Ladies and gentlemen, thank you for standing by. Welcome to Best Buy’s Q2 Fiscal Year 2019 Earnings. 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, this call is being recorded for playback and will be available by approximately 11:00 a.m. Eastern Time today. [Operator Instructions] I’ll now turn the conference call over to Mollie O’Brien, Vice President of Investor Relations. Mollie O’Brien: Good morning and thank you. Joining me on the call today are Hubert Joly, our Chairman and CEO; and Corie Barry, our CFO. During the call today, we will be discussing both GAAP and Non-GAAP financial measures. 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 earning release, which is available on our website investors.bestbuy.com. Some of the statements we’ll make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial conditions, business initiatives, growth plans, investments and expected performance of the Company and are subject to risks and uncertainties that could cause that could cause actual results to differ materially from such forward-looking statements. Please refer to the Company’s current earnings release and our most recent 10-K, 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. I will now turn the call over to Hubert.

Good morning, everyone, and thank you for joining us. I will begin today with a review of our second quarter performance and provide an update on our progress as we continue to implement Best Buy 2020: Building the New Blue strategy. I will then turn the call over to Corie for additional details on our quarterly results and our outlook. We are happy to report strong top and bottom line results for the second quarter that exceeded our expectations. We grew our Enterprise comparable sales by 6.2% and we delivered non-GAAP diluted EPS of $0.91, which is up 32% compared to last year. The top-line performance was broad-based with positive comparable sales across all channels, geographies and most product categories. Our strong revenue growth was helped by the favorable environment in which we operate and driven by how customers are responding to the unique and elevated experience we’re building. We are particularly encouraged with the continued progress of our Net Promoter Scores and our continued market share gains. We also saw our second quarter non-GAAP operating income rate expand by 20 basis points to 3.8%, this fits with our guidance for flat operating income rates for the year, driven by our ability to drive cost take out that helps offset investments and pressures in the business. So, I want to thank all of our associates across the Company for their hard work in delivering these great results. So, we’re pleased with the strength of our financial performance. We’re also excited about the progress we’re making as we execute our Best Buy 2020 strategy which entails expanding what we sell and evolving how we sell. Let me provide a few highlights, starting with our acquisition of GreatCall. Earlier this month, we announced our intent to acquire GreatCall, a leading connected health…

Good morning, everyone. Before I talk about our second quarter results versus last year, I would like to talk about them versus the expectations we shared with you last quarter. On Enterprise revenue of $9.4 billion, we delivered non-GAAP earnings per share of $0.91, both of which exceeded our expectations. We saw better than expected top-line results across multiple categories, with home theater, gaming, health and wearables and mobile phones being the largest drivers. Our gross profit rate was in line with our expectations, whereas our SG&A rate was favorable due to the higher revenue combined with slightly lower than expected spend. I will now talk about our second quarter results versus last year. Enterprise revenue increased 4.9% to $9.4 billion, primarily due to the comparable sales increase of 6.2%. Enterprise non-GAAP diluted EPS increased $0.22 or 32% to $0.91. This increase was primarily driven by an $0.08 per share benefit driven by a lower non-GAAP effective income tax rate and $0.08 per share benefit from the net share count change and the flow through of higher revenue. Our comparable sales growth of 6.2% included a 150 basis-point benefit from the calendar shift. As we discussed last quarter, our reported comparable sales are computed on like-for-like fiscal week and are not shifted to more closely aligned calendar week following last year’s 53-week year. For the remainder of the year, in Q3, we expect the calendar shift to have a negative impact of approximately 70 basis points on our reported comparable sales and in Q4 we expect a positive impact of approximately 50 basis points. In our Domestic segment, revenue increased 4.4% to $8.6 billion. This increase was primarily driven by a comparable sales increase of 6%, partially offset by the loss of revenue from 292 Best Buy Mobile and 17…

[Operator Instructions] We’ll take our first question Michael Lasser from UBS.

Good morning. Thanks a lot of for taking my question.

Good morning, Michael.

