Corie Barry
Chief Executive Officer at Best Buy
Good morning, everyone, and thank you for joining us. Today, we are reporting better-than-expected results for the second quarter. Our comparable sales performance sequentially improved to a decline of 2.3% compared to our guidance of down 3% and last quarter's decline of 6.1%. At the same time, we delivered a non GAAP operating income rate of 4.1%, which was higher than our guide of 3.5%, due to lower-than-expected SG&A expense.
On a year-over-year basis, our non GAAP OI rate expanded 30 basis points, largely due to gross profit rate expansion in our membership and services offers. From a category perspective, we drove comparable sales growth in tablets, computing and services. This growth was more than offset by declines in appliances, home theater and gaming.
We delivered strong results in our domestic tablet and computing categories, which together posted comparable sales growth of 6% versus last year. With our market position, expert sales associates and compelling merchandising, we capitalized on demand, driven by our customers' desire to replace or upgrade their products, combined with new innovation. Overall, customers remained deal focused and attracted to more predictable sales moments.
With 4th of July, Black Friday in July, and the beginning of back-to-school sales events, July comps were the best of the quarter. In this environment, many categories, including major appliances and TVs, continued to be very promotional in pursuit of stimulating interest and sales. We were targeted and thoughtful regarding where and when we made our promotional investments strategically balancing profitability and sales.
Our omnichannel operations provided strong support for our Q2 online sales, which remain consistent at 32% of domestic revenue. Almost 60% of our packages are delivered or available for pickup within one day, and more than 40% of our digital sales are picked up in stores by our customers with more than 90% of these orders available within just 30 minutes.
Our paid membership program continued to drive positive contributions to our results as we grew the base of members and the impacts from the changes we made to the program last year once again delivered better-than-expected profitability. As always, I am grateful for the hard work, dedication and drive our team members across the company showed to deliver these Q2 results.
As we look to the back half of the year, we expect our industry to continue to show increasing stabilization. Last quarter, we said we were likely trending toward the midpoint of our original comparable sales guidance of flat to down 3%. Today, we are updating our annual sales guidance to a decline in the range of 1.5% to 3%. At the same time, we are raising our earnings per share guidance range as we largely flow through the better-than-expected results of the first half of the year.
From a major category standpoint, we continue to expect sales in our computing category and services to show growth for the year. While most other categories are expected to be down for the year, we expect ongoing improvement in their trends at the high end of our annual comp sales guidance.
For the third quarter, specifically, we expect comparable sales to be down approximately 1% versus last year. Based on our month-to-date performance, we estimate August comparable sales will be approximately flat to last year. We are encouraged by these results and continue to be very thoughtful about the time periods between sales events as well as possible election-related impact to demand in October.
Our strategic plan and priorities for the year have been built to sharpen our customer experiences and industry positioning, while also maintaining our profitability in the still uneven environment. At the beginning of the year, we laid out our fiscal '25 priority. They are one, invigorate and progress targeted customer experiences. Two, drive operational effectiveness and efficiency. Three, continue our disciplined approach to capital allocation. And four, explore, pilot and drive incremental revenue streams.
I would like to provide some highlights of our progress. We have initiatives targeting customer experiences across our digital and store channels. We are encouraged by the material, sequential and year-over-year improvement in our relationship NPS, which tracks consumers likelihood to recommend Best Buy.
In our app, our increasingly personalized, relevant and motivational content is driving increased engagement with our customers. Testing has shown that customers receiving our personalized homepage are engaging in content, product, and tools in our app, almost 70% more than customers who didn't receive it. During the quarter, we completed the rollout of this personalization to all our app users.
We also scaled other new app experiences, including a digital wallet that provides easy access to payment methods, coupons, and offers and deal alerts that allow customers to be notified when their favorite products go on sale. Outside of the app, we continue to focus on making the mobile shopping experience even better with faster browsing, more sophisticated search and enriched content.
During the quarter, we launched a market-leading new experience for our in-home delivery and installation customers. On the day of their appointment, customers can now digitally track the live to the minute ETA of their in-home delivery and installation. Already, 60% of customers are engaging with the tracking and the feedback has been overwhelmingly positive. Not only is this a great experience for customers, but it should also lower costs by reducing calls to our customer service team.
We are able to offer this new customer experience because of the work we did last year to more efficiently and effectively route all of our in-home delivery and installation trucks using AI technology. In our stores, we are refreshing the fleet to update merchandising presentations across multiple categories. We began in Q2 and will finish in Q3 ahead of the holiday season. Not every store will be touched in the same way, of course. But our plans include optimizing and refreshing mobile phones, headphones, smart home and digital imaging and creating new experiences in tablets and gaming and computing monitors.
