The operator introduces the Best Buy's First Quarter Fiscal 2025 Earnings Conference Call and reminds participants that the call will be recorded. Mollie O'Brien, Head of Investor Relations, introduces the CEO, Corie Barry, and CFO, Matt Bilunas. She also mentions that the company will discuss both GAAP and non-GAAP financial measures and provides a disclaimer about forward-looking statements. Corie Barry then greets the participants and announces that the company has exceeded expectations for Q1 profitability.

In the second paragraph, the author discusses the company's strong execution and profitability management, as well as their progress towards their fiscal 2025 priorities. They also mention a decline in sales compared to last year, with certain categories experiencing significant impacts. However, there were areas of growth, such as services and laptops. The company's digital sales mix remained consistent with last year and their omnichannel fulfillment experience continues to improve. Despite a challenging sales environment, the company's non-GAAP operating income rate expanded and their product margins remained stable. The company was strategic with their promotional investments, targeting specific categories and moments to attract customers.

The company's teams have performed well during the first quarter, despite lower retail turnover. Employee engagement is strong, and the company remains focused on its strategic plan and priorities. However, macro factors such as high inflation and consumer spending continue to fluctuate and put pressure on the industry. The company is not changing its full-year guidance yet, as new product launches and innovations are expected to have an impact.

The company is currently trending towards the midpoint of their original comparable sales guidance, and expects to deliver profitability towards the high end of their non-GAAP operating income rate guidance. They are taking action to improve customer experiences and anticipate growth in key categories such as computing. While they expect overall sales to be down for the year, services revenue is expected to offset some of the decline. The company expects their comparable sales performance to improve in the next three quarters, with the second quarter showing a decline of approximately 3%. They are encouraged by current sales results and anticipate growth in the computing category due to early replacement and upgrades, as well as new products with AI capabilities being released throughout the year.

Best Buy has seen improvement in laptop sales and is now offering new devices with faster speed, better battery life, and new features like summarization and live language translation. They have a comprehensive go-to-market plan and will have the largest assortment at launch, with 40% of the products being exclusive to Best Buy. They will also have inspirational merchandising and demos in stores, as well as a training program for sales associates. Additionally, the recently launched Apple iPads with M4 chips have contributed to improved sales trends.

The company is launching new products, including headphones, in time for back-to-school season. They are also planning sales events and deals to target students and parents. The company's fiscal 2025 priorities include improving customer experiences and exploring new revenue streams. They are focused on providing personalized content through their app, which has been rolled out to 50% of users and features a personalized home screen powered by AI.

The company has been seeing positive engagement from customers with their personalized homepage and plans to roll out new features to all app users this summer. They have also been working on improving speed and customer experience on their mobile app and in physical stores. They will be updating and enhancing departments and partnering with vendors for branded in-store experiences. The company plans to close some stores while opening new ones to test concepts, such as a small format store in Kansas City.

Best Buy is planning to open a new store in an outstate area and is focusing on providing expert service interactions to customers. They are investing in training and certification for their employees, particularly in the computing department. They are also adding dedicated labor expertise in computing, major appliances, and home theater departments. Best Buy is streamlining their leadership model to invest in more customer-facing sales associate hours. They are also partnering with vendors to provide expert labor and are working towards driving operational efficiency and cost reduction initiatives.

In the supply chain, the company made enhancements to reduce TV damage and developed a statistical model to identify high-return rate products. They will continue to use analytics and technology for efficiency. They have also announced a partnership with Google Cloud and Accenture to improve customer and employee experiences. Expected to launch this summer is a virtual assistant to help customers troubleshoot issues, manage orders and subscriptions. The company is also taking larger actions to focus on strategic areas and right size their model. Restructuring charges were made in the fourth quarter, with implementation of the actions happening in the first half of the year and some not until fiscal 2026.

In order to improve the customer experience and allocate resources more efficiently, the company will balance field labor resources, redirect corporate resources, and right-size parts of the business. This includes reducing the number of Geek Squad team members and focusing on existing store updates instead of major remodels. The company will also continue to be disciplined in their capital allocation, with lower capital expenditures and similar share repurchases as last year. They will also explore opportunities to drive profitable revenue streams in the long term.