What the slope of growth in services going to look like from here? Should we expect that that particular comp rate should accelerate? And as that becomes a bigger piece of the business, how is that going to affect the gross margin over time?

Yes. I’ll start and then Hubert can add. And you were cutting out a little bit, but I think what you were looking for was the slope of the growth on services and how that could potentially impact the margin profile. Obviously pleased with the growth that we saw and reported in Q2. But most of that growth transparently is still coming from our more traditional warranty business. Obviously, we’re starting to see revenue flow from the Total Tech Support offer, but that is as we’ve talked about, amortized over 12 months, so takes a little bit longer to ramp. We were excited about the trajectory of the business and believe especially as we get deeper into the growth trajectory of Total Tech Support that will help add some of that ongoing growth to the topline and the stability of the business. And so, we’re not going to guide services in particular. But at the end of the day we like, and the subscriptions are right inline where we thought we would be at this point and they’re going to start to add value, particularly as consumers still see value in the existing warranty portfolio that we offer in the business. To your point on the margins specifically, as we delve deeper into and have more of that recurring relationship with our customers, that is certainly not harmful on a margin basis over time, but what’s more important to us genuinely transparently is making sure that we’re serving the customers and we’re developing that longer term, stickier relationship with them. That’s really what we’re most focused on at this point.

Yes. I was going to comment on that -- the Best Buy 2020 strategy, as strong solutions and services orientation, but it is not always translated into service revenue. And a clear example of that is the In-Home Advisor program. As I said on the call and as you know, the first visit is free and then and it results in sale into products and some services revenue. The broader orientation is really focusing all of our activities on the customer needs and building the relationship with the customer. The biggest opportunity is in the expansion of our share of wallet of our existing and prospective customers, which is still today around 25%, 26%, as we discussed at our Investor Day. So, while we report and track services revenue, the strategy is much bigger than this particular line in revenue breakdown.

And Hubert, I have one more question for you. Given the healthy results that the vast [ph] merchant achieved in the consumer electronics category this quarter, is this the point in the cycle where there is going to be a handoff from the specialty channel to the mass channel? And if not, why is this time different?

So, again, you’re cutting a little bit in and out. I think you were asking about whether we intend to have a handoff of our business to the mass channel. The clear answer is absolutely not. We noted, like everyone else, the strong results of number of other retailers including in the category. Bear in mind that everybody’s business is different in terms of mix. So, depending on their category and the quarter, the headline number can be high. But, we note that we continue to gain market share across all of the categories that we compete in. And there is absolutely no intension to have a handoff. We are polite and sort of nice, but not to this point. We think that we are building an elevated and unique customer experience. If your customer that is excited about technology and is looking for help and support and a relationship, we are building something that’s very, very special. And we feel it’s working. So, I know in the past, there has been this idea that once technology matures, it goes to the mass channel and then we have to move on. That’s not at all what we are seeing; that’s not at all the intention. And we’re very excited about the opportunities we have to build a very unique customer experience and deep sticky customer relationships.

And we’ll take our next question from Matt Fassler with Goldman Sachs.

Thanks a lot and good morning. I’d like a little more color on the comments you made on online and the maturation of online. Obviously, there is lots of nuance I’m sure within that. Are there categories that are still growing at a rapid rate online? And is there ongoing innovation that you think could reignite elements of the categories you think about your e-commerce opportunity here?

