# BEST BUY CO INC (BBY) FY 2025 MD&A Verbatim Item 7 Management's Discussion and Analysis from BEST BUY CO INC's 10-K for fiscal year 2025. SEC filing source: https://www.sec.gov/Archives/edgar/data/764478/000076447825000007/bby-20250201x10k.htm Accession: 0000764478-25-000007 Filing date: 2025-03-19 Report date: 2025-02-01 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/BBY/ All MD&A years: /company/BBY/mda/ Previous year: /company/BBY/mda/fy2024/ (FY 2024) Next year: /company/BBY/mda/fy2026/ (FY 2026) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended February 3, 2024, for discussion of the results of operations for the year ended February 3, 2024, compared to the year ended January 28, 2023, which is incorporated by reference herein. Overview We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life. We accomplish this by leveraging our combination of tech expertise and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes. We have operations in the U.S. and Canada. We have two reportable segments: Domestic and International. The Domestic segment is comprised of our operations in all states, districts and territories of the U.S. and our Best Buy Health business, and includes the brand names Best Buy, Best Buy Ads, Best Buy Business, Best Buy Essentials, Best Buy Health, Current Health, Geek Squad, Imagine That, Insignia, Lively, My Best Buy, My Best Buy Memberships, Pacific Kitchen and Home, TechLiquidators and Yardbird; and the domain names bestbuy.com, currenthealth.com, lively.com, techliquidators.com and yardbird.com. Our International segment is comprised of all operations in Canada under the brand names Best Buy, Best Buy Express, Best Buy Mobile, Geek Squad and TechLiquidators and the domain names bestbuy.ca and techliquidators.ca. Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2025, fiscal 2024 and fiscal 2023 ended on February 1, 2025, February 3, 2024, and January 28, 2023, respectively. Fiscal 2025 and fiscal 2023 each included 52 weeks. Fiscal 2024 included 53 weeks with the 53rd week occurring in the fiscal fourth quarter. Unless otherwise noted, references to years within the MD&A section of this report relate to fiscal years, not calendar years. Our business, like that of many retailers, is seasonal. A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season. Comparable Sales Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric used by management to evaluate the performance of our existing stores, websites and call centers by measuring the change in net sales for a particular period over the comparable prior period of equivalent length. Comparable sales includes revenue from stores, websites and call centers operating for at least 14 full months. Revenue from online sales is included in comparable sales and represents sales initiated on a website or app, regardless of whether customers choose to have product delivered, or pick up product in store, curbside or at an alternative pick-up location. Revenue from acquisitions is included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition. Comparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. Revenue from stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, is excluded from comparable sales until at least 14 full months after reopening. Comparable sales excludes the impact of certain periodic warranty-related profit-share revenue, the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only) and the impact of the 53rd week (applicable in 53-week fiscal years only). Comparable sales is based on our fiscal calendar and is not adjusted to align calendar weeks. All periods presented apply this methodology consistently. Consistent with our comparable sales policy, revenue from Best Buy Express locations rebranded as a result of our previously announced collaboration with Bell Canada is excluded from our comparable sales calculation until locations have been operating for at least 14 full months. We believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores, websites and call centers versus the portion resulting from opening new stores or closing existing stores. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers’ methods. Non-GAAP Financial Measures Beginning in the fourth quarter of fiscal 2025, we renamed our non-GAAP financial measures to adjusted financial measures; for example, consolidated non-GAAP operating income has been renamed to consolidated adjusted operating income. The methodology for calculating these measures remains unchanged, and therefore any previously reported non-GAAP financial measures that are renamed to corresponding adjusted financial measures remain unchanged. ‎ 23 This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), as well as certain non-GAAP financial measures, such as consolidated adjusted operating income, consolidated adjusted operating income rate, consolidated adjusted effective tax rate and consolidated adjusted diluted earnings per share (“EPS”). We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, provide additional useful information for evaluating current period performance and assessing future performance. For these reasons, internal management reporting, including budgets, forecasts and financial targets used for short-term incentives are based on non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill and acquired intangible asset impairments, price-fixing settlements, gains and losses on sales of subsidiaries and certain investments, amortization of definite-lived intangible assets associated with acquisitions, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors. We provide reconciliations of the most comparable financial measures presented in accordance with GAAP to presented non-GAAP financial measures that enable investors to understand the adjustments made in arriving at the non-GAAP financial measures and to evaluate performance using the same metrics as management. