and.
And we are making significant progress as to date thousands of employees have earned multiple skill sets.
As we continue to evolve our labor model, we have not lost sight of the competitive advantage our team members provide especially in more complex sales transactions.
Specifically, our in home advisors Pacific Kitchen, and home experts and Magnolia system designers have the unique ability to create and build relationships and have developed client telling skills.
Earlier. This month, we brought these 3 previously siloed teams together into 1 team.
This will allow us to serve customers more seamlessly across all the ways they want to interact with us whether it is virtually in our stores or in their homes.
This change positions, our most skilled employees against the most complex work within an entire market and will provide improved career progression opportunities for our sales teams.
Now called consultants and designers.
The members of this coordinated team currently number nearly 3000.
We shared last quarter that our overall head count was down approximately 17% as we entered the fiscal year. The percent of our total employees that are now full time is approximately 60% compared to 54% pre pandemic. We are iterating to find the balance between providing in place full time opportunities that come with benefits and guaranteed hours in <unk>.
<unk>, while also maintaining the flexibility that is often important in retail.
Overall, we are doubling down on the expertise by investing in our people and their training skill sets and career progression.
We also continued to expand our employee benefits most recently, adding new programs focused on diabetes, physical therapy, and supporting and advocating for employees and the LGBTQ IAA plus community and those managing complex chronic or ongoing care needs.
These are in addition to benefits we added over the past few years that include 100% coverage of Covid related health care expenses.
Standard caregiver leave additional support for backup childcare tutoring reimbursement and access to physical and mental health virtual visits.
In addition to show our appreciation for their hard work over the last several months and in recognition of their ongoing efforts in the face of pandemic fatigue, we paid employee gratitude bonuses this year.
In March all hourly U S employees received $500, a full time and $200 at part time or occasional seasonal. Furthermore, all hourly field employees will receive an incremental $150 recognition award over the next 2 weeks.
Clearly the landscape as it relates to the pandemic has been changing rapidly and we remain keenly focused on keeping employees and customers safe. We are continuing to encourage all employees to get COVID-19 vaccinations by providing them with paid time off when they received the vaccine and providing them absence time to be used in the event they develop side effects that werent.
We're needing to stay home and rest after receiving the vaccination.
I would like to now share the latest developments of our membership strategy as we mentioned on our last call. We purposefully pressed pause on this initiative at the start of the pandemic last month, we began piloting our new membership program called best buy beta in 60 stores.
This offer combines compelling benefits from our total Tech support program are my best buy loyalty program and our credit card program. In addition to other benefits to be clear what we're piloting is not in direct competition with Amazon Prime Walmart plus or frankly, any other membership programs in the market today it.
It is playing to our unique strength and what customers want from best buy it.
It includes exclusive member pricing unlimited Geek squad technical support up to 2 years of warranty protection on product purchases.
Our 60 day extended Richard window free standard shipping and delivery and free installation on most products and appliances.
I would note that all best buy customers already receive free and fast shipping on orders over $35, while best buy beta customers get free and fast shipping on everything including same day deliveries.
Membership also includes access to our support Concierge service that is available only to best buy beta members.
The best buy Concierge team is available 24, 7 by phone chat E mail or through the best buy App the.
The cost is the same as our current total tech support program $199.99 per year or $179.99 per year for the best buy credit card holders.
The goal of best buy beta is to create a membership experience that customers will love and to value, which in turn resulted in a higher customer lifetime value and drives a larger share of C E wallet dollars to best buy.
It is very early in the test results and insights will inform what we ultimately end up rolling out on a national level, but so far we like what we're seeing from our customer and employee proposition perspective.
Changing topics for a moment I want to reflect on the fact that this week marks the 1 year anniversary of George Floyd smarter for US his debt last year was a long overdue catalyst for change and as you may recall I shared at that time that we would do better and I am proud to report that we have on many fronts..1 area of particular emphasis for us is our role in underserved.
Communities and.
In fact, just last week, we announced we're investing $10 million over 5 years to create pathways to opportunity for teens from Disinvested communities in Los Angeles.
As part of that effort, we will build a network of 10 to 12 teen Tech centers, providing access to cutting edge technology skill building and career Mentorship with a specific focus on connections and training and creative and entertainment careers. We.
We will also provide localized postsecondary guidance scholarships and mental health and wellness support.
