Ladies and gentleman thank you for standing by. Welcome to Best Buy's Fourth Quarter Fiscal 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the call is being recorded for playback and will be available by 11 a.m. Eastern Time today. [Operator Instructions] I would now like to turn the conference call over to Mollie O'Brien, Vice President of Investor Relations.

Good morning and thank you. Joining me on the call today are Hubert Joly, our President and CEO, and Sharon McCollam, our CAO and CFO. As usual, the media will be participating in this call in a listen-only mode. This morning's conference call must be considered in conjunction with the two press releases that we issued earlier this morning including our Q4 earnings release and the second release announcing our plan to return capital to our shareholders. The Q4 earnings release and today's conference both contain non-GAAP financial measures that exclude the impact of certain business events. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons, but should not be considered superior to, as a substitute for, and should be read in conjunction with, the GAAP financial measures for the period. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release. As previously announced on December 04, 2014 the company entered into a definitive agreement to sell its Five Star business in China. As a result of this agreement Five Star was classified as held-for-sale as of end of fiscal '15 and its results were included in discontinued operations for the current to prior year period. On February 13th Best Buy completed the sale of Five Star; we have recast certain financial information for fiscal 2014 and 2015 to reflect the results from the Five Star business as discontinued operations. This recast financial information is available in the exhibit 99.2 in the company's Q4 earnings release 8-K filed this morning and on our IR website investors.bestbuy.com. Today's earnings release and conference call also include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial condition, results of operations, business initiatives, growth plans, operational investments and prospects of the Company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the Company's current earnings release and SEC filings for more information on these risks and uncertainties. The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. In today's earnings release and conference call, we refer to consumer electronics industry trends. The consumer electronics industry, as defined by the NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging, and other categories. Sales of these products represent approximately 65% of our Domestic revenue. It does not include mobile phones, gaming, movies, music, appliances or services. I will now turn the call over to Hubert.

Good morning everyone and thank you for joining us. I'll begin today with an overview of our fourth quarter results and full year results and will then discussed the status of Renew Blue transformation and our priority for fiscal 2016. Before turning the call over to Sharon for additional details on our quarterly results and commentary and our financial outlook. So first our financial results; In the fourth quarter our teams delivered positive comparable sales, improved profitability and continued progress in our Renew Blue transformation. This resulted in a 1.3% increase in revenue to $14.2 billion and a 23% increase in non-GAAP diluted EPS to $1.48 versus $1.20 last year primarily driven by growth in our domestic segment. A compelling merchandise assortment and strong multi-channel execution drove these 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. Our value proposition of expert service and billable price resonating with customers whether they come to us in-store, online or both. We delivered to our customers a strong multi-channel experience and we were uniquely positioned to serve them to our national retail footprint, online experience, knowledgeable Blue shares and Geek Squad agents in our stores within a store. We also benefitted during the fourth quarter from our investments in inventory availability, mobile phone installment billing, and supply chain including faster store replenishment and online delivery, as well as more effective and relevant marketing. Altogether, these results reflect the successful delivery of our holiday plan. We said that we would execute a highly disciplined operating and promotional plan that would drive a better year-over-year financial outcome for our shareholders…