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures may be calculated differently from similarly titled measures used by other companies, thereby limiting their usefulness for comparative purposes. In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also may use the term “constant currency,” which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates. Refer to the Non-GAAP Financial Measures section below for detailed reconciliations of items impacting consolidated adjusted operating income, consolidated adjusted effective tax rate and consolidated adjusted diluted EPS in the presented periods. Business Strategy Update Our strategy for fiscal 2026 involves three key priorities: Omni-channel enhancements Starting with our digital experiences, we intend to improve our search and discover capability to make it easier for our customers to find what they want and need. We will leverage artificial intelligence (“AI”) to launch an innovative new search experience across our websites and apps. We will also leverage AI to enhance personalization, which we believe will drive both customer engagement and sales conversion. In our physical stores, we expect to prioritize merchandising and store health and appearance updates over large-scale remodels, building on the insights we have gained from testing and changes implemented within our stores in recent years. From a store labor perspective, we will focus on enhancements and optimization, building on the significant operating model changes we have made in recent years that were designed to provide the experience our customers expect in the most efficient way possible. Investment in new growth initiatives We are targeting a mid-fiscal 2026 launch for our new Best Buy Marketplace (“Marketplace”) within our Domestic segment, which we believe will complement our existing product assortment with access to a broader range of products offered by Marketplace sellers. We believe this will unlock potential new commission and advertising revenue, without requiring our investment in inventory. We have recently elevated our focus on Best Buy Ads, our retail media network, and we see fiscal 2026 as a pivotal year. In recent years, Best Buy Ads has primarily served our merchandise vendors. In fiscal 2026, we will continue this evolution and also expect Best Buy Ads to expand into other areas of opportunity. In order to support this growth, we plan to invest in technology capabilities, our Best Buy Ads team and other new third-party partnerships. Operational efficiency Our third strategic priority for fiscal 2026 is to continue our longstanding commitment to operational efficiency by identifying cost reductions and other savings to help fund investment capacity for new and existing initiatives and offset financial pressures facing our business. ‎ 24 Tariffs We enter fiscal 2026 facing significant uncertainty regarding the scope, timing and magnitude of tariffs we may experience for the products we sell and the consequent financial impact on our business. In conjunction with our vendors, we will seek to mitigate the impact of tariffs on our business and our customers. For more information regarding the potential impacts of tariffs on our business, refer to Item 1A, Risk Factors, of this Annual Report on Form 10-K. Results of Operations Consolidated Results In fiscal 2025, we continued to manage our profitability through strong execution despite revenue declines. As we entered the year, we were operating in an uneven environment and expected there would be industry pressure. Our strategy was to focus on sharpening our customer experiences and industry positioning while optimizing our operating income rate. Selected consolidated financial data was as follows ($ in millions, except per share amounts): (1) [[GREPCENT_TABLE]] [["","2025","","2024","","2023"],["Revenue","$","41,528","","","$","43,452","","","$","46,298"],["Revenue % change","","(4.4)","%","","","(6.1)","%","","","(10.6)","%"],["Comparable sales % change","","(2.3)","%","","","(6.8)","%","","","(9.9)","%"],["Gross profit","$","9,385","","","$","9,603","","","$","9,912"],["Gross profit as a % of revenue(1)","","22.6","%","","","22.1","%","","","21.4","%"],["SG&A","$","7,651","","","$","7,876","","","$","7,970"],["SG&A as a % of revenue(1)","","18.4","%","","","18.1","%","","","17.2","%"],["Restructuring charges","$","(3)","","","$","153","","","$","147"],["Goodwill impairment","$","475","","","$","-","","","$","-"],["Operating income","$","1,262","","","$","1,574","","","$","1,795"],["Operating income as a % of revenue","","3.0","%","","","3.6","%","","","3.9","%"],["Net earnings","$","927","","","$","1,241","","","$","1,419"],["Diluted EPS","$","4.28","","","$","5.68","","","$","6.29"]] [[/GREPCENT_TABLE]] (1)Because retailers vary in how they record costs of operating their supply chain between cost of sales and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers' corresponding rates. For additional information regarding costs classified in cost of sales and SG&A, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. In fiscal 2025, we generated $41.5 billion in revenue, compared to $43.5 billion in fiscal 2024 that included approximately $735 million in revenue from the 53rd week. Our comparable sales declined 2.3% in fiscal 2025, as we continued to operate in a challenged consumer electronics industry and experienced softer consumer demand. While our comparable sales declined