This loss Angeles community impact hub is a key step toward our goal to build a network of 100 Teen Tech centers by 2025, which is part of our broader commitment to address technology in equities and advance economic and social Justice, 1, particularly exciting aspect of this initiative is that we are using a new approach that engages deep partner.
Ships with like minded public and private organizations in the local community in this case founding partners Annenberg Foundation, and greater La Education Foundation, and a variety of vendor partners and other organizations. We believe this will be an effective model for amplifying, our social impact efforts and we expect to deploy something similar in other markets.
In summary, the year has clearly started out much stronger than we originally expected that momentum is continuing into Q2, and we are raising our outlook as we think more short term specifically the back half of this year. We expect shopping behavior will continue to evolve as customers are able to spend more time on activities like eating out traveling and other events.
And there remains uncertainty as to how this may impact our business, especially as we lap, particularly strong sales in the back half of last year.
That being said there are a number of factors that reinforce our confidence over the longer term.
First it has become evident throughout the pandemic that technology is even more important to People's lives and we're excited about what that means for our business going forward, especially in combination with both the heightened technology innovation that supports are more home based way of work and life and our unique ability to inspire and support our customers. These are permanent.
Structural shifts that we're seeing towards more hybrid work and learning models streaming entertainment and a sustained focus on the home.
This increased penetration of consumer electronics presents opportunity as we grow our consultative in home model to help our customers optimize the potential of their technology as well as our unique support model that keeps it all working the way they want.
Second we believe the consumer is in a materially improved position with higher savings stronger credit more prolific vaccination and more available jobs.
Third even with the elevated demand we have seen throughout the pandemic. We believe the nesting phenomenon will continue to drive demand for products and services that help customers improve their home experience.
And our vendor partners are already innovating to create new solutions that cater to this nothing phenomenon like cameras on televisions and portable computing geared towards video interactions.
And fourth we believe there remains opportunity in the installed base that is not yet replaced or upgraded their technology products. For example, NPD estimates, 15% of the TD install base upgraded more quickly than expected.
There is also opportunity and low penetration categories like health fitness and small appliances that have room for growth.
Furthermore, inventory constraints in areas like gaming support sustained demand as customers continue to seek out ways to entertain at home.
So before I turn the call over to Matt I want to say a few words about Mike Mohan who is participating today in his last earnings call as best Vice President and CFO.
When Mike shared that it might be time for him to lead best buy I was met with many emotions. We've worked together for so many years and both are true friendship I've grown to cherish as his friend I was proud that he was ready to leave the company he loves and set out to pursue his desire to do more as its colleague I was truly saddened at the idea that I wouldn't be able to count on his advice and insights as I have.
So long.
What Mike leaves behind is a legacy of countless people, whose careers he supported and thousands of decisions large and small that always prioritize best buy success in good times and bad.
When things were at their worst he helped steady the company with its trademark candor and almost intuitive understanding of what makes this company tick we.
We saw him asbestos past year, bringing a lifetime of experience to drive clarity in a truly unique time.
Most significantly he has created a team that is I believe the best in the country a team that will now step up and build on the strength and growth opportunities that Mike himself has been so instrumental in creating.
Because we will not be replacing either the president or chief operating officer role 3 of Mike 6 direct reports will now report to me They Inc.
<unk> brought bass, who continues to run our supply chain and global properties organization, Damian Harman as our head of Omnichannel operations, and Jason <unk>, who is our chief merchant.
Now I would like to turn the call over to Matt for details on our results and insights on our outlook for next quarter and the full year.
Good morning, everyone. Let me start by thanking our employees from extraordinary results delivered in the first quarter, our team's ability to not only keep pace with the strong customer demand, but also provide an unmatched customer experience, while making strategic progress is truly remarkable.
As a result, our performance was well ahead of our working assumptions, we laid out at the start of the quarter.
Enterprise comparable sales growth of 37% far surpassed our estimates of approximately 20%.
We were able to capitalize on the elevated demand for technology that has remained throughout the pandemic with.
Sales originating from inside our stores was also higher than we anticipated and was a key.
Contributor to our higher sales volume versus expectations.
In addition, our original outlook did not include the benefit of the margin stimulus payments.
Our non-GAAP gross profit rate improved approximately 30 basis points versus last year, which exceeded our expectations of a slight rate decline.
Primary driver was a more favorable promotional environment as the demand for technology remained strong throughout the entire quarter in.