Thank you, Hubert, and good morning everyone. Before I talk about our fourth quarter results versus last year, I would like to talk about them versus our expectations we shared with you in our holiday sales release. From a top line perspective enterprise comparable sales growth of 1.3% excluding the 70 basis points impact of installment billing was slightly above our near 1% expectations. Our non-GAAP operating income rate expansion of 130 basis points was also above our 75 to 90 basis points expectations due to higher than expected vendor participation in our holiday promotional activity, combined these better than expected outcome equated to an incremental $0.10 of EPS. We also saw a positive $0.03 per diluted share of a non-recurring tax benefit which partially offset the previously communicated negative $0.10 impact from the reorganization of our European legal entities. I'll now talk about our fourth quarter results versus last year enterprise revenue increased 1.3% to 14.2 billion enterprise non-GAAP diluted EPS increased $0.28 to $1.48 primarily driven by a more structured and analytical approach to our promotional strategy better performance of our credit card agreement, the positive flow through our gross profit enhancement initiatives, the flow through of higher year over year revenue and the positive impact of changes in our mobile warranty plan which resulted in lower cost due to lower claim frequency. This favorable impact was partially offset however by the negative $0.07 per diluted share impact in income tax expense that I just discussed. In our domestic segment revenue increased 3.2% to 12.7 billion despite a 3.2% declining in the NPD-reported Consumer Electronics categories. Our revenue growth was driven by comparable sales growth of 2% excluding the estimated 80 basis points benefit associated with installment billing and a 68 million or 55 basis points improvement in…

Thank you. [Operator Instructions]. We'll take our first question from Greg Melich with Evercore ISI.

Sharon could you give us a little more detail on the guidance, the 30 bps to 50 bps of margin pressure in the first half, how that breaks down between gross margin and SG&A? And then also what's taking CapEx up this year, what that's been spent on?

Greg we expect the decline primarily to come from the SG&A line. We're making these investments as we've discussed last quarter and we expect those to begin in the first quarter -- we've actually already begun and those will continue obviously throughout this year. We will continue to be working on the disciplined approach that we're taking to our promotional strategies and continuing to also work on our Renew Blue cost reductions as it relates to the gross profit. But predominantly our pressures in 2016 are clearly coming from the SG&A line. As we talk about the incremental investments that we're making, baring capability, competitively we're going to be more cautious this year about talking about specifically where we're putting them but when you think about the things that you Hubert outlined in quite a bit of detail we're investing in our categories where we see big barriers to entry such as appliances and in the mobile business. We're investing in our supply chain, we're investing behind our roll out of life events and gift registry, remember those are initiatives that will have an extended tail as far as revenue goes. So we're going to invest in the marketing and the capabilities upfront and then the revenues to flow at a later date. So again you end up with early on investments. Well also as we talked about making some major investments in systems, we talked about a new warehouse management system. Of course we have our ongoing investments in online, Hubert talk about the integration of Geek Squad into our business as well as some of the initiatives we have around our services businesses which will also require from both capital and expense investments in 2016. So those would be major buckets under which we will be investing, I will add one more which I know you all have seen the benefit of, Hubert talked about the adding of the packed sales and the Magnolia design stores within our stores. These have been very successful for us; we expect to continue to do that. The other thing you saw last year and certainly you saw us do it and you saw the customer response to it through the comp that went along with it. With the investments that we've made in our stores either the vendor investment in the physical presence of our stores or what we have done there, we're finding that there are ways for us to significantly enhance the customer experience through investment in the transformation of the footprint within the four walls of our stores. And we expect to continue to invest in that this year as well because like -- we're really very much seeing the customer react and respond to what we have done there.

We'll go next to Dan Binder with Jefferies.

My questions were around the payback on these investments, this investment spending that you're doing. Maybe if you can give us a little bit of color on how you think about that payback in the back half of this year and into next?

Dan this is Sharon, I'll take that. The payback on these investments is going to be back loaded the initial payback on some of these investments will happen in the back half of the year. The difference between the investments we've been making the last two years of Renew Blue and 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. So when we looked it’s at 400 million that Hubert laid out we were very deliberate in how we talked about that because those are the areas where we are going to see improvement and cost reduction and margin enhancement. But they are going to be very gradual and incremental as they flow through. So that is how we see it and obviously we're not going be guiding it by quarter by year but basically over the next three years we expect to see these both not only driving the cost line but also driving the top line. Most of our investments right now and the once that I think are going be most substantial are actually going to be investments that are to drive top line growth. And so you're going see it both on the top line and coming through the operating income rate.

And if I could just a follow on the management change or departure today. Can you just give us a little color on what you're looking for in the next executive that will head up services, maybe a profile of what you're looking for and how you think you can counter the negative trends in that business?