in fiscal 2025 in categories such as appliances, home theater and gaming, we grew comparable sales in our computing, tablet and services categories. Restructuring charges in fiscal 2025 were primarily comprised of adjustments to employee termination benefits related to previously planned organizational changes and higher-than-expected employee retention associated with an enterprise-wide initiative that commenced in the fourth quarter of fiscal 2024. Refer to Note 2, Restructuring, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information. The goodwill impairment in fiscal 2025 was related to our Best Buy Health reporting unit. The impairment primarily arose from downward revisions of our revenue growth rates and margin rates compared to projections used in prior years. Refer to Note 3, Goodwill and Intangible Assets, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information. Operating income rate decreased in fiscal 2025, primarily due to the goodwill impairment and unfavorable SG&A rate, partially offset by favorability in the gross profit rate and lower restructuring charges. Diluted EPS decreased in fiscal 2025, primarily due to lower operating income. Revenue, gross profit rate, SG&A and operating income rate changes in fiscal 2025 were primarily driven by our Domestic segment. For further discussion of our Domestic and International segments, see Segment Performance Summary, below. 25 Store Summary Stores open by segment were as follows: [[GREPCENT_TABLE]] [["","February 1, 2025","","February 3, 2024","","January 28, 2023"],["Best Buy","","891","","","","901","","","","925"],["Best Buy Outlet Centers","","25","","","","22","","","","19"],["Pacific Sales","","20","","","","20","","","","20"],["Yardbird","","21","","","","22","","","","14"],["Total Domestic stores","","957","","","","965","","","","978"],["Canada Best Buy stores","","129","","","","128","","","","127"],["Canada Best Buy Mobile stand-alone stores","","31","","","","32","","","","33"],["Total International stores","","160","","","","160","","","","160"],["Total stores","","1,117","","","","1,125","","","","1,138"]] [[/GREPCENT_TABLE]] We continuously monitor store performance as part of a market-driven, omnichannel strategy. As we approach the expiration of leases, we evaluate various options for each location, including whether a store should remain open. In fiscal 2026, we currently expect to reduce our Domestic segment Best Buy store count by approximately 5 to 10 stores. In fiscal 2024, we announced our collaboration with Bell Canada to rebrand 167 of its stores to Best Buy Express. These stores, previously part of The Source, a wholly owned subsidiary of Bell Canada, are leased by Bell Canada and therefore excluded from our store count. Under the arrangement, we provide the curated consumer electronics assortment and Geek Squad services, as well as supply chain, marketing and e-commerce support. Bell Canada is the exclusive telecommunications services provider and is also responsible for the store operations. By the end of fiscal 2025, all of the 167 stores have been rebranded. Income Tax Expense Income tax expense decreased to $372 million in fiscal 2025 compared to $381 million in fiscal 2024, primarily due to the impact of decreased pre-tax earnings, partially offset by the impact of certain expenses that are not tax deductible. Our effective tax rate increased to 28.7% in fiscal 2025 compared to 23.5% in fiscal 2024, primarily due to the impacts of certain expenses that are not tax deductible and lower pre-tax earnings, partially offset by increased tax benefits from green energy incentives. Segment Performance Summary Domestic Segment Selected financial data for the Domestic segment was as follows ($ in millions): [[GREPCENT_TABLE]] [["","2025","","2024","","2023"],["Revenue","$","38,238","","","$","40,097","","","$","42,794"],["Revenue % change","","(4.6)","%","","","(6.3)","%","","","(10.5)","%"],["Comparable sales % change(1)","","(2.5)","%","","","(7.1)","%","","","(10.3)","%"],["Gross profit","$","8,647","","","$","8,850","","","$","9,106"],["Gross profit as a % of revenue","","22.6","%","","","22.1","%","","","21.3","%"],["Adjusted SG&A(2)","$","7,000","","","$","7,175","","","$","7,246"],["Adjusted SG&A as a % of revenue(3)","","18.3","%","","","17.9","%","","","16.9","%"],["Adjusted operating income(2)","$","1,647","","","$","1,675","","","$","1,860"],["Adjusted operating income as a % of revenue(4)","","4.3","%","","","4.2","%","","","4.3","%"],["Selected Online Revenue Data"],["Total online revenue","$","12,994","","","$","13,102","","","$","14,212"],["Online revenue as a % of total segment revenue","","34.0","%","","","32.7","%","","","33.2","%"],["Comparable online sales % change(1)","","(0.8)","%","","","(7.8)","%","","","(13.5)","%"]] [[/GREPCENT_TABLE]] (1)Comparable online sales are included in the comparable sales calculation. (2)Represents Domestic segment Adjusted SG&A and Domestic segment Adjusted operating income as reported in accordance with the adoption of Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. See Note 1, Summary of Significant Accounting Policies, and Note13, Segment and Geographic Information, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information. (3)Adjusted SG&A as a % of revenue is calculated as Domestic segment Adjusted SG&A divided by Domestic segment Revenue. (4)Adjusted operating income as a % of revenue is calculated as Domestic segment Adjusted operating income divided by Domestic segment Revenue. Domestic segment revenue decreased in fiscal 2025, primarily driven by comparable sales declines in appliances and home theater and by the extra week of revenue