Thank you, Matt. To be clear, we continue to very excited by online and all of the digital capabilities we’re building for our customers. When I see how we’ve evolved over the last 5 or 6 years, customer experience on the site and the app, the delivery, all of this, we look at things and I say, oh my God, our teams are really doing some great things. What we are referring to is a number of things. One is, as you will all appreciate, consumer electronics was one of the first categories that started to move online, and so the overall penetration is higher than in other categories. In fact, in our business, online is about 15% of our business. So, we’ve doubled the business, we’ve gone from $3 billion six years ago to now $6 billion. You’ll also note that we’ve been a pioneer. I mean, we’ve been doing in-store pickup for more than 10 years and we started ship from store in 2014. So, with our teams, we continue to be investing in the shopping experience, but the angle is shifting a bit and is in line with our Best Buy 2020 strategy, which is to build a broader customer relationship with our customers across all the touch points to use technology to improve the experience whether it’s in research, whether it’s in the shopping, whether it’s in services with our Geek Squad, we’re able to remotely help you with the support of your product. So, on a category-by-category basis, there is some products when there is a hot game console that tends to fly off the shelf. It’s really a well-known product and commodity. When it’s a more complex buying experience, then the customers will appreciate having conversation, seeing the experience -- experiencing the products in the stores and so and so forth. So, I think yes, it’s maturing, we’ll continue to invest but it’s a broader approach in the category. Corie, anything you’d like to add, no? Okay.

If there is an opportunity for a very brief follow-up within that context, the entertainment software business reaccelerated having declined in Q1 and outperformed the chain against the very tough compare. Any specific drivers of that category’s bounce back?

Yes. So, what we saw, there was some -- a little bit unexpected strength in gaming and a couple of facets on that. One, as we talked about before, we tend to over index on gaming consoles. And that is where we saw some particular strength across consoles. And secondarily, as we mentioned last quarter, we continue to see strength in some of the accessories and peripherals as games like and social games, in particular like Fortnite take off, there are accessories that tend to make that a more compelling gaming experience. And so, we saw a little bit better results even than we expected in that category.

And our next question comes from Scot Ciccarelli with RBC Capital Markets.

Good morning, guys. Can you please talk about your latest thoughts on the potential impact of tariffs and specifically how you view the price elasticity in the categories where you see risk?

So, there’s been a number of waves tariff increases over the last several months, starting with select appliances, and then the $36 billion with China followed by another $14 billion with China at the rate of 25%. Those results in our guidance reflect the impact of these tariffs. Not surprisingly, when there is a price increase, there is an impact. And in that context, while we -- I’m going to say, [indiscernible] the administration is doing some very important international trade goals, and these are difficult negotiations. We’ve been in dialogue with them on how to minimize the impact on consumers, and you’ve seen that in the $50 billion, the 36 plus 14, there is less consumer electronics products than originally contemplated. So, I think specifically it’s been reported that the tariffs have had some impact on appliances during the first half of the year. It’s not completely easy to measure, because a lot of the appliance purchases -- the stress situation where your fridge is broken, it’s not a discretionary decision, which is why we’re going to continue to be in close dialogue with the administration as we look ahead to minimize the disruption on the U.S. consumer and the U.S. economy.

Are there specific areas in terms of price elasticity where to the degree that there is price increases that you’re kind of forced to pass on where you don’t think you can make it up in the velocity?

Yes. Specifically, the impact is going to be tightly linked to the gross profit margin rates on the products. When gross profit rate is very low, then -- let’s say 25% -- let’s say gross profit rate is 20% on that particular product, 25% increase in the tariff is going to essentially result in a 20% price increase. There are material members. On the other hand, anytime our gross profit rate is materially higher, so let’s say 50%, then the impact, if we pass everything along is cut in half. And so, that’s a key differentiator. Of course, it’s also related to the ability of our vendors to observe the tariffs, and of course we are having negotiations, or over time, usually not in the short term but over time, to diversify the supply base. So, it’s a complex undertaking. Of course, we are very much following this and ongoing dialogue continues as we want to be sensitive, and I know the administration is as well, to the impact on the American families, workers, schools, small businesses and so forth.

And we’ll take our next question from Chris Horvers with JPMorgan.

Thanks. Good morning. Can you talk a little bit about the home theater strength that you saw in the quarter? Maybe parse out the share that you’re seeing the there, unit growth versus ASP, and whether or not the Amazon partnership sort of lifted that comp as a result of Prime Day and the launch of the product?