This is Hubert and thank you for your comment. Of course we won't comment on the departing individual, but before I answer your asked question, let me say a couple of things about services. Number one, I'm very proud of the work that our 20,000 Geek Squad agents do every day in our stores online or when they go into clients’ homes to help install or support some of the toys that we sell to our customers. Number two, I'm very proud of the progress that we've made with our net promoter score in services in some of the new offers we introduced. Now clearly we also have a lot of work to do to continue to transformation I’ve laid out, a number of priorities around the transformation of our traditional services offering developing the Geek Squad experience, online and in a multi-channel fashion improving delivery installation and increasing the investments in marketing and selling our services and more boldly speaking supporting our growth in integrated fashion as we go to market with a customer experience that leverages our unique capabilities which of course includes the Geek Squad. So just in case anyone of you would like to apply for the job let me answer your question now around the profile we're looking for somebody -- almost a CEO for that business. This is a real business within our business, somebody who combines strong operational performance as well as a strong strategic and growth oriented approach somebody who is good with cost and customers, somebody who is good with technology and online as well as high touched experiences. And somebody who is going to help us improve what we have which is a great set of asset; but take you to the next levels. So of course we are launching -- we’ve launched an external search. In the meantime services will report directly to me, we will have great help from several of my collages, but the fact that services will report directly to me is of course an indication of the strategic importance we see for services today and in our future strategy.

We'll take our next question from Simeon Gutman with Morgan Stanley.

First on the top line I guess if my math is right that the contribution to the comp or the top line from TV is somewhere in the mid-single digits. We realize that tablets are weak but laptops are helping, but I think you also appliances that are healthy. So I'm just trying to get a little more color on bridging the gap from where that contribution is coming from TV to how we get back to flat to negative low singles. Is it more slippage in healthy categories or do you see some of the declining categories getting a little weaker?

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. The other contributors from Q3 or Q4 to Q1 is what we called out which was the 80 basis points of growth that was driven last year by the 1400 store roll out of ship-from-store 80 basis points is substantial. And so that is another pressure because remember last year in Q4 we only rolled out all of the stores starting in January. So we only had 400 store shipping in the first two months of the fourth quarter and then we had 1400 shipping in fourth quarter. So the year over year comp for Q1 is much, much more difficult than it was in Q4. Another area and we're not going into extensive detail on, it highly competitive, is also the discussion we had in the Q3 conference call around a more disciplined promotional strategy, Hubert cleverly defined it as following the rat into the rat hole so to speak around the Back Friday holiday sort of timeframe. But there are other times during the year when you see similar behaviors and so there is a very rationalized approach and we’ll continue to execute that, I am sure that you can see it flowing through in the gross profit rate. So that’s another area, but certainly less impactful than the other two that I just described.

And then one follow-up on the capital return, and congratulations for reaching -- getting back to the buyback. We could all do the math on sort of what the dollars are going to look like, $1 billion, you said 180 million from the special div, and I think the increased dividend itself is relatively minor. You will probably walk before you run on this capital return, but I mean there is still a lot of cash on the balance sheet. It looks like you're going to generate a lot of cash next year. I mean sitting from here it looks like there is still a lot of upside to that capital return plan. I mean is that fair, Sharon? And then how soon could you unlock some of that upside?

Sure, Simeon we continue to believe that having an extremely strong balance sheet is important to the transformation; we also believe that maintaining on our balance sheet flexibility in order to pursue possible growth strategy is important too. However, we do also -- as I told you guys we would, we do also believe there is a point where you're carrying too much cash, thus the reason for our return on capital plan. So, we feel that this is our first step as we go into our third year of the transformation as we talked about we have some additional investments to make this year and as we get through this year and we see how we progress of course this will be a conversation we have each year. We obviously are committed to returning excess capital to our shareholders, I think -- I hope at least that today’s announcement demonstrates that and we continue to believe that our approach is prudent at this point. So more to come, coming into next year, we got a year to deliver, let's just keep in mind we got a whole year to deliver here, but obviously today’s announcement shows our first step.

