Q4 2022 Best Buy Co Inc Earnings Call & Investor Update Webcast
Before we begin I would like to note that our presentation today contains non-GAAP financial measures that exclude the impact of certain business events.
GAAP to non-GAAP explanations and reconciliations can be found in our earnings release and our presentation materials available on our website.
Today's presentation includes forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the company undertakes no obligation to update or revise such statements to reflect events or circumstances that may arise after todays event.
Again, thank you so much for joining us we are looking forward to a great meeting and now I could not be more excited to turn the meeting over to Corie Barry CEO of bestbuy. Thank you. So much Molly good morning, everyone. We are so pleased you could join US today as we report our fiscal 'twenty two results and take this opportunity to update our longer term strategy.
<unk> and our multiyear financial outlook today.
Today, we will discuss how our business has evolved and how we were planning to drive value over the next few years, we're not planning to cover all of our initiatives are all our business units. We've tried to be a succinct as possible to focus on the topics and initiatives that we believe are most important for you to understand about our business, our plans and where we believe we're ahead.
Both for fiscal 'twenty, three and for the longer term first let's discuss our fiscal 'twenty two results.
Fiscal 'twenty two was another record year. In addition to record revenue and earnings our leaders continue to drive new ways of operating and our employees continue to do amazing things in the face of unprecedented challenge and change to support our customers' technology needs and knowledgeable fast and convenient ways.
As we discussed when we entered the year, we anchored on three concepts, we believe to be permanent and structural implications of the pandemic that were and are shaping our strategic priorities and investments.
One customer shopping behavior will be permanently changed in a way that is even more digital and puts customers entirely in control to shop, how they want our strategy is to embrace that reality and to lead not follow.
<unk>, our workforce will need to evolve in a way that meets the needs of customers, while still providing more flexible opportunities for our employees and.
<unk> technology is a need and is playing an even more crucial role in People's lives and as a result, our purpose to enrich lives through technology has never been more important.
With these concepts in mind, we piloted numerous store formats to test and learn in the past year, we advanced our flexible workforce initiatives and invested in our employees wellbeing.
We introduced new technology tools designed to support both our customers and also our employees.
And we also launched a bold new membership program called best buy total tech designed to significantly elevate our customer experience and drive incremental sales, we will be talking more about all of these topics today.
All of this was against a constantly evolving backdrop during the year, we navigated supply chain and transportation challenges uncertainty as virus peaks rolled across the country and then most recently the disruption from the omicron wave or.
Our teams did an amazing job against that backdrop expertly managing supply chain challenges since the beginning of the pandemic to bring in products our customers need it.
During the year, we continue serving our customers digitally at much higher rates.
Our online revenue was 34% of our domestic revenue and while it declined versus last year. It was up 115% or eight $8 billion compared to two years ago.
At the same time, we also reached our fastest package delivery speeds ever we are an industry leader in fast and convenient product fulfillment for our customers. In fact the percent of online orders. We delivered in one day was twice as high as pre pandemic levels. Despite the significant increase in volume during that same timeframe.
These record results are driven by the investment decisions. We have made in the last several years and supply chain store operations, our people and technology, many of which we discussed at our investor updates both in 2017 and 2019.
More importantly, these results are driven by our amazing associates across the company over the past 24 months. They are flexibly dealt with rapidly changing store operations as we responded to impacts of the pandemic.
To create a safe environment for our customers and they worked tirelessly to provide excellent service in fact, despite all the changes we went through in the last year, we delivered NPS improvements both online and in our stores I am truly grateful for and continue to be impressed by our associates' dedication resourcefulness and flat out better.
Termination.
From a financial perspective, we delivered record revenue and earnings per share our comparable sales growth was 10, 4% on top of a very strong nine 7% last year growing $8 billion over the past two years, our non-GAAP earnings per share was just over $10 up 27.
Compared to last year.
And compared to two years ago, we expanded our non-GAAP operating income rate by 110 basis points.
Our non-GAAP return on investment improved 840 basis points compared to two years ago and.
And we drove more than $6 5 billion of free cash flow in the last two years and.
In fiscal 'twenty, two we returned $4 2 billion of that to shareholders in the form of dividends and share repurchases.
We also continued to deepen our commitment to the community and the environment.
Many of you may have had the opportunity to view the video that was playing before the event started.
We continue to believe that our ESG efforts are directly tied to long term value creation and I am proud of all our initiatives, but we only have time for me to cover a few examples today.
We committed to spend at least $1 $2 billion with bypass and diverse businesses by 2025. The goal is to create a stronger community of diverse suppliers and help increase bipack representation in the tech industry.
We also committed to opening 100 teen tech centers by fiscal 'twenty five during.
During fiscal 'twenty, two we opened nine to end the year with a total of 44.
These provide teams and disinvested communities access to the training tools and mentorship needed to succeed in post secondary opportunities and careers. In addition, we're building a diverse talent pipeline for jobs of the future.
