Best Buy FY 1Q18 Earnings Call Notes

Hubert Joly – Chairman and CEO

Benefit from competitor closing

“Yes. Thanks, Peter. So yes, a competitor filed last quarter, and I think they’re finishing the closing of their stores. It’s always a little bit choppy initially, given promotions, liquidation and so forth, but we believe we’re seeing some lift in the sales in the stores, of course, around their locations in appliances and home theater. To provide some order of magnitude, their appliances and home theater business, that’s about $2 billion, and we’ll get a share of that. It’s about 200 stores”

Impact of VR is small

“Yes. I would say, David, that we are excited by the fact that there’s a set of emerging technologies. And it’s been very interesting to see the inflow and the regular inflow of a variety of technologies, VR being one of them. You had drones. You’ve had a variety of products like this. The impact of VR specifically is small, but we like the proliferation of innovation across our sectors.”

Best Buy 3Q17 Earnings Call Notes

Best Buy’s (BBY) CEO Hubert Joly on Q3 2017 Results

Reduction in TV ASPs boosting unit demand. Continued innovation

” the TV category is playing out pretty much as we expected. There is indeed a reduction of ASPs and the combination of reduced ASPs and great product is stimulating unit demand and in that context, I don’t want to talk so much about the competitors, but I can talk about us. The customer experience we provide combination of assortment, merchandising, the online experience and experience in the stores, our service capabilities is allowing us to continue to gain market share. These market share gains have slightly moderated, because it doesn’t continue forever but we’ve built a capability that’s quite unique. The other thing that we want to highlight and we’ve talked about it on previous calls, the cycle of this time is different from the time where TVs went to digital and it was a much more contained cycle. We see continued product innovation today and coming in the future and this continued product innovation allows us to appeal to the type of customers that we appeal to which are in part the leading edge and early adopters, provide this great experience and allows us to stay ahead of the game.”

Probably no change in the promotional environment

“Thank you, Brian for the question so is the promotional environment this year likely to be more subdued, short answer is no. I think it’s always promotional and our category as we all know is used by certain player as a way to attract traffic. So there sometimes it will be aggressive promotions – often times limited quantities, but it creates, so no – we cannot see any chance from that standpoint. Black Friday I think what until the game is played it’s hard to know but we do see a combination of a bit of spreading out but also peaks and valleys being higher and steeper as the consumer has been trained to shop when the prices are more promotional, so I don’t think that there is a material chance here.”

Exciting categories

“From a product standpoint, I think what’s exciting this year is that there’s a broad range of exciting categories across what I would characterize as some of our more traditional product categories like for example, TVs and computing the new TVs are just extraordinary and computing our teams have done a great job as well as these emerging categories, so around connected home, around wearable, around drones, around virtual reality, there’s many reasons to come and check our products.”

Best Buy FY 2Q17 Earnings Call Notes

Best Buy’s (BBY) CEO Hubert Joly on Q2 2017 Results

Maybe our expectations were too low

“As it relates to compared to our expectations, maybe our expectations were too low. But the other thing is that frankly our team is executing extremely well. And what the brand’s consolidation has done is it has unlocked the ability of our teams to invest in the customer experience and great work for customers”

Back to school at expectations. VR not material this year.

“Back-to-school, back-to-college is performing according to our expectations and of course is reflected in our outlook. As it relates to virtual reality, I mean candidly, this is an exciting new technology. The impact this year is going to be not material on our performance. We through the assortment and the demo stations that I talked about, we certainly do expect to be a destination for this and to have excitement with our customers. From a financial standpoint, limited impact early in the cycle, limited product availability and so forth, but excitement from a customer and store standpoint because this is yet another example of a product that if you want to learn about it, experience it, even though it says virtual reality, the reality is that you need to experience it physically to be able to see that virtual reality, but this is true. ”

Online performance continues to be strong

“So thank you for your kind words. The performance of online continues to be strong. We think about online in two ways; one is the channel itself and then the other digital experience and how it helps customers because most of the visits on that site actually result in sales in the stores or visits to the stores and then completing the transaction online. So it’s quite intertwined. Projecting the percentage is going to be down the road of our business. It’s not something we have done. The – there is a way to think about it, which is there is growth online, which is clearly fast, but I think our stores have a very strong role to play. So this is – we don’t see it as a zero sum game. ”

Corie Barry

Revenue increased by 0.1%

“In our domestic segment, revenue increased a greater than expected 0.1% to $7.9 billion. This increase was primarily driven by comparable sales of 0.8%, which were partially offset by the loss of revenue from 12 large formats and 22 Best Buy mobile store closures since last year. ”

Price compression in 4K is not new

“Yes, the only thing that I would add is Dan as you well know price compression in 4K TV is not a new phenomenon. That is a phenomenon that’s been happening pretty strongly for the last eight quarters. And so to Hubert’s point, we continue to factor that in, but the excitement and the accessibility that that drives for our customers is very exciting to us.”