We’ll take our next question from Mike Baker with Deutsche Bank.

So a couple of questions. One, can you talk about your store footprint? Do you have any store closures expected of the big boxes? And maybe looking at some of the stores you have closed over the last couple of years, anything you can talk about in terms of transfer rates or EBIT benefit from closing a store? Thanks.

Consistently in the last few years we’ve said that we would gradually and continuously optimize our store footprint and every quarter you can see the numbers both in our mobile stores and in our big box stores, these are minor numbers at this point in time, we’ve been very clear that we would not make big announcement because our priority has been in fact -- the biggest leverage for us has been to improve the performance of our stores through investments in the customer experience, the multi-channel approach and so forth. So it's been a good approach. In terms of retention, one of the things we’re very excited about is our investments in our Athena customer database and our more personalized communications as we develop these -- continue to develop these capabilities, we’ve made progress last year, we’ve made more progress this year. This will be very important strategic weapon for us as we move forward, as we can talk to the individual customer. Closing stores when you don’t have this capability is a waste of a lot of resource. So, I think we’re seeing the continuation of what we’ve been saying and what we’ve been doing.

Okay, thanks, helpful. If I could ask one more just to Sharon or maybe both of you, I think your operating profit dollars on a non-GAAP basis enterprise-wide for the full year, I think I calculated up 29%, it's a big number. Is that what you expected heading into the year? And I guess the question is what came in better than expected? Is it really all three of the big line items of sales, gross profit and SG&A or was it one more than another that really beat your plan? Thanks.

Yes, so versus our original expectations for this year if you just go back to the beginning of the year as we’ve been giving you an outlook each quarter. The place where the year really exceeded our expectation was on the gross profit line. In the first-half of the year, we had the tremendous SG&A savings, but then in the back half we made some investments. So while the SG&A was certainly a highlight and year-over-year certainly a huge driver of our year-over-year improvement, the place where we really made more progress than we expected was in our gross profit. Two drivers of that, one is the investments that we’ve made, one came from some of the SG&A we invested of course which was in this pricing and promotional capability and some of the decisions that we made around that. The other thing in Q4 that we would attribute our success to was a highly disciplined marketing plan to back up the merchandising, clearly if the merchandise assortment was very strong in Q4 and then that was of course supported by the marketing which was extremely targeted, focused and affected. We told you guys, that the year prior that this was an area we had to work on, there was great emphasis put in that area. But in the end the other place where we saw an exceptional outcome was merchandising, inventory, there was a lot of drama in Q4, [put aside] various things. One of the core competencies at Best Buy is inventory management. And obviously our positioning from a merchandising point of view with the vendors also contributed, there were some great products and Best Buy had the great products. So it was a combination of a lot of things but when you look at the P&L and you want to put it down on a piece of paper, it was really the top line and the gross profit improvements that we've been able to drive.

We'll go to our next question from David Magee with SunTrust Robinson Humphrey.

My first question has to do with just the commentary around making services more attractive to consumers, and I think probably that plays into a better warranty attachment rate in the future for the company. Could you just give a little more color about how that -- how you sort of see that playing out?