Best Buy is expanding its business ventures, including its Best Buy Health business, collaboration with Bell Canada, Geek Squad services, and supply chain partner program. They are also improving their retail media network business and recently announced a collaboration with CNET. Best Buy also opened two new Teen Tech Centers and has been recognized for its sustainability efforts for the 11th year in a row.

In the first quarter, the company received an award for their commitment to reducing carbon emissions and partnered with other organizations to raise awareness about responsible recycling. They remain focused on their fiscal 2025 priorities despite uneven consumer demand. The company holds a significant market share and plans to strengthen their position through elevated experiences, marketing, and pricing. They believe they are well-positioned for future growth and expect to see an increase in sales and operating income. In the first quarter, their revenue declined by 6.1% but their non-GAAP operating income rate improved by 40 basis points. The gross profit rate also improved by 60 basis points, but SG&A expenses increased slightly as a percentage of revenue.

In the first quarter, the company saw a 4% increase in non-GAAP diluted earnings per share, despite a 4.5% decrease in comparable sales in February and a 7% decrease in March and April. The gross profit rate was higher than expected due to a more favorable gross profit rate in the services category and lower store payroll and advertising expenses. In the domestic segment, revenue decreased 6.8%, while international revenue decreased 3.3%. The domestic gross profit rate increased by 80 basis points, mainly due to improvements in the services category. However, there was a decrease in product margin rates and credit card profit-sharing revenue. Additionally, approximately $20 million of vendor funding was recognized as a reduction to cost-of-sales last year.

The company expects to recognize $20 million in funding in the second quarter and anticipates a similar recognition in the third quarter. The international gross profit rate decreased due to lower product margin rates. SG&A decreased due to lower employee compensation, reduced vehicle rental costs, and lower expenses in other areas. The company returned $252 million to shareholders in the first quarter. The company's full-year financial guidance remains unchanged, with revenue trending towards the midpoint and profitability towards the high-end of the non-GAAP operating income rate. The company expects further improvement in the gross profit rate compared to the previous year.

The company has seen changes in two key areas since the beginning of the year. The first is an improvement in profitability for their services membership offering, while the second is additional pressure on product margin rates due to pricing investments. However, the overall impact is expected to result in improved gross profit rates compared to their original guidance. Other drivers of their annual guidance, such as Best Buy Health and credit card arrangements, remain unchanged. Their annual SG&A expectations also remain unchanged, with higher incentive compensation and advertising expenses offset by one less week and flat store payroll expenses.

The company plans to reduce variable expenses and align incentive compensation with sales trends. They expect a 3% decline in second quarter comparable sales and a 30 basis point decrease in non-GAAP operating income rate. The company will now take questions from analysts. The first question is about the product roadmap and the annual revenues from new products. The second question is about appliance market share and the company's performance compared to the overall market. CEO Corie Barry mentions new iPads that were released in mid-May.

Best Buy has announced a new line of Copilot Plus products, which will be available for pre-order and delivery on June 18. There are also other new products, such as open-ear headphones from Bose and Google Chromecast notebooks, that will be available for purchase in the next month or so. These products will likely contribute to the growth rate in the computing category. Additionally, the new iPads are powerful and are being chosen by customers for their productivity. The company expects these new products to have a significant impact, especially during the back-to-school season. Appliances are also a strong category for Best Buy.

In the first quarter, Best Buy saw a decline in market share in the appliance category due to increased promotional activity within the industry. However, the company remains confident in the overall category and is strategically investing in pricing, marketing, and labor to support future growth. The company also made targeted moves during the Memorial Day drive time to improve performance. Best Buy's CEO, Corie Barry, mentioned strengthening the company's positioning in certain areas and specifically mentioned pricing in appliances.

In response to a question about pricing and promotions in the industry, CEO Corie Barry explains that the promotional environment is higher than expected due to consumers being value-oriented. The company plans to invest in specialized labor, marketing, and pricing to strengthen their positioning. The team is constantly navigating how to balance revenue and profit through strategic use of assets like installation and delivery. The word "and" is used frequently in decision-making.