totaling approximately $675 million in fiscal 2024. These decreases were partially offset by comparable sales growth in computing. Online revenue of $13.0 billion decreased 0.8% on a comparable basis in fiscal 2025. ‎ 26 Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows: [[GREPCENT_TABLE]] [["","Revenue Mix Summary","","Comparable Sales Summary"],["","2025","","2024","","2025","","2024"],["Computing and Mobile Phones","45","%","","42","%","","3.4","%","","(7.8)","%"],["Consumer Electronics","29","%","","30","%","","(5.2)","%","","(8.6)","%"],["Appliances","12","%","","14","%","","(14.8)","%","","(15.1)","%"],["Entertainment","7","%","","7","%","","(11.9)","%","","9.7","%"],["Services","6","%","","6","%","","8.4","%","","8.7","%"],["Other","1","%","","1","%","","15.9","%","","6.1","%"],["Total","100","%","","100","%","","(2.5)","%","","(7.1)","%"]] [[/GREPCENT_TABLE]] Notable comparable sales changes by revenue category were as follows: • Computing and Mobile Phones: The 3.4% comparable sales growth was driven primarily by computing and tablets. • Consumer Electronics: The 5.2% comparable sales decline was driven primarily by home theater. • Appliances: The 14.8% comparable sales decline was driven primarily by large appliances. • Entertainment: The 11.9% comparable sales decline was driven primarily by gaming. • Services: The 8.4% comparable sales growth was driven primarily by growth in our delivery and installation services, as well as our membership programs. Domestic segment gross profit rate increased in fiscal 2025, primarily due to improved financial performance from our services category, including our membership offerings, partially offset by lower product margin rates and lower profit-sharing revenue from our private label and co-branded credit card arrangement. Domestic segment adjusted SG&A decreased in fiscal 2025, primarily due to lower employee compensation expense, which was primarily store payroll, the impact of the 53rd week in fiscal 2024 and reduced vehicle rental costs. These decreases were partially offset by higher advertising and technology expense. Domestic segment adjusted operating income rate increased in fiscal 2025, primarily due to a favorable gross profit rate, partially offset by higher advertising and technology spend on lower sales, resulting in an unfavorable SG&A rate. International Segment Selected financial data for the International segment was as follows ($ in millions): [[GREPCENT_TABLE]] [["","2025","","2024","","2023"],["Revenue","$","3,290","","","$","3,355","","","$","3,504"],["Revenue % change","","(1.9)","%","","","(4.3)","%","","","(10.9)","%"],["Comparable sales % change","","(0.5)","%","","","(3.2)","%","","","(5.4)","%"],["Gross profit","$","738","","","$","753","","","$","806"],["Gross profit as a % of revenue","","22.4","%","","","22.4","%","","","23.0","%"],["Adjusted SG&A(1)","$","630","","","$","640","","","$","638"],["Adjusted SG&A as a % of revenue(2)","","19.1","%","","","19.1","%","","","18.2","%"],["Adjusted operating income(1)","$","108","","","$","113","","","$","168"],["Adjusted operating income as a % of revenue(3)","","3.3","%","","","3.4","%","","","4.8","%"]] [[/GREPCENT_TABLE]] (1)Represents International segment Adjusted SG&A and International segment Adjusted operating income as reported in accordance with the adoption of ASU 2023-07. See Note 1, Summary of Significant Accounting Policies, and Note 13, Segment and Geographic Information, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information. (2)Adjusted SG&A as a % of revenue is calculated as International segment Adjusted SG&A divided by International segment Revenue. (3)Adjusted operating income as a % of revenue is calculated as International segment Adjusted operating income divided by International segment Revenue. International segment revenue decreased in fiscal 2025, primarily driven by the negative impact of foreign exchange rates and by the extra week of revenue totaling approximately $60 million in fiscal 2024. These decreases were partially offset by increased revenue from Best Buy Express locations. International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows: [[GREPCENT_TABLE]] [["","Revenue Mix Summary","","Comparable Sales Summary"],["","2025","","2024","","2025","","2024"],["Computing and Mobile Phones","","48","%","","","46","%","","","3.4","%","","","(0.9)","%"],["Consumer Electronics","","28","%","","","29","%","","","(3.3)","%","","","(9.3)","%"],["Appliances","","10","%","","","10","%","","","(0.9)","%","","","(4.5)","%"],["Entertainment","","8","%","","","9","%","","","(13.3)","%","","","13.2","%"],["Services","","5","%","","","5","%","","","5.3","%","","","1.0","%"],["Other","","1","%","","","1","%","","","(11.0)","%","","","(33.8)","%"],["Total","","100","%","","","100","%","","","(0.5)","%","","","(3.2)","%"]] [[/GREPCENT_TABLE]] 27 Notable comparable sales changes by revenue category were as follows: • Computing and Mobile Phones: The 3.4% comparable sales growth was driven primarily by mobile phones. • Consumer Electronics: The 3.3% comparable sales decline was driven primarily by home theater and smart home. • Appliances: The 0.9% comparable sales decline was driven primarily by large appliances. • Entertainment: The 13.3% comparable sales decline was driven primarily by gaming. • Services: The 5.3% comparable sales growth was driven primarily by growth in our warranty services and membership programs. International segment gross profit rate in fiscal 2025 remained unchanged from fiscal 2024. International segment adjusted SG&A decreased in fiscal 2025, primarily due to the favorable impact of foreign exchange rates and the impact