Q1 2025 Best Buy Co Inc Earnings Call
Okay.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's first quarter fiscal 2025 earnings conference call.
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to Best Buy's first fourth fiscal 'twenty 25 earnings Conference call.
Operator: At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press star 1 on your phone. If you choose to be taken out of the question queue, please press pound 7. As a reminder, this call is being recorded for playback and will be available by approximately 1 p.m. Eastern Standard Time today. If you need assistance on the call at any time, press star zero, and an operator will assist you. I will now turn the conference call over to Molly O'Brien, Head of Investor Relations. You may now begin.
Speaker Change: At this time all participants are in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question you will need to press star one on your phone if you choose to be taken out of the question queue. Please.
Speaker Change: Please press pouch sign as a reminder, this call is being the snake for playback and will be available by approximately one P. M. Eastern standard time today.
Speaker Change: You'd need assistance on the call at any time.
Speaker Change: Starting to zero and an operator will assist you.
Speaker Change: I'll now turn the conference call over to Mollie O'brien head of Investor Relations you May now begin.
Molly O'Brien: Thank you, and good morning everyone. Joining me on the call today are Corie Barry, our CEO, and Matt Bilunas, our CFO. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release, which is available on our website, investors.bestbuy.com.
Mollie O'brien: Thank you and good morning, everyone. Joining me on the call today are Corie, Barry our CEO and Matt balloon as our CFO.
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 comparable GAAP financial measures.
Mollie O'brien: Explanations 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 dotcom.
Molly O'Brien: Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments, and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current earnings release and our most recent 10K and subsequent 10Qs for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the call over to Corie.
Mollie O'brien: Some of the statements we will make today are considered forward looking within the meaning of the private Securities Litigation Reform Act of 1995.
Mollie O'brien: These statements may address the financial condition.
Mollie O'brien: Initiatives growth plans investments and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements.
Mollie O'brien: Please refer to the company's current earnings release, and our most recent 10-K and subsequent 10-Qs for more information on these risks and uncertainties the company.
Mollie O'brien: Undertakes no obligation.
Mollie O'brien: To update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call.
I'll now turn the call over to Corey.
Corie Sue Barry: Good morning, everyone, and thank you for joining us. Today we are reporting better than expected Q1 profitability. Through strong execution, we continue to manage our profitability while at the same time preparing for future growth. We progressed against our fiscal 25 priorities, grew our paid membership base, implemented various restructuring actions, and drove improvements in our relationship net promoter score and in our operational metrics for most of our prioritized customer experiences. The mix of macro factors continued to create a challenging sales environment for our category during this quarter, and our sales were slightly softer than expected. Our Q1 comparable sales declined 6.1% compared to last year, with the largest impacts coming from appliances, home theater, gaming, and phones.
Morning, everyone and thank you for joining US today, we are reporting better than expected Q1 profitability through strong execution, we continued to manage our profitability while at the same time preparing for future growth.
Corey: We progressed against our fiscal 'twenty five priorities grew our paid membership base implemented various restructuring actions and drove improvements in our relationship net promoter score and then our operational metrics for most of our prioritized customer experiences.
Corey: The mix of macro factors continued to create a challenging sales environment for our category during the quarter and our sales were slightly softer than our expectations. Our Q1 comparable sales declined six 1% compared to last year with the largest impacts coming from appliances home theater gaming and phones services that laptop.
Corie Sue Barry: Services and laptops were areas of growth for the quarter. The Q1 digital sales mix was 31% of domestic sales, similar to last year. Our omnichannel fulfillment experience continues to improve, with almost 60% of our packages delivered or available for pickup within one day. And 40% of our digital sales are picked up in stores by our customers, with more than 90% of these orders available within just 30 minutes. From a profitability standpoint, our non-GAAP operating income rate of 3.8% expanded 40 basis points compared to last year.
Corey: Were areas of growth for the quarter.
Corey: The Q1 digital sales mix was 31% of domestic sales similar to last year, our omnichannel fulfillment experience continues to improve with almost 60% of our packages delivered ore available for pickup within one day and 40% of our digital sales are picked up in stores by our customers with more than 90 per.
Corey: Some of these orders available within just 30 minutes from.
Corey: From a profitability standpoint, our non-GAAP operating income rate of three 8% expanded 40 basis points compared to last year. This was above our expectations due largely to gross profit rate improvement in our membership and services offers.
Corie Sue Barry: This was above our expectations, due largely to gross profit rate improvement in our membership and services offers. Customers remained very deal focused and attracted to more predictable sales. Our Q1 product margins were relatively stable, even though the environment overall was more promotional than our expectations, in terms of both breadth and depth of promotion. However, we did see variability by category.
Corey: Customers remained very deal focused and attracted to more predictable sales moments. Our Q1 product margins were relatively stable, even though the environment overall was more promotional than our expectations in terms of both breadth and depth of promotion.
Corey: We did see variability by category for example, the major appliances category was materially more promotional in pursuit of stimulating interest and sales as has been our practice, we were targeted and thoughtful regarding where and when we made our promotional investments.
Corie Sue Barry: For example, the major appliances category was materially more promotional in pursuit of stimulating interest and sales. As has been our practice, we were targeted and thoughtful regarding where and when we made our promotional investments. Throughout the quarter, our teams were driven and diligent, and I continue to be proud of their performance.
Corey: Throughout the quarter, our teams were driven and diligence and I continue to be proud of their performance I believe it is a testament to our strong culture that our people remain engaged motivated and passionate about technology and serving our customers well navigating what has been an extended period of dampen demand our Q1 retail turnover trended.
Corie Sue Barry: I believe it is a testament to our strong culture that our people remain engaged, motivated, and passionate about technology and serving our customers while navigating what has been an extended period of dampened demand. Our Q1 retail turnover trended down versus last year and remains lower than industry averages, and our recent employee engagement survey shows our people are at strong levels. As we look to the rest of the year, we are focused on our strategic plan and priorities while being mindful about the state of the consumer.
Corey: Down versus last year and remains lower than industry averages and our recent employee engagement survey shows our people have strong levels of connection engagement and belonging that are at or above the global benchmark.
Corey: As we look to the rest of the year, we are focused on our strategic plan and priorities, while being mindful about the state of the consumer.
Corie Sue Barry: In February, we said we expected 2024 to be a year of increasing industry stabilization, and we continue to believe that. That being said, clearly macro factors continue to fluctuate and put pressure on. Three months ago, there were several indicators showing some favorability, including decreasing inflation, continued low unemployment, encouraging trends in consumer confidence, and the beginnings of a housing market rebound. Since then, inflation is still high, mortgage rates are high, and consumer confidence scores are trending lower.
Corey: In February we said, we expect 2024 to be a year of increasing industry stabilization and we continue to believe that that being said clearly macro factors continue to fluctuate and put pressure on consumer spending.
Corey: Three months ago, there were several indicators showing some favorability, including decreasing inflation continued low unemployment encouraging trends in consumer confidence I'm gonna be gettings about housing market rebound. Since then inflation is still high mortgage rates are high and consumer confidence scores are trending lower.
Corie Sue Barry: Consumers continue to make tough choices with their budgets, trading down in some areas while still prioritizing spend on others, like services and experiences like travel. This, in combination with the pull-forward of tech purchases into the early years of the pandemic, and lower levels of material innovation, has led to continued lower demand for higher-ticket consumer electronics and a focus on value and deals for current purchases. We are not changing our original full-year guidance, as it is early in the year, the first quarter is a relatively quiet quarter, and we have yet to see the impact of a variety of upcoming new product launches and innovations.
Corey: <unk> continued to make tough choices with their budgets trading down in some areas, while still prioritizing spend in others like services and experiences like travel.
Corey: This in combination with the pull forward of tech purchases into the early years of the pandemic and lower levels of material innovation has led to continued lower demand for higher ticket consumer electronics, and a focus on value and deals for current purchasers.
Corey: We are not changing our original full year guidance as it is early in the year. The first quarter is a relatively quiet quarter and we have yet to see the impact of a variety of coming new product launches and innovation.
Corie Sue Barry: However, at this point in time, it is likely we are trending toward the midpoint of our original comparable sales guidance of flat to down three. We are strategically operating our business, balancing our response to the pressured sales environment. Therefore, even at the midpoint of the comparable sales guidance, we expect to deliver profitability toward the high end of our non-gap operating income rate guidance.
Corey: At this point in time it is likely we are trending towards the midpoint of our original comparable sales guidance of flat to down 3%.
Corey: We are strategically operating our business balancing our response to the pressured sales environment. Therefore, even at the mid point of the comparable sales guidance, we expect to deliver profitability toward the high end of our non-GAAP operating income rate guidance at.
Corie Sue Barry: At the same time, we are taking action and investing to sharpen our customer experiences and industry position. We know more of our key categories will return to growth. And historically, we outperform when there is more technological innovation and we leverage our competitive differentiation to provide the best experience for customers. From a major category standpoint, we continue to expect sales in our computing category to show growth for the full year. We expect revenue for the rest of our product categories as a whole to be down, partially offset by growth in our services revenue.
Corey: At the same time, we are taking action and investing to sharpen our customer experiences and industry positioning we know more of our key categories will return to growth and historically, we outperform when there is more technology innovation and we leverage our competitive differentiation to provide the best experience for customers.
Corey: From a major category standpoint, we continue to expect sales in our computing category to show growth for the full year, we expect revenue for the rest of our product categories as a whole to be down partially offset by growth of our services revenue.
Corie Sue Barry: As we plan for the next three quarters, we expect our comparable sales performance to sequentially improve. For the second quarter specifically, we expect comparable sales to decline approximately 3% compared to the 6% decline we saw in Q1.
Corey: As we plan for the next three quarters, we expect our comparable sales performance to sequentially improve for the second quarter, specifically, we expect comparable sales to decline approximately 3% compared to the 6% decline we saw in Q1.
Corie Sue Barry: Based on month-to-date sales and results, our estimated comparable sales for May are expected to be better than our Q2 guidance. We are encouraged by these results. But from a timing perspective, we don't fully lap last year's Memorial Day sales until our June fiscal week one, and we continue to be very thoughtful about the time periods between sales events. Let's talk about computing and the exciting things happening there. We expect the category to benefit as early replacement and upgrade cycles gain momentum, and new products featuring even more AI capabilities are released as we move through the year. We have seen early signs of improvement as year-over-year comparable sales for laptops turned slightly positive in the fourth quarter, and that trend continued in Q1. Last week, Microsoft announced CoPilot Plus, and laptops from Microsoft, Dell, HP, Lenovo, and Samsung are available for pre-order on our website right now and will be available on June 18.
Corey: Based on month to date sales and results our estimated comparable sales for me are expected to be better than our Q2 guidance. We are encouraged by these results, but from a timing perspective, we don't fully lap last year's Memorial day sales until our June fiscal week, one and we continue to be very thoughtful about the.
Time periods between sales events.
Corie Sue Barry: These devices have faster speed, better battery life, greater efficiency, they are much cooler, and baseline copilot features like summarization that can quickly recap pages of documents or lengthy email threads. They also have exciting new uses. For example, there is a recall function that makes it very easy to find documents based on visual cues or help users easily navigate back to a website to find a specific item they shot for three weeks ago. They also have a live language translation function that works in real time on videos without requiring a connection to the Internet.
Corey: Let's talk about computing and the exciting things happening there.
Corey: We expect the category to benefit as early replacement and upgrade cycles gained momentum and new products featuring even more AI capabilities are released as we move through the year.
Corey: We have seen early signs of improvement as the year over year comparable sales for laptops turned slightly positive in the fourth quarter and that trend continued in Q1.