So, good morning, Chris. What we did see and what we like is very strong market growth, and leading to very strong consumer interest in the category. So, that is one of the most exciting things. Obviously, per what we can see in NPV, TVs were up double-digit growth in Q2. So, that is excellent. Also, similar to the industry and what we could see in the industry, units were up, while ASPs were down. We are lapping some pretty significant share gains from TVs last year. And we saw just a little bit of share decline, but honestly on the size of the industry strength, we saw very minimal and in fact less than we saw in Q1. So, we like the positioning, we’re excited that the consumer is adopting it. And we’ve always said, we’d expect that our share gains moderate over time. We also said we wouldn’t expect them to drop off a cliff and to completely off the business to Hubert’s point. And so, we like that the consumer is excited, we like the amount of volume that we’re seeing in the category and we very much like our positioning within it.

Understood. And then…

I’m sorry, the part of your question. Let me make sure I hit on, you asked specifically about Amazon. Obviously, we’re not going to comment on specific skews. But partnerships like this and the idea of interesting technology evolution continuing in categories like this, I think that’s what’s actually more important because I think this idea that we can showcase these technologies in unique way that no one else can, that’s what’s the real differentiator here. So, while I’m not going to give you exactly what those skews delivered, certainly we like the idea being able to showcase this technology that no one else really can.

Understood. And then, help us think about the fourth quarter. It looks like your implied comp for the fourth quarter, based on the rates is sort of flattish, I think at the high end. So, can you just reflect back and talk about what last year what you thought was sort of one time in shift versus what you really think the underlying business will look like in the fourth quarter ex those shifts?

Yes. So, based on the comp deltas that we’re seeing, and remember we have the 53rd week in Q4, so it gets a little tricky. The guide would imply a comp of basically flat to up 3%, somewhere in that range for Q4. And so, within that as we’re lapping what we saw last year. Remember, last year we specifically called out some incredible strength in gaming, particularly due to the switch which we knew we would be comping against this year. And last year, we were comping against some of the product availability issues from the year prior, so two years ago. Those are the pieces that we’ve factored out. And instead what we’re looking at is we head into Q4 this year is some of that continued strength in those very four categories, smart home, computing, home theater, appliances, the places that we feel very strong about our positioning with the consumer and what we bring to the table.

And we’ll take our next question from Zack Fadem Wells Fargo.

To clarify on the tariffs on appliance prices in the quarter, it looks the category was up 10% in the U.S. but could you speak to the impact of pricing here versus unit sales? And with higher prices, have you seen any signs that demand could be softening or perhaps behavior is changing in favor of trade down in the category, anything like that?

We’re of course very pleased to report, I think it’s the 31 consecutive quarter of positive comps in appliances. We believe that the low double digits comparable reporting represents another market share gain in the category. It is true that in certain sub-segments, longer in particular, this is where you’ve seen the price increase. And so, -- but it’s -- appliance -- it’s about a quarter maybe of the total category, so it’s not the end of the world. In terms of macro factors which is your question with what’s happening in the housing and so forth, appliances are driven by new housing but also renovations and moves and so forth. So, we’re watching the sector, but we’re also watching the fact that as we discussed in previous quarters there is a significant change in the competitive landscape and significant tailwind from the competitive situation. And so, we believe revenue growth is principally driven by the continued strength in the category because it’s fluctuate -- positive category. And the market share gains which themselves are driven by the competitive situation and the continued improvements we’ve made in proficiency, the specialty labor investments we’ve made, the supply chain investments we’ve made and so forth. So, we continue to be upbeat and positive around this category as we move forward. We have talked about in addition to this, during Investor Day, about the favorable demographic aspects with the millennials finally leaving their parent’s house and which leads them have to invest in all of the shiny objects we sell in our stores appliances and others as well. We continue to monitor this, but this is what we see at this point.

Thanks, Hubert. That’s helpful. And with the national Total Tech rollout, could you speak to how your initial customer adoption trends compare to your test markets? And for the pilot markets where you’ve now been there for more than a year, could you also comment on what you’re seeing on the renewal rates there, and if you’re seeing any easing of the initial gross margin pressure? Thanks.