In addition, the impact of supply chain cost was slightly favorable to our gross profit rate due to the higher mix of sales originating from our stores.
Lastly, non-GAAP SG&A dollars grew approximately 15% compared to last year.
Which was higher than our outlook of approximately 10% growth primarily due to higher incentive compensation and increased variable cost from higher sales.
Let me now share more details specific to our first quarter versus last year.
On enterprise revenue of $11.6 billion, we delivered non-GAAP diluted earnings per share of $2.23.
An increase of 233% versus last year.
Our non-GAAP operating income rate of 6.4% increased 350 basis points.
This rate expansion was driven by approximately 310 basis points of leverage from the higher sales volume on our SG&A and the 30 basis points improvements on our gross profit rate.
In addition, our lower effective tax rate had a 14th at favorable year over year impact on our non-GAAP diluted EPS.
Store closures on the various operating model changes, we experienced last year. During the early phases of the pandemic played a factor in our growth this quarter and will continue to impact our year over year financial performance throughout the year.
As a reminder, we closed our stores to in person shopping on March 22nd shifting to curbside fulfillment to keep our employees and customers safe.
By June 22nd most of our stores were open to in store shopping with capacity limits and reduced store hours.
While these operating model changes certainly impacted our financial results from Q1 day by no means should take away from the team's ability to successfully execute and serve our customers.
As Corie mentioned when comparing our results against 2 years ago or the first quarter of our fiscal 'twenty total revenue grew more than 27%.
Also our domestic store channel revenue was higher than 2 years ago, despite more than 40 fewer stores and online revenue growth of 175% in that timeframe.
As a result of the higher revenue our non-GAAP operating income rate was 260 basis points higher this quarter from the comparable quarter from 2 years ago.
Now moving back to our performance versus last year.
In our domestic segment revenue for the quarter increased 37% to $10.8 billion.
Comparable sales growth of 38% was partially offset by the loss of revenue from stores that were permanently closed in the past year.
As a reminder, our comparable sales calculation includes revenue from all stores that were temporarily closed or operating in a curbside only operating model during the period.
International revenue of $796 million increased 23% and included a comparable sales growth of 28% from the benefit of approximately 1000 basis points of unfavorable foreign currency exchange rates.
These items were partially offset by exiting our operations in Mexico, which resulted in approximately $69 million less revenue this quarter compared to last year.
Turning now to gross profit the domestic non-GAAP gross profit rate increased 30 basis points to 23, 3%.
Which was driven by improved product margin rates, which included reduced promotions and rates improvement from our supply chain costs.
These items were partially offset by increased large product installation and delivery expense.
As a reminder, we suspended in home services for about 5 weeks during last year's first quarter.
Compared to 2 years ago, our gross profit rate. This quarter was approximately 40 basis points lower primarily due to supply chain costs from the higher mix of online revenue.
Our international non-GAAP gross profit rate increased 70 basis points to 23%, primarily due to improved product margin rates.
Moving next SG&A domestic non-GAAP SG&A increased 16% compared to last year and decreased 290 basis points as a percentage of revenue.
As expected the largest drivers of the expense increase versus last year were 1 our incentive compensation for corporate and field employees of approximately $190 million, including approximately $40 million for the gratitude and appreciation awards Corie mentioned earlier.
Technology investments, which also includes support of our health initiatives and 3 increased variable costs associated with the higher sales volume, which includes included items such as credit card processing fees.
When comparing to 2 years ago domestic non-GAAP SG&A increased $156 million and decreased 280 basis points as a percentage of revenue.
The drivers of the increase versus fiscal 'twenty were consistent with the drivers versus last year from higher incentive compensation technology investments and increased variable costs due to higher sales volume.
Partially offsetting the previous items was lower store payroll expense.
Let me share some additional context on the higher incentive compensation expense first it was much higher than expected in the first quarter due to the strong performance.
It also includes the gratitude bonuses that Corie discussed.
Second since we now expect the full year to exceed our original annual incentive performance targets, we expect incentive compensation for the full year to be lower too.
To be a larger expense on our original working assumptions.
As a reminder, from a comparison standpoint, we did not record short term incentive expense for the first half of last year due to the temporary suspension of our plans.
Moving to the balance sheet, we ended the quarter with $4.3 billion on cash and short term investments at the end of Q1, our inventory balance was 43% higher than last year's comparable period.
And was 10% higher than our Q1 ending inventory balance from 2 years ago.