In terms of the environment in fiscal 'twenty. Two we were a founding member of the race to zero initiative committing to accelerate climate action within the retail industry. We.
We are also driving sustainability through the unique consumer electronics circular economy, we help keep devices in use longer than out of landfills by leveraging our customer trade in program Geek squad repair services responsible recycling and best buy outlets. These our initiatives, our customers and vendors value and capabilities no one else.
Has at our scale and breadth.
And we are honored to be recognized for our work, notably we are placed in the top five on barron's most sustainable companies list for the past five years in a row. This ranking recognizes our strong performance across all aspects of ESG. In addition, we are on the CDP climate a list for the fifth year, which recognizes leadership in making.
A positive impact on the environment.
Now, let's move on to our Q4 results I am extremely proud of what we accomplished during the fourth quarter. Our teams showed remarkable execution and dedication to serving our customers throughout the important gift giving season.
This was evidenced by the fact that we drove improvement in year over year customer NPS metrics across almost all areas, particularly for in store online and chat experiences. In fact, we saw our best ever customer satisfaction scores for our in store pickup experience.
Online sales were almost 40% of domestic revenue compared to 43% last year and 25% in Q4 of fiscal 'twenty.
We reached our fastest holiday delivery times ever shipping products to customer homes more than 25% faster than last year and two years ago.
We also completed the purchase of two companies that align with our strategy, which Jason and Deborah will talk about later this morning.
We are deliberately investing in our future and furthering our competitive differentiation. This as we expected is temporarily impacting our profitability. The biggest areas of investment in Q4, where our new membership program technology and best buy health all core to our future growth potential.
In the face of unexpected change I remain inspired by the way our teams across the enterprise remain flexible to ensure our customers were able to find the perfect gift.
We remain well positioned as we head into fiscal 'twenty three as the unique technology provider for the home.
I will turn the meeting over to Matt to cover more details on our Q4 results and fiscal 'twenty three outlook Matt.
Thank you Cory and good morning, everyone. Hopefully you were all able to view our press release. This morning with our detailed financial results. Our Q4 revenue was $16 4 billion our.
Our domestic comparable sales declined two 1% and our enterprise comp sales declined two 3% revenue grew 8% versus two years ago. It was only slightly below the low end of our revenue guidance for the quarter due to a few factors. The first factor was inventory availability, we expect it to have pockets of inventory constraints as we entered the <unk>.
<unk> called out a few areas, including appliances gaming and mobile phones.
As the quarter progressed inventory was more constrained than we anticipated within a few constraints included some high demand holiday items and the categories. Most impacted were mobile phones and computing.
The second factor impacting our results was omicron, the Omaha wave and the resulting high levels of employee callouts led to a temporary reduction in our store hours in January and to start fiscal 'twenty three in mid February our staffing levels store operating hours for the majority of ours.
Factors, our revenue would have been covered.
Notably in the guidance range, we provided for the quarter from a category standpoint on a weighted basis the top areas with positive comparable sales growth included a computer in headphones we saw.
Comparable sales declines in gaming mobile phones tablets and services.
Turning now to gross profit our non-GAAP gross profit rate decreased 50 basis points to 22%. This was about 20 basis due to increased promotional holiday.
When comparing to last year, the largest driver was our services category, primarily driven by total check bus last year as the benefit from category sales mix was offset by increased promotions higher profit sharing revenue from our credit card arrangement was a better.
And if it's a gross profit rate compared to last year.
Lastly, our international gross profit improved 210 basis points to last year, which provided a weighted benefit of approximately 20 basis points to our enterprise results.
Our enterprise non-GAAP SG&A dollars grew 5% versus last year less than our guide of 8% growth, primarily due to lower than anticipated incentive compensation.
Hey dollars increased $139 million the largest drivers were one advertising, which included campaigns for both holiday and to drive awareness for our new membership offering to technology.
<unk> helped drive the record customer satisfaction scores Corey shared and for best buy health, which includes the impact associated with our acquisition.
Okay.
So stick overview later in our presentation, but I will add some color on the impact to our Q4 results and for next year.
Total Tac as a near term investments to drive long term value. The thesis is that overtime, we will capture incremental product sales from our members that will lead to higher operating income, but as we discussed in prior earnings calls it does come with near term profitability impacts first at $199. The Standalone membership.
<unk> is profitable it just isn't as profitable as legacy service membership due to the breadth of benefits and the cost to fulfill them.
There is a loss of revenue and profit from existing revenue streams that are now included as benefits in the program. For example, previously Standalone services like extended warranties and included within our total tech membership.
We still offer these services on a standalone basis or to non members, but you can imagine there is an aspect of cannibalization as members are no longer and.
Longer paying incrementally for these items.
So what does all this mean, we expect that the gross profit rate of our services category will reset to a new level going forward that is lower than it was prior to launching total check the way to drive more operating income. Despite this lower services gross profit rate is to add far more members than we thought was possible under our previous membership offerings increased volume.