Best Buy FY 1Q17 Earnings Call Notes

Best Buy (BBY) Hubert Joly on Q1 2017 Results

Delivered better than expected flat comps

“In our domestic business, we delivered better-than expected, essentially flat comparable sales, versus our guidance of 1% to 2% decline. Contributing to these better-than expected results was the strong performance in our online channel which grew 24% in the quarter; and similar to last quarter’s trends, from a merchandizing perspective, we saw strong year-over-year sales growth in health and wearables, home theater and appliances, offset by continued softness in mobile phones and tablets.”

Q1 represents less than 15% of full year earnings

“Although we are reporting better-than expected results today, we are not raising our full year outlook as the first quarter represents less than 15% of full year earnings and at this stage, we have no new material information as it relates to product launches throughout the year.”

The wireless industry market is obviously soft

“Yes, good morning, Matt. The wireless industry market and there is some public information around this, has continued to be quite soft in the quarter as we anniversary a more iconic launch the previous year. So it’s continued to be soft and we continue to believe that significant launches in the back half of the year can revert the trends. So really, very consistent pattern compared to the previous quarter”

Computing was better and phones were softer

“In the quarter, I think, compared to our expectations, computing was better. No doubt about this. Again the results of our partnerships with the key vendors and great customer experience across all of the touch points, computing was better and phones was softer.”

VR revenue impact will be very small at this point

“Yes, virtual reality is a very exciting technology. I bet you all have seen that we were the exclusive place where you could try the Oculus in our stores. So a lot of excitement there. The impact on the business this year is going to be very marginal. So, I think exciting from a consumer NPR standpoint, very small at this point from a revenue standpoint.”

Sharon McCollam

Online revenue now 10% of total

“Domestic comparable online revenue increased 23.9% to $832 million, primarily due to higher conversion rate and increased traffic. As a percentage of total Domestic revenue, online revenue increased 210 basis points to 10.6% versus 8.5% last year.”

Best Buy FY 4Q16 Earnings Call Notes

Best Buy (BBY) Hubert Joly on Q4 2016 Results

We thrive on innovation cycles

“Best Buy is a specialty retailer that excels in an industry characterized by product innovation cycles. We are undeterred by this fact as we believe there will always be technology innovation. And our imperative is that in these cycles, we continue to deliver superior execution against what is in our control, recognizing that the cycles rarely align at any point in time.”

We are pleased with the state of the consumer

“Yeah, the U.S. consumer, we could spend the next 30 minutes on that. We are pleased with the mind and the spirit of the U.S. consumer, certainly compared to many other geographies outside of the U.S. Demand is there, you see it when you see the growth in appliances, continued growth in appliances, that is a very strong wave. In our category, I think we all have to bear in mind that demand is driven by supply, so when there’s great, exciting innovation you get that. Because most of what we sell is not the basic Maslovian need on the part of our customer. So this is an industry where great supply creates demand, and we’re excited about the technology waves that are coming above and beyond the softness that has existed in phones.”

There is clear demand for services from the consumer

“From a services standpoint, I would say two things. One is, there’s clear demand for help on the part of the customer. Now, the customer, all of us don’t always want to pay for service and we will provide and we’re providing service today in order to generate more demand, so when we have Magnolia system designers coming to your home that’s going to generate demand, but their visit is free and we’re happy to come to your home, everybody on the call, we’ll come to you. Tech support, however, above and beyond the self-help is something that customers are happy to pay for and we are seeing increased demand in this area”

Best Buy 3Q15 Earnings Call Notes

Best Buy (BBY) Hubert Joly on Q3 2015 Results
Hubert Joly – Chairman and Chief Executive Officer

Hard to say what demand will look like in 4Q

“I’m afraid that it’s hard to directly answer your question about exactly what the demand is going to be, but we’ve tried our best today to give you as much transparency as possible around the categories. I would say there’s a lot of excitement in a number of product categories, TVs, the demand for 4K TVs and our customer experience in this category is a great example of was we can accomplish. Appliances is less of a giftable item maybe, but our momentum continues to be strong in the market in that category continues to be very strong. There’s a lot of excitement in both – in wearables, connected devices. I’m planning to buy a drone myself, so if you want to join me.