Corey: Last week, Microsoft announced co pilot, plus and laptops from Microsoft Dell HP, Lenovo and Samsung are available for preorder on our website right now and will be available on June 18th.
Corey: These devices have faster speeds better battery life greater efficiency. They are much cooler and baseline co pilot features like summarization that can quickly recap pages of documents or linked the email threats.
Corey: Also have exciting new use cases for example, there was a recall function that makes it very easy to find documents based on visual cues or help users easily navigate back to a website to find the specific item. They shop for three weeks ago. They also have a live language translation function that works real time on videos without requiring a connection to the internet.
Corey: And the co create capability can take your rough sketches and turn them into works of art.
Corie Sue Barry: And the co-create capability can take your rough sketches and turn them into works of art. To support these launches, we have built a comprehensive go-to-market plan. At roughly 40 SKUs in total, we expect to have the largest assortment at launch, with more than 40% of the assortment retail-exclusive to Best Buy. Working in coordination with our vendor partners, we will have inspirational merchandising and demos of the products in our stores and unique educational and interconnected digital shopping journeys.
Corey: To support these launches we have built a comprehensive go to market plan.
Corey: At roughly 40 Skus in total we expect to have the largest assortment at launch with more than 40% of the assortment retail exclusive to best buy.
Corey: Working in coordination with our vendor partners, we will have inspirational merchandising and demos of the products in our stores and unique educational and interconnected digital shopping journey.
Corie Sue Barry: And, of course, we have an extensive training program to ensure we leverage our sales associates and Geek Squad to ensure Best Buy is the destination for unbiased advice and inspiration around how this new tech can enrich their lives. There is additional innovation to drive excitement and interest, including the recently launched Apple iPads featuring their M4 chips that are already contributing to improved sales trends this quarter. Additionally, we have the new Bose open ear headphones, and Sotos has just announced that they are entering the headphone space as well.
Corey: And of course, we have an extensive training program to ensure we leverage our sales associates and Geek squad is to ensure best buy as the destination for unbiased advice and inspiration around how this new tech can enrich their lives.
Corey: There was additional innovation to drive excitement and interest, including the recently launched Apple ipads featuring their M. Four chips that are already contributing to improved sales trends. This quarter. Additionally, we have the new Bose open ear headphones and Sandoz has just announced they're entering the headphone space as well.
Corie Sue Barry: All these launches are coming just in time for back to school, and we expect this drive time to be an important part of the computing story. From July through mid-September, we will have a series of sales events focused on students and their parents that will feature our new brand position. We also plan to offer specific deals to our members to drive acquisition and engagement. As I mentioned earlier, we are taking action to sharpen our customer experiences and industry positioning, while also maintaining our profitability in this environment. Last quarter, we laid out our fiscal 25 priorities. They are, one, to invigorate and progress targeted customer experiences. Two, drive operational effectiveness and efficiency.
Corey: All of these launches are coming just in time for back to school and we expect this drive time to be an important part of the computing story from July through mid September we will have a series of sales events focused on students and their parents that will feature our new brand positioning. We also plan to offer specific deals to our members to drive acquisition and engagement.
Corey: As I mentioned earlier, we are taking action to sharpen our customer experiences and industry positioning while also maintaining our profitability in this environment.
Corie Sue Barry: Three, continue our disciplined approach to capital allocation. And four, explore, pilot, and drive incremental revenue. I would like to provide some updates on our progress. We are focused on providing increasingly personalized, highly relevant, and motivational content as we can attribute roughly 90 percent of our annual revenue to known customers. I'm particularly excited about the work we are doing with our app as we grow the number of users. Customers who use our app spend more than non-app users.
Corey: Last quarter, we laid out our fiscal 'twenty five priorities. They are one invigorate and progressed targeted customer experiences to drive operational effectiveness and efficiency.
Corey: We continue our disciplined approach to capital allocation and for explore pilot and drive incremental revenue stream.
Corey: I would like to provide some updates on our progress.
Corey: We are focused on providing increasingly personalized highly relevant and motivational content as we can attribute roughly 90% of our annual revenue to known customers.
Corey: I am, particularly excited about the work we are doing with our app as we grow the number of users customers, who use our app spend more than non app users. During Q1, we went live with a personalized homescreen powered by AI that is now rolled out to 50% of our App users. Each of these users home screens look different based on their personal.
Corie Sue Barry: During Q1, we went live with a personalized home screen powered by AI that is now rolled out to 50% of our users. Each of these users' home screens looks different based on their personal preferences and a number of other factors like current location, shopping history, membership status, and what we know they care about the most based on their activities.
Corey: Preferences and a number of other factors like current location shopping history membership status and what we know they care about the most based on their activity. This could include the newest and hottest steels latest gadgets from favorite brands recommendations on products services or accessories, or even a prompt to shop with one of our experts.
Corie Sue Barry: This could include the newest and hottest deals, the latest gadgets from favorite brands, recommendations on products, services, or accessories, or even a prompt to shop with one of our experts to help them save time. Thus far, customers who receive our personalized home page are engaging at higher rates than we expected, and we're excited to roll out the new features to all app users this summer. Over the past year, we've also been focused on driving speed improvements on the product pages and in checkout on the mobile experience to drive customer experience and sales performance.
Corey: To help them save time thus.
Corey: Thus far as customers, who receive our personalized homepage are engaging at higher rates than we expected and we're excited to roll the new features to all app users. This summer.
Corey: Over the past year, we've also been focused on driving speed improvements on the product pages and in checkout and the mobile experience to drive customer experience and sales performance. For example, since starting this work in February we've driven a 50% reduction in mobile product detail page load time.
Corie Sue Barry: For example, since starting this work in February, we have driven a 50% reduction in mobile product detail page load time. And, of course, we are also focused on the customer experience in our stores. From a physical standpoint, we plan to touch every store in the chain in some fashion throughout Q2 and Q3, improving both our merchandising and the ease of shopping for customers. This includes improving and livening the merchandising presentation, given the shift to digital shopping and corresponding lower need to hold as much inventory on the sales floor.
Corey: Of course, we are also focused on the customer experience in our stores from a physical standpoint, we plan to touch every store in the chain in some fashion throughout Q2, and Q3, improving both our merchandising and ease of shopping for customers. This includes improving enlivening the merchandising presentation, given the shift to digital shopping and corresponding.
Corey: Need to hold as much inventory on the sales floor. It also includes right sizing a number of categories to ensure we are leveraging the space in the center of our stores and the most exciting relevant and efficient way possible. For example, we will be removing physical media and updating our mobile digital imaging computing tablets and smart home departments, we are.
Corie Sue Barry: It also includes right-sizing a number of categories to ensure we are leveraging the space in the center of our stores in the most exciting, relevant, and efficient way possible. For example, we will be removing physical media and updating our mobile, digital imaging, computing, tablets, and smart home department. We are excited to partner even more with our vendors this year as it relates to their branded in-store merchandise experience. And, of course, we will see updates in the computing department, as we have already discussed.
Corey: Cited to partner, even more with our vendors this year as it relates to their branded in store merchandise experiences of course, we will see updates in the computing Department as we already discussed we will also see new and enhanced in store experiences for others, including Gopro Tesla Love Sac and Sterling.
Corie Sue Barry: We will also see new and enhanced in-store experiences for others, including GoPro, Tesla, Lovesac, and Starlink. As we mentioned on our last call, we plan to close 10 to 15 stores for our ongoing review process, while opening a few new stores to test the concept. For example, in Kansas City, we are replacing a large store with a small format store close by to maximize store retention through convenience. Also, later this year, to capture untapped share, we are opening a store in an outstate area where we have no prior physical presence, and our omni channel sales penetration is currently low. We want to ensure our customers receive the expert service interactions they want and Best Buy is known for when they come to our store. Extensive training is imperative to that experience.
Corey: As we mentioned on our last call. We plan to close 10 to 15 stores for our ongoing review process, while opening a few new stores to test concept.
Corey: For example, in Kansas City, we are replacing a large store with a small format store close by to maximize store retention through convenience. Also later this year to capture untapped sure. We are opening a store in and out state area, where we have no prior physical presence and our Omnichannel sales penetration is currently low.
Corey: We want to ensure our customers receive the experts service interactions they want and best buy is known for us when they come to our stores.
Corie Sue Barry: For example, as we prepare for the new launches in computing, we have and will continue to partner with our vendors to train and certify 1000s of computing experts and geek squad AI pros. In addition, this month, we added fully dedicated labor expertise to our in-store computing experience in hundreds of stores. We plan to add back fully dedicated expertise in major appliances and home theater departments in stores this summer. These changes are in addition to the actions taken throughout the past year to streamline our leadership model, allowing us to invest in materially more customer-facing sales associate hours in our stores compared to last year.
Corey: Extensive training is imperative to that experience for example, as we prepare for the new launches and computing, we have and will continue to partner with our vendors to train and certify thousands of computing experts and Geek squad AI pros in.
Corey: In addition, this month, we added fully dedicated labor expertise to our in store computing experience in hundreds of stores, we plan to add back fully dedicated expertise in major appliances and home theater Department in stores. This summer.
Corey: These changes are in addition to the actions taken throughout the past year to streamline our leadership model, allowing us to invest in materially more customer facing sales associate hours in our stores compared to last year.
Corie Sue Barry: We also continue to partner with our vendors around expert labor. In fact, we have just expanded our vendor partnership with Samsung to include vendor-provided expert labor in appliance departments across hundreds of stores. This appliance labor will be incremental to our own existing labor.
Corey: We also continue to partner with our vendors around expert labor. In fact, we have just expanded our vendor partnership with Samsung to include vendor provided expert labor in appliances departments across hundreds of stores. This appliance labor will be incremental to our own existing labor planes.
Corie Sue Barry: We are making good progress against our second key priority to drive operational effectiveness and efficiency. Our long-standing commitment to identifying cost reductions and driving efficiencies is paramount to help offset inflationary pressures in our business and fund investment. Our Fiscal 25 initiatives are focused on driving further efficiencies across forward and reverse supply chains, our G-Squad repair operations, and our customer care experience. For example, in supply chain, we made enhancements to our systems and process guidelines that reduced TV damage in Q1, and we expect the savings to build throughout the year. We also developed a statistical model to identify high-return rate products that we leveraged with our major appliance vendors to reduce open box products in the quarter.
Corey: We are making good progress against our second key priority to drive operational effectiveness and efficiency.
Corey: Our long standing commitment to identifying cost reductions and driving efficiencies is paramount to help offset inflationary pressures in our business and fund investment capacity.
Corey: Our fiscal 'twenty five initiatives are focused on driving further efficiencies across forward and reverse supply chain or describe repair operations and our customer care experience.
Corey: For example in supply chain, we made enhancements to our systems and process guidelines that reduced TV dampened in Q1, and we expect the savings to build throughout the year.
Corey: We also developed a statistical model to identify high return rate products that we leveraged with our major appliance vendors to reduce open box products in the quarter.
Corie Sue Barry: We will continue to lean heavily on analytics and technology to achieve these goals. We have already shared how we are leveraging AI to route 95% of our in-home delivery and installation trucks to drive more efficient scheduling and a better customer experience, and how we have begun using AI tools to improve the accuracy and efficiency of our customer service. During Q1, we announced a partnership with Google Cloud and Accenture to help us further improve the customer and employee experiences in a seamless and human way, expected to launch late this summer.
Corey: We will continue to lean heavily on analytics and technology to achieve these efficiencies we have already shared how we are leveraging AI to about 95% of our in home delivery and installation trucks to drive more efficient scheduling and a better customer experience.
