Ladies and gentlemen, thank you for standing by. Welcome to the Best Buy Fourth Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded for playback and will be available approximately by 11:00 a.m. Eastern Time today. I would now like to turn the conference over to Mollie O'Brien, Vice President, Investor Relations.

Good morning, and thank you. Joining me on the call today are Hubert Joly, our Chairman and CEO; and Sharon McCollam, our CAO and CFO. This morning's conference call must be considered in conjunction with the earnings press release we issued this morning. Today's release and conference call 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, which 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. 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 conditions, 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, 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 and tracked 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, appliances, services, gaming, Apple Watch, movies and music. Final housekeeping item before I turn the call over to Hubert, beginning in January fiscal 2017 we will no longer issue an interim holiday press release due to the increasing significance of the month of January for overall fourth quarter financial results. I will now turn the call over to Hubert.

Good morning, everyone, and thank you for joining us. I'll begin today with a real fourth quarter and annual performance and then provide an overview of the next phase of our Renew Blue strategy. I will then turn the call over to Sharon for additional details on our quarterly results and commentary on our financial outlook. From a financial perspective, in the fourth quarter we delivered Enterprise revenue of $13.62 billion, improved our non-GAAP operating rate by 10 basis points to 5.9% and delivered a better than expected non-GAAP EPS of $1.53 versus $1.48 last year. In our Domestic business, we exceeded our bottom line expectations due to a well executed holiday plan, a disciplined promotional strategy, better recovery on returns and clearance products and strong expense management. While Domestic revenue declined 1.5%, it was against a backdrop where the NPD-reported categories were down 5.1%. Strong performance in health & wearables, home theater and appliances was more than offset by softness in the mobile phone category and continued declines in tablets. In addition, we continued to drive significant growth in the online channel with e-commerce revenue increasing nearly 14% to 15.6% of total Domestic revenue. In the International business, our performance was better than expected on the top and bottom lines. While revenue declined 26.2% due to the expected impacts of foreign currency and store closures in Canada, revenue retention from the brand consolidation continued to exceed our expectations. This high retention in addition to a more effective promotional strategy drove a 30 basis point increase in the International non-GAAP operating income rate to 4.7%. On a full-year basis, fiscal 2016 marks the second year in a row we increased our Domestic revenue and expanded our operating margin. We also continued to make significant progress against our Renew Blue strategy.…

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 the expectations we shared with you in our holiday sales release. Enterprise revenue of $13.6 billion was in line with expectations. Our non-GAAP operating income rate of 5.9%, however, exceeded our expectations due to better-than-expected profitability in both our Domestic and International businesses driven by a more effective, disciplined promotional strategy, better recovery on returned and clearance products and an approximate $0.02 of additional EPS from the periodic profit sharing benefit from our externally-managed extended service plan portfolio. Additionally, our non-GAAP effective income tax rate was 34% resulting in an incremental $0.02 of EPS versus expectations. I will now talk about our fourth quarter results versus last year. Enterprise revenue declined 4.1% to $13.6 billion primarily due to a 1.8% comparable sales decline in the Domestic business, a negative foreign currency impact of approximately 140 basis points, and the negative impact of Canadian store closures. Enterprise non-GAAP diluted EPS increased $0.05 or 3% to $1.53. This increase was primarily driven by the service periodic profit-sharing benefit of $0.19 and a share repurchase benefit of $0.06. These benefits were partially offset by Domestic revenue declines in the mobile phone, tablet and digital imaging categories and the expected $0.03 negative impact from the Canadian brand consolidation. In our Domestic segment, revenue decreased 1.5% to $12.5 billion this decline was primarily driven by a comparable sales decline of 1.8%, excluding the estimated 10 basis point benefit associated with installment billing and the loss of revenue from 13 large-format and 17 small-format Best Buy mobile store closures. These declines were partially offset by the 10 basis point benefit associated with installment billing and the approximate 80 basis point…

Thank you We'll first go to Kate McShane with Citi.

