The operator introduces the conference call for Best Buy's third quarter fiscal 2024 earnings and reminds participants that the call will be recorded. Mollie O'Brien, the Vice-President of Investor Relations, will be joined by CEO Corie Barry and CFO Matt Bilunas. They will discuss both GAAP and non-GAAP financial measures and address potential risks and uncertainties. Corie Barry greets the participants and thanks them for joining the call.

The company is reporting better-than-expected profitability in the third quarter, despite a slight decline in revenue. This is due to improvements in their membership program and product margins, as well as controlling expenses and adjusting labor rates. They have also seen growth in their paid membership base and customer satisfaction scores. However, they are lowering their revenue outlook for the fourth quarter due to uncertain consumer demand. Despite this, their annual EPS guidance is slightly higher than originally expected. The company's CEO expresses gratitude for their employees' hard work and resilience during these challenging times.

In Q3, the company maintained its promotional plan and remained price-competitive in a deal-focused consumer environment. There has been some trade-down in the television category, but not as much in other categories. The company has largely maintained its industry share and has seen consistent demographics among its purchasing customers. The membership program has seen growth and improved profitability, contributing to the enterprise operating income rate. The company now expects the program to contribute 35 basis points to the year-over-year operating income rate expansion. The paid membership base has increased to 6.6 million from 5.8 million at the start of the year.

The company saw a 35% increase in new paid members during the third quarter, with strong retention rates for their new programs. The My Best Buy Total tier, which offers tech support and product protection, is performing well in physical stores. The My Best Buy Plus tier, which offers exclusive prices and access to new products, is resonating with digital customers. The company is continuously testing promotional offers and improving the digital experience for members. They also have a free membership tier that offers free shipping, a key advantage during the holiday season.

Best Buy has been focusing on improving its omnichannel capabilities to make it easier for customers to access their products and services. They recently introduced Best Buy Drops, which is only available through the app and offers limited edition items and deals. This has resulted in increased app downloads and sales from virtual sales associates. They have also partnered with Talk Shop Live for online shopping events featuring their virtual sales associates. Best Buy is also looking to make their physical stores more efficient in terms of cost and capital.

In the third quarter, 43% of domestic sales were picked up in stores, and the company plans to focus on refreshing existing stores rather than large-scale remodels in the coming year. This includes improving merchandising presentation, installing new premium end caps, and expanding categories like PC gaming, wellness products, and home furnishings. The company also continues to work with vendor partners to add experiences to their stores, such as LEGO and Therabody shop-in-shops.

Best Buy is continuously updating their in-store spaces to showcase their latest innovations and will continue to do so next year. They are also focusing on investing in store formats that have proven to be successful and will open a few smaller stores in new locations to test their impact. The company has closed 24 stores this year and plans to close roughly 15 to 20 stores per year in the near future. They have also enhanced their supply chain network to support these changes and provide faster shipping options for customers.

In the third quarter, the company has optimized its shipping locations and reduced the volume of ship from store orders. They have also partnered with other companies to improve their supply chain and launched a new delivery option through DoorDash. The company has made strategic changes to their store operating model to adapt to changing customer behavior and maintain flexibility with labor hours. Despite a decline in sales, they have kept labor rates steady and are focused on maintaining a high level of customer satisfaction. The company is also committed to providing a positive employee experience through training and benefits.

The company is using technology to improve customer and employee experiences in their stores, with an app called Solution Sidekick being a successful example. Employee retention rates and tenure are high, and there is a strong pool of applicants for the holiday season. The company is preparing for a deal-focused holiday shopping season and expects strong product availability. Special promotions and early access to deals will be offered to members, and a curated gift list is available to help customers find the perfect gift.

Best Buy has introduced a new resource called "Yes Best Buy Sells That" where customers can find the latest tech and gifting items, including unique products like skin treatments and electric outdoor power equipment. They have extended store hours and return policy for the holiday season, and shoppers can now connect with virtual sales experts for help. Best Buy also offers free next-day delivery, convenience store pickup, and curbside pickup options. They are excited to showcase new innovation in categories like AI-powered devices, virtual and mixed reality, and immersive audio. Their trade-in program allows customers to get value for their old technology. They also have an expanded assortment of categories like e-transportation, health and wellness, and outdoor living.