of the 53rd week in fiscal 2024, partially offset by expenses associated with new Best Buy Express locations. International segment adjusted operating income rate in fiscal 2025 remained relatively unchanged from fiscal 2024. Non-GAAP Financial Measures Reconciliations of consolidated operating income, effective tax rate and diluted EPS (GAAP financial measures) to consolidated adjusted operating income, adjusted effective tax rate and adjusted diluted EPS (non-GAAP financial measures), respectively, were as follows ($ in millions, except per share amounts): [[GREPCENT_TABLE]] [["","2025","","2024","","2023"],["Operating income","$","1,262","","","$","1,574","","","$","1,795"],["% of revenue","","3.0","%","","","3.6","%","","","3.9","%"],["Intangible asset amortization(1)","","21","","","","61","","","","86"],["Restructuring charges(2)","","(3)","","","","153","","","","147"],["Goodwill impairment(3)","","475","","","","-","","","","-"],["Adjusted operating income","$","1,755","","","$","1,788","","","$","2,028"],["% of revenue","","4.2","%","","","4.1","%","","","4.4","%"],["Effective tax rate","","28.7","%","","","23.5","%","","","20.7","%"],["Intangible asset amortization(1)","","(0.6)","%","","","0.1","%","","","0.1","%"],["Restructuring charges(2)","","0.1","%","","","0.2","%","","","0.2","%"],["Goodwill impairment(3)","","(4.9)","%","","","-","%","","","-","%"],["Adjusted effective tax rate","","23.3","%","","","23.8","%","","","21.0","%"],["Diluted EPS","$","4.28","","","$","5.68","","","$","6.29"],["Intangible asset amortization(1)","","0.10","","","","0.28","","","","0.38"],["Restructuring charges(2)","","(0.01)","","","","0.70","","","","0.65"],["Goodwill impairment(3)","","2.19","","","","-","","","","-"],["Gain on sale of subsidiary, net(4)","","-","","","","(0.10)","","","","-"],["Loss on investments","","0.03","","","","0.05","","","","-"],["Income tax impact of non-GAAP adjustments(5)","","(0.22)","","","","(0.24)","","","","(0.24)"],["Adjusted diluted EPS","$","6.37","","","$","6.37","","","$","7.08"]] [[/GREPCENT_TABLE]] For additional information regarding the nature of charges discussed below, refer to Note 1, Summary of Significant Accounting Policies; Note 2, Restructuring; Note 3, Goodwill and Intangible Assets; and Note 10, Income Taxes, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. (1)Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology assets. (2)Represents charges related to employee termination benefits and subsequent adjustments to previously planned organizational changes and higher-than-expected employee retention associated with enterprise-wide restructuring initiatives. (3)Represents the non-cash goodwill impairment charge related to our Best Buy Health reporting unit. (4)Represents the gain on sale of a Mexico subsidiary subsequent to our exit from operations in Mexico. (5)The non-GAAP adjustments primarily relate to the U.S. As such, the income tax on a portion of the U.S. non-GAAP adjustments is calculated using the statutory tax rate of 24.5%. There is no income tax for a portion of the U.S. non-GAAP adjustments, as there is no tax benefit on the expenses in the calculation of GAAP income tax expense. Adjusted operating income rate increased in fiscal 2025, primarily due to a favorable gross profit rate in our Domestic segment, partially offset by an unfavorable SG&A rate in our Domestic segment. Adjusted effective tax rate decreased in fiscal 2025, primarily due to increased tax benefits from green energy incentives. Adjusted diluted EPS in fiscal 2025 remained unchanged from fiscal 2024, as the decrease in adjusted earnings was offset by lower diluted weighted-average common shares outstanding. 28 Liquidity and Capital Resources We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, dividends, credit facilities, short-term borrowing arrangements and working capital management. We modify our approach to managing these variables as changes in our operating environment arise. For example, capital expenditures and share repurchases are a component of our cash flow and capital management strategy, which, to a large extent, we can adjust in response to economic and other changes in our business environment. Cash and cash equivalents were as follows ($ in millions): [[GREPCENT_TABLE]] [["","February 1, 2025","","February 3, 2024"],["Cash and cash equivalents","$","1,578","","","$","1,447"]] [[/GREPCENT_TABLE]] The increase in cash and cash equivalents in fiscal 2025 was primarily due to positive cash flows from operations, primarily driven by earnings. These increases were partially offset by dividend payments, capital expenditures and share repurchases. Our cash deposits held at financial institutions may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit. We limit exposure relating to financial instruments by diversifying the financial instruments among various counterparties, which consist primarily of major financial institutions. Cash Flows Cash flows were as follows ($ in millions): [[GREPCENT_TABLE]] [["","2025","","2024","","2023"],["Total cash provided by (used in):"],["Operating activities","$","2,098","","","$","1,470","","","$","1,824"],["Investing activities","","(704)","","","","(781)","","","","(962)"],["Financing activities","","(1,309)","","","","(1,144)","","","","(1,806)"],["Effect of exchange rate changes on cash","","(10)","","","","(5)","","","","(8)"],["Increase (decrease) in cash, cash equivalents and restricted cash","$","75","","","$","(460)","","","$","(952)"]] [[/GREPCENT_TABLE]] Operating Activities Cash provided by operating activities increased in fiscal 2025, primarily driven by the timing and volume of inventory purchases