Hi. Thanks. Good morning.

Good morning.

My questions today focus on the return of capital plan that you outlined, just two questions around that. One, can you explain to us the thinking behind the special dividend versus just increasing the regular dividend or doing more share buyback with that cash? And could you remind us how you are thinking about possible acquisitions and how that can enhance Best Buy over the long term?

Absolutely, Kate. On the special dividend, very similar to last year, we had these legal settlements that are – from prior years and they're substantial, you see them when you look at the GAAP to non-GAAP reconciliation. And last year, we returned that through the special dividend to our shareholders. In addition to that we had asset disposals, one was the sale of Europe last year and then we had some small entities that we sold this year, and as those were assets that were part of the existing core base of our business, we think giving that cash back to our existing shareholders makes sense and it's an elegant way to get cash back to our shareholders.

And Kate to your question about acquisitions, we do mention acquisitions in the press release and I mentioned them in my prepared remarks, so in answer to your question, the framework is as follows, we have a clear mission which is to do this unique job of helping customers learn about and enjoy technology. Acquisitions would be helpful inasmuch as they bring us capabilities to accelerate our transformation in this direction, that's the first criteria. And of course, the second important criteria, as you would appreciate, is that they'd be financially accretive over time. So that's the backdrop of that nothing eminent, but we thought it was appropriate to share that with you this morning.

Thank you.

Next we will go to Dan Binder with Jefferies.

Thank you. From an execution standpoint, it seems that you're doing everything you should and you don't have a lot of control over these cycles, but I did want to focus a little bit on the cycles for a minute and get your view on things like virtual reality, what's in the pipe for mobile that you think is going to turn that business around? Can we get another year out of TV and where do you think connected home starts to hit a sweet spot?

Thank you. So talking about the future in this industry is always interesting. Let me try to be as helpful as possible. As we look ahead, in particular, fiscal 2017, the areas where we see key growth opportunities for us, around appliances where we, as you know, we had multiple quarters, multiple years now of growth and that's going to continue to be driven by the housing recovery. Second is connected objects, so one of the connect – the Internet of Things, connected home and then of course there is the continued TV cycle. The specific categories you talk about, so in particular order, virtual reality, we're very excited, we have this promotion if anybody is interested in buying the Galaxy S7. You can preorder now at Best Buy and you get a free virtual-reality gear and then some additional memory, so great value. Clearly (31:45), this is an interesting category. I think it will still be small this year. It may help in the computing category with higher-end computers because you're going to need that computing power, but from a financial standpoint, it's going to be limited. Mobile, I think I'm going to stick to my prepared remarks. It's going to be a function of new products, revising the category. And I'm not going to make any forward-looking statement on that particular point. TVs, of course, we've been very excited and performing really well with 4K and large screen TVs. Our share has been increasing. Of course, like any cycle, this is not going to continue forever, so it's not going to be as strong going forward as it has been from a growth rate standpoint. Connected home, I think, is an exciting category. Increasingly, it's not just about the security cameras or the smart locks and so forth. Everything in your home is connected, at least in my home. Your smart TVs is connected, your music, your streaming, your home office is connected, gaming is connected, and of course getting into security, home automation, energy management. And the complexity of this, think about this with the control layer, the security layer, the net working layer, the access layer provides a lot of complexity. And so the continued innovation and the complexity creates a big opportunity for us. So we're seeing growth. I've made comments about the fact that we are increasing the assortments, the presentation. And we are building on our strengths in routers and networking. So we'll see continued growth in that growth space of connected objects and the Internet of Things.

And, Sharon, if I could just one follow up on Canada. I think you said operating income flat year-over-year. With the expenses related to the store closings, I thought there was supposed to be a year-over-year swing this year that would be positive. I was wondering if you could just add a little color to that flat operating profit outlook?