We are excited about the shift to installment billing of mobile phones

“we are excited about the shift to installment billing. We are as a retailer, we are very well positioned to offer these plans, both online and in the stores, again, the only one to offer that from the three retailers.”

Churn is very low in the industry

“The churn in the industry is very low. So most of the customers are interested in having a very tight connection to the carrier and the degree of expertise in our stores, the dedication to individual carriers, the access, the complete access to the carrier’s products and services, systems and so forth is going to be very helpful.”

I think apparel just doesn’t have products that resonate right now

“I think that in the apparel category I think you’ve seen a lot of softness, frankly, with somehow the products in that category don’t seem to be resonating that well with consumers.”

Sharon McCollam – Chief Administrative Officer and Chief Financial Officer

There may have been pent up demand waiting for deals to come in November

“we believe there was another dynamic in October which is pent-up demand with people waiting to anticipate Black Friday deals. Because Black Friday as we all know has turned into black November and we believe that has a particularly stronger impact on the consumer electronics category than other categories. So even going from the last weeks of October to the first week of November, we just got that data off the press. We actually saw a significant improvement from the last weeks of October and the first week of November”

Andrew Sohn Notes: BBY, PVH, SDRL, DG

Consumer demand for technology products growing

“Our first observation is that overall consumer demand for technology products and services including appliances and mobile phones is growing. This growth is driven by technology and product innovation and by micro factors such as population growth, the housing recovery and healthy living trends that are driving momentum in our appliance, home theater, connected homes and health and wearables business, which, we believe, will remain positive catalyst in quarters to come.” –Best Buy (BBY)

Customer service from brick and mortar stores might still be relevant

 

“the investments that we’ve made in our Renew Blue strategy to offer advice, service and convenience at competitive prices are paying off. This is evidenced by the market share gains we have achieved in the NPD-tracked categories, our growth in appliances and mobile phones and the overall positive domestic comps and expanded operating income rate that we have delivered both last year and year-to-date this year.”-Best Buy (BBY)

 

Efforts to work upstream

 

“In some cases, we actually work very much upstream, including in terms of product design and the choice of feature functionalities, and then this co-designing, the customer experience and in the marketing. In some cases, it’s more about the merchandising and the marketing. So there’s a whole range, but it’s – in general, what I would highlight is that it is – it happens earlier on. It’s more strategic, it’s more integrated and it’s working.”-Best Buy (BBY)

 

Online and mobile part of a general selling process

 

“we report online sales and it’s an important part of our business, but we believe that online and mobile are a much bigger part of the business than just the online sales, because it’s really front door to the store. This is where we all notice. This is where the customers start the research.”-Best Buy (BBY)

 

Greater use of online research has decreased store traffic in addition to online purchases

 

“Because when the customer gets to the store, she has done a lot of research and she’s much more educated than maybe a few years ago. And so it’s maybe that in some cases we see fewer trips to the store, because so much time has been spent before the store. And so the focus in the store is on the customer experience.”-Best Buy (BBY)

 

Affordable luxury prevails in China

 

“We’ve seen how the luxury market has been hit from the sales point of view. We haven’t experienced anything like that. I think our brands are – both Calvin and Tommy are very well positioned in that market as premium brands, affordable luxury.” -Phillips-Van Heusen (PVH)

 

Added boost fourth quarter form early Chinese New Year

 

“we are going to benefit in the fourth quarter like everyone else from early Chinese New Year, which really impacts a lot of the Asia markets. It’s about two weeks to three weeks earlier this year and you’ll get – you get two things happening; you’ll get earlier actual retail sales in the stores that we are operating, but also because of the early Chinese New Year, wholesale shipments are falling into January out of February.” -Phillips-Van Heusen (PVH)

 

Currency impact is minimal

 

“Well, the Chinese currency impact has been relatively small. It’s about a 3% reduction. So, I mean, that is what – at this point, what that might portend as the world – as you extrapolate that and if there’s more pressure on the Chinese currency, clearly that might make an opportunity for fall 2016 and beyond. But right now, at this point, with the pressure you’re seeing on labor rates offset by some currency benefit, it’s very marginal, just on that particular front.” -Phillips-Van Heusen (PVH)