and payments, partially offset by the timing of vendor funding receivables. Investing Activities Cash used in investing activities decreased in fiscal 2025, primarily driven by lower capital spending. Financing Activities Cash used in financing activities increased in fiscal 2025, primarily driven by higher share repurchases. Sources of Liquidity Funds generated by operating activities, available cash and cash equivalents, our credit facilities, other debt arrangements and trade payables are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, share repurchases, dividends and strategic initiatives, including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms. We have a $1.25 billion five-year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks that expires in April 2028. There were no borrowings outstanding under the Five-Year Facility Agreement as of February 1, 2025, or February 3, 2024. The Five-Year Facility Agreement contains a covenant that requires the company to maintain a maximum quarterly cash flow leverage ratio. The Five-Year Facility Agreement contains customary default provisions, including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants. As of February 1, 2025, we were in compliance with all covenants. If an event of default were to occur with respect to any of our other debt, it would likely constitute an event of default under the Five-Year Facility Agreement as well. 29 Our credit ratings and outlook as of March 17, 2025, remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, and are summarized below. [[GREPCENT_TABLE]] [["Rating Agency","Rating","","Outlook"],["Standard & Poor's","BBB+","","Stable"],["Moody's","A3","","Stable"]] [[/GREPCENT_TABLE]] Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Factors that can affect our credit ratings include, but are not limited to, changes in our operating performance; the economic environment, regulatory and political environment; conditions in the retail and consumer electronics industries; our competitive standing within the industries we operate; our financial position; and changes in our business strategy. If changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs. Restricted Cash Our liquidity is also affected by restricted cash balances that are primarily restricted to cover product protection plans provided under our membership offerings and self-insurance liabilities. Restricted cash, which is included in Other current assets on our Consolidated Balance Sheets, was $290 million and $346 million as of February 1, 2025, and February 3, 2024, respectively. The decrease in restricted cash was primarily due to releases of product protection reserves based on claims and purchasing behaviors of customers participating in our membership offerings. Capital Expenditures Capital expenditures were as follows ($ in millions): [[GREPCENT_TABLE]] [["","2025","","2024","","2023"],["E-commerce and information technology","$","438","","","$","496","","","$","540"],["Store-related projects(1)","","230","","","","278","","","","355"],["Supply chain","","38","","","","21","","","","35"],["Total capital expenditures","$","706","","","$","795","","","$","930"]] [[/GREPCENT_TABLE]] (1)Store-related projects are primarily comprised of store remodels and various merchandising projects. We currently expect capital expenditures in fiscal 2026 of $700 million to $750 million. Debt and Capital As of February 1, 2025, we had $500 million of principal amount of notes due October 1, 2028 (“2028 Notes”) and $650 million of principal amount of notes due October 1, 2030 (“2030 Notes”). Refer to Note 7, Debt, in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information about our outstanding debt. Share Repurchases and Dividends We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors (“Board”). The payment of cash dividends is also subject to customary legal and contractual restrictions. Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment-grade credit metrics. Our share repurchase plans are evaluated on an ongoing basis, considering factors such as our financial condition and cash flows, our economic outlook, the impact of tax laws, our liquidity needs, and the health and stability of global credit markets. The timing and amount of future repurchases may vary depending on such factors. On February 28, 2022, our Board approved a $5.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under this authorization. Share repurchase and dividend activity were as follows ($ and shares in millions, except per share amounts): [[GREPCENT_TABLE]] [["","2025","","2024","","2023"],["Total cost of shares repurchased","$","500","","","$","340","","","$","1,001"],["Average price per share","$","86.42","","","$","72.52","","","$","84.78"],["Total number of shares repurchased","","5.8","","","","4.7","","","","11.8"],["Regular quarterly cash dividends per share","$","3.76","","","$","3.68","","","$","3.52"],["Cash dividends declared and paid","$","807","","","$","801","","","$","789"]] [[/GREPCENT_TABLE]] The total cost of shares repurchased increased in fiscal 2025 from increases in the volume of repurchases and the average price per share. 