So, the sales activities are very consistent with the pilots in the U.S., even though of course during the pilots, we had a whole range of options, we were testing, but at the highest level, it’s very consistent. In terms of the renewal rate, the pilot is not truly indicative at this point, because we did not have credit card on file as an option when we were initially piloting and we rolled this out as part of the national expansion. So, we’re going to have to wait for longer to have the read of that. And I think as I said in the prepared remarks, the impact on gross profit is very much in line with the expectations we had indicated when we launched this. And the situation is different from that we have seen in Canada.

And we’ll take our next question from Greg Melich with MoffettNathanson.

Hi, thanks. I have really one follow-up question and then one will little longer term. So, the longer term one I would say is about the cash flow. I think, Corie, you mentioned cash will be used for the acquisition. As you’re thinking about next year, now that we’re -- lots changes since the Analyst Day, how much cash do you want to run the business and how you’re thinking about the dividend versus buyback structure and leverage ratio going into next year?

Yes. So, obviously, I’m not going guide at this point an exact cash balance. But, it’s clear that we’ve been working that cash balance down here over the last couple of years, in particular with some of the more aggressive buybacks and dividends. We’re not going to guide next year at this point. We’ll do that as we head in. But you can see that and especially us using cash on hand as well as for the acquisition of GreatCall that we continue to work that down to a place that we feel is not just suitable to run the business but suitable to help us in any large kinds of unexpected risk. And we’ll continue to work that down. As it relates to our capital allocation strategy, we’ve stayed very consistent with that, not just at Investor Day but prior to that where we’ve said priority one is to invest in the business, whether that’s in a form of the capital we’re using internally or whether that’s in the form of an acquisition like GreatCall. After that, the next priority being a premium dividend payer for our shareholders, and then finally returning excess cash through share repurchases. And that remains our strategy going forward. And we’ll provide more clarity on exactly what that means for next year as we head in.

Got it. And then, the follow-up is just to understand the comp a little better, the make-up of it, there has been a lot of talk of pricing and tariffs et cetera. Could you help us understand, of that 6% comp, how much would have been ticket growth as opposed to number of transactions, just maybe a mix or a balance of it?

So, in the comps -- let me just take a big step back, broadly across our channels, what we saw was actually increases in traffic, increases in our transactions and increases in our close rate or our conversion if you think about it that way. So, when we meld all our channels together, and that’s what’s most important to us, that’s what we saw across everything. And that’s been a relatively consistent as we’ve had last few quarters here. In terms specifically of tariffs, the super minimal at this point is you’re basically talking about laundry where they’ve been impacted or a few smaller categories. So, it’s a tiny little slice; that is not going to be the driver at this point. More so, what we’re excited about is that the underlying drivers across the channel have remained pretty consistent with good traffic, good conversion and therefore very nice transaction growth.

And our next question comes from Anthony Chukumba with Loop Capital Markets.

Good morning and congrats on another very strong quarter against a very tough comparison.

Thank you.

I wanted to just quickly touch based on the GreatCall acquisition. You mentioned some of the different opportunities to scale the business and engrave the business. I guess, I was wondering about Assured Living from two perspectives. One, how did your experience with Assured Living sort of informed the GreatCall acquisition? In other words, I would have seen that maybe you’re happy with the results of the Assured Living and that’s why you started to do the GreatCall acquisition. And then, two, how are you planning to integrate, if at all GreatCall with Assured Living? Thank you.

Let me start with the second part. We will be initially running GreatCall as a separate entity because it is a different business. We will be -- and we’ve studied -- we have a number of, as you would expect, integration task forces, pursuing targeted value creation opportunities, in particular related to selling the existing products, like Jitterbug phones more aggressively, if I can put it this way, it’s been in our stores for a long way but we both GreatCall and Best Buy teams feel, there is more that we can do there. So, it’s going to be a separate business with targeted points of integration, targeted value creation opportunities. Most of GreatCall’s business today in these consumer products. They have a small but promising business that’s another good Assured Living. And across both Assured Living and GreatCall, we believe we have a -- there is an exciting opportunity in this idea of monitoring the behaviors in health of seniors in their homes with potentially very significant benefit of course for the aging seniors, their caregivers as well as the payers and providers. Today, in both cases, this is a small business. We think the potential is material, which rests in part on the ability to demonstrate the solution as a material benefit, as I indicated. And we’re going to be working together to see we go after this market. So, think in this area, small parallel tracks with a big opportunity down the road.