The increased inventory represents our plans to support the current demand for technology as well as actions, we took last year to lower inventory receipts based on our reduced sales outlook at the time.
The health of our inventory remains very strong and the increase in accounts payable this quarter was 44%, which demonstrates the rapid pace, we continue to turn our inventory.
Although trends have improved from the early phases of the pandemic, we are still experiencing constraints driven by the high demand in several other fee categories.
During the quarter, we returned a total of $1.1 billion to shareholders through share repurchases of $927 million and dividends of $175 million.
As we look to the full year, we now expect to spend approximately $2.5 billion in share repurchases during fiscal 'twenty, 2 which compares to our previous outlook of at least $2 billion.
Let me next year some share more color on the full year outlook for fiscal 'twenty 2.
We are encouraged by our results in the first quarter and our outlook for the second quarter, we now estimate fiscal 'twenty to comparable sales growth in the range of 3% to 6%.
Which compares to our previous working assumption of down 2% to up 1%.
While we continue to believe the role of technology in People's lives because the only intensified as a result of the pandemic, our working assumptions still reflect a scenario in which customers resume or accelerate spend in areas that have slowed from the start on depend on mix on the back half of this year.
From a gross profit rate perspective, we are planning for a non-GAAP rate that is approximately flat to fiscal 'twenty 1.
From an SG&A standpoint, we expect dollars to increase as a percentage of revenue from the range.
As a percentage from the range, 6% to 7%.
Consistent with what I shared last quarter. There are a number of factors driving the expense increase first we expect our SG&A expense to increase approximately $100 million on a year over year basis, as we lap COVID-19 related decisions, we made last year to preserve liquidity.
This includes returning to a more normalized spend on items such as for wound care company match advertising spend and store overhead items such as maintenance.
This $100 million increase includes the benefit of lapping a $40 million donation to the best buy foundation that we made in Q3 of fiscal 'twenty 1.
Second we plan to increase our investments in support of technology in our health initiatives by approximately $150 million compared to fiscal 'twenty 1.
This increase also includes depreciation expense.
Third we now expect our incentive compensation, including the gratitude and appreciation awards from Q1 to increase in the range of $225 million $275 million.
There are clearly other puts and takes that will we will manage through some of that will be more impactful in 1 quarter versus the next from the previous items are the key drivers of how we are viewing the full year.
In relation to capital expenditures, we still expect to spend approximately $750 million to $850 million during fiscal 'twenty 2.
Now I will provide some color on our second quarter we.
We expect comparable sales to be up approximately 17% the trends we have seen to start this quarter have remained strong total revenue growth for the first 3 weeks of the quarter has been approximately 30%.
We anticipate that our gross profit rate will be approximately flat to last year.
From a non-GAAP SG&A standpoint, we expect dollars to increase approximately 20% compared to last year.
As a reminder, we made several cost decisions at the start of our second quarter last year to align with lower sales and channel trends, we were seeing and expecting to continue at that point.
The primary drivers of the expected year over year increase include first we expect our incentive compensation to increase by approximately $100 million.
Second we expect our store payroll costs to increase as we lapped last year's store closures.
Third we lap Covid related decisions, we made last year to lower cost to preserve liquidity such as foreign K company match advertising spend and store overhead items.
<unk>, we plan to increase our investments in support of technologies in our health business I will now turn the call over to the operator for questions.
Thank you Sam if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star 1 to ask a question we ask that due to high interest in time, please limit yourself to 1 question Bill.
I'll now pause for a moment to allow everyone the opportunity to signal.
Thank you. Our first question comes from Greg Melick with Evercore.
Thanks.
The focus on the 2 year trends and particularly.
Where do you think you're gaining share on or maybe you haven't been gaining share. If you look on it now.
Hindsight you mentioned.
Certain categories, where things are strong, but just anything else on those new customers you want and how much of that is versus 19. Thank you.
Sure Greg I'll start on the share question, obviously, it's a little bit of a tricky compare to last year, because we had our stores closed as Matt said for part of the quarter. So when you look back 2 years, we feel like across the board.
We've at least recovered our share positions if not there is obviously some puts and takes on categories, but especially as we got the stores back up and we were able to provide those installation and delivery experiences than we were able to recover especially on some of those large cube areas like appliances.
And in televisions.