The company has seen a significant increase in outdoor cooking and health and wellness products compared to last year. However, the current macro environment is uncertain and has both positive and negative impacts on consumer spending. While the job market remains strong, there are indications of declining consumer confidence and increasing debt. As a result, the company is lowering its Q4 sales outlook but remains optimistic about potential improvements in home theater and computing categories.

In the third quarter, notebook units were flat compared to last year but are expected to increase slightly in the fourth quarter due to growth in the gaming category. The company has a proven track record of navigating through challenging environments and is confident about future opportunities. The consumer electronics industry is expected to stabilize and possibly grow in the back half of next year. The company's existing product categories are poised for growth due to a larger installed base and the need to replace aging technology. Several macro trends, such as cloud, augmented reality, and generative AI, are expected to drive opportunities in the business. The company remains focused on its purpose to enrich lives through technology and is the largest CE specialty retailer with one-third of market share in the US computing and television industries. The call was then turned over to Matt to discuss third quarter results and the fiscal '24 outlook, with enterprise revenue declining 6.9% on a comparable basis.

In the third quarter, the company's non-GAAP operating income rate declined by 10 basis points compared to last year. Non-GAAP SG&A dollars decreased by $57 million, but increased as a percentage of revenue. However, the gross profit rate improved by 90 basis points. Non-GAAP diluted earnings per share also decreased by 6.5%. The company's sales were below plan, but their operating income rate exceeded expectations due to lower SG&A expenses. The Domestic segment saw a decline in revenue and comparable sales, with appliances, computing, home theater, and mobile phones being the main contributors. Gaming was the only category that saw growth.

The company's overall blended average selling price was flat compared to last year, with a slight improvement. In the International segment, revenue decreased due to a decline in comparable sales and negative impact from foreign exchange rates. Domestic gross profit rate increased due to higher membership offerings, improved product margin rates, and lower supply chain costs. The profit sharing revenue from the credit card arrangement performed better than expected in the third quarter and is expected to continue in the fourth quarter. However, it is expected to be a pressure on gross profit rate next year, but this is expected to be offset by continued financial improvement from membership offerings. SG&A declined primarily due to lower store payroll costs and reduced advertising. The inventory balance will be discussed next.

The company's inventory position and health are strong, with a 4% increase in quarter-end inventory balance compared to last year. $873 million has been returned to shareholders through dividends and share repurchases, with an expected $350 million in share repurchases for the year. The fourth quarter is expected to have a 3-7% decrease in comparable sales and a non-GAAP operating income rate of 4.7-5%. Gross profit rate is expected to improve by 30 basis points, but the rate expansion will be lower than the third quarter due to changes in membership offering.

The company expects product margin rates to be flat in the fourth quarter compared to a benefit in the third quarter, with a slight pressure on supply chain costs. SG&A is expected to be more favorable in the fourth quarter due to the impact of an extra week in the year. The company expects revenue to be in the range of $43.1 billion to $43.7 billion, with a decline in comparable sales. The non-GAAP operating income rate is expected to be 4% to 4.1%, with non-GAAP diluted earnings per share of $6 to $6.30. The gross profit rate is expected to improve by 60 basis points, driven by membership offerings.

The company expects a 35 basis point improvement in membership offerings and an increase in SG&A as a percentage of sales due to higher incentive compensation. The fourth quarter is expected to have negative comps for the third year in a row, possibly due to a combination of factors such as pull forward during the pandemic, sustained inflation, and increased spending on services like concerts and trips.

The speaker discusses the current trend of people taking more vacations and the resulting shift in spending. They also mention the increase in purchases of consumer electronics throughout the year, not just during the holiday season. The speaker notes that the consumer spending is uneven and the company's sales in Q4 are expected to be lower than last year, but there is still optimism for holiday sales. They also mention that the company's share position is strong.

Chris Horvers asks about the credit card headwind and what Costco is assuming for next year. Matt Bilunas responds by stating that they are not guiding for next year yet, but they believe the pressure from the credit card will be offset by benefits from the membership program and expanding services category. They are trying to understand factors such as net credit losses and the higher receivable balance in order to determine the impact on gross margin for next year.