Got it. And so, just one, not even a related follow-up question but just more of a comment. I’m really glad to hear about Minnesota [indiscernible] but you’re not going to give away all your market share to the mass market. So, good to hear.

How is that coming from a Frenchman who’s been in Minnesota for 10 years, I’m learning still the local practices.

And our next question comes from Curtis Nagle with Bank of America.

Good morning. Thanks for taking the question. So, I just wanted to follow up a little on the growth in the home theater. So, as commented, it was a nice pickup, particularly in units. I guess, what’s driving it? Is it interest in OLED, or HDR, continued trade up or something else that’s caused the pickup?

Yes. I think you’ve got a couple of things going on. And we’ve been talking about them for a while. I think speed of adoption has increased. And so, it’s a combination of larger screen sizes, so the idea of more fits in the home and you have the very nice form factor that’s coming with new TVs. And then secondarily, those being coupled with higher technologies, 4K, HDR, particularly in those spaces incredibly available now. And I think those two combined with price points now that have come down to a range that feels like more and more people are ready for adoption here. I think you just hit a bit of the sweet spot between those things. And again, it’s part of why we said we feel uniquely well positioned, because when those become some of the important pieces, being able to see it and be able to really have a line of sight to how this will look in my home and exactly what technology I’m buying is pretty important. But I think you just have this real sweet spot now between lot more size for the money, a great technology that fits behind it, things more 4K, HDR kind of technologies and at a price point that makes sense for my budget.

Okay. That makes sense. And then, just a quick follow-up. Forgive me, if you gave this out already. But, what’s the expectation for the free cash flow for the year?

We haven’t guided free cash flow specifically. And that’s why we’re kind of just updating you each quarter they come. But where we are now right now is exactly where we had expected to be at this point in the year.

And we’ll take our last question from Peter Keith with Piper Jaffray.

Hi. Thanks. Good morning. Good quarter, guys. One, to just dig into the In-Home Advisor a little bit. You clearly ramped that up. Could you give us an update, if that’s starting to move the needle on the same store sales, now that you’re annualizing that rollout? And as a follow on, are there any categories where IHA is over-indexing to that that would might be able to see some of the outperformance working?

Yes. Peter, we -- as you said, we continue to expand our IHA program and have done that as we said we always would, in line with the demand that we’re seeing in the marketplace. Obviously, we’re not going to give out exactly about the revenue associated with IHAs. But, you can be rest assured that it was both part of how we guided and part of over-achingly where we’re seeing strength in the business. In terms of categories where we tend to see strength, as we talked about before, home theater is a very nice lead into things that you want to do in your homes. But, we’ve also seen some nice strength in what I’ll call, broadly, smart home and networking, this idea that somebody can come in and help me figure out how these things work together, as well as a better foray into some of the appliance space where I can actually have someone physically help me walk through. And one of the hardest things about appliances is to figure out how to measure them. And so, when you have someone who is there to help you with what’s to have, what’s not, what exactly am I trying to get in the space, we’ve also found that to be helpful. So, those -- as you would expect, those tend to be the leading categories. And now, we’re just starting to get our arms around and building on a great feel for yet is as you use those as kind of your foray or your first run categories than what do you see over time in some of those more secondary categories. And we’re still, like I said, learning in that space, but we like that. It’s stretching across the home into a few of the different rooms and capabilities.

Very good. As we conclude this call, I want to thank you for your continued interest in your work on Company. And of course we have immense appreciation for the Best Buy teams across the business for what they do for customers and for our shareholders every day. You all have a great day. Thank you.

And that does conclude today’s conference call. Thank you for your participation. You may now disconnect.