30 Cash dividends declared and paid increased in fiscal 2025, primarily due to an increase in the regular quarterly cash dividend per share, partially offset by fewer shares outstanding. On March 4, 2025, we announced the Board’s approval of a 1% increase in the regular quarterly cash dividend to $0.95 per share. Off-Balance-Sheet Arrangements and Contractual Obligations We do not have outstanding off-balance-sheet arrangements. Contractual obligations as of February 1, 2025, were as follows ($ in millions): [[GREPCENT_TABLE]] [["","","","","","Payments Due by Period"],["Contractual Obligations","Total","","Less Than \u200e1 Year","","1-3 Years","","3-5 Years","","More Than \u200e5 Years"],["Purchase obligations(1)","$","2,957","","","$","2,411","","","$","343","","","$","135","","","$","68"],["Operating lease obligations(2)","","3,263","","","","723","","","","1,277","","","","741","","","","522"],["Long-term debt obligations(3)","","1,150","","","","-","","","","-","","","","500","","","","650"],["Interest payments(4)","","174","","","","42","","","","80","","","","44","","","","8"],["Finance lease obligations","","29","","","","13","","","","11","","","","2","","","","3"],["Total","$","7,573","","","$","3,189","","","$","1,711","","","$","1,422","","","$","1,251"]] [[/GREPCENT_TABLE]] For additional information regarding the nature of contractual obligations discussed below, refer to Note 5, Derivative Instruments; Note 6, Leases; Note 7, Debt; and Note 12, Contingencies and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. (1)Purchase obligations primarily include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include agreements that are cancelable without penalty. Additionally, although they do not contain legally binding purchase commitments, we include open purchase orders in the table above. Substantially all open purchase orders are fulfilled within 30 days. (2)Operating lease obligations exclude payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would increase total operating lease obligations by $0.7 billion as of February 1, 2025. Operating lease obligations also exclude $19 million of legally binding fixed costs for leases signed but not yet commenced. (3)Long-term debt obligations represent principal amounts only and exclude interest rate swap valuation adjustments. (4)Interest payments related to our 2028 Notes and 2030 Notes include the variable interest rate payments included in our interest rate swaps. Additionally, we have $1.25 billion in undrawn capacity on our Five-Year Facility Agreement as of February 1, 2025, which, if drawn upon, would be included in either short-term or long-term debt on our Consolidated Balance Sheets. Critical Accounting Estimates The preparation of our financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated financial statements are prepared. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. We have not made any material changes to our accounting policies or methodologies during the past three fiscal years. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results. These estimates require our most difficult, subjective or complex judgments and generally incorporate significant uncertainty. Vendor Allowances Description We receive funds from our merchandise vendors through a variety of programs and arrangements, primarily in the form of purchases-based or sales-based volumes and for product advertising and placement. We recognize vendor allowances based on purchases and sales as a reduction of cost of sales when the associated inventory is sold. Vendor allowances for advertising and placement are recognized as a reduction of cost of sales ratably over the corresponding performance period. Funds that are determined to be a reimbursement of specific, incremental and identifiable costs incurred to sell a vendor's products are recorded as an offset to the related expense within SG&A when incurred. Judgments and uncertainties involved in the estimate Due to the quantity and diverse nature of our vendor agreements, estimates are made to determine the amount of funding to be recognized in earnings or deferred as an offset to inventory. These estimates require a detailed analysis of complex factors, including proper classification of the type of funding received and the methodology to estimate the portion of purchases-based funding that should be recognized in cost of sales in each period, which considers factors such as inventory-turn by product category and actual sell-through of inventory. Effect if actual results differ from assumptions A 10% change in our vendor funding deferral as of February 1, 2025, would have affected net earnings by approximately $45 million in fiscal 2025. The level of vendor funding deferral has remained relatively stable over the last three fiscal years. 31 Goodwill Description Goodwill is evaluated for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. The impairment test involves a comparison of the fair value of each reporting unit with its carrying value. Fair value reflects our estimate of the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction. We have goodwill in two reporting units – Best Buy Domestic (comprising our core U.S. Best Buy business) and Best Buy Health – with carrying values of $492 million and $416 million, respectively, as of February 1, 2025. Judgments and uncertainties involved in the estimate Determining the fair value of a reporting unit requires complex analysis and judgment. We use a combination of discounted cash flow (“DCF”) analysis and market data, such as revenue multiples and quoted market prices, for observable comparable companies. DCF analysis requires detailed forecasts of cash flow drivers, such as revenue growth rates, margin rates and capital investments, and estimates of weighted-average cost of capital rates. These estimates incorporate many uncertain factors, such as the effectiveness of our strategy, changes in customer behavior, technological changes, competitor actions, regulatory changes and macroeconomic trends. Effects if actual results differ from assumptions For our Best Buy Domestic reporting unit, fair value is primarily derived from market data and exceeded carrying