Corey: And how we have begun using AI tools to improve the accuracy and efficiency of our customer service calls.
Corey: During Q1, we announced a partnership with Google Cloud and Accenture to help us further improve the customer and employee experiences and a seamless and human way.
Corie Sue Barry: Our enhanced self-service support will leverage a Gen AI-powered virtual assistant to help our customers quickly troubleshoot product issues, make changes to their order delivery and scheduling, and even manage their software, Geek Squad subscriptions, and membership. This year, we are also taking larger actions to one, ensure our resources are directed at the right strategic areas, and two, to right-size our model based on current operations. While we made most of these decisions and booked the associated restructuring charge in the fourth quarter, we are implementing most of the actions in the first half of the year, with some not being implemented until fiscal 26.
Expected to launch late this summer our enhanced self service support will leverage a gen AI powered virtual assistant to help our customers quickly troubleshoot product issues make changes to their order delivery and scheduling and even manage their software geek squad subscriptions and membership.
Corey: This year. We are also taking larger actions to one ensure our resources are directed at the right strategic areas and two to rightsize our model based on current operations.
Corey: While we made most of these decisions and book the associated restructuring charge in the fourth quarter. We are implementing most of the actions in the first half of the year with some not being implemented until fiscal 'twenty. Six these actions will allow us to do the following.
Corie Sue Barry: These actions will allow us to do the following, balance field labor resources to make sure we are providing the optimal experience for customers where they want, redirect corporate resources to make sure we have the necessary assets dedicated to areas like AI and other elements of our strategy, and right-size parts of the business where we expect to see lower volume than we envisioned a few years ago, whether that is the result of lower industry sales or due to decisions we made like evolving our paid membership benefits. For example, last year, we made the decision to remove free installation services from our membership program.
Corey: Balanced field labor resources to make sure we are providing the optimal experience for customers, where they want to shop redirect corporate resources to make sure we have the necessary assets dedicated to areas like AI and other elements of our strategy.
Corey: And right sized parts of the business, where we expect to see lower volume than we envisioned a few years ago, whether that is the result of lower industry sales are due to decisions, we made like evolving our paid membership benefits for.
Corey: For example, last year, we made the decision to remove free installation services from our membership program. This as expected led to reduced services fulfillment volume.
Corie Sue Barry: This, as expected, led to reduced service fulfillment volume. As a result, during the first quarter, we reduced the number of Geek Squad team members to align our headcount to our forecasted demand. This will improve the experience for our remaining employees and allow them to rely on a more consistent schedule. Our third key priority for the year is to continue our disciplined approach to capital allocation in this environment. We now expect our enterprise capital expenditures for Fiscal 25 to be approximately $750 million, $50 million lower than last.
Corey: As a result during the first quarter, we reduced the number of Geek squad team members to aligner head count to our forecasted demand.
Corey: This will improve the experience for our remaining employees and allow them to rely on a more consistent schedule and pay.
Corey: Our third key priority for the year is to continue our disciplined approach to capital allocation in this environment.
Corey: We now expect our enterprise capital expenditures for fiscal 'twenty five to be approximately $750 million $50 million lower than last year. This decline is largely due to our decision to concentrate our store capital investments more on existing store updates and refreshes and less on major remodels.
Corie Sue Barry: This decline is largely due to our decision to concentrate our store capital investments more on existing store updates and refreshes and less on major remodels. Our share repurchases are expected to be similar to last year at approximately $350 million. Our annual dividend expense is expected to be approximately $800 million, with our current dividend yield over 5%.
Corey: Our share repurchases are expected to be similar to last year at approximately $350 million. Our annual dividend expense is expected to be approximately $800 million with our current dividend yield of over 5%.
Corie Sue Barry: As mentioned last quarter, our fourth key priority for Fiscal 25 is longer term in focus. We will continue to explore opportunities that leverage our scale and capabilities to drive incremental profitable revenue streams over time. This includes endeavors like our Best Buy Health Business, our collaboration with Bell Canada to operate 165 small format consumer electronics retail stores across Canada, our Geek Squad as a Service pilots, and our Supply Chain Partner Plus program.
Corey: As mentioned last quarter, our fourth key priority for fiscal 'twenty five is longer term in focus we will continue to explore opportunities that leverage our scale and capabilities to drive incremental profitable revenue streams over time.
Corey: This includes endeavors like our best buy health business, our collaboration with Bell, Canada to operate 165 small format consumer electronics retail stores across Canada, arguably one of the service pilots and our supply chain partner plus program.
Corie Sue Barry: It also includes continuing to build out our Best Buy ads. We have had a robust retail media network business for a long time in partnership with our vendors, and we are expanding our available ad products and improving the advertiser experience for our customers. For example, we recently announced a collaboration with CNET to share inventory across both ad platforms, adding reach and frequency for our brand advertisers, along with closed-loop reporting. In addition, customers will see curated content and editorial advice from CNET's experts across various Best Buy channels, encompassing a variety of product reviews and expert picks that align with their shopping experience.
Corey: It also includes continuing to build out our best buy ads capabilities. We have had a robust retail media network business for a long time in partnership with our vendors and we are expanding our available AD products and improving the advertiser user experience.
Corey: For example, we recently announced a collaboration with CNET to share inventory across both AD platform added thing reach and frequency for our brand advertisers along with closed loop reported in addition customers will see curated content and editorial advice from C nuts experts across various bestbuy channels and can passing a.
Corey: Really a product reviews and expert picks that align with their shopping experiences.
Corie Sue Barry: We also wrote out new self-service reporting capabilities for all vendor ad partners. This will make it even easier for ad customers to engage with us, and will provide valuable closed-loop insights on the effectiveness of on-site ad products.
Corey: We also rolled out new self service reporting capabilities to all vendor AD partners. This will make it even easier for AD customers to engage with us and will provide valuable closed loop insights on the effectiveness of onsite ad products.
Corie Sue Barry: Before I close and turn the call over to Matt, I want to take a moment to recognize our employees for their continued work to support the communities we serve. I'm proud to share that we recently opened two new Best Buy Teen Tech Centers in Los Angeles and St. Cloud, Minnesota, and have several more set to open later this year.
Corey: Before I close and turn the call over to Matt I want to take a moment to recognize our employees for their continued work to support the communities. We serve I'm proud to share that we recently opened up two new best buy teen Tech centers in Los Angeles, and St Cloud, Minnesota and have several more set to open later this year. These centers joined the best buy.
Corie Sue Barry: These centers join the Best Buy Foundation's growing network of youth-centered community hubs where teens have access to the latest technology, learn real-world career skills, and interact with supportive mentors. We continue to be recognized as an industry leader in sustainability. For the 11th year in a row, we were named as an Energy Star Partner of. This award reflects our ongoing commitment to help our customers reduce their carbon emissions from Energy Star products.
Corey: <unk> growing network of youth centered community hubs, where teams have access to the latest technology learn real world career skills and interact with supportive mentors.
Corey: We continue to be recognized as an industry leader in sustainability for the 11th year in a row, we were named as an energy star partner of the year. This award reflects our ongoing commitment to help our customers reduce their carbon emissions from energy star products and during Earth month, we partnered with Microsoft and junk couture to help raise it.
Corie Sue Barry: And during Earth Month, we partnered with Microsoft and Junk Couture to help raise awareness about the importance of responsibly recycling old. In summary, we executed well in the first quarter and remain focused on our fiscal 25 priorities. The stickiness of certain macro factors and the ensuing impact on consumer demand for our category have been uneven, but we remain undeterred.
Corey: Awareness about the importance of responsibly recycling okay.
Corey: In summary, we executed well in the first quarter and remain focused on our fiscal 'twenty five priorities.
Corey: The stickiness of certain macro factors and the ensuing impact on consumer demand for our category has been uneven, but we remain undeterred, we will continue to navigate the environment as we have the last few years, while remaining focused and energized about our purpose to enrich lives through technology.
Corie Sue Barry: We will continue to navigate the environment as we have done the last few years while remaining focused and energized about our purpose to enrich lives through technology. There is a lot of time left in the year for exciting new innovation. We hold roughly one-third of the U.S. retail sales market share in both computing and televisions, and we intend to strengthen our position in key categories like computing, home theater, and major appliances through elevated experiences, pointed marketing spend, and sharp
Corey: There is a lot of time left in here with exciting new innovation, we hold roughly one third of the U S retail sales market share in both computing and televisions and we intend to strengthen our position in key categories like computing home theater and major appliances through elevated experiences pointed marketing spend and sharp pricing.
Corie Sue Barry: We are the largest CE specialty retailer with a unique range of product assortment and expert services to help humanize tech for every stage of our customers' lives. We believe we are putting ourselves in the best position for fiscal 25 and beyond. As our industry returns to growth, we expect to grow our sales and expand our operating income. I will now turn the call over to Matt for more details on our Q1 financial performance and our outlook.
Corey: We are the largest C specialty retailer with a unique range of product assortment and expert services to help humanize tack for every stage of our customer's lives. We believe we are putting ourselves in the best position for fiscal 'twenty, five and beyond as our industry returns to growth, we expect to grow our sales and expand our operating income rate.
Corey: I will now turn the call over to Matt for more details on Q1 financial performance and our outlook.
Matthew M. Bilunas: Good morning, everyone. Let me start by sharing a few details on our first quarter results. Enterprise revenue of $8.8 billion declined 6.1% on a comparable basis. Our non-GAAP operating income rate of 3.8% improved 40 basis points compared to last year and included a 60 basis point improvement in our gross profit rate. Non-GAAP SG&A dollars were $97 million lower than last year and increased approximately 30 basis points as a percentage of revenue.
Matthew M. Bilunas: Good morning, everyone. Let me start by sharing a few details on our first quarter results.
Matthew M. Bilunas: Enterprise revenue of $8 8 billion declined six 1% on a comparable basis.
Matthew M. Bilunas: Our non-GAAP operating income rate of three 8% improved 40 basis points compared to last year and included 60 basis point improvement in our gross profit rate.
Matthew M. Bilunas: non-GAAP SG&A dollars were $97 million lower than last year and increased approximately 30 basis points as a percentage of revenue.
Matthew M. Bilunas: Our non-GAAP diluted earnings per share increased 4% to $1.20. Our comparable sales decreased 4.5% in February and decreased approximately 7% in both March and April. As a reminder, our comparable sales are computed on a like-for-like fiscal weeks basis and are not shifted to more closely aligned calendar weeks following last year's 53rd year for a 53rd week year.
Matthew M. Bilunas: non-GAAP diluted earnings per share increased 4% to $1 20.
Matthew M. Bilunas: Okay.
Matthew M. Bilunas: Comparable sales decreased four 5% in February and decreased approximately 7% in both March and April.
Matthew M. Bilunas: As a reminder, our comparable sales are computed on a like for like fiscal weeks and are not shifted to more closely aligned calendar weeks following last year's 53rd year or 50, <unk> week year.
Matthew M. Bilunas: Although our sales were softer than we had planned, our non-GAAP operating income rate of 3.8% was 40 base points higher than expected. Our gross profit rate was higher than expected primarily due to a more favorable gross profit rate in our services category, which includes our membership offerings. Our non-GAAP SG&A expense was also favorable to our expectations, which was driven by lower store payroll and advertising expense. Next, I will walk through the details of our first quarter results compared to last year.
Matthew M. Bilunas: Although our sales were softer than we had planned for non-GAAP operating income rate of three 8% was 40 basis points higher than expected.
Matthew M. Bilunas: Our gross profit rate was higher than expected primarily due to a more favorable gross profit rate in our services category, which includes our membership offerings.