As it relates to some of the new customers that we're seeing like we said on the call. We're seeing we saw about 50% growth in our new customer acquisition. So we're always acquiring new customers thats. The good news, but it during the pandemic, we've seen about 50% growth and like we said, it's been skewing towards a slightly different and different customer mix them always seem slightly more female.
<unk>, a little bit more low income demographic and importantly, also a younger demographic for the first time the largest cohort that we have of customers over the last 12 months is actually millennials weekends, which is good when we're also seeing retention levels similar to what we've seen historically with these new customers does that help.
That helps a lot on what somebody else go thanks. Thank.
Thank you.
Thank you. Our next question comes from Brian Nagel with Oppenheimer.
Hi, good morning, great quarter.
So my question.
Can you talk a bit about how.
How much with recent trends.
Some significant upside to your sales expectations here in Q1, how much do you think.
Stimulus driven and as you look at the ongoing strength on the business.
Second fiscal quarter distributable still playing a factor there.
Yeah. Thanks, Brian clearly, we do believe stimulus did play a factor on our performance as we think about going from Q1 to Q2, our March and April a little strong for stronger than February and as we entered into into May we're starting the quarter off at about 30%.
Clearly stimulus like the other motions that we saw is playing an impact it's very difficult to monitor or actually estimate what that is and it's part of the reason as we look to the future. The back half of this year. We know that it has had some impact on why we would see the back half being a little bit different on the front half of this year, but it clearly has had an impact and we'll have to watch and see.
Where that goes there is an element of shelter child care tax credits that are coming that could also help and replace some of the stimulus. So we'll watch that as close as we can.
Great. Thank you very much.
Thank you. Our next question comes from David Bellinger with Wolfe Research.
Hey, Thanks for taking my question.
On Watson can I get them all here.
In regard to monetizing the best buy.
Digital properties.
I think in the past you previously mentioned around 2 billion visits per year to your side that number is likely much higher now.
Commerce, who are you taking any extra net measures and monetizing those page views is there.
Greater potential stream of higher margin revenue Bill it's much more quickly this year.
And in the years ahead, just given the Q3 time you're on prostate.
Yeah. Thank you for the question, David well, we haven't really disclosed specific details on as you can imagine that finding way to monetize that level traffic is an important part of the retail model and Thats definitely true for us as it is for any other retailer.
Our traffic and our engaged customers are an incredible assets, we think they're very valuable to our brand partners on both currently but also increasingly as the media landscape evolves. So you can imagine that we are leveraging those assets currently and we're continuing to develop new and differentiated ways in which we can make sure that we optimize that traffic.
Great. Thank you.
Thank you.
Thank you. Our next question comes from Steven Forbes with Guggenheim Securities.
Good morning, I wanted to focus on the fulfillment strategy, maybe a specific focus on.
I believe Corie, you mentioned deliver buy employee.
Is it growing sort of.
Method for your customer base, but can you expand on on how that works, but what these employees are trained to do as they arrive at the customer's home and how that offering is work or how you expect it to impact the evolution on the customer relationship.
Yes, I'm on that first I'm, just going to take 1 gigantic step back and just say I'm incredibly proud of our supply chain performance and the myriad teams that have helped us deliver throughout what is unprecedented demand.
And I think it's interesting because they set a portfolio approach to how we think about supply chain at best buy and it's evolved from the conventional distribution center model and think about all the touch points, we have with customers for fulfillment vending machines lockers alternate pickup locations curbside in store same day next day employee ship from store I actually think it's really.
It is a setback context first because it allows us a great deal of flexibility to deliver with speed and with convenience to the customer specifics to what we're seeing with our employee delivery we saw.
About 2 times the penetration that we had in Q1 or in Q4 excuse me into Q1 and what those employees are trained they're mostly actually supporting our next day capabilities.
And it's actually kind of a surprise and delight moment, they're able to leverage some of that the extra capacity there driving around the neighborhood near the store they are able to walk up to deliver that package.
And typically the customer feedback, we hear as I wasn't expecting a blue shirt necessarily to come walking up with the package and deliberate safely from my home. So I think it's a way for us to leverage the brand and the unique aspects of our blue shirts, but also do it with a with some level of convenience Mike do you have something to add Steve I think great question.
I'm excited for what the team has put together as you look forward.
Scheduling flexibility in some of the systems will enable us to even be more on demand, we really want to have a great experience. So that's why we buy Corie mentioned most of this is next day. So we can queued up and have this amazing experience I think what makes this interesting is that we have the permission from customers to get across the threshold and we're thinking about that quite a bit so today or in the doorbell and drop it on the step on.