Through a combination of more recurring membership revenue and incremental product purchases of our members the number of memberships group.
Very nicely in Q4, and our plans for <unk>.
Growth, but it will take some time to reach the scale necessary to offset the lower gross profit rate I. Just described therefore total tech remains a pressure in fiscal 'twenty, three who we expected to be a meaningful driver of both higher sales and operating income dollars in fiscal 'twenty five targets.
Now, let's talk about our overall fiscal 'twenty three outlook, our guidance anchored around a comparable sales decline in the range of 1% to 4% and a five 4% non-GAAP operating and EPS outlook is $8 85.
The $9 15.
Okay.
Before we discuss the broader assumptions driving our guide I wanted to touch on our expected tax rate.
Our non-GAAP effective tax rate is planned at a more normalized level of 24, 5%.
In fiscal 'twenty, three compared to 19% rate in fiscal 'twenty. Two as you may recall, our Q2 results. This past year included a 47 diluted EPS benefit from the resolution of certain discreet matters.
Now I would like to share a few important.
Seamless actions from this past year in.
In addition, we anticipate the number of store closures to be in the range of 20 to 30, which is consistent with the trend over the past five years.
As I mentioned, our fiscal 'twenty guidance assumes non-GAAP operating income rate of approximately five 4% compared to 6% in fiscal 'twenty two.
To be clear the biggest driver of the lower operating income rate in fiscal 'twenty three as our investment total tech.
Just described this near term pressure will drive long term value for our shareholders. There are of course other factors that we expect to impact our results, but for the most part offset each other in fiscal 'twenty. Three we do expect higher levels of promotional activity to pressure, our gross profit rate, which was partially offset by the favorable impact of expected growth in our monetization of our advertising business.
Or best buy ads.
We expect our full year SG&A expense to be lower than fiscal 2002 levels the largest year over year variance as lower incentive compensation expense as we reset our plans after paying out at higher levels in fiscal 'twenty two due to the over achieving our performance targets, we expect the lower incentive comp to be partially offset by a few areas. The first area is high.
Technology costs, primarily due to annualized spend in fiscal 'twenty two.
The second area is higher depreciation and store remodel expense as Damien will discuss later and lastly, we expect to see higher SG&A dollars in support of our best buy ads business.
Finally, as you may have noticed we are not providing quarterly guidance, but I would like to provide some insight on the assumed phasing for fiscal 'twenty three.
Due to the strong first half comps last year, we expect our full year comparable sales decline to be weighted more heavily in the first half of the year. In addition, we expect to see significantly more year over year operating income rate pressure in the first half of the year compared to the back half for.
To summarize the two largest variables for fiscal 'twenty three financial results are the short term industry declines as we lap high growth in government stimulus and the investment in our new membership program that will drive long term value as we look to fiscal 'twenty five we expect the CE industry will return to the high levels. We saw in fiscal 'twenty, two and that total tech will drive meaningful growth.
I will now turn the meeting back over to Cory to begin our strategic update.
Thank you so much mats.
As I noted closing out my Q4 summary, we remain well positioned as we head into fiscal 'twenty three I'd like to expand on this a bit as we highlight our strategic positioning.
There are three key points you should take away from this morning first technology is a necessity and we are the unique tax solutions provider for the home.
Second we have built an ecosystem of customer centric assets delivering experiences no one else can.
And third we believe our differentiated abilities and ongoing investments in our business will drive compelling financial returns over time.
We believe we have the right strategy to deliver growth and value for all stakeholders and we are excited to go into more detail about our plans, but first let's do some level setting.
Our purpose is unchanged and more relevant today this minute than ever.
Our purpose to enrich lives through technology is enduring and.
And we have honed our five year vision, we personalize and humanize technology solutions for every stage of life.
Technology is no longer a nice to have it as a necessity and it is expanding into all parts of our lives and homes working has forever changed streaming content has exponentially grown the meta versus coming to life. We can power our homes with connected solar panels cars are connected and we can monitor our health including <unk>.
Acting with the physician from our living room.
Every aspect of our lives has changed with technology and we uniquely know how to make it human in our customers' homes right for their lives.
For example, we will send a consultant to your home for free to optimize the tech you have or had the tech you want we can repair your phone screen and you can try VR headsets, while you wait.
You can meet with our fitness consultant and our virtual store, who will match your fitness goals with our fitness products or you can use our lively device to connect with a carrying center agents, who can help you schedule a lift.
These are just some examples and you will see this come to life in many more ways throughout our presentation. This morning.
From a financial perspective, we delivered remarkable results over the past two years and we are far ahead of where we expect it to be when we set our long term financial targets back in 2019.
As I mentioned earlier in the past two years, we have delivered more than $8 billion of revenue growth and improved our operating income rate by 110 basis points to 6%.