Matthew M. Bilunas: non-GAAP SG&A expense was also favorable to our expectations, which was driven by lower store payroll and advertising expense.
Matthew M. Bilunas: Next I will walk through the details on our first quarter results compared to last year.
Matthew M. Bilunas: In our domestic segment, revenue decreased 6.8% to $8.2 billion, given by a comparable sales decline of 6.3%. However, from an organic perspective, the overall blended average selling price, or ASBs, of our products was higher than last year. The growth was entirely due to an increased mix of units, from higher-ticket items such as laptops, even though the individual ASBs for both categories were down from last year. However, international revenue of $644 million decreased 3.3%.
Matthew M. Bilunas: In our domestic segment revenue decreased six 8% to $8 $2 billion driven by a comparable sales decline of six 3%.
Matthew M. Bilunas: From an organic perspective, the overall blended average selling price or asps of our products was higher than last year. The growth was entirely due to an increased mix of units from higher ticket items, such as laptops and Tvs.
Matthew M. Bilunas: Even though the individual asp's for both categories were down to last year.
Matthew M. Bilunas: International revenue of $644 million decreased three 3%.
Matthew M. Bilunas: Our domestic gross profit rate increased 80 basis points to 23.4%. The higher gross profit rate was primarily driven by improvements within our services category, which includes our membership offerings. This was partially offset by lower product margin rates and lower credit card profit sharing revenue. Consistent with the previous two quarters, approximately $20 million of vendor funding qualified to be recognized as an offset to SG&A, which was a reduction to cost of sales last year. We anticipate similar recognition of this funding in the second quarter of approximately $20 million. And beginning in the third quarter of this year, we will fully lap the recognition chain.
Matthew M. Bilunas: Our domestic gross profit rate increased 80 basis points to 23, 4%.
The higher gross profit rate was primarily driven by improvements within our services category, which includes our membership offerings. This was partially offset by lower product margin rates and lower credit card profit sharing revenue.
Matthew M. Bilunas: Consistent with previous two quarters, approximately $20 million of vendor funding qualify to be recognized as an offset to SG&A, which was a reduction to cost of sales last year.
Matthew M. Bilunas: We anticipate similar recognition of this funding in the second quarter of approximately $20 million and beginning in the third quarter of this year, we fully lap the recognition change.
Matthew M. Bilunas: Our international gross profit rate decreased 90 basis points to 22.8%. The lower gross profit rate was primarily driven by lower product margin rates. Moving to SG&A.
Matthew M. Bilunas: Our international gross profit rate decreased 90 basis points to 22, 8%.
Matthew M. Bilunas: The lower gross profit rate was primarily driven by lower product margin rates.
Matthew M. Bilunas: Our domestic non-GAAP SG&A decreased $98 million, which was driven by one, lower employee compensation expense, which was primarily store payroll, two, reduced vehicle rental costs, and three, lower expenses across multiple other areas, such as advertising and credit card fees. These decreases were partially affected by higher technology expenses. During the first quarter, we returned $252 million to shareholders through dividends and share repurchase.
Matthew M. Bilunas: Moving to SG&A.
Matthew M. Bilunas: Our domestic non-GAAP SG&A decreased $98 million, which was driven by one lower employee compensation expense, which was primarily store payroll to reduced vehicle rental costs and three lower expenses across multiple other areas such as advertising and credit card fees.
Matthew M. Bilunas: These decreases were partially offset by higher technology expense.
Matthew M. Bilunas: During the first quarter, we returned $252 million to shareholders through dividends and share repurchases.
Matthew M. Bilunas: Moving on to our full year of fiscal 25 financial guidance, which remains unchanged from the start of the year and is the following: Enterprise revenue in the range of $41.3 to $42.6 billion; Enterprise comparable sales of down 3% to flat.
Matthew M. Bilunas: Moving onto our full year of fiscal 'twenty financial guidance, which remains unchanged from the start of the year and is the following.
Matthew M. Bilunas: Enterprise revenue in the range of 41, three to $42 6 billion.
Matthew M. Bilunas: Enterprise comparable sales of down 3% to flat.
Matthew M. Bilunas: Enterprise non-GAAP operating income rate in the range of 3.9% to 4.1%, a non-gap effective income tax rate of approximately 25%, and non-GAAP diluted earnings per share of $5.75 to $6.26. As Corie mentioned, we now believe revenue is trending more towards the midpoint of our annual guidance range, whereas profitability more closely aligns with the high end of our non-GAAP operating income rate guidance. This is due to our expectation of further gross profit rate improvement.
Matthew M. Bilunas: Enterprise non-GAAP operating income rate in the range of three 9% to four 1%.
Matthew M. Bilunas: Our non-GAAP effective income tax rate of approximately 25%.
Matthew M. Bilunas: non-GAAP diluted earnings per share of $5 75 to $6 20.
Matthew M. Bilunas: As Corey mentioned, we now believe revenue is trending more towards the midpoint of our annual guidance range, whereas profitability more closely aligns with the high end of our non-GAAP operating income rate guidance.
Matthew M. Bilunas: This is due to our expectation for further gross profit rate improvement.
Matthew M. Bilunas: We now believe our gross profit rate compared to fiscal 24 will slightly exceed our original outlook of 20 to 30 basis points of expansion. There are two key areas that have changed since the start of the year, which are the following. First, the continued profitability improvement of our services and membership offering is now expected to provide more than the 45 basis points of gross profit rate expansion we expected at the beginning of the year. This is primarily due to a lower cost to serve due to lower expected volume for in-home installation and other related services.
Matthew M. Bilunas: We now believe our gross profit rate compared to fiscal 'twenty, four will slightly exceed our original outlook of 20% to 30 basis points of expansion.
Matthew M. Bilunas: There are two key areas that have changed since the start of the year, which are the following first the continued profitability improvement of our services membership offering is now expected to provide more than a 45 basis points of gross profit rate expansion, we expected at the beginning of the year.
Matthew M. Bilunas: This was primarily due to a lower cost to serve due to lower expected volume for in home installation and other related services.
Matthew M. Bilunas: Second, we are now expecting additional pressure on our product margin rates for the year, which is primarily driven by pricing and best. As I mentioned, the net impact of these two items is expected to result in gross profit rate improvement compared to our original guidance. The other gross profit rate drivers of our annual guidance remain unchanged from last quarter, and they are the following. We still expect Best Buy Health to add a benefit of approximately 10 basis points to our enterprise gross profit rate on a year-over-year basis.
Matthew M. Bilunas: Second we now are expecting additional pressure on our product.
Matthew M. Bilunas: Rates for the year, which was primarily driven by pricing investments.
Matthew M. Bilunas: As I mentioned that the net impact of these two items is expected to result in gross profit rate improvement compared to our original guidance. The other gross profit rate drivers of our annual guidance.
Matthew M. Bilunas: Unchanged from last quarter and they are the following.
Matthew M. Bilunas: We still expect best buy health to add a benefit of approximately 10 basis points to our enterprise gross profit rate on a year over year basis we.
Matthew M. Bilunas: We still expect approximately 20 base points of pressure from a lower profit share on our credit card arrangement. The expected pressure in fiscal 25 is primarily due to an expected increase in net credit loss. This estimate does not include the potential implications from the proposed late fee regulation changes.
Matthew M. Bilunas: We still expect approximately 20 basis points of pressure from a lower profit share on our credit card arrangement.
Matthew M. Bilunas: The expected pressure in fiscal 'twenty five is primarily due to an expected increase in net credit losses.
Matthew M. Bilunas: This estimate does not include the potential implications from the proposed late fee regulation changes.
Matthew M. Bilunas: Now, moving to our annual SG&A expectations, which remain unchanged from the start of the year. The high end of our guidance assumes SG&A dollars are similar to Fiscal 24, which includes the following puts and takes. We expect higher incentive compensation as we reset our performance targets for the new year, with the high end of our guidance assuming an increase of $40 million compared to fiscal 24. We still expect advertising expense to increase by approximately $50 million.
Matthew M. Bilunas: Now moving to our annual SG&A expectations, which remain unchanged from the start of the year.
Matthew M. Bilunas: The high end of our guidance assumes SG&A dollars are similar to fiscal 'twenty four which includes the following puts and takes.
Matthew M. Bilunas: We expect higher incentive compensation as we reset our performance targets for the new year with.
Matthew M. Bilunas: With the high end of our guidance, assuming an increase of $40 million compared to fiscal 'twenty four.
Matthew M. Bilunas: We still expect advertising expense to increase by approximately $50 million.
Matthew M. Bilunas: Partially offsetting the previous items is the benefit of one less week, which is estimated at $90 million. Store payroll expense is expected to be approximately flat for fiscal 24 as a percentage of sales. Lastly, the low end of our guidance reflects our plans to further reduce our variable expenses, which includes incentive compensation to align with the sales trend. Before I close, I want to share a couple of comments specific to the second quarter.
Matthew M. Bilunas: Partially offsetting the previous items as the benefit of one less week, which is estimated at $90 million.
Matthew M. Bilunas: Payroll expense is expected to be approximately flat to fiscal 'twenty four as a percentage of sales.
Matthew M. Bilunas: Lastly, the low end of our guidance reflects our plans to further reduce our variable expenses, which includes incentive compensation to align with the sales trends.
Matthew M. Bilunas: Before I close let me share a couple of comments specific to the second quarter.
Matthew M. Bilunas: As Corie mentioned, we anticipate that our second quarter comparable sales will decline by approximately 3%. We expect our non-GAAP operating income rate to be approximately 3.5%, or 30 base points lower than the prior year comparable period. The lower year-over-year operating income rate is driven by SG&A leverage, as SG&A dollars are expected to be very similar to Fiscal 24's second quarter.
Matthew M. Bilunas: As Corey mentioned, we anticipate that our second quarter comparable sales would decline by approximately 3%.
Matthew M. Bilunas: We expect our non-GAAP operating income rate to be approximately three 5% or 30 basis points lower than the prior year comparable period.
Matthew M. Bilunas: The lower year over year operating income rate is driven by SG&A deleverage as SG&A dollars are expected to be very similar to fiscal 'twenty four is the second quarter.
Operator: I will now turn the call over to the operators for questions. We are now opening the floor to a question and answer session. If you'd like to ask a question, please press star followed by the number one on your telephone keypad.
Speaker Change: I'll now turn the call over to the operator for questions.
Operator: Our first question comes from Christopher Horvers from JP Morgan. Your line is now open. Christopher Horvers from JP Morgan. Again, your line is now open. Apologies about that. Moving on to the next question. Our next question comes from Steven Forbes from Guggenheim Securities. Your line is now open.
Operator: We are now opening the floor to questions and answers. If you'd like to ask a question, please press star followed by the number one on your telephone keypad.
Speaker Change: We are now opening the floor for question and answer session. If you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: Our first question comes from Christopher <unk> from Jpmorgan. Your line is now open.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Christopher <unk> from Jpmorgan again your line is now open.
Speaker Change: Apologies about that moving on to the next question. Our next question comes from Steven Forbes from Guggenheim Securities. Your line is now open.
Hulu mortaza: Good morning, this is Hulu mortaza on for Steven Forbes.
I know you touched on the newness since here, but maybe if you can give us a little more detail on the product Road map post labor day.
Speaker Change: If you could maybe remind us of annual revenues that come from.
Speaker Change: Some of these newer products.
Speaker Change: Quick follow up on appliance market share any insights you can give them.
Speaker Change: Where are the <unk>.
Speaker Change: Zero market is trending and how your performance is relative to that and if you see any any visibility of that slipping. Thank you.