You can really pull on the string a little bit and we have the ability to get into someone's home have a conversation set up a profile maybe even have a discussion around membership then potentially get them sort of other non advisers. So I think.
That's 1 of the things we're excited about the most.
Also that we're going to have our employees from choice in the moment of they want to pick up extra income. They can also be doing this in supporting the experience with our customers.
Thank you best of luck.
Thank you.
Thank you. Our next question comes from Kate Mcshane with Goldman Sachs.
Hi, good morning, Thanks for taking my question.
Great and great to hear about the new pilots.
Wonder, but the ultimate goal was with these pilots with regard to real estate is it about overall less square footage oriented about shifting square footage.
From selling to distribution.
I think it's it's a little bit potentially about both but I would argue right now a little bit more of the latter where we're trying to figure out what's the right mix of having those distribution facilities that deliver with convenience, but also enough touch points. Importantly, so that you also are able to meet the customer expectations I mean when still.
60% of what we sell is either being picked up in a store or ship from a store that that in store capability is incredibly important to the customer experience and so I will start with where I did in the prepared remarks on that is our number 1 goal is to ensure seamless customer experiences and as we said on.
Our customers look to us for everything from inspiration and support all the way to that really convenient fulfillment opportunity and so that the goal of the test right. Now is to say what is the right balance between that really deep experiential selling square footage that fulfillment square footage that might be behind the scenes and 1 of the things that you didn't quite get on the prepared remarks is that often.
He might have a little bit less selling square footage, but all of the skus are available in the back because it's like a mini fulfillment centers. So you can still deliver on the customer experiences and so it's right now it's about trying to test how do all these things play together and then what's the right balance that delivers importantly on the customer expectations over time.
Thank you.
Thank you.
Thank you. Our next question comes from Jonathan Matthew <unk> with Jefferies.
Hey, guys. Thanks for taking my question and nice quarter I had a follow up on on the store pilot.
Curious, how we should think about the portability of some of these debt youre running clearly you're very early on here, they're nascent at this stage, but I mean, what are the milestones you need to see and when do you anticipate being at a point when you may be able to think about a broader rollouts. Thanks. So much.
You bet.
I'd start by just reinforcing category ended the last question on that is we're testing for the right mix of experience space and location and all those things need to play together in the right way, we obviously feel urgency we wanted to make sure that we figure that out, but we don't want to be so urgent that we risked a customer and frankly also the employee experience.
In this work and it's important to note, we're not even in a normalized environment yet right. We still have the impacts of Covid you have stimulus like there's a lot of things still impacting shopping behavior, which means you don't want to you don't want to take a false read.
And then roll some of these out and then even the full market test that I was talking about on the call that set to launch in the back half of this year. So we haven't even started the launch on that 1. So we don't have anything to announce today. We wanted to start to give you more clarity on debt. The true impacts were trying to test the true market level tests that we're doing.
And we want to make sure wasn't just seen has done the fulfillment side, but it's also the new experiential aspects that we're adding and I think we would say we have a pretty good history of rolling out concepts as soon as we feel like we have the right Keith sitting behind them and so as as we know more about and feel like we have a sustained understanding what each of these concepts does for the customer and the employee then will come.
Back to you with a more distinct rollout plans Mike.
Maybe adding on to what Corie said, Jonathan maybe 2 other things as I just wanted to reinforce we are an incredibly.
Good network of real estate locations today, and I think that's really important to the complements the strategy of why we use our stores and the second is almost half of our stores are up for renewal. We do are relatively short term leases with our team and so we have the ability to be super flexible to move with speed, depending on what we see will be like at any given time in the market as well.
That's really helpful. Thanks for the color.
Yeah.
Thank you. Our next question comes from Simeon Gutman with Morgan Stanley.
Hey, everyone. Good morning.
Just 1 question with 2 parts related to store sales sort of coming back here can you just tell us store sales are coming back what you're seeing in terms of service attach rate warranty attach rate and then the mid 30 E Commerce mix now that it's a little bit lower from your initial expectation what if anything is that doing to your.
EBIT margin forecast for the year does that help in any way.
Yes. Thank you for the question Simeon.
Overarching weighted as we see the store sales rebound a bit from last year, we are seeing.