We are in a strong position to drive the business forward and deliver growth we do not for one minute believe we hit our peak revenue and margin. This past year as Matt outlined we do expect fiscal 'twenty three to look different as the industry cycles. The last two years of unusually strong demand and we leverage our position of strength to continue to.
Invest in our future.
But in fiscal 'twenty, five we expect to deliver revenue growth and expand our operating income rate beyond what we reported in fiscal 'twenty two.
As we have always said in order to deliver these financial results. It is paramount that we stay focused on our goal to remain a best place to work and we continue to deepen relationships with our customers as you can see our new fiscal 'twenty five targets are materially higher than what we thought just back in 2019, we now expect to generate.
Approximately $1 billion more in operating income than our original target.
Our margin rate. This is considerable growth in operating income dollars. So what's changed since 2019, well the CE industry is larger than we expected. Our online mix has nearly doubled we have found ways to make our operating model more flexible and efficient while also investing in wages and benefit.
We are accelerating our category expansion and.
And we have launched an entirely new membership program.
On the flip side the financial contribution from best buy health is clearer, but also a bit longer term than we had originally modeled this is based on primarily two things first demand in active aging business and product constraints were impacted by the pandemic.
Additionally, based on our internal learnings and insights from consumer behavior changes over the past two years, we tuned our strategy to focus on the growing virtual care opportunity, which Deborah will discuss in more detail later.
As we think about our strategy going forward. It is important to look how dramatically our business has evolved over the past several years here.
Here, we use fiscal 2015 to give a longer term view to what a different business. We have become most of these changes were already in motion before the pandemic and then accelerated significantly in the past two years, let me expand on a few points here.
I already mentioned our fiscal 'twenty two online business was 34% of our domestic sales that is more than $16 billion in sales compared to just $3 5 billion in fiscal 2015.
When you look at how we use our stores for fulfillment the increase and the sheer number of products customers are picking up in our stores is impressive.
This is even more meaningful when you consider the fact that our delivery speed is industry, leading and we cut delivery speed essentially in half over the past several years clearly customers value our stores and the convenience and choice they provide.
As Damian is going to discuss we are increasingly interacting with customers via digital channels like chat and video and in their homes.
And finally membership is incredibly important both now and into our future. Our total tech membership is a big theme of today's presentation, but don't lose sight of the fact that we were a pioneer in loyalty programs and our my best buy program now has more than 100 million total members.
So with all of that as background I'd like to tack back to our first key takeaway.
Acknowledged <unk> is a necessity and we are the unique tech solutions provider for the home.
So let's start with some industry context, the traditional CE industry is large and growing.
There's no perfect external source that tracks our business. So here, we're showing a historical view based on selected government PCE category data our outlook is based on multiple industry forecasts and internal data.
As you can see on this chart the industry was growing for several years and then accelerated during the last two years as Matt mentioned, we expect it to step back this year as the industry absorbs the very high growth of the past two years.
By fiscal 'twenty five we believe it can be back to fiscal 'twenty, two levels, which is materially higher than it was pre pandemic and.
In addition, we're expanding our addressable market by entering new categories in areas like health and electric bikes that are being disrupted by technology and a good way as well as areas, where we can really complete solutions for customers like indoor and outdoor living Jason will provide a bit more detail on these in a few minutes.
As a reminder, this is also a stable industry contrary to some sentiment technology is no more volatile or cyclical than other large durable goods categories over time.
And the last two years have significantly underscored the importance of technology in day to day life. What historically was seen as they want has become a need 40% of Americans use digital technology, or the internet and new or different ways compared with before the pandemic and the use of telemedicine is triple what it was in just Q.
One of 2020.
The majority of people, who started or increased activities like online fitness telemedicine and video conferencing and connecting socially with others virtually say they plan to continue this increased usage even after the pandemic.
In terms of like home nursing and virtual care had been invented to describe what all of US know, so well that where we work entertain receive health care and connect has changed and our homes are now central to our lives more than ever before and they are also more tech connected than they ever have been before.
As a result, there is an overall larger installed base of consumers using technology people own more tech devices than ever before this combination of more devices and more activities also means customers. Neither tech to work seamlessly every day true tech support when the customer wants it under.
<unk> living this way and as our unique asset across all of these devices.
And technology is extending in all aspects of our home and we are all going to depend on it. This is not a hit driven category. It is an industry that is need based stable and has been growing.
We firmly believe people will continue to use technology, more and both need and want to replace or upgrade their products.
<unk> of dollars of R&D spend by some of the world's largest companies and likely some we haven't even heard of yet. It means innovation is constant and that innovation drives interest upgrades and experimentation into the future. This is not a static industry.
So to talk about this exciting world of technology innovation I'm honored to welcome Jason <unk>, our Chief merchandising officer.
Thanks, Corey good morning.