Corie Sue Barry: Maybe I'll start on some of the product roadmap side of things, and then Matt can maybe move into some of the market share.
Speaker Change: Maybe I'll start on some of the product roadmap side of things and then Matt can maybe move into some of the market share.
Corie Sue Barry: On the product roadmaps, we've got a few things right now that are happening. We had a new suite of iPads that came out in about the middle of May here. Those are available for purchase now, and we're already starting to see some of that new innovation contribute to what's been a bit of a change in trajectory on the growth rate, even as we have been in May here. And then obviously, as we noted in the prepared remarks, Microsoft has announced a line of CoPilot Plus products, as we said, that's 40 SKUs, about 40% of which are exclusive to Best Buy. Those are available for pre-order but don't actually get delivered until June 8.
Matthew M. Bilunas: On the product roadmap. So we've got a few things that are happening we had a new suite of ipads that came out in about the middle of May here. Those are available for purchase now and we're already starting to see some of that new innovation contribute to what's been a bit of a change in trajectory on the <unk>.
Matthew M. Bilunas: Growth rates, even as we have been in May here and then obviously as we noted in the prepared remarks, Microsoft has announced a line a full line of copilot plus product as we said that's 40 skus about 40% of which are exclusive to best buy those are available for preorder by don't actually get delivered until June 18.
Corie Sue Barry: And then we talked about a few of the others that have been announced that will, at various stages within the next, call it one month, be ready for purchase, which are some of the new open-ear headphones from Bose and some of the new Google Chromecast notebooks that we're also seeing that have some AI-enabled features as well. So all of these kinds of, those we can see right now on the roadmap, likely some other products coming out as we continue into the back-to-school kind of timeframe.
Matthew M. Bilunas: And then we talked about a few of the others that have been announced that will at various stages within the next call. It one month be ready for purchase which are some of the new open your headphones for Bose.
Matthew M. Bilunas: And as some of the new Google Chromecast notebooks that we're also seeing that have some AI enabled features that well. So all of these kind of those that we can see right now on the roadmap likely some other products coming out as we continue into the back to school kind of timeframe most of that youre going to see flow through in all of it you're going to see who will do that.
Corie Sue Barry: Most of that you're going to see flow through, and all of it will flow through that kind of computing area for us. One thing that I would note, actually, as well, is that the iPads that came out and the Pro side are incredibly powerful and are actually really close to the laptop side of the business as well. So we're watching customers kind of choose between all those things as they think about how they want to maximize their productivity going forward.
Matthew M. Bilunas: Computing area for US one thing that I would note actually as well is that the ipads that came out and the pro side are incredibly powerful and are actually really close to the laptop side of the business as well. So we're watching customers can choose between all of those things that they think about how they want to maximize their productivity go for.
Corie Sue Barry: So you're going to see a lot of that hit here in the kind of middle of Q2, and it really becomes relevant, I think, mostly as we head into back-to-school, and, like I said, as part of that larger computing category that you can see us break out.
Matthew M. Bilunas: So you're going to see a lot of that hit here in the middle of Q2, and really becomes relevant I think mostly as we head into back to school and like I said as part of that larger computing category that you can see us breakout.
Corie Sue Barry: Sure. And in terms of appliances, I think if I just step back, appliances is a great category for us. I think in Q1 specifically, you saw an appliance category that was materially more promotional in pursuit of stimulating interest in sales within the industry. You know, and that's been our practice.
Matthew M. Bilunas: Sure.
Matthew M. Bilunas: Terms of appliances, I think let's just step back appliances.
Matthew M. Bilunas: A great category for us.
Matthew M. Bilunas: Q1, specifically.
Matthew M. Bilunas: You saw appliance category that was materially more promotional in pursuit of stimulating interest and sales within the industry and has been our practice, we are very targeted and thoughtful about when and where to make our promotional investments.
Corie Sue Barry: We are very targeted and thoughtful about when and where to make our promotional investments. So, in Q1, I think if we looked at it, we probably did lose share in Q1. It was a very promotional category in Q1. Q1 is a somewhat quiet quarter for us, because April is the smallest quarter in the month.
Matthew M. Bilunas: In Q1, I think if we looked at it we probably did lose share in Q1, it was a very promotional.
Matthew M. Bilunas: Category in Q1.
Matthew M. Bilunas: Q1 is somewhere quiet quarter for Us April is the smallest quarter in the month I think the industry is also shifting towards.
Corie Sue Barry: I think the industry is also shifting towards a duress type of purchase, a single item purchase, and non-premium package purchases, which have historically been our biggest part of the category. But I still feel really good about the category in total. I think where you'll also see us do is look into Q2, Q3, and Q4. You can see in our comments that we are now investing in pricing and marketing and labor in the future to help support that category, which seems more appropriate for the rest of this year versus what we saw happening in Q1.
Matthew M. Bilunas: Duress type of purchase or single item purchase non premium package purchases, which has historically been our biggest part of the category. So still feel really good about the category in total I think where you'll also see us as we look into Q2 Q3, and Q4 Youre seeing in our comments that we are.
Matthew M. Bilunas: Now investing in pricing and marketing and labor in the future to help support that category, which seems more appropriate for the rest of this year versus what we saw happening in Q1, so still feel great about the appliance category in total and are positioning ourselves well as we look out to the remaining part of the year and the last thing.
Corie Sue Barry: So, we still feel great about the appliance category in total and are positioning ourselves well as we look out to the remaining part of the year. And the last thing I would say, just to add on, you know,
Corie Sue Barry: And the last thing I would say just to add, you know, I think we're very targeted in the drive times. And we talked about the trend in May improving. And a part of what drove some of that improvement was an improvement in this particular part of the business where, you know, we made some targeted moves as it relates to the bigger drive time of Memorial Day.
Speaker Change: I would say just to add on.
Speaker Change: I think where we're very targeted in the drive times and we talked about that trended may improving and a part of what drove some of that trend improvement was an improvement in that particular part of the business, where we made some.
Speaker Change: Targeted moves as it relates to the bigger drive time of Memorial day.
Speaker Change: Great. Thank you.
Operator: My next question comes from Simeon Gutman from Morgan Stanley. Your line is now open.
Speaker Change: Our next question comes from Simeon Gutman from Morgan Stanley. Your line is now open.
Corie Sue Barry: Hey, good morning, everyone. Connected to appliances, you mentioned, I think Corie was quoted in the press release talking about the strengthening of positioning in certain places, and you mentioned pricing on appliances. So can you talk about where the position or, I don't know if its market share is weakened, can you talk about why? And then you mentioned pricing in terms of appliances. Are you using pricing anyplace else? And is it because the industry got more promotional?
Simeon Ari Gutman: Hey, good morning, everyone.
Speaker Change: Connected to appliances, you mentioned I think Corey is quoted in the press release talking about the strengthening your positioning in certain places.
Simeon Ari Gutman: You mentioned pricing on appliances. So can you talk about where the position or I don't know if its market share as we can can you talk about why.
Simeon Ari Gutman: You mentioned pricing in terms of appliances are you using pricing any place else and is it because the industry got more promotional.
Corie Sue Barry: And then, I guess, how far do you have to move on price? I guess it's all back into the guidance, but what's the risk that this, you know, this pricing keeps getting, I guess, more promotional as the year goes on?
Speaker Change: And then I guess, how far do you have to move on price I guess, it's all back into the guidance, but what's the risk that this this pricing keeps getting more promotional as the year goes on.
Corie Sue Barry: I think if we think about the promotional environment, and I said it in my prepared remarks, it's definitely higher in aggregate than what we saw last year and even our own expectations. And that's both breadth and depth.
Speaker Change: I think if we think about the promotional environment.
Speaker Change: And I said it in the prepared remarks, it's definitely higher in <unk>.
Speaker Change: Aggregate than what we saw last year and even our own expectations. So that's both breadth and depth and I think that reflects the consumer who we've set is very value oriented.
Corie Sue Barry: And I think that reflects the consumer, who we've said is very value-oriented. You said it yourself, I would reinforce, implied in the guide is our planned investments to continue to strengthen our positioning in key areas. Now, we're going to do it in our own way, right?
Speaker Change: You said it yourself I would reinforce implied in the guide is our planned investments to continue to strengthen our positioning in key areas that we're going to do it in our own way right. We're going to do with his partially with some of the specialized labor partially with some vendors special buys labor that we talked about partially with marketing.
Corie Sue Barry: We're going to do this partially with some of the specialized labor, partially with some of the vendor specialized labor that we talked about, partially with marketing. And we had talked a little bit more about spending more on marketing year over year. That was included in the guide.
Corie Sue Barry: And then, of course, partially in pricing. But I think what you've seen us do, and there are a lot of questions out there, I've seen on various calls where people are asking, is it about revenue? Or is it about the profit? And my team hates me because I only use one word, and that is "and."
Speaker Change: <unk>.
Speaker Change: We had talked a little bit more about spending more in marketing year over year that was included in the Guy and then of course, partially in pricing, but I think what you've seen us do in there, but a lot of questions out there I've seen in various calls where people are asking is it about the revenue or is it about the profit and my team hates me because I only use one one word and that is and.
And so I think that the team is constantly navigating win in the right times can we get the best eyeballs those bigger drive times thats not going to be in a month like April that's going to be in places like Memorial day or the fourth of July and then how do we use the suite of assets that we have at best buy including installation and delivery and membership.
Corie Sue Barry: And so I think that the team is constantly navigating when, at the right times, can we get the best eyeballs, those bigger drive times. That's not going to be in a month like April. That's going to be in places like Memorial Day or the 4th of July. And then how do we use the suite of assets that we have at Best Buy, including installation and delivery and membership, to help deliver the best value in a way that balances the outcomes? And I think that's what we're trying to do as best we can.
Speaker Change: To help deliver the best value in a way that balances the outcomes as best we can.
Corie Sue Barry: Fair enough. Can I ask maybe one follow-up to exactly the word you said to end it, the business is being managed incredibly well; it's very efficient right now. And you said it yourself, you're going to be adding some expenses back in the second half as the industry turns, thinking about operating leverage on the turn. You know, is there a scenario where you get both ends? You get the typical, you know, Best Buy operating leverage when the cycle turns? Or do you have to invest back into it given how efficient the business is today?
Speaker Change: Fair enough.
Speaker Change: Can I ask maybe one follow up to exactly the words you said the end the business is being managed incredibly well, it's very efficient right now and you said it yourself youre going to be adding some expenses back in the second half of the industry turns.
Speaker Change: Thinking about the operating leverage on the turn.
Speaker Change: Is there a scenario where you get both the end you get the typical best by operating leverage when the cycle turns or do you have to spend back into it given how efficient the businesses today.
Corie Sue Barry: Yeah, I mean, without fighting next year, I think as we start to see our business improve, see the industry improve, and our sales grow, along with the industry growth, as well, we would expect, along with that growth, we would be able to manage our business in a way to continue to get operating rate expansion as we look forward. Now, exactly what quarter and you know, does it show up exactly, perfectly? I think, overall, we're going to manage our business to increasingly improve our efficiency, as well as grow our sales.
Speaker Change: Yes, I mean, I think without guiding next year I think as we start to see our our business improves the industry improve and our sales grow along with the industry growth as well, we would expect along with that growth, we would be able to manage our business in a way to continue to get operating rate expansion as we look forward.
Speaker Change: Now exactly what quarter and does it show up exactly perfectly I think overall, we're we're going to manage our business to increasingly improve our efficiency as well as grow our sales.
Corie Sue Barry: And we'll do that through the means of making the right investments in our business, still continuing to drive efficiency in our business where we see it, and also making sure that our initiatives are progressing in a way that also helps bolster our profitability as we look forward.