Absolutely. First, there's two things. One is the impact of foreign currency which has been substantial. Remember that that averages into the cost of inventory over time. And as that has been prolonged, that will affect them from a gross profit standpoint. In addition to that, the Canadian economy also has been pretty soft, and we are playing that into our outlook and making sure that we've accounted for what we think is happening there right now. But we could not be more pleased with the consolidation, the retention rate, the execution that has happened up there. Also lastly, there will also be some additional investments next year, but remember, we're saying we're offsetting our investments as a company. But there will be some investments in these new pilot stores that we are working on. And there's disruption when we're approaching that. So that will be another aspect of it. We're not going to be announcing every quarter a impact of the Canadian brand consolidation and the stores. We're going to treat it pretty much as business as usual. But there is significant investment and it is why the CapEx next year is going up just slightly because that will be higher in Canada.

Great. Thank you.

Our next question will come from Mike Baker with Deutsche Bank.

Hi. Thanks. Two questions, one just on the cost savings versus offset. So you saved about $150 million this year. Did you tell us what the investments were? And then what I'm getting at is then over the next two years, you've quantified $250 million in savings, but $200 million in offsets. So over the course of the three years, that $400 million in savings, how much of that should we expect to flow to the bottom line?

So Mike, thank you for your question. An important consideration thinking about fiscal 2017 is the fact we are lapping the periodic payment related to our service portfolio. So that's a meaningful thing. So achieving flattish operating income rate domestically is made possible by these cost savings and this renewed focus. But the general principle, is we are offsetting all of our investments with cost savings and then we are able to lap this periodic payment.

Okay. So sort of a net neutral over the three years, it sounds like? If I could ask one more question, just in terms of your stores in the U.S., it looks like you closed about 10 of the big box stores in the U.S., I think about 10 in the quarter, 13 for the year. How should we think about that going forward? I know you don't announce store closures specifically, but should we expect that to continue to come down? And as part of that question, what do the leases look like in terms of expiration? I think 2016 was a heavy year for expirations, can you confirm that?

Yes, every year here on out is a big year for expirations. We have well over 100 expirations coming into fiscal 2016. And Michael, we will continue to do what we have been doing, which is methodically rationalize the real estate portfolio. The diligence around the renewals is substantial, if we are renewing. Also you can see it in the lease disclosure every year that the term that we're committing to with these leases is shorter, and we will continue to do that to maintain flexibility in the portfolio. But rest assured that we will continue to rationalize as we deem it appropriate. The great news is that the stores that remain in our portfolio, they are performing. The key for us is improving and increasing our retention rates in the U.S. Unlike Canada where the stores were literally in the same parking lot, a mile away, 3 miles away, in the U.S. we never built our portfolio that way. So you can't immediately extract these really strong results from Canada and assume that if we did that in the U.S. it would look exactly the same.

So what are the expected transfer rates in the U.S. or the experience in the 13 or so stores you closed this year?

We haven't given that publicly and we don't know yet, obviously, because many of those stores closed October 1, so you won't know until you've cycled the full year. And we don't actually have, as you know over the last several years we closed about 49 stores, prior to Hubert and I joining the company and we've only had a small number of stores since that time that have actually closed. So from a retention point of view, we're looking at something in the low to mid-30%s and in some of these stores you would need higher retention rates than that in order to justify the store closures.

Okay. Thank you for the color.

Now we will go to Chris Horvers with JPMorgan.

Thanks. Good morning, everybody. First on a follow up on the Super Bowl shift, in retrospect now that you've lapped it, can you talk about how much the Super Bowl hurt the fourth-quarter comps and what the lateral benefit is expected to the first quarter?

Chris, we quantified the impact of the Super Bowl and obviously, the Super Bowl did move. The one thing to keep in mind, just about February, is we had substantial store closures this year as a result of the weather situation, so that put a little bit of an offset to that. But we were very – we gave you the estimate and we continue to believe that that is what it played out to be.