 

Europe looking good, but need to address growing concerns over costs

 

“we’re actually seeing positive sales trends in Europe. We believe that economy is coming back and that consumer is re-engaging. The challenge we are facing in Europe for 2016 will be cost increases that are double-digit cost increases, and how much of that is reasonable in one or two seasons to pass on to the consumer. That’s the biggest challenge we’re facing in Europe.” -Phillips-Van Heusen (PVH)

 

European performance driven my stifled US tourism

 

“I think a lot more Europeans are staying home. And by staying home, I mean, I think they’re vacationing this summer within Continental Europe and UK where their euros are buying more, where if they come to the United States, forgetting everything else, their hotel and food, just from a currency point of view, is up 20% to 25%.”-Phillips-Van Heusen (PVH)

 

 

 

Amazon a great partner

 

“Our Calvin Klein Underwear business in particular is by far the largest selling underwear on the Amazon site, as you would expect giving them that product category. So they’re a great partner. We really manage that very closely from – making sure it’s brand enhancing. We just don’t want goods on the site. We want the brand experience on the site. And they’ve been very good at getting us that.” -Phillips-Van Heusen (PVH)

 

Commodities down again, drilling can’t get a break

 

“Following the recovery in oil prices during the first quarter, commodity prices have again moved lower and are now approaching the lows we show in the beginning of 2015. This continued low commodity prices environment’s reductions in oil companies spending plans and an increased over supply of drilling units, continues to have a negative impact on utilization and pricing.” -Seadrill (SDRL)

 

Hardships will continue for a while

 

“Subsequently dayrates remain at or below breakeven levels for both the floater and jack-up markets. We believe this challenging market will continue through 2016 and the visibility for 2017 and beyond is depended upon commodity prices stability, oil companies realizing the benefits of the capital spending rationalization programs and continued fleet attrition.” -Seadrill (SDRL)

 

No growth till 2018

 

“In light of the likely continued cold scrapping, stacking and new build delays, they remain at the high likelihood that there will be limited or no growth in the marketed fleet between now and 2018.” -Seadrill (SDRL)

 

“Haven’t reached the bottom yet, not M&A and distressed assets right now”

 

“Well, there will be M&As and there will be distressed assets and what have you. I don’t see it come right now, it will come and, I think, well we will talk again in the quarter, and nothing will happen now in the quarter.” -Seadrill (SDRL)

 

Macroeconomic headwinds subsided

 

“What we saw was once we got through the month of June and into July, the weather patterns normalized, the heat returned and those torrential rains in Texas and Oklahoma and other areas subsided. And we saw a return to a little bit of a normal pattern where our consumable and non-consumable businesses both did very well as we moved into the weeks of July to the end of July.” -Dollar General (DG)

 

 

Customers need to see stability before confidence to spend goes back up

 

“I think it’s way too early to have seen and we really haven’t seen any indication that the consumer is spending anything more because she has additional wage money in her pocket. But again, our core consumer is a little different in that before she starts to spend, she really needs to have confidence and see a sustained ability that income will continue to come her way. So, she is a little bit slower on pulling the trigger on spending a little bit more money.” -Dollar General (DG)

 

Back-to-school looking good

 

“Now the great thing here at Dollar General that we’ve seen is that where school has already started, our back-to-school comps are hitting and/or exceeding our expectation.” -Dollar General (DG)

 

 

 

 

Best Buy FY 4Q15 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Big screen TVs were strong but tablets were weak

“”better-than-expected results as we capitalized on the product cycles in large screen televisions and mobile phones. These two categories were the primary drivers of our year-over-year revenue growth, and more than offset weakness in the tablet category which was impacted by material industry declines”

Facing some industry pressure this year

“we will also be facing industry and economic pressure that we discussed last quarter in our holiday sales press release that we expect to impact our business including more rapidly declining average spending prices in key product categories, weak industry demand in certain product categories, declining demands and in price pressures from our extended warranties and increasingly competitive and costly cost in the service expectations like free and faster shipping.”

Making investments in infrastructure

“the investments that we’re making now. These are much more structural and they will actually come incrementally. As an example some of the work that we’re doing in the supply chain, we will roll out a portion this year, a portion next year and a portion after that. Returns replacements and damages is another one. We will create the capability online this year, then there are things that we will add to the system that we’ll implement going into Q4 and that will go into next year and year after. ”

Tablet decline was substantial

“We see the tablet decline was the substantial and we need to make sure that it’s in perspective. In Q4 we saw the tablet category down 30% approximately the NPD reported category down 30% and at any point in time Best Buy is going have a 20% plus share of that category. So it has a significant impact on our top line, has a lesser impact on our profitability’s. As you know it’s not one of our most profitable categories but certainly it drives a lot of traffic to our stores.”