Speaker Change: And we'll do that through other means of.
Speaker Change: Making the right investments in our business, it's still continuing to drive efficiency in our business, where we see it and also making sure that our initiatives are progressing in a way that also help bolster our profitability as we look forward.
Operator: Thank you. Okay, good luck.
Speaker Change: Thank you okay. Good luck.
Speaker Change: Thank you.
Operator: Our next question comes from Peter Keith from Piper Sandler. Your line is now open.
Our next question comes from Peter Keith from Piper Sandler Your line is now open.
Operator: Hey, thanks. Good morning.
Peter Jacob Keith: Hey, Thanks, good morning.
Peter Jacob Keith: I wanted to ask about the AI enabled laptop certainly seems kind of exciting.
Peter Jacob Keith: What's the pre order interest right now and also what do you think about the $1000 plus price points do you think thats, a little high right now to drive mass adoption.
Corie Sue Barry: I want to ask about the AI-enabled laptop. It certainly seems kind of exciting. What's the pre-order interest right now? And also, Corie, what do you think about the $1,000 plus price points? Do you think that's a little high right now to drive mass adoption?
Speaker Change: So in terms of preorders, let me start by saying to your point exactly this price point does not usually represent a huge amount of preorders. It tends to be something people want to come in and see you want to spend a little bit of time researching that being said already the preorders are outpacing I'd call. It.
Corie Sue Barry: So, in terms of pre-orders, let me start by saying, to your point exactly, this price point does not usually represent a huge number of pre-orders. It tends to be something people want to come in and see or want to spend a little bit of time researching. That being said, already the pre-orders are outpacing, I'd call it, our early expectations just a bit, not massively, but just a bit. So, that's good.
Speaker Change: Our XR early expectations, just a bit not massively, but just a bit. So that's good what we're looking for here is early indicators that there is at least interest in learning more and I think where we're really working hard as I talked about all the investments, we're making is really helping the consumer understand what is the value that I get.
Corie Sue Barry: What we're looking for here are early indicators that there is at least interest in learning more. And I think where we're really working hard, as I talked about, all the investments we're making are really helping the consumer understand what the value that they get here is. And that's why we started with some descriptors like longer battery life, materially longer battery life, or it just runs cooler, and your fan's not going on all the time.
Speaker Change: Here and that's why we started with some of the distributors like longer battery life materially longer battery life or it just runs cooler and your fans not going on all the time like these are actually consumer attributes that people find interesting you're right. It is more premium computing at this point as are the new ipads and.
Corie Sue Barry: Like, these are actually consumer attributes that people find interesting. You're right, it is more premium computing at this point, as are the new iPads and iPad Pros that just came out in the middle of the month, which we saw pretty much immediately stimulate some really interesting demand, Peter. So, I wouldn't call this, and we've been pretty clear on this from day one.
Peter: IPad pros that just came out in the middle of the month, which we saw pretty much immediately stimulate some some really interesting demand Peter so I wouldn't call. This and we've been pretty clear on this from day. One. This is not everyone has lined up at the front door waiting to run in and grabbed the new computer, but it is enough.
Corie Sue Barry: Not everyone is lined up at the front door waiting to run in and grab the new computer. But it is enough, like most things in CE, where it starts at a little bit more of a premium, has some of the attributes, drives some of the interest, and allows us the chance to partner with our vendors to really think differently about how we go to market with a new generation of computing. And then again, in a timeframe that's, let's call it, about four and a half years post-pandemic, it should be a very ripe timeframe for replacing almost a generation of computing that is probably nearing the end of its life.
Like most things in CE, where it starts a little bit more premium has some of the attributes drive some of the interest and allows us the chance to partner with our vendors to really think differently about how we go to market with a new generation of computing and then again in a timeframe that let's call. It about four and a half years post pandemic.
Peter: It should be a very ripe timeframe for replacing them.
Peter: On the fifth generation of computing.
Peter: That probably is nearing the end of its lifecycle.
Corie Sue Barry: Okay, sounds good. Certainly, some innovation is better than where we've been. Maybe just sticking on the AI theme, as you're incorporating AI capabilities into your own business, it sounds like it's more focused on the customer support experience. So the heart of the question is, do you think that drives both a better experience and cost savings, or do you prioritize one versus the other, if there are cost savings anyway, to kind of frame that up for us?
Peter: Okay.
Speaker Change: Sounds good certainly some innovation is better than where we've been.
Speaker Change: Maybe just sticking on the AI team.
Speaker Change: Incorporating AI capabilities into your own business. It sounds like it's more focused on the customer support experience.
Speaker Change: So at the heart of the question is do you think that drives both a better experience.
Speaker Change: <unk> and cost savings or do you prioritize one versus the other if there are cost savings any way to kind of frame that up for us.
Corie Sue Barry: This is another topic and we highlighted one example. It's hard because we can't highlight every single example in the script, but I really think about there are kind of four buckets as we think about using AI in our business. One is more what I would call the strategic offense.
Speaker Change: This is another and topic, we highlighted one example, it's hard because.
Speaker Change: We can't highlight every single example in the script, but I really think about.
Speaker Change: Kind of four buckets as we think about using AI in our business. One is more what I would call on the strategic offense that is more about how do we talked about knowing 90% of our customers when they come to us that personalized homepage in the App is an exceptional example of how we're using AI in a way that is all.
Corie Sue Barry: That's more about how we do we talk about knowing 90% of our customers when they come to us. That personalized homepage in the app is an exceptional example of how we're using AI in a way that is all geared around the customer experience. And we can easily see in the data that our customers are engaging with us substantially more when they have that personalized experience. One other simple example, if you go out right now and you look at our customer reviews, you will see themes in the customer reviews, and then you can refine those reviews based on a theme you want to learn more about. Meaning someone might complain because the battery life isn't long enough, and you can then filter quickly to see all of the reviews based on that. That is all AI enabled.
Speaker Change: Geared around the customer experience and we can easily see in the data that our customers are engaging with us substantially more when they have that personalized experience. When another simple example, if you go out right now and you look at our customer reviews, you will see themes of customer reviews, and then you can refine those reviews based on a theme you want to learn more about <unk>.
Speaker Change: Meaning someone might complain because the battery life isn't long enough and then filter quickly to see all of the reviews based on that that is all AI enabled that is all about customer experience and we know when people interact with reviews. They are much more likely to follow that transaction all the way through so there is a lot that is on just a flat out customer experience side of things that will drive.
Corie Sue Barry: That is all about customers, and we know when people interact with reviews, they are much more likely to follow that transaction all the way through. So there is a lot that is on just the flat out customer experience side of things that will drive incremental engagement and ultimately revenue. Then, yes, we also highlighted the expense reduction side of things. But you asked, and I love how you asked the question, because it started with, and I will use our call center example, it started with an experience that we felt was suboptimal for both customers and employees. And it started with a complete journey.
Speaker Change: Incremental engagement and ultimately revenue then yes, we also highlighted the expense reduction side of things, but you you asked I Love. How you asked the question because it started with and I will use our call Center example, it started with an experience that we felt was suboptimal for both customers and employees and it started with a complete journey.
Corie Sue Barry: And we could show you the entire journey we're trying to create for our customers that will vastly improve their experience. And then AI and generative AI is a tool that we are plugging into that experience in certain places so that it can be more efficient. An example of this is that, as we talked about before, our agents don't need to summarize calls anymore. Now those calls are automatically summarized, which means the agent can concentrate a lot more on the person they're talking to.
Speaker Change: And we can show you the entire journey, we're trying to create for our customers that will vastly improve their experience and then AI and generative AI as a tool that we are plugging into that experience in certain places so that it can be more efficient and example, there is that we've talked about this before our agents don't need to summarize calls now those call.
Speaker Change: Our automatically summarized which means the agent.
Speaker Change: And trade a lot more on the person they're talking to it's also a quicker transaction.
Corie Sue Barry: It's also a quicker transaction, and it helps with that end-to-end customer experience all the way through. And yes, at the end of the day, that is allowing us to be more efficient and double down on using that agent's time most effectively, which is with a customer who wants a problem solved. And then, finally, we're also working on making sure we're doing this in a responsible way and that we are very clear about our customers' data. And then all of us just are continuing our usage here of these tools, so we're trying to highlight different examples, all of it in service of a customer and employee strategy.
Speaker Change: And it helps with that end to end customer experience all the way through and yes at the end of the day that is allowing us to be more efficient and double down on using that agents time, most effectively which was with a customer who wants a problem solved and then finally, we're also working on making sure. We're doing this in a responsible way and that we are very.
Speaker Change: Clear about our customers' data and then all of US just continuing our kind of usage here of these tools. So we were trying to highlight different examples all of it in service of a customer and employee strategy.
Operator: Thank you very much, and good luck. Thank you. Our next question comes from Robbie Owens from Bank of America. Your line is now open. Oh, hey, Corie.
Speaker Change: Okay. Thank you very much and good luck.
Speaker Change: Thank you.
Operator: Our next question comes from Robbie Owens from Bank of America. Your line is now open.
Speaker Change: Our next question comes from Robby <unk> from Bank of America. Your line is now open.
Operator: Oh, hey Corie. Actually, I have two questions. One is...
Corey: Hey, Corey.
Robby: Actually two questions. One is just I wanted to get a clarification on the may to date comps can.
Speaker Change: Can you just.
Speaker Change: Remind us what.
Speaker Change: Explain the impact of the Memorial day shift.
Speaker Change: Are you running.
Speaker Change: The minus three if you exclude the benefit of Memorial day May to date or I just wanted to clarify on that and then I had a follow up question.
Corie Sue Barry: Yep, I'll start with that. So, what we said precisely is based on the month-to-date results, the estimated comparable sales for May right now are better than the Q2 guide, but we that doesn't include a full lap of Memorial Day. It's tricky because the Memorial Day weekend falls like half in the May fiscal and half in June.
Speaker Change: I'll start with that so what we said precisely is based on the month to date results. The estimated comparable sales for me right now are better than the Q2 guide.
Speaker Change: That doesn't include a full lap of memorial day, it's tricky because of the Memorial day weekend falls like half in May fiscal and half in June fiscal so it includes a chunk of that not quite all of it all that being said, it's still even if we try to do all the adjustments all put together you're still if not right in line with the guide maybe just a little bit better so.
Corie Sue Barry: So it includes a chunk of it, not quite all of it. All that being said, it's still, even if we try to do all the adjustments all put together, you're still, if not right in line with the guide, maybe just a little bit better. So you're right on there, even with the GIFs, as best you can tell. So I will couch that.
Speaker Change: You're right right in there even with the jets as best Intel So.
Speaker Change: Well couch that I wouldn't want to say, though just since we're on the topic.
Corie Sue Barry: I would want to say, though, just since we're on the topic, we're also thoughtful about those periods between those main drive times. So that's a bit of why we, maybe the guide for the quarter, there'll be some puts and takes in there, but we're liking at least what we're seeing in some of the drive times and in some of the innovation. Because where the trend really changed from what we were seeing in April are two main places.
Speaker Change: We're also thoughtful about those periods between those main drive times. So that's a bit of why we maybe the guide for the quarter there'll be some puts and takes in there, but we're liking at least what we're seeing in some of the drive times and in some of the innovation because where the trend really changed from what we were seeing in April is two main places one we saw a trend change in <unk>.
Corie Sue Barry: One, we saw a trend change in tablets. So as we saw both the new launches, the pro and the new air, as well as some of the deals on the older generations, because I think that sometimes when you get the new innovation, it allows you to cycle through some of the older revisions of products as well. So you get that broad set of price points that makes it accessible for everyone. Tablets, in general, are better.