We continue to lead the tech industry with significant high share in high consideration categories, what I mean by a high consideration category generally higher asps and a longer period of time from when you start to think about purchasing to when you're actually purchase.
Continuing to grow our share in these large categories like televisions and computing will always be a cornerstone of our strategy.
But to be truly there for our customers and all of their technology needs, we need to accelerate our share across other areas of technology as well and also some new spaces.
This is where total tech comes in.
Products with lower Asps and.
And shorter upgrade in consideration cycles, our share is generally lower total tech creates a new value proposition that benefits customers when they consolidate their technology shopping at best buy.
I want to give three examples of our customer journeys that illustrate this point.
Let's start with a customer that actually wants to upgrade their kitchen, they want to buy an entirely new kitchen suite with three pieces.
That customer that has total tech does not have to worry about delivery and install it is included in the price that can be between the 400 500 dollar value.
A little bit later in the year the same customer.
Hypothetically breaks their phone they want to get a new iPhone when they purchase at iPhone at best buy Apple carriers included just in the first year, that's just under a $120 of value.
And then a little bit later in the year, if they wanted to get a new pair of wireless headphones.
Purchase those headphones at best buy the warranty is also included in your total Tech remember that's a 30 dollar value.
Examples like these is where total tech benefits come to life for our customers and create a reason to make a considered visits to our app or website or store and increases best buy share across all of the categories on the slide behind me Ted.
Technology innovation never stops and even when you look over the past three years, you can see value of the new technology and what it creates for our customers do.
During the pandemic the majority of the focus was around creating products to meet customer demand. This was a distraction, but even with that there was significant innovation and value created by our vendors.
The slide behind me highlights an upgrade over a three year period of similar price points across laptops and televisions, while I won't hit on every new feature an advancement that happened I'll highlight a few.
For televisions, you get a full 10 inches more on screen size, almost no bezel and the ability to navigate your TV with voice if you'd like to on.
On the laptop side, you can login with your face it's faster thinner lighter and has significantly longer battery life.
These continued evolutionary innovation cycles are never ending and they drive growth they create reasons to upgrade and unlock new and better experiences for our customers each and every year.
In fact, when we look at our customers' behavior, we're seeing a 7% to 15% reduction in the amount of time. It takes a customer to get back into a category. They are coming back to categories faster because of these innovations by our vendors.
I've highlighted how total tech and our vendor innovations will drive growth now I would like to highlight some macro trends that will also drive opportunities in our business.
I'll start with <unk> and fiber.
The expansion of speed and networks in general are really really good for customers and technology can download a movie in minutes collaborate with others instantly access a video game of video content anywhere you want without latency. These are things that will drive new experiences of growth for our customers.
The next trend is the <unk> cloud.
Have virtual experiences play golf with friends or family members virtually traveled the places that you actually can and have a full experience in the virtual world.
In addition to that when you look at the virtual World and cloud there are new experiences that are created previously you will just play a game on a gaming system and your TV now you can take that same game seamlessly from the system to your phone to your tablet in fact, if some of you have children like I do youre constantly battling the ability for them to play anywhere they want anytime.
They want.
The cloud also saw significant customer pain points previously our customers would tell us when they wanted to upgrade our computing product. It would take them 60 minutes to get into the exact way they'd want to that would be moving their icons their data just getting this the way the old one was in having the features of the new today with cloud use simply putting your credentials and then 10 to 15 minutes.
It's actually exactly the way you want you get all the benefits of the new technology and you get all of the placements and all the setup of your old product instantly that does drive upgrade and it drives interest in customers and operating more frequently.
The next trend I'd like to talk about is automation and support the.
The connected home has been around for years and is now moving into automation and support more specifically single function devices like robot vacuums today tomorrow, they'll move into security of the entire home communication and assistance for individuals. This is very very important as our population ages and people want to stay in their homes lager automation and <unk>.
The port is one of the ways, where technology can enable people to just do that and accomplish their goals and solve that pinpoint.
Next I'd like to talk about customization and personalization customers have always wanted to express themselves and technology is not excluded from that but there has been significant advancement in manufacturing from appliances to cell phones, where customers can express themselves with a touch of color a family photo or any other type of personal expression that they'd like to integrate into the products.
Sustainability is also a significant trend that's important to customers, but also very important to bestbuy I'll start with a vendor example, Sam.
Samsung TV is that we sell in our stores today have what is called Samsung solar cell technology in the remote controls. This eliminates the need for batteries, which is obviously very beneficial to the environment, but it also charges off of not only solar but ambient light in the home and it means that you're never going to have a remote that's out of power.
That solves a significant customer pain point.
Technology like this will expand to more and more categories and drive upgrade cycles in.
In addition to that we want to make sure that we're supporting customers that want to upgrade more frequently today youll see that come to life with our recycling and trade in programs, which are a very important part of our value proposition to customers over time that will start to move into new usage models that may actually be upfront conversations about exactly how long the customer wants to use a product and when that next upgrade.