Best Buy 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Comps up 2.4%

“Domestic comparable sales increase of 2.4%, excluding the 80 basis point estimated benefit associated with the classification of revenue for the new mobile carrier installment billing plans. Domestic online comparable sales increased 22%.”

More installment plans, higher SAP

“In mobile, despite major phone launches being quantity constrained, the adoption of installment billing plans continued to accelerate throughout the quarter. Within these plans, we saw higher average phone prices and higher attach rates of services and phone accessories. ”

Shift marketing dollars from TV to digital

“In marketing, we continued to shift marketing dollars away from TV and print to digital media and display campaigns including a successful traffic-generating back-to-school initiative”

There was a huge amount of demand for iPhone 6 but supply has been spotty

“Prior to this iconic launch, we saw continued pent-up demand. So the market dried up and had a significantly negative impact on our mobile revenue. Then at the launch we did quite well but then supply was uneven during the quarter. So that’s a positive followed by a negative.”

Week two and three of December were very bad last year

“you are right to highlight that week two and week three of December last year were quite extraordinarily bad, candidly not just for us, this was industry-wide. If you remember, you had a bit of a perfect storm last year with a rapid shift to online and traffic to the malls and the stores that was quite extraordinary. I think last year we all agreed was, there were so many unique factors that it’s going to be hard to replicate the kind of drama that we had last year.”

The promotional environment is intense

“The promotional environment is very intense. It is certainly not less intense. I’m not sure, if anything it’s probably a little bit more intense than last year. I think that all of you follow the sector, so I don’t need to point you to this or that player. Don’t know of course how much money people are spending, I don’t have access to their P&L, but the promotional season is off to a very vibrant start, I would put it this way.”

Our strong balance sheet has been a factor in attracting partners

“I think that we have an obligation to our vendors to maintain a strong balance sheet. When you look at the investment that our vendors have made in our stores in the last 12 months, 12 to 18 months, it is incredible, it is literally hundreds of millions of dollars that they have put into our stores to represent their customer experience. So we believe very strongly that our strong balance sheet has been one of the reasons why they have had great confidence in putting that kind of capital into their customer experience in our Best Buy stores.”

Best Buy 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Consumers increasingly buying online

“Consumers are increasingly researching and buying online. As a result traffic to our brick and mortar stores continue to decline and yet our in-store conversion and online traffic continue to increase”

Top reason for missed sales is that item out of stock

“In our consumer surveys one of the top reasons customers say that they do not buy when they are in a Best Buy store is that the product they are looking for is not in stock in that store at that time.”

Expecting continued decline in comps–ongoing softness in mobile phone category

“Now looking forward to the back half, as Hubert remarked earlier, industry wide sales are continuing to decline in many of the consumer electronics categories in which we compete. We’re also seeing ongoing softness in the mobile phone category ahead of highly anticipated new product launches. Therefore absent any changes in these declining industry trends and with limited visibility to new product launch quantities. We continue to expect comparable sales to decline in the low single digits in both the third and fourth quarter.’

We think the consumer is fragile

“We have a backdrop of a consumer environment that’s a bit fragile.”

We have to be agnostic to online vs. in store

“The mindset of the company as we see no reason why our online market share, or market share online should be lower than in the stores and we are determined to be agnostic from a channel standpoint and a profitability standpoint so as to be able to serve the customers the way they want to buy it.”

Mobile is highly penetrated

“in mobile, everybody is talking and accepting new products in the back half but the penetration of smartphones in the country has really reached very high level”

Back to school has been good

“I would say that back-to-school so far is in-line with our expectations. There is potentially I think in retail in general, a more positive environment but we’re not just going to take a couple or three weeks as a source of excitement. This is an economy in general in a sector where there is lot of volatility week to week and month to month depending on this, this and that. So but yes in general there is a sense that the retail environment in the last few weeks have been better and certainly the beginning of the quarter has been in-line with our expectations.”

Excited about UltraHD TVs

“What’s very exciting about Ultra-High Definition TV compared to 3D a few years ago is that the customer benefits is immediately tangible and meaningful in the form of improved image quality”