Speaker Change: Tablets, so as we saw both of the new launches the pro and the new air as well as some of the deals on the older generations, because I think sometimes what people forget is sometimes when you get the new innovation. It allows you to cycle through some of the older reps our product as well. So you get that broad set of price points that makes it accessible for everyone tablets in general.
Corie Sue Barry: And then the second, back to our point that we made about using these key drive times, both major appliances and TVs started seeing some initial positive impacts from some of the intentionality that we're putting into those categories. So what we like is that even as we continue to go through the lapping question, the overall change in trajectory kind of underscores the thesis that we've been talking about now. Thank you, that's helpful. And then, just a quick follow-up question, can you remind us the advantages of, you know, doing more refreshes versus, you know, store remodels? Yeah, there are quite a few.
Speaker Change: <unk> was better and then the second back to a point that we made about using these key drive times, both major appliances and Tvs started seeing some initial positive impacts from some of the intentionality that we're putting into those categories. So.
Speaker Change: What we like is that even as we continue to go through the lapping question. The overall change in trajectory kind of underscores the thesis that we've been talking about now for some time.
Speaker Change: Thank you that's helpful. And then just a quick follow up can you remind us the advantages of <unk>.
Speaker Change: <unk> more refreshes versus store Remodels.
Corie Sue Barry: So if you think about a full on remodel, typically, you're going to take one store and, top to bottom, you're going to, you know, move the balls, do all the things. It is a capital-intensive process. It does definitely result in a lovely store experience at the end of the day, but you are more limited in the quantity of stores you can do because it obviously requires a little bit more capital intensive process.
Speaker Change: Yeah. There are a few so if you think about a full on remodel typically there youre going to take one store and top to bottom.
Speaker Change: Moved evolve do all the things it is a capital intensive process. It does definitely result at the end of the day and lovely store experience, but you are little more limited in the quantity of stores you can do because it requires obviously a little bit more capital intensive process.
Corie Sue Barry: The way we're looking at it this year is that the store updates and refreshes allow us to touch every single store in the chain. So instead of remodeling 30, we get the chance to touch 900. And we gave some examples within the script where we're going to right-size some of the categories; we're going to make sure the center of the store is exciting and relevant. We're going to make sure that for some of these new product launches, you're going to see really interesting displays.
Speaker Change: On the the way we're looking at it. This year is the store updates allow us and refreshes allow us to touch every single store in the chain. So instead of remodeling 30, we get the chance to go touch 900, and we gave some examples within the script, where we're going to rightsize some of the categories, we're going to make sure the center of this.
Speaker Change: Store is exciting relevant.
Speaker Change: We're going to make sure that for some of these new product launches you're going to see really interesting displays but importantly, it also gives us a more scaled chance to work with our vendors on their experiences in our stores because if we're going to go out and touch all the stores anyway, we get the chance then to partner with our vendors on where they might also want to update some of their store experiences. So you almost get a little.
Corie Sue Barry: But importantly, it also gives us a more scaled chance to work with our vendors on their experiences in our stores, because if we're going to go in and touch all the stores anyway, we get the chance then to partner with our vendors on where they might also want to update some of their store experiences. So you almost get a little bit more reach, not because it's not just us doing it; we get the chance to go into those stores and maybe refresh our experiences, as well as some of those vendor experiences. And so I think the advantage is you get a chance more at scale to be able to kind of do a refresh in tandem with some of the innovation that we're talking about.
Speaker Change: <unk>.
Speaker Change: More reach not because it's not just us doing it we get the chance to go into those stores and maybe refresh our experiences as well as some of those vendor experiences and so I think the advantage is you get a chance more at scale to be able to kind of do a refresh and in tandem with some of the innovation that we're talking about.
Speaker Change: Got it really helpful. Thank you.
Speaker Change: Yeah.
Operator: The next question comes from Chris Horvers from JP Morgan. Your line is now open.
Speaker Change: The next question comes from Chris <unk> from Jpmorgan. Your line is now open.
Operator: Thanks. And thanks.
Christopher Michael Horvers: Thanks, and thanks, Thanks for putting me back in some tech problems here at Jpmorgan. So my first question is can you talk about the unit trend momentum sequentially from the fourth quarter to the first quarter in computing.
Christopher Michael Horvers: And Tvs and presumably you have a good view of what Asps could look like in those categories. As you think about the rest of the year and acknowledging the prior question that talked about some high price points, but.
Operator: Thanks for putting me back into some tech problems here at J.P. Morgan. So my first question is, can you talk about the unit trend momentum sequentially from the fourth quarter to the first quarter in computing and TVs? And, you know, presumably you have a good view of what ASPs could look like in those categories as you think about the rest of the year and acknowledge the prior question that talked about some high price points. But, you know. Was there any deterioration in new trends and should the ASPs actually just net-net accelerate and not dampen that unit demand?
Christopher Michael Horvers: No.
Speaker Change: Was there any deterioration any new trends and should be <unk> actually just net net accelerated not dampen that unit demand.
Matthew M. Bilunas: Yeah, and overall, I think we've been seeing a similar type of units as we progress through Q4 to Q1. And when you get into Q2, I think probably nothing too dissimilar there.
Speaker Change: Yes, overall I think we've been seeing.
A similar type of.
Speaker Change: Units as we as we progress through <unk>.
Speaker Change: Q4 to Q1, and you get into Q2, I think probably nothing too dissimilar. There I think we are seeing the potential for ASP improvements as you look towards the back half of the year with this innovation thats coming in typically with process. When you when you transition your product from the old to the new.
Matthew M. Bilunas: I think we are seeing the potential for ASB improvements as you look towards the back half of the year with this innovation that's coming in typically with process when you try it when you transition your product from the old to the new, carry on with the higher ASB, that's even higher than the old product, the old product goes down in price, and then none of it is either the same, if not typically higher. I think these new AI capabilities are probably going to drive a level of innovation and excitement in product features that are going to, you know, continue to push ASBs a little bit.
Speaker Change: Carry on a higher ASP.
Speaker Change: That's even higher than the old product the old product go down in price and the net of it is the same if not typically higher and I think these new AI capabilities are going to probably drive a level of innovation and excitement in product features that are going to.
Speaker Change: Continue dose probably push asps, a little bit now.
Matthew M. Bilunas: Now, again, it's only in part of our computing category; we're talking about laptops right now. It hasn't necessarily filtered its way into desktops and some other areas, so there is still potential as you look, you know, beyond this year.
Speaker Change: Now again, it's only in part of our computing category, whereas when you're talking about laptops right now it hasnt necessarily filtered its way into desktops and some other areas. So still potential as you look beyond beyond this year.
Matthew M. Bilunas: And then, and then just to clarify that, and then on the home theater side, we're, we're TV units positive. And then, as my follow-up question is, on the services growth. I mean, I believe it grew by 9% here in the first quarter.
Speaker Change: And then.
Speaker Change: And then just to clarify that and then on I guess on a home theater side, where we're TV units positive.
Matthew M. Bilunas: So, like, I guess how much of that is, what's changing there? Is it renewal rates? Is it attach rates? Is it changes that you made to the program that's driving that growth? Any detail there would be great.
Speaker Change: And then as my follow up question is really on the services growth I mean, I believe that comp like 9% here in the first quarter. So.
Speaker Change: And I guess, how much of that is what's changing there is it is it renewal rates as the attach rates as it changes that you made to the program that's driving that growth any detail there would be great. Thanks very much.
Matthew M. Bilunas: Thanks very much.
Speaker Change: Sure.
Speaker Change: TV side, both units and ASP.
Speaker Change: Okay.
Speaker Change: And so I'm not seeing the unit growth there on the TV side again.
Matthew M. Bilunas: Sure. On the TV side, both units and ASBs were both down, so I'm not seeing the unit growth there on the TV side. Again, TVs are in a very low price point, low tier type of environment, and so we're obviously navigating the overall part of that industry. I'm sorry, the second part of the question was service and services. The service growth was driven by charging for installation services that were previously part of the membership programs.
Speaker Change: Very Tvs is a very low price point low tier type of environment and so we're obviously navigating.
Speaker Change: Overall.
Speaker Change: Part of that industry.
Speaker Change: Okay.
Speaker Change: We are.
Speaker Change: Well I'm sorry, the second part of the question was sort of services services.
Speaker Change: Service growth was driven by charging for installation services that were previously part of the membership programs. So back in June of last year, we removed installations as part of a free membership offering started charging for that service.
Matthew M. Bilunas: So, back in June of last year, we removed installation as part of a free membership offering and started charging for that service going forward, and so that's what's driving most of that services revenue growth. There's also a little bit of growth coming from standalone warranty that's improved this year compared to last year.
Speaker Change: Going forward and so thats whats driving most of that services revenue growth. There is also a little bit of growth coming from Standalone warranty.
Speaker Change: It has improved this year compared to last year.
Speaker Change: Got it thanks very much.
Speaker Change: You bet.
Matthew M. Bilunas: Got it. Thanks very much. You bet. Our next question comes from Anthony Chikumba from Loop Capital. Your line is now open. Good morning, and thanks for taking my question. It's a pretty quick one. In terms of
Operator: Our next question comes from Anthony Chikumba from Loop Capital. Your line is now open.
Speaker Change: The next question comes from Anthony <unk> from Loop capital. Your line is now open.
Anthony <unk>: Good morning, and thanks for taking my question pretty quick one in terms of the.
Speaker Change: The store refreshes.
Speaker Change: Two part question I guess, how quickly can you execute those and then what's the I don't know whats built into your $750 million Capex guidance, but what's the sort of rough cost on them. I know there are obviously a lot cheaper than a full refresh but would just love to get some perspective on that thanks.
Operator: Absolutely, I can start with the how fast question. As we said in the prepared remarks, we're going to be doing this throughout Q2 and Q3. So you're going to see us pretty quickly here, start to move. And obviously, a piece that needs to go right away is the computing presentation and how we're making some updates to the computing of the store. So you're going to see these roll throughout Q2 and Q3, with the objective being as set as possible as we head into the holiday.
Speaker Change: Absolutely I can start with the how fast question.
Speaker Change: We said in the prepared remarks, we're going to be doing this throughout Q2 and Q3, so youre going to see us pretty quickly here start to move in and obviously.
Speaker Change: Piece that needs to go right away is the computing presentation, and how were making some updates to the computing at the store or so youre going to see these roll throughout Q2, and Q3 with the objective being as tight as possible as we head into holiday. The team does a really nice job being able to move through these there's probably one other advantage of doing more a refreshed model is you can do.
Operator: The team does a really nice job being able to move through these. One other advantage of doing more refresh models is you can do these overnight; you can get in, get it refreshed, and get out. Get it ready.
Speaker Change: These overnight you can get in and get it refreshed and get out and get it ready.
Corie Sue Barry: Yeah, from a cost perspective, we've never really given the total. I mean, for a remodel, you're talking, you know, sometimes a couple million dollars in some cases. If you're looking at a refresh, it ranges, depending on what you want to do, it could be $50,000 up to, you know, a few hundred thousand dollars. I would add that our partners also participate in some of these remodels because we're changing some of their own presentation, which they like to see changed when we, when we make these sort of changes, it really depends on the store and what you're changing in terms of the scope of any individual store, but it's significantly less than a new store build. And Anthony, you know, just to riff on it just a little bit.
Speaker Change: Yes.
Speaker Change: From a cost perspective.
Speaker Change: Given the total I mean from a remodel youre talking sometimes couple of million dollars in some cases, if you look at our refresh it ranges depending on what you want to do it could be $50000 up to a few hundred thousand dollars I would add that our partner has also participated in some of these remodels because were changing some of their own their presentation.