Okay. Understood. And follow up on the prior question about the cycles in the back half outlook, how are you thinking about TV, the TV category as the year progresses from the sales and gross profit dollar perspective? And are you expecting tablets to see any sort of a rebound in the back half as you think about the revenue recovery in the back half?

Chris, good morning. The further out you go and the more specific the questions are, the harder it is to predict. I shared in my prepared remarks our view that in aggregate for the year, we can be flattish from a top and bottom-line standpoint, in the U.S., there's going to be a lot of moving pieces. TVs, the cycle has been very strong, we've performed extremely well. We expect to continue to perform and do a great job for our customers. We don't expect the growth rates to remain the same, so this is going to slow down. Tablets, I think it's anybody's guess. I think one of the vendors has made forward-looking comments about tablets, I don't know that I have anything to add to this. So we thought it was helpful and this is the first time we're actually doing this to provide a full year perspective, so taking a bit of a risk here and it's a portfolio view right, and then things will move within that. That's probably the best I can tell you this morning.

Understood. Thanks very much.

We'll now go to Simeon Gutman with Morgan Stanley. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Thanks. Good morning. First, you're targeting flattish operating income next year, you mentioned the CapEx a little bit elevated, is the flattish operating income, notwithstanding that CapEx, is that a reasonable proxy for direction of free cash or are there other items on working capital that will go in your favor?

I believe that from a working capital point of view, as I mentioned, this accounts payable to inventory ratio this year was extremely low because of the decisions and the shift of the Super Bowl. Now, next year the Super Bowl will continue to be around the same time, but obviously we'll be lapping that so that won't change, but on the other side of our business we do expect to be increasing that accounts payable to inventory ratio by year-end. So I expect to see a little bit of benefit coming from that. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Okay. And then a follow up on the services investment, can you tell us how much of the sales pressure is now self-induced because of lower prices versus the change in units or attach rate? And can you remind us, is there any additional benefit from the profit sharing in 2016?

Yes. So several questions, the services revenue decline, there's a piece which we've called nonproductive revenue which is driven by the lower frequency and cost severity related to the claims. As it relates to the productive revenue which is the one that we care about, the trend is starting to evolve because we have the price investment and we have quantified it for you in Q4, and that's going to, of course, carry over into this fiscal year and it is partially offset by the – we're seeing the beginning of an increase in the attach rate. We never expected the attach rates to fully offset the price investment. This is an area frankly where the elasticity is much lower than on the key hardware categories, but we thought it was the right thing to do from a customer standpoint as we looked ahead. As it relates to the periodic payment from the warranty portfolio, last year was an exceptional year. And we've disclosed every quarter the amounts. It was driven by, again, the improved performance of our service portfolio, so nothing to be shy about around that. But this was an exceptional year because it was multiple – it was twice the amount. Now, looking ahead in this fiscal year, we'll get some continued improvement in that business as the improved operational performance, severity and frequency will carry over not so much in the form of periodic payment, but in the form of lower cost charged to the portfolio. Not nearly close to the amount of fiscal 2016, but some portion. Now, what's exciting for us is that we get to lap the partly exceptional payment last year and we're able to do this through the increased focus on cost and efficiency.

And Simeon, I'll just add that Hubert also, in his prepared remarks, mentioned that as we got towards the Q4, the pricing was in place, et cetera, we did start seeing some uptick in our attach rates in the services business, which was the foundation of the investment in the services pricing and the launch of AppleCare, et cetera. So on that side of it, we are pleased with how that is playing out for us from a strategic point of view. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Okay. Thanks. Good luck.

Thank you.

Our next question comes from Scot Ciccarelli with RBC Capital Markets.

Hi, guys. Scot Ciccarelli. I think, one of the things you talked about as a benefit for this past holiday season was the expectation for improved in-stock levels given the prior year's launch of ship from store. Can you help quantify what the comp impact was that you think you experienced from the improved inventory levels? And related to that, are there opportunities to further improve in stock or are you where you want to be at this stage?