value by a substantial margin in fiscal 2025, fiscal 2024 and fiscal 2023. Barring a fundamental, material deterioration of macroeconomic factors, we believe the risk of future goodwill impairment within our Best Buy Domestic reporting unit is remote. In fiscal 2025, we recorded a goodwill impairment of $475 million for the Best Buy Health reporting unit. The impairment was identified during the fourth quarter as a result of our annual impairment review. This coincides with our annual review of performance against financial and strategic goals, and the annual update of our budget and long-range financial projections. Fair value for the Best Buy Health reporting unit is estimated primarily based on DCF analysis. The impairment primarily arose from downward revisions of our revenue growth rates and margin rates compared to projections used in prior years, as the market has not scaled as we originally forecasted. Our Best Buy Health reporting unit is subject to a greater level of uncertainty compared to our Best Buy Domestic reporting unit, since it operates in a more uncertain environment. Factors that drive this uncertainty include macro-economic conditions, the regulatory environment, government funding programs, competitor actions, technology changes and other trends in the health and care sectors. Changes in any of these factors could lead to further lowering our expectations, which could result in further goodwill impairment. Inventory Markdown Description We value our inventory at the lower of cost or net realizable value through the establishment of inventory markdown adjustments. Markdown adjustments reflect the excess of cost over the net recovery we expect to realize from the ultimate sale or other disposal of inventory and establish a new cost basis. No adjustment is recorded for inventory that we expect to return to our vendors for full credit. Judgments and uncertainties involved in the estimate Markdown adjustments involve uncertainty because the calculations require management to make assumptions and to apply judgment about the expected revenue and incremental costs we will generate for selling current inventory. Such estimates include the evaluation of historical recovery rates, as well as factors such as product type and condition, forecasted consumer demand, product lifecycles, promotional environment, regulatory actions, vendor return rights and the expected sales channel of ultimate disposition. We also apply judgment in the assumptions about other components of net realizable value, such as vendor allowances and selling costs. Effect if actual results differ from assumptions A 10% change in our markdown adjustment as of February 1, 2025, would have affected net earnings by approximately $11 million in fiscal 2025. The level of markdown adjustments has remained relatively stable over the last three fiscal years. Tax Contingencies Description Our income tax returns are routinely examined by domestic and foreign tax authorities. Taxing authorities audit our tax filing positions, including the timing and amount of income and deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various taxing authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provisions in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits. Judgments and uncertainties involved in the estimate Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and apply judgment to estimate the exposures associated with our various tax filing positions. Such assumptions can include complex and uncertain external factors, such as changes in tax law, interpretations of tax law and the timing of such changes, and uncertain internal factors such as taxable earnings by jurisdiction, the magnitude and timing of certain transactions and capital spending. 32 Effect if actual results differ from assumptions To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may reduce our effective income tax rate in the period of resolution. Service Revenue Description We sell membership plans that include access to benefits such as technical support, price discounts on certain products and services and product protection plans. We allocate the transaction price to all performance obligations identified in the contract based on their relative fair value. For performance obligations provided over the term of the contract, we typically recognize revenue on a usage basis, an input method of measuring progress over the related contract term. This method involves the estimation of expected usage patterns, primarily derived from historical information. Judgments and uncertainties involved in the estimate Estimates involve complex calculations and judgment, for example, in estimating the relative standalone selling price for bundled performance obligations; the appropriate recognition methodology for each performance obligation; and, for those based on usage, the expected pattern of consumption across a large portfolio of customers. When insufficient reliable and relevant history is available to estimate usage, we generally recognize revenue ratably over the life of the contract until such history has accumulated. Effect if actual results differ from assumptions A 10% change in the amount of services membership deferred revenue as of February 1, 2025, would have affected net earnings by approximately $43 million in fiscal 2025. The level of services membership deferred revenue has remained relatively stable over the last three fiscal years. New Accounting Pronouncements For a description of applicable new accounting pronouncements, including our assessment of the impact on our financial statements, see Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.