Strong attach rates pretty normal historical level of Patrick's with our stores and as we've talked about in the past is ecommerce is growing business. We're seeing continued improvement on the ecommerce attach as well so we're seeing good utilization.
Selling a lot of television on appliances until the installation delivery is quite high.
That we've been talking about so things are returning to back to normal if you will and obviously theres a lot of need to support people in their homes as are living in a very hybrid way right. Now so we're seeing a good return to our services business.
From an E comm mix and what the adjusted EBIT range clearly.
If you look at the implied math this year from from our New guide it does imply that.
Even though our E comm mix is a bit lower than we estimated and starting the year with the implied math as that or why rates are actually a little stronger than it would've been on the start of the year. So even though we're mixing a little bit out of the E. Com. We are still seeing good leverage on our sales.
Despite the fact, we are shifting back a bit more into store into store sales.
Thanks, Mike.
Thank you. Our next question comes from Scot Ciccarelli with RBC capital markets.
Hey, guys Scot Ciccarelli.
You mentioned supply chain efficiencies, but we do continue to hear about product shortages, we have home categories like automobiles on appliances facing pretty significant shortages.
But your inventories at least from the outside the country on pretty good shape. So can you provide any more color regarding your inventory flow are you facing any supply shortages at this point and how do you think that will evolve on the back half. Thanks.
Yes, Scott Thanks for the question.
Since the beginning of the pandemic. We are definitely said that we've seen at least some spotty inventory at shortages and so obviously to your point. The team has done an amazing job navigating an environment, where they can drive a 37% comp in our days of supply have been improving throughout the quarter and we think they'll continue to improve into Q2.
Too, but given the unprecedented demand and some of the production disruptions, we have seen constraints, particularly in appliances computing Tvs and then we've talked about gaming, obviously, which has been a bit spotty. We're seeing some of that disruption driven by really 4 things he's got raw materials and production capacity <unk> got a very well documented chips.
<unk> you have got port container constraints and delays and then ultimately over all of that is this kind of sustained unprecedented truly global demand in our space.
And I think what's interesting about our business is we have a high degree of transferability, meaning because we are a specialty CE player, especially if you come into the store, but I would argue even in our digital properties. We can help you navigate what exactly you're looking for and then what are the variety of products that might meet your needs. So if you come in for <unk>.
Certain skus Scot as an example, we'll have an associate there from I think we don't have that 1 but here is another SKU that will meet you are saying the same size TV same spec for that kind of thing and so I think that helps us navigate this inventory situation.
In a way, that's a little bit different than others.
Like I said I think we're going to continue we believe to see some level of inventory and inventory constraints likely in pockets.
Throughout the rest of the year, assuming that you continue to see the sustained level of demand, but I'm very proud of and impressed by the way. The team is navigating through it and then the last thing I would say before regarded our inventory is also in the best situation actually net in terms of at risk, it's very clean inventory much of it is new its turning really fast like Matt said so.
Is that it's actually at some of the highest inventory quality we've ever seen.
Very helpful. Thank you.
You bet.
Thank you. Our next question comes from Mike Baker with D. A Davidson.
Hey, guys I wanted to ask about the SG&A increase so you said 225 to $2.75, an incentive comp increase year over year I think it was an incentive comp what was the increase in the previous guidance.
Because it seems like most of the increase in the SG&A comes from the higher incentive comp. So I guess, if you could help us with some numbers there and then confirm if that's the biggest music to the increases and what else might be in the increase.
In SG&A dollars from previous guidance. Thank you.
Yes. Thank you for the question and the previous guidance essentially.
Short term incentive.
Soon to be flat for the year as we look through the first quarter on our performance indicator look outwards from the end of the year that performance clearly.
The increase in so that $2.25 to $2.75.
Is it really the increased expectations on a full year business than our original estimate was basically flat on a year on year basis. So the other elements of SG&A from a guide perspective, it's pretty consistent we know that we're going to continue to develop and technology are continuing to invest in technology and health and that's about $150 million. That's still on our guide for the year and then.
As well, we do know that there was about $100 million of Covid related decisions. We made last year that we have to lap. This year, that's inclusive of the of the $40 million contribution to the foundation. We made in Q3. So those are consistent the biggest increase was really around that.
That incentive compensation adjustments.
Okay.
That's helpful. I appreciate the color.
Yes.
Yes.
Thank you. Our next question comes from Seth <unk> with Wedbush Securities.