Thanks for the questions, Scot. Yes, there is no question that we improved our in stock levels, and what is terrific is that our customers noticed it. This was an area where we received recognition in our Net Promoter Score from our customers. Now, in order to do that, you heard me just mention this accounts payable to inventory ratio. We did bring our inventories in earlier and customers are shopping earlier and earlier, so that in retrospect has turned out to be an excellent decision for us. In addition to that, we have had a significant focus on restocking in our stores and have made some operational changes in our stores for down stocking. That also paid dividends to us during the fourth quarter. In addition, on ship from store, we continue to believe that strategically ship from store will go down in our history at Best Buy as one of the most important and strategic decisions that we made because it is allowing us to utilize both our online and our retail inventories to serve the online customer. And it has obviously – you've seen the strength of our online growth, that business now is over $4 billion. And what ship from store is allowing us to do is be able to on a consistent basis make marketing promises to customers about speed of delivery. So to your question on, we said we were going to do this, was there a positive outcome – clearly there was a balance sheet investment as it related to that accounts payable to inventory ratio. The answer is yes, we did it, it worked and we're very pleased with it and we will continue to make additional changes where we believe it's necessary, but Hubert and I in no way believe that we have solved our in-stock issue.

Yeah, in my prepared remarks more broadly, going beyond (48:40) inventory and in stock, we believe that operationally, from sales proficiency in particular, we have the opportunity to continue to drive increased performance in our stores and, of course, in our online channel as well, we are not finished. That's really – fits with the first priority I laid out, we have multiple opportunities there, we are very clear about them.

I think that all makes sense? Is there any way to quantify what the comp impact was, Sharon?

That is really difficult to do, particularly at retail. If I could get that exact number, I would love to have it too Scot, but it's really difficult to calculate, so no, I'm not ready to put a number out there to say it drove x basis points of comp, but what I can tell you is that conversion both in the retail stores and in the online channel was a driver. We had the softness in mobile and we know that, but we would've been positive without that. And conversion was a significant contributor to those results and obviously, that is one of the hardest things to move and we feel very good about how we've driven the business.

Got you. Thanks a lot, guys.

And now we will go to Joseph Feldman with Telsey Group.

Hi, guys. Good morning. Thanks for taking my question. I wanted to ask something a little broader maybe about the consumer. And just kind of what you're seeing from the consumer, or from your market research and studies and surveys of the consumer. Are you seeing any changes, I guess, within categories of what consumers are buying? Is there any change in appetite for services? I mean, I know what the service sales rates are, but I guess I'm trying to get at, like has there been a demand change, more broadly speaking, and within economic, kind of, classification like high or low income?

Yeah, the U.S. consumer, we could spend the next 30 minutes on that. We are pleased with the mind and the spirit of the U.S. consumer, certainly compared to many other geographies outside of the U.S. Demand is there, you see it when you see the growth in appliances, continued growth in appliances, that is a very strong wave. In our category, I think we all have to bear in mind that demand is driven by supply, so when there's great, exciting innovation you get that. Because most of what we sell is not the basic Maslovian need on the part of our customer. So this is an industry where great supply creates demand, and we're excited about the technology waves that are coming above and beyond the softness that has existed in phones. From a services standpoint, I would say two things. One is, there's clear demand for help on the part of the customer. Now, the customer, all of us don't always want to pay for service and we will provide and we're providing service today in order to generate more demand, so when we have Magnolia system designers coming to your home that's going to generate demand, but their visit is free and we're happy to come to your home, everybody on the call, we'll come to you. Tech support, however, above and beyond the self-help is something that customers are happy to pay for and we are seeing increased demand in this area. So the summary is that we believe we have an opportunity-rich environment and that the key trends are made for Best Buy, based on these technology waves and the need that customers have for help.