It will happen will it be a year will it be two years or will it be three years as we move forward.
Let's watch the video highlighting many of the areas I've talked about and even some new additional areas that will drive growth.
Okay.
If you ever Wonder how new technology, you can make your life easier. We've got some answers for you. It is the hottest technology comment.
Tac.
And personal catch a glimpse of the future and beyond.
Okay.
Okay.
Yes.
It's almost like a place more than just the device.
What is that these monitors that I'm hearing about that could change the way you work at home.
Holograms of all kinds are going to be part of our future.
Yes.
A lot of people have got no held wearable on them at all and we got to get at least one <unk> on everybody in the next 10 years.
Thank you.
The meta versus is the biggest buzz words this year ushering in a new generation of personal lines tax to help transform that into a virtual world.
An ideal future.
For everyone.
I'd like to thank our friends at Samsung for that assist in that demo.
As we look over the past decade, we've had over $12 billion in sales growth with the vast majority coming from large categories like Tvs computing in appliances, and one third coming from new categories like Wearables and VR just to name a few.
As we move forward that innovation will continue and there will continue to be new categories that don't even exist today.
We're also looking to accelerate that expansion by entering new categories that are aligned with where our customers want us to be in places where best buy can solve real customer pain points for the next 12 months to 24 months, we'll continue to focus on these five areas of expansion.
Our goal a bit deeper on three of these fitness and wellness outdoor living and personal electric transportation in the next few minutes I'll start with fitness and wellness. This is a $34 billion industry that we are uniquely positioned to compete and with our blue shirts, but also our large product fulfillment network that was built for televisions in appliances are.
<unk> has grown by 650% in the last 12 months and we are implementing on the larger more premium experience and 90 stores over the next 18 months with dedicated zones for vendors.
Damien will touch on the virtual store a little bit later, but customers today actually have the ability to have a virtual chat or video consultation with a fitness expert.
The next area I'd like to talk about his personal electric transportation.
This is a $3 billion industry with rapid growth. We've introduced 250, new products. This holiday with 500 additional accessories around those products will be adding physical assortment to 900 stores in a more premium experience and 90 stores over the next 18 months.
We currently offer assembly and we're in the pilot stages of service and support and repair for our customers.
The last category I'd like to highlight is outdoor living this is over a $30 billion industry and our acquisition of Yardbird, a leading premium outdoor furniture company provides the ability for us to accelerate this business across our nationwide network.
That acquisition combined with our strength in outdoor TV and audio and new partnerships with leading brands like trigger Weber and Bromic create a comprehensive solution for our customers. When we couple that assortment with our home consultants in the physical and digital experiences that we've developed for customers.
This is a really really fast moving category that has the ability to grow.
You'll start to see yardbird products as fast as the spring in southern California market and were very excited about that too.
To reiterate we expect growth from total tech consistent innovation from our vendors.
Crow trends that I've mentioned, new product categories that we don't even know about yet and five new areas of expansion to move our business forward.
I'll hand, it back to you Corey.
Thanks, So much Jason obviously you are the expert.
Our second key takeaway, we have built a unique ecosystem of customer centric assets delivering experiences that no one else can.
Consumer electronics is a distinctive industry. The products are constantly evolving their connected to networks that are constantly evolving they all use different operating systems and they range from small and powerful to large and breakable often at high price points.
And customers are more comfortable using tech than they have ever been yet. They also admit it's likely not doing all it could to make their lives better.
Against that backdrop, we have built a unique ecosystem of assets that all work together to create a stickier and more valuable relationship with the customer.
We're investing in this ecosystem as we pivot against the backdrop of even higher customer expectations. We will provide more depth on a number of these assets through the rest of the presentation.
Anchoring this ecosystem is our expert advice and service customers are excited about tech and want to be confident in their purchase we provide that and we've literally no one else can from our expertly curated assortment to in home consultations all the way to tech support when your tech isn't working the way you want are treated and then recycling when you want to upgrade.
And then building on that strength, our total tech membership ties these experiences together and provide unique benefits that customers value and no one else can provide.
We then combine those unique experiences with our strength in omnichannel retailing industry, leading and seamless shopping experiences and services across all channels, including in home in store digitally remotely and virtually and finally all of these interactions provide us rich data and insights across customer experiences to create.
Personalized technology solution tailored to the customer's specific technology and needs.
And all of this data fuel our business like best buy ads matching our partners' marketing to the most appropriate audiences based on our first party data.
When this ecosystem works together it provides a unique experience tailored to the customer. It also reaches beyond our consumers into business partners suppliers and other strategic relationships that leverage our capabilities, whether it's our consultative services highlighted on partners' websites, our vendors leveraging our in store pickup to fulfill from there.
Websites others value our capabilities.