The speaker discusses the efficient management of the business and the potential for operating leverage as the industry turns. They also mention making investments and driving efficiency to improve profitability. They then address a new AI-enabled laptop, stating that it has not generated a significant amount of pre-orders due to its high price point.

The company is seeing strong demand for its new computer and iPad models, which offer longer battery life and run cooler. While the products are more premium, they are generating interest and allowing the company to work with vendors to approach the market differently. The company believes this is a good time to release new products, as many consumers may be looking to replace their old devices. The company is also incorporating AI into its customer support experience.

In this paragraph, Corie Barry discusses the various ways in which Best Buy is using AI in their business. She mentions four main areas: strategic offense, personalized customer experience, customer reviews, and expense reduction. She also highlights how AI has improved the customer experience and increased engagement and revenue. Additionally, she mentions the call center as an example of how AI has helped improve both customer and employee experience.

The company has created a complete journey for customers that will greatly improve their experience, with the help of AI and generative AI tools in certain areas. This has allowed agents to focus more on the customer and has made transactions quicker and more efficient. The company is also committed to using these tools responsibly and protecting customer data. The May to date comps are better than the Q2 guide, but this does not include a full lap of Memorial Day.

The Memorial Day weekend falls between the May and June fiscal months, making it difficult to accurately measure sales. However, even with adjustments, the company is meeting or exceeding its guidance. The company is also pleased with the sales during the periods between major drive times, specifically in the tablet, major appliance, and TV categories. The company believes this positive trend is due to the new product launches and deals on older models. The company also discusses the benefits of doing more product refreshes rather than store remodels.

The speaker discusses the process of full store remodels and how it requires a lot of capital and limits the number of stores that can be updated. Instead, the company is focusing on store refreshes to touch every store in the chain. This allows for more collaboration with vendors and the opportunity to update their experiences in the stores as well. The advantage is being able to do a refresh at a larger scale and in tandem with new product launches. The next question asks about the unit trend momentum in computing and TVs from the fourth quarter to the first quarter.

The speaker is discussing the potential for ASP (average selling price) improvements in the categories of laptops and home theater products. They expect these improvements to be driven by new AI capabilities and innovation in product features. However, they note that the growth in units for TVs was not positive. The speaker also mentions the growth in services, which they attribute to factors such as renewal rates and attach rates.

Best Buy is planning to refresh their stores quickly in the second and third quarters of the year. This will mainly involve updating the computing section of the store. The team is efficient in executing these updates and they can be done overnight. The cost of the refreshes is included in their $750 million CapEx guidance.

Matt Bilunas and Corie Barry discuss the cost of store remodels at Best Buy, stating that it can range from a couple million dollars for a full remodel to a few hundred thousand dollars for a refresh. They also mention that their partners participate in some of the remodels, and highlight the various changes and updates they are making to stores, including a brand refresh, dedicated labor zones, and personalized approaches for trade-ins and membership.

The speaker discusses the growth of the Best Buy membership program and its impact on customer engagement and share of wallet. They mention the increase in new customers and retention rates, as well as the team's efforts to optimize the program's offers and outreach. The speaker also mentions the positive financial outcomes and credits the team for their success.

In the first quarter, the company's gross profit rate improved by more than expected due to lower costs and increased sales of standalone warranties. The upcoming launch of AI PCs in June may appeal to certain demographics, but the company believes that overall, innovation in computing and tablets will create broad opportunities for growth.

The older generations of products become more approachable due to the introduction of new innovations, which are typically priced higher. This creates a good, better, best assortment that appeals to different demographics. The company expects more promotional activity in the remaining part of the year, especially in the major appliances and TV categories. This may result in slightly lower product margin rates, but the company still expects to achieve a profit rate towards the higher end of their original guide.

The speaker, Corie Barry, thanks the audience for their participation and announces the upcoming virtual Annual Shareholder Meeting on June 12th. The operator then thanks everyone for attending and the call ends.

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