And Joe, I'll just add that from a metric point of view, what can you see, the average order value at Best Buy, again when you look at what contributed to the outcome of Q4, we saw that again increased. So, again, the high-end consumer, I believe there is a lot of noise around the high-end consumer which we of course cater to here at Best Buy and the data that's what the metrics would tell you about that consumer, obviously conversion was up and average order value, both retail and online.

That's great. Thanks guys, and I'll let somebody else go next. Thanks.

Thank you.

Our next question comes from Anthony Chukumba with BB&T Capital Markets. Anthony Chinonye Chukumba - BB&T Capital Markets: Good morning. Thanks for taking my question. I wanted to just circle back on the shop-in-shops, obviously you've had some of those for quite some time now and so I wanted to get an update just in terms of how they're performing versus the rest of the house? And then just any indication if you think that there might be additional shop-in-shops to come? Thank you

Good morning Anthony. The shop-in-shop with the – so there's two types of shop-in-shop, there's the vendors, the vendor's shop-in-shop and then there's the Magnolia Design Centers and Pacific. In general, these enhanced customer experiences have been a key element of our transformation because it has allowed us to renovate our stores, increase the customer experience, provide more expertise to our customers. And we're very excited about this. Increasingly, it's difficult to measure because as many of you visit our stores, the shop-in-shop are in many, many of our stores, so it's really hard to measure scientifically with great precision, however, when you see increased market share there is no doubt and as an example, increased market share in 4K, in high-end TVs or in appliances, there's no doubt that this has been a key driver of our performance. Looking ahead, there's no doubt that in terms of physical shop-in-shop, there's less to be done, right because we have high penetration of these shop-in-shops. So I think that looking ahead, we have the opportunity to partner, in some cases, more deeply with the vendors, in particular, in how we deliver this promise of making it easy to learn about and enjoy the technologies. So around help and service and classes, I think there is a deeper integration opportunities with the vendors and we're excited about that as well. Anthony Chinonye Chukumba - BB&T Capital Markets: That's helpful. Thank you.

Thank you.

And our final question will come from Seth Sigman with Credit Suisse. Seth I. Sigman - Credit Suisse Securities (USA) LLC (Broker): Thanks, guys. Good morning. I was wondering if you could help us understand the complexion of that remaining $250 million of Renew Blue savings that you are attacking? And I realize it's early, but any examples of the incremental opportunities that you alluded to earlier and the timing of that?

From a identification standpoint, we have a robust list of actions that we are going against. And we believe that we will be revealing those over time to you. We've put the $400 million out there and obviously, you know that we don't communicate anything that we don't have the exact execution plan behind it to you guys. So as we start developing those plans and they become more crystallized, we will definitely be communicating that. What we wanted to make sure that you guys took away from today's call is that that $400 million is the bottom of what we believe is possible and that with these additional opportunities, that we've been identifying in the back half of this year, that we continue to believe that there is substantially more opportunity there. So we'll keep you posted as we go, let's get the $400 million delivered as well and then we can talk about more, but there's no doubt that based on some of the looking we're doing – and you guys, these are very structural and they're going to come through the product flow and how it comes through Best Buy, it's going to come through our return process, especially on large cube inventory there is so much opportunity there. There's recovery on inventory that is returned, it's how we handle the movement across the United States of some of our larger cube inventory. This comes in many forms. The great news is it comes in many forms. And there is no lap of opportunity and I'm going to take one more minute just to lay a backdrop for why is there this much opportunity at Best Buy. The reason we have these opportunities is because if you think about the growth years for Best Buy, they were…

So maybe it's the time, a few words of closing remarks. First of all, of course we were pleased this morning to share some of our good news about earnings and our plans to return capital to shareholders. Hopefully, you feel that we're quite excited about opportunities going forward, and proud of our execution capabilities. So I certainly want to again thank our associates who are behind this execution capability, and thank you for your continued support. So all of us here wish you a terrific day. Thank you.

That does conclude today's conference. We thank everyone for their participation.