So let me add some color around the first part of the ecosystem as I said customers are excited about Tac and want to be confident with their purchase, particularly when it's part of their daily life at home. So instead of me trying to describe all the parts and pieces to you I think the video doesn't excellent job, bringing to life. The unique ways, we provide expert advice and services seamlessly across all our touch points.
This is not just a store.
This is one part of a truly unique customer journey.
To get ideas to solve problems.
More than anything it's a place to connect with people excited about the possibilities effect for you.
This is not just an employee.
This is a guy and expert a friend someone who can meet you anyway provides insight and advice on things big and small.
Who can inspire and who might just put a personal thank you and your next package.
This is not just a transaction.
This is a consultation conversation is help personal lives.
And solving tricky problems like re wiring those built in speakers in the house, we just bought.
This is not just the delivery.
<unk> is a skilled installation a thoughtful setup personable.
Respectful with little touches that show, we take pride in our work.
This is not just a membership.
This support.
Exclusive savings peace of mind, it's the voice of the bone getting you're reconnected to your daughter can turn into Big school projects.
This is not just the data recovery service.
Data recovery for Terry and we've recovered her cool stickers too.
This is not just the logo.
This is a symbol of innovation and inspiration.
<unk> the greatest tick.
Symbol of health in support of surprise and delight when you see something.
Something like nothing and no one else something unique you see best buy.
So again just to reinforce there is no one else that can provide this type of immersive experience at scale in a world where more and more of our lives are being lived in a way that requires technology.
And we felt it was important to double down on our unique capabilities with an equally unique membership offer. This represents literally years of customer research and innovation and truly puts the customer at the center of our investments.
Matt talked earlier about the financial implications of our new membership program now I get to talk about the fun part.
Fundamentally total Tac is designed to provide our customers complete confidence in their technology buying it getting it up and running enjoying it and fixing it if something goes wrong mountain, Jason already mentioned some of the benefits, but as a reminder, total Tac includes product discounts and periodic access to hard to get inventory free delivery and installation.
<unk> technical support extended warranties on products and much more.
Because the membership is so comprehensive it has broad appeal among our customers. There is truly something for everyone and the benefit that is most appealing can vary based on a customer's unique shopping journey or their stage in life. So let me share. Some early examples I'd say early because as a reminder, we literally just rolled this program nationally in mid October .
The benefits associated with purchasing products like product warranty and member pricing are being leveraged the most younger generations are using these benefits, especially applecare at a higher rate than older generations. This is exciting and important as extended warranties as a standalone business was definitely not a growing part of our business our strategy and additionally.
It's exciting that our employees have embraced this offer realizing the suite of benefits means there's something in it for every customer that makes for a more comfortable and natural sales environment and allows the employees to truly focus on the customers needs. The VIP access to phone and chat support and access to Geek squad support and services in general are used.
More often by older generations, which are legacy plants over index side and the access to hard to get inventory is resonating with some of our most engaged customers who already interact and spend with us very frequently.
That broad appeal is one of the main reasons, we rolled out this program, we have significantly elevated the customer experience by packaging up unique benefits our customers value that no one else can provide and by doing so we believe we have made it inconceivable for them to purchase their tech anywhere else from.
From a business perspective of course, the goal is to increase customer frequency and capture a larger share of spend.
As a specialty retailer our customer frequency has a different profile than mass merchants as a result, it is even more crucial that we stay in the consideration set as customers are building out their technology solutions.
I am incredibly happy to say that we are indeed seeing increased interactions with our total tech customers to the tune of about 60%.
Also when we look at NPS survey, specifically from customers, who are total tech members, they're running about 1400 basis points higher than non members.
From a spend perspective, it's difficult to calculate with precision given the early stage of the membership and our historical customer frequency, but we currently believe customers who sign up for the membership are spending about 20% more than they would have if they did not have the membership.
We already have $4 6 million members now to be transparent, we auto converted $3 7 million total tech support and other legacy support program we.
We are actively enrolled more than 1 million members since launching nationwide in October and.
And we see a path to double the number of members by the end of fiscal 'twenty five.
This membership program is a vital addition to our customer relationship ecosystem, providing an offer that no one else can and interaction data that is incredibly valuable to all aspects of our business fueling our growth over time and to deliver this offer seamlessly we leveraged another part of our ecosystem.
On the channel retailing strength.
To provide more depth on the evolution of our omni channel retailing model I am pleased to welcome Damien Harmon, our EVP omnichannel to the stage to talk to you about how we are optimizing our workforce re imagining our physical presence and leveraging technology Damian.
Thank you Corey it's great to be here with you today to talk about our accomplishments and our plans for this year and beyond across our Omnichannel portfolio.
As Corey mentioned earlier Omnichannel retail is a critical component of our strategic ecosystem is the most direct way to connect our strategy to the needs of our customers and employees.
Let's look at the last two years before we dive into where we're going.
These last two years have challenged our employees in ways, we could have never imagined powered.
Powered by our strategic investments, we were able to serve our customers' needs and grow the business.