Services has really to say two major components. One is the extended warranties which is more an insurance business or an assurance business and two, services that help customers take advantage of -- implements these toys that we sell them. We see enormous opportunities there. When you step back, the technology that's available today is more complex mixture than it's ever been and there is a growing gap between what these technologies, these products can do and the understanding of customers about the possibilities also it's increasingly connected, think about it 15 years ago and that's a long time ago. In our homes we had a personal computer, maybe connected to a printer and a fax line with dial up service and then we had a CRT TV, some audio equipment. Now everything is connected, we have multiple networks in your house and its complex and it's complex to implement, it's complex to support, its complex to take advantage of. So we see enormous opportunities to help customers in this area as part of our strategy to grow in the various categories we've talked about and we're uniquely positioned there. Because there is only so much you can -- I mean there is a lot we can do remotely and today we can troubleshoot your computer remotely using online tools. But there is a limit to this. And we have this gift which is we have 20,000 people, Geek Squad agents of the company and including those who get into people's homes and to support and set up a network and everything that goes around this, that's a very unique capability. So I think that's going to be a core theme, so there is going to be work on making sure that the extended warranty and products specific services are highly competitive and are effectively marketed and promoted and sold. And then there is building, you can say this professional services offering instead of capabilities to help our customers.

And as a quick follow up, the company's ability to sell return merchandise online after the holiday. Does that help narrow the profitability gap between online and retail? Is that meaningful?

Why it’s an ingesting shift, right, because when these return products or this could be also end-of-life products, the margin on these products is actually lower by definition. And so if you sell them online as oppose to in the stores, it has an impact on the margin of the online activities which by the way means that in many ways the online channel and the store channel both from a revenue and a profit standpoint, increasingly become blurred. And so our focused first and foremost on improving as a whole, we pay attention to each of these channels but they are increasingly blurred from a customer experience and then at P&L standpoint.

We'll take our last question from Joe Feldman with Telsey Advisory Group.

Why don't you just give a little more color around the returns and damages and that opportunity there and the impact maybe that you have in the quarter, are you seeing an uptick in that? And I know it's been a focus but feels like there are defiantly ways that you can emphasize and improve that.

Yes, if you take a look at the -- go back to the transcript and what we said. We did see benefit this year virtually in every quarter and in Q4 was our biggest quarter obviously, where we saw incremental return from that initiative at this point we said and within that 400 million over the next three years there is about 250 left out of returns, replacements and damages. So that’s kind of an indication because that was potential impact of about $350 million. We have made substantial progress in this area and we’ve made about as much progress as we can make without measure structural changes to our system and our capabilities of being able to show that product in the online channel. So that’s the structural investments that we're making this year in order to take that initiative to the next level. So you are seeing -- your recollection of things we’ve said is absolutely correct and we expect to see more going into 2016. As you know we did bring up that product on the website it's harder to find then we would like it to be. Because of the way our impact and inventory systems comes together. So we're having to make do a lot of work there in order to make it easily searchable on this site and we believe that will be the next evolution of our benefits that we'll see from that initiatives.

And if could follow up with a -- you guys mention that from this more scientific promotional approach this holiday season, just was hoping to get a little more color on that. I recall last year you guys kind of went deeper then you had wanted to on promotions. But anything like were you leveraging the system? How was the approach different from year over year?

Yes Joe would say a couple of things, pricing and promotion of course is a science where tools and science and experience are really important. And last year we invested in teams and tools and capabilities that allowed us to have better information also I think that our team probably would use more wisdom as well -- it's a combination right to illustrate the point. In some cases you may have a particular competitor that has a certain product with limited quantities and a price set up to or promotion set up to drive traffic to their outlet. In some cases it may make sense for us to match, in other case it may not make sense to match when we have much bigger quantities and they have very limited capabilities. So I would say the way we manage competitive reaction this year with the help of this additional science which is very helpful. So was very proud of our team there and its combined with a very strong assortment and marketing also give us more confidence to execute. Retail is really about execution and giving the ability of our teams to execute in an orderly fashion where I think a very important point of our holiday. So I hope these comments are helpful.

That was very helpful. Thank you guys and good luck with this quarter.

Thank you so much and in closing, earlier on the call I thanked our teams at Best Buy for delivering these great results and in closing I'd like to of course thank our shareholders for your support and the confidence you are placing in us. I hope that this morning we did good job of conveying our excitement about our Q4 results and about our opportunities and we look forward to continuing the dialogue and again thank you so very much for your confidence and your support. Have a great day. Thank you.