Speaker Change: They like to see their product.
Speaker Change: Presentation changed when we when we make these store changes so.
Andy: It really depends on the store and what you are changing in terms of the scope of any individual store, but it's significantly less than a new store bill and Andy just to riff on it just a little bit there's a bunch of things that kind of working concert here over the next couple of quarters innovation that kind of drives us to want to highlight.
Corie Sue Barry: And Anthony, you know, just to riff on it just a little bit, there's a bunch of things that kind of work in concert here over the next couple quarters. Innovation, that kind drives us to want to highlight both vendor spaces and our own spaces in our stores, so you get the store refreshes. You're going to see us do a brand refresh here at Best Buy, and we'll use some of that new branding as we head into back to school.
Andy: Both vendors spaces in our own spaces in our stores. So you get the store refreshes youre going to see US do a brand refresh here at best buy and we'll use some of that new branding as we head into back to school that also brings through a little bit of refresh from a store perspective, we've talked about the dedicated labor zones that were bringing into hundreds of stores. They start to get the dedicated labor and Ah.
Corie Sue Barry: That also brings about a little bit of a refresh from a store perspective. We've talked about the dedicated labor zones that we're bringing into hundreds of stores, so you start to get dedicated labor in appliances, in home theater, in computing, and we're augmenting that with incremental vendor labor that's new in a couple spots. We used the Samsung appliance example explicitly, and then we wrapped around that some of the more personalized approaches to trade-in or to membership.
Andy: Client says at home Theatre, and computing, and we're augmenting that with incremental <unk>.
Andy: Vendor labor, that's new in a couple of spots we used at the Samsung Appliance example, explicitly and then we wrap around that some of the more personalized approaches to trade in or to membership I think as you look into Q2, and Q3 were kind of trying to bring all of this together in a way that both physically and digitally.
Corie Sue Barry: I think as you look into Q2 and Q3, we're kind of trying to bring all of this together in a way that both physically and digitally shows up as being kind of new and exciting for our customers and our employees. That's very helpful. Thank you. Our next question comes from
Andy: So as up as being kind of new and exciting for our customers and our employees.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Yes.
Operator: Our next question comes from Seth Basham from Wedbush Securities. Your line is now open.
Speaker Change: Our next question comes from Seth Basham from Wedbush Securities. Your line is now open.
Seth Ian Sigman: Thanks, a lot of my questions on the membership program. If you can provide some more insight into how that is growing on a paid basis and the key drivers of your better than expected margin performance from it that would be helpful.
Operator: I'll start maybe on the topic of acquisition, and then Matt can talk a little bit about some of the drivers. We're not going to update the overall acquisition numbers every quarter, but as a reminder, we ended fiscal twenty four with seven million members across the two tiers of paid membership. And that was compared to five point eight million members at the start of the year. And if I take a big step back, our whole goal here is to drive customer engagement and increase share of wallet. All the more important in a world where people are a little less brand loyal than they were certainly pre-pandemic. And so there's like three things we're always watching.
Speaker Change: I'll start maybe on that topic on acquisition and Matt can talk a little bit about some of the drivers.
Speaker Change: We're not going to update that overall acquisition numbers every quarter, but as a reminder, we ended fiscal 'twenty four was 7 million members across the two tiers of paid membership and that was compared to $5 8 million members at the start of the year and if I take a big step back our whole goal here is to drive customer engagement and increase share of wallet all of them.
Important in a world where people are a little less brand loyal than they were certainly at pre pandemic and so there's like three things. We're always watching you had an acquisition, but we're also always Washington engagement and we're watching retention and all of those factor into kind of the financial outcomes that Matt will talk about so we continue to grow our new customers in Q1.
Corie Sue Barry: You hit on acquisition, but we're also always watching engagement, and we're watching retention. And all of those then factor into kind of the financial outcomes that Matt will talk about. So we continue to grow our new customers in Q1 and add more to both tiers of membership. We are still seeing that paid members consistently are showing higher levels of interaction and comparatively higher levels of spend at Best Buy and a shift away from competitors.
Speaker Change: And add more to both tiers of membership.
Speaker Change: We still are seeing that paid members consistently are showing higher levels of interaction and comparatively higher levels of spend at best buy and the shift away from competitors and it's still is really early we don't lap the rollout of particularly plus but even the new revamp of total until June.
Corie Sue Barry: And it still is really early. We don't lack the rollout of particularly plus but even the new revamp of total until June. But even on the early renewals for total retention rates, they are outperforming some of our expectations. So I give the team a great deal of credit both for kind of tweaking these offers in a way that resonated more with customers, but also for continuing to refine the way we reach out to those customers to make sure we optimize both their interactions and the resulting financial. Sure, and just a reminder, as we started the year, we expanded...
Speaker Change: But even on the early renewals for total retention rates are outperforming some of our expectation. So I give the team a great deal of that both for our kind of tweaking. These offers in a way that resonated more with customers, but also for continuing to refine the way we reached out to those customers to make sure we optimize both of their interactions and that resulting final.
Matthew M. Bilunas: Sure. And just a reminder, as we started the year, we expected membership and services to improve our gross profit rate by 45 basis points. And now what we're seeing, it's a little bit more than 45 basis points. And so what we're seeing be a little bit better is essentially a little bit lower cost to serve come through in Q1, which we would expect to continue as the year progresses. That's what's driving me.
Speaker Change: Yeah.
Speaker Change: Sure and just a reminder, as we started the year, we expect of a membership and services to improve our gross profit rate by 45 basis points and now what we're saying it's more than four it is a little bit more than 45 basis points and so what we're seeing <unk>.
Speaker Change: Be a little bit better as essentially a little bit lower cost to serve come through in Q1, which we would expect to continue as the year progresses. That's what's driving it those are just lower volumes coming through some of our categories driving some improved profit rate.
Matthew M. Bilunas: Those are just lower volumes coming through some of our categories, driving some improved profit rates. We're also actually seeing a little bit more standalone warranty sales, which is helping our overall membership slash services gross profit rate for the year as well.
Speaker Change: We're also actually seeing a little bit more standalone warranty sales, which is helping our overall membership slashed services gross profit rate for the year as well.
Speaker Change: Thank you very much.
Operator: Our next question comes from Jonathan Matuszewski from Jeffries. Your line is now open.
Speaker Change: Our next question comes from Jonathan Matuszewski from Jefferies. Your line is now open.
Operator: Great, thanks for taking my questions. So on spend across demographics, you know, I imagine the initial debut of AIPCs may resonate with certain demographics until it becomes more mainstream, maybe a little bit higher income, maybe a little bit younger in age, perhaps. So, you know, are the spending trends for those customer cohorts outperforming the broader customer base?
Speaker Change: Great. Thanks for taking my question.
Jonathan Richard Matuszewski: So on.
Speaker Change: <unk> spend across demographics I imagine the initial debut of AIP, Steve may resonate with certain demographics.
Speaker Change: Until it becomes more mainstream maybe a little bit higher income, maybe a little bit younger in age. Perhaps so are the spending trends for those customer cohorts outperforming the broader customer base.
Corie Sue Barry: Well, just to be explicit, we haven't launched the new AI PCs yet. They don't actually start shipping and getting out there until June 18. So everything's been announced.
Speaker Change: Well just to be explicit we haven't launched the new AI Pcs, yet they don't actually start shipping and getting out there until June 18th So everything has been announced.
Corie Sue Barry: And there are pre-orders available, but we haven't had a chance yet to see what the impact will be. I think, in general, the interesting part about this is that because we're seeing innovation across both computing and tablets, I think it's going to create broad opportunities, because we hit on this just a little bit in one of the earlier questions. It's not just about the newest generation of products, which, to your point, might resonate with a certain cohort.
Speaker Change: And there are preorders available, but we havent had a chance yet to see what the impact will be I think in general the interesting part about this is because we're seeing innovation across both computing and tablets I think it's going to create broad opportunity because we hit on this just a little bit in one of the earlier questions. It's not just about the newest Jennifer product.
Speaker Change: Which to your point might resonate to a certain cohort. It also sometimes makes the older generations of product to more approachable.
Corie Sue Barry: It also sometimes makes the older generations of products more approachable because those tend to be at a different price point, because now you have the new innovation. And as Matt talked about, that's what kind of props up some of the higher ASM. So typically, it's not just about whether this will only resonate with one demographic. It's actually a question of how do you create that kind of good, better, best assortment that we're always creating, which then can make it might not be only the new stuff that someone gravitates to, but it might give them a better entry point and a more value-based entry point to that new refreshed product, at least for them versus what they've had for the last four or five years.
Speaker Change: Those tend to be at a different price point, because now you have the new innovation and as Matt talked about that is what kind of props up some of the higher asps.
Speaker Change: Typically it's not just about this will only resonate with one demographic. It's actually a question of how do you create that kind of good better best assortment that we're always creating which then can make it might not be only the new stuff that someone gravitates do but it might give them a better entry point and more value based entry point to that new refreshed product at least for them versus what they are.
Speaker Change: <unk> for the last four or five years.
Operator: That's helpful. And my second question just on discounting, so it sounds like promos were materially deeper in appliances. So just to be clear, I guess the midpoint of the 2024 comp guide. Does that assume, you know, the promo activity in that category stays stable as the year moves on? Does it embed any improvement or deterioration in discounting levels?
Speaker Change: That's helpful and my second question just on <unk>.
Speaker Change: Discounting because it sounds like promos were materially deeper in appliances.
Operator: Any more color there would be great. Thanks. Yeah, I think what they are
Speaker Change: So just to be clear I guess, the midpoint of the 2024 comp guide does that assume.
Speaker Change: Promo activity in that category.
Speaker Change: Stable as the year moves on does it embed any improvement or deterioration in discounting levels.
Speaker Change: Any more color there would be great. Thanks.
Speaker Change: Yes, I think what our guide assumes is that there's actually more promotion holiday for the remaining part of the year.
Matthew M. Bilunas: What our guide assumes is that there is actually more promotional activity for the remaining part of the year. In our prepared remarks, we talked about how product margin rates will be slightly lower than our expectations as we start the year. That was driven by the expectation that there will be more pricing investments because of promotional activity as the year progresses. All that was included in our guide and still included in the fact that we still feel like the profit rate is trending towards the higher end of the original guide that we gave. And I'd say it's beyond just major appliances. That is certainly a category that's been very promoted. I would say there's also increased promotional activity across other categories as well, notably the place where I where I call out
Speaker Change: Prepared remarks, we talked about how we're product margin rates will be slightly lower than our expectations. As we started the year that was driven by the expectation that we will be more pricing investments because of the promotion as the year progresses. Although that was included in our guidance still included in the fact that we still feel like the profit rate is trending towards the higher end of the original guide that we gave.
Speaker Change: And I would say it's beyond just the major appliances that is certainly a category. It's been a very promotional I would say there is also increased promotion ality across other categories as well, notably Tvs are at a place where I, where I would go up.
Operator: And I think that is our last question. Thank you all for joining us today. And I hope that many of our investors who might be listening today will be able to join us at our annual shareholder meeting, which will be held virtually on June 12. Thank you all and have a wonderful day.
Speaker Change: And I think that is our last question. Thank you all for joining us today and I hope that many of our investors who might be listening today, we will be able to join us at our annual shareholder meeting, which will be held virtually on June <unk>. Thank you all and have a wonderful day.
Operator: Thank you for attending today's call. We hope you have a wonderful day. You may now disconnect.
Speaker Change: Thank you for attending today's call. We hope you have a wonderful day you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.