There are two areas I want to highlight first the connection between our online sales, which expanded to 34% of our total domestic revenue and a 150% growth we've seen in our virtual interactions across video chat and voice today, 84% of our best buy customers use digital channels throughout the shopping journey.
These virtual opportunities have created new ways for us to offer customers the immediate ability to shop with an expert wherever they are second and also connected to our customers using digital channels throughout their shopping journey, because we've seen a 72% growth in customers who are using our app while in our stores.
This also creates an opportunity for us to build more digital interactions and technology related solutions to support their needs. These numbers are amazing we could not be more proud of our teams and how they deliver.
Just as importantly, it gives us an incredible foundation for continued growth and optimism as we look to the future.
Now from an Omnichannel perspective, we look at the combination of customer experience loyalty plus operating efficiency.
Two main drivers of that and what I'm going to talk about today or how do we optimize our workforce.
Re imagine our physical presence in ways that serve our customers' needs and an ever growing digital world. Our focus is on further and further developing our teammates will give them the skills to help customers inside and outside of our stores, but more importantly to any number of digital channels that at our customers' fingertips at.
At the same time, we will optimize our store portfolio and as Matt mentioned, we will maintain the trend of closing 20 to 30 stores per year, However, with online penetration growing so rapidly the last two years, we're making investments in our stores to provide a better more seamless shopping experience as customers move from online shopping to visiting our stores So video chatting.
From their home.
So I'll start with our people, we have significantly improved efficiency and productivity of our store labor model.
We've seen a more than 100 basis point improvement in store domestic labor expense as a percentage of revenue compared to FY 'twenty we've.
We've also materially increased store productivity over the past two years, we've done this by re skilling, our teammates and making investments that lean into physical and digital shopping experience. A few examples include our fulfillment improvements consultation labor and a virtual store.
This allows us to leverage our employees more effectively inside and outside of our stores.
The great news is that.
We've made these adjustments we've maintained a strong NPS in our stores.
These investments in our people have allowed us to help them learn new skills grow their careers, Denise flexibility and realize their dream of keeping them with us longer.
We've increased our average wage rate, 20% in the last two years, but raising our minimum wage to $15 an hour and shifting some of our employees into higher skilled higher paying rolls in.
In fact, our average wage for our field employees this year will be over $18 an hour.
Since we started our flexible workforce initiative in 2020, 80% of our talented associates, a mental skills to support multiple jobs inside and outside of our stores.
And we're proud of the fact that our fill turnover rates remain significantly below retail average in or near our pre pandemic turnover rates overall were in a place we like right now.
<unk> as we look at the factors that I've just outlined.
Now an obvious differentiator.
For our Workforces are geek squad to repeat customers.
Obvious differentiator for our Workforces are geek squad team repeat customers 21, both in store and in home services.
We've significantly expanded our repair capabilities.
We've significantly expanded our repair capabilities in categories that are important to customers everyday lives like mobile phone repair.
This work is expanding our customer base in fact, 35% of our mobile phone customers are new or re engage with best buy.
This is enabled by a technical workforce that has an average tenure of almost nine years and a retention rate of 86% no. One can match that level of expertise at the scale. We can that's huge.
The tenure has helped us produce fantastic NPS results in store in home and we're even more serious customer spend one seven times more engaged one six times more often across all geek squad services.
This well will be a vital part of our total secondly, deepen those relationships and drive.
Sam Moore and engaged one six times more often across all geek squad services.
This well will be a vital part of our total seconds deepen those relationships and dress do consultations as well both access to customers for.
Rescue consultations as well both access to customers for what's possible customers, there whats possible customer spend 70% more across their lifetime value.
More often when engaged for consultation.
Customers are loving this experience so we're seeing strong NPS when surveyed 92%.
This last fall.
To date, our virtual store in comparison to historical chat experiences is generating higher close rate higher sale.
And a 20% improvement in customer satisfaction and that's not all.
Our vendors are extremely excited about it as well we started with 17 vendors onboard and we will in fiscal 'twenty three with over 60 vendors indefinitely in a virtual store.
This is an investment in us and they believe that we're creating a totally differentiated experience.
We're expanding our virtual store, adding more categories like appliances and home theater and.
We expect our virtual sales interactions to double by fiscal 'twenty five.
So let's talk about ways, we are re imagining our store in support of our physical and digital shopping experiences.
We're very excited about the things that we're testing and learning in some cases implementing in our stores.
First let's talk about the experiential store in 2020, we launched a test in one of our Houston stores and added two additional locations since then.
The key enhancements include dedicated showcase spaces for some of the new categories as Jason mentioned earlier like E transportation outdoor living fitness, we expanded our Microsoft and Apple shops, and dedicating more space to premium experiences like appliances home theater and audio we expanded our geek squad presence for more customer interaction.
And space for repair services and we've also enhanced the fulfillment capabilities to include exterior lockers additional space with shipping packing.