Thanks, Rob Good morning, It's Seth Basham on my questions are on the computing category will continue to see strength there from product charges, but do you think about the prospects for that category going forward against really strong sales last year John.
From a work from home and school from home.
Do you expect to see meaningful drag on your sales results from that category.
Hey, Seth its Mike ill start and Corie and Matt can chime in on computing has been.
Phenomenal sales success stories in the industry and for best buy and I think the position that we created bill.
For consumers and then for some of our direct to business segments.
Driving our good results.
I think the category is also going to be constrained here, we talked a little bit around inventory that we feel we have enough inventory to meet the demands on inventory is getting better we're going to have a.
Maybe more normal back to school selling season is kind of things normalize.
In an environment, where the inventory remains relatively tight in some other form factors are changing quickly and we moved from things needed to be ultra portable and Barry productivity, driven 2 things that need bigger screens. For example that means new product revs. It when we see the product Rev. As we use U S. Promotional day. So overall I think you guys know that computing does have a lower profit rates on some.
The other businesses are best buy but the actual revenue contribution and then actual EBIT flow through is really attractive and would you like it.
Corie amount or anything else to add here.
No I would just underscore I think where we're seeing a huge refresh right now as Mike said and it's still not on and the demand for PC gaming and crypto and graphics products remains really high as well as a broad category when we talk about it.
And so I think youre still going to see a population that likely is going to be living some hybrid life for the foreseeable future and I think the refresh cycles. As a result are going to continue to speed up as people before that new and better way for them to work from home school from home and continue actually to stream from home in some cases, so yeah, obviously, it's been a it's been fixed.
There's a positive comp growth, but we continue to see a real demand for the continued innovation of the products.
Thank you.
Thank you. Our next question comes from Curtis Nagle with Bank of America.
Good morning, Chris pretty much for taking the questions.
Sure.
Maybe on where I was hoping you could maybe contextualize the comp guidance a little bit.
So you guys just put up the.
Third we do it once you number Q2 looks great.
Sure John.
On a lot obviously, but in terms of kind of what's the bar for.
The rest of the year.
So I don't think that there's been much of a change.
Or put another way you know what it was a pretty significant deceleration I get the holidays in common.
No we are studying.
At least today on sort of look at the data.
Markets that have opened up.
No.
Travel is coming back.
To be like you're seeing any pullback at home or to your ads and also I guess just no anymore.
Maybe where you could say in terms of framing on how conservative or not maybe.
I think your guidance for the year.
Sure. Thank you and I can start and corie to jump in if she wants you there.
I think fundamentally we believe.
Starting with the Royal technology in People's lives has only intensified and so essentially what we've done is we took our Q1 beat and that increased our cost expectations for Q2, and we really loved the back half unchanged at this point because there is still a lot of uncertainty we are seeing.
Customers shop in the service category areas now in addition to ours, we're still seeing some strength, even though people are returning to more normalized shopping behavior.
But we also are thoughtful about the fact that stimulus will probably have a lesser than impact as we get into the back half of the year.
And so those are some of the bigger things on our mind I think on it.
We do believe that the hybrid work model will continue so there could be some continued opportunity there as well as we look at the back half of the personal savings rate is very high in People's financial credit stability is very strong.
Again, there could be some additional child tax credits coming in earlier that this back half of the year and then in addition, we have continued to be optimistic about innovation and how.
Continued relationships with partners like T mobile will help our business, but theres still a lot of uncertainty in terms of what the back on who holds in terms of the customer shopping trends.
And also we just bill are wary of.
Inventory availability, we have a lot of inventory, we can still support on high level of sales with constraints, but there is a very high demand that we have to be thoughtful about as well. So that's essentially the thoughts that went into the guide.
Okay understood.
Yes.
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Thank you our last question comes from Anthony <unk> with loop capital markets.
Okay.
Thanks, So much for squeezing me in pretty simple question from Chris.
On your 2 year stack comp itself almost on a 2% I was just wondering 1 from last time, but thus far on data.
32%.
2 year stack comp.
<unk>.
I think before our recorded history.
Thanks for the question Anthony.
From keep up the good work.
Thank you and with that I think that's our last question. Thank you so much for joining us today and I hope that many of our investors listening today are able to join us at our annual shareholder meeting, which will be held virtually on June 16th. Thanks, So much and have a great day.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
Yes.
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