The speaker discusses factors that will affect the company's performance next year, such as credit card pressure and STI expenses. They also mention the importance of industry trends and the impact of fixed costs on the company's performance. The speaker also mentions various metrics they are monitoring, including NPS scores and operational metrics, to improve customer experience.

The company has seen improvement in both purchasers and non-purchasers, with the team successfully measuring and improving their close rate. They have a variety of metrics in place to assess their performance and the team has shown flexibility in their roles and locations. They are constantly monitoring customer experiences and operational metrics to ensure they are delivering and making adjustments as needed.

Peter Keith of Piper Sandler asks Corie Barry and Matt Bilunas about the recent changes to Best Buy's membership program and the drivers behind the improved rates. Matt explains that the main drivers are the point change to the three My Best Buy program, growth in paid members, changes to the Total Tech program, and higher-than-expected paid installation volumes. Peter also asks about product innovation and if there are any green shoots in stores that could drive sales. Corie responds that she sees many green shoots and is optimistic about new products.

The lack of innovation in the consumer electronics industry has caused a pullback in sales, but there are signs of a turn towards innovation. Large screen TVs and new gaming consoles are driving demand, and there are also smaller, interesting gadgets like the Meta Ray-Ban sunglasses and automated pet products. These smaller devices may lead to bigger sales in the future.

The company mentions their focus on generative AI and products, including chips designed to run large language processing models. They hint at potential upcoming products, but can't reveal details. They also mention that vendors are incentivized to stimulate demand. The company's promotional activity is up compared to last year, but has not affected product margin rates due to funding from vendors. The holiday season is expected to be sales-driven, similar to pre-pandemic years.

The company expects a similar promotional cadence to last year, with holiday season being promotional as usual. The current promotional environment is in line with expectations, and the company is well positioned to maintain profitability. The company has been consistent in saying that inflation in essential areas has been eating into consumer savings, and if these areas experience deflation, it could potentially free up more money for higher ticket purchases. The company is closely monitoring this situation.

The speaker discusses the current state of average selling prices, noting that they have improved slightly but are still elevated compared to pre-pandemic levels. They also mention the potential for people to start moving back into buying goods, depending on the level of spending on services and vacations. The questioner asks about the drivers of the improvement in ASPs and the outlook for units versus ASPs in the fourth quarter. The speaker attributes the improvement in ASPs to lapping some of the previous deflation and mentions trade-downs in TV as a factor. They also mention that they expect to see improvements in units for categories such as TVs and notebooks in the fourth quarter.

Corie Barry, CEO of a company, was asked about their plans for next year and how they will navigate the recovery of the market. She mentioned that the industry has been in a promotional stance for the past year and they have sustained their share position. She expects the promotional environment to continue into the first part of next year but is looking towards the back half for potential growth due to upcoming innovation cycles and newness in the industry.

Corie Barry, CEO of a company, is answering questions from a conference call. One question is about the company's success in the market compared to competitors. Barry believes that their success is not solely due to price, but also their customer service and assortment. The company focuses on being price competitive, but also differentiates themselves by being agnostic to the customer's operating system, providing human-enabled services, and offering a variety of solutions from inspiration to support.

The speaker discusses four main strategies for the company's success, including focusing on unique membership offers and maintaining strong partnerships with vendors. They also mention the potential for Best Buy Health to become more accretive in the future.

The speaker discusses the company's recent partnerships and growth in the care-at-home sector. They also mention a small impact on expenses due to vendor funding, and clarify that this does not change the overall financial statements. The company expects this funding to continue in the future.

The speaker is discussing their expectations for product margins in the upcoming year, stating that they do not anticipate any significant changes. They also mention their strong relationship with vendors and how they support each other in stimulating sales and showcasing new products. The speaker emphasizes that their level of invested support has grown even compared to pre-pandemic levels. They also mention their growth initiatives, specifically device life cycle management, and state that they still plan to invest in these initiatives despite current challenges.

The speaker discusses the potential of Geek Squad as a service, particularly in terms of device life cycle management. They mention leveraging existing resources, such as Geek Squad City, to deliver on this initiative. They also mention potential for further growth and updates in the future. The call concludes with well wishes for the upcoming holiday season and a reminder of the next call in February.

This summary was generated with AI and may contain some inaccuracies.