In the areas completed in Q2, we already can see related sales improvements, particularly in monitors and digital imaging. At the same time, we are updating or creating new branded in-store experiences with our vendor partners, including GoPro, Tesla, Lovesac, Greenworks and Starlink. We are adding a new merchandising solution in hundreds of stores. This is a modular experience that will transition more frequently to provide vendors the opportunity to create a branded stage for new technology solutions and innovation. And of course, we continue to update departments as new products come out.
For example, computing looks different than it did six months ago, as we refreshed the department around CoPilot Plus. To support the expected growth in customer demand, during the quarter, we added fully dedicated expert labor to our computing department in hundreds of stores. Toward the end of the quarter, we began the process to do the same in our home theater and major appliance departments.
We have continued the focus on certifications and training for all store employees. Our certifications are earned by department. So if an associate is certified in home theater, for example, it validates his or her ability to effectively utilize the knowledge and skills necessary to deliver an outstanding customer experience. Employees practice with their leader, each other, or specialty coaches to roleplay, receive feedback, and ultimately become certified.
We continue to see our certified employees on average drive higher revenue per transaction and stronger overall customer experience ratings compared to non-certified employees. We are ahead of plan with more than 60% of our sales associates certified in at least two categories. Our training program provides continuous learning to keep employees updated on new products and technologies. For example, we train 30,000 sales associates and Geek Squad agents on the new AI technology.
Our vendor partnerships are also an important part of the expertise we provide customers in our stores. Last quarter, we announced an expansion of our vendor partnership with Samsung to include vendor provided expert labor in appliance departments across hundreds of stores. More recently, Verizon, AT&T, TCL, LG and others have all increased their labor investments in Best Buy store locations.
Across our business, we are reinforcing our unique experiences to capitalize on demand we expect from the confluence of replacement, upgrade, and innovation in the coming years. In Q2, we believe the growth in laptop sales continued to be largely driven by customers desire to replace and upgrade their products. The performance of CoPilot Plus in the quarter was in line with our expectations, but at this early point, a small part of the total revenue.
We believe we are just at the beginning of the impact of AI on tech innovation and customer demand. For example, the June introduction of the CoPilot Plus laptops was one of the first launches with an important AI capability still to be released. In addition, Apple Intelligence has been announced with capabilities and features expected to be released over time that will be available across devices. We believe AI inspired capabilities and innovation will continue to spread across categories and devices over the next few years.
We also believe the role our customers want us to play in their lives has evolved. To bring this to life and to highlight our tech and our unique positioning, we recently kicked off our new branding as we entered back-to-school. The new branding is centered on creating customer experiences that inspire curiosity and enable discovery and includes asking our customers what if, as well as a new tagline, Imagine That. This branding reflects the role that Best Buy and our amazing associates play in our customers research and purchase journey. And our training is also focused on bringing these experiences to life. Additionally, along with our new tagline, we're giving our brand a modern look and feel with new colors and a new creative construct which will be phased in over time.
We are making good progress on the second key priority of our fiscal '25 strategy, which is to drive operational effectiveness and efficiency. As is often the case, much of what we are doing to improve the effectiveness of our customer and employee experiences also generates efficiencies. The evolution of our store model is a great example. As you may recall, we decreased the store staff and labor hours during the pandemic when we saw more of our revenue structurally shift to our digital channel.
We have been iterating ever since to support the ever-changing customer, balancing our need to react to the sales environment with our desire to provide the experience customers expect. Last year, we took actions to streamline our leadership structure, which has allowed us to shift dollars into more customer facing sales associate hours in our stores.
More recently, during the second quarter, we made changes to our dedicated in-home sales team that helped fund the investments into our home theater and appliances store labor. While in-home consultations continue to be an important competitive advantage, the volumes are not at the level envisioned a few years ago when we expanded the dedicated in-home team. Therefore, we both reduced the overall number of employees and brought the home theater and appliances experts back into the stores to better balance field labor resources and make sure we are providing the optimal experience for customers where they want to shop.
We are continuing to enhance our labor strategy as some store customers prefer a self-service sales experience while others want a more guided sales experience. We will continue to leverage the flexible workforce we established during the pandemic with associates that can work across the store, the checkout lanes and the front door, for example. These employees drive efficiencies by flexing where the customer is across categories and functions.
Based on customer feedback. We know there is an appetite for even more expert labor and that is why we are also focused on certifications and adding back zoned labor in key categories. These are just a few examples of how we are constantly driving customer experience improvements as well as effectiveness in our labor model. It is how we have kept our labor rates flat as a percent of sales through the last few years as we experienced revenue declines, and it is how we expect to hold that rate as revenue grows over time.
We also continue to lean heavily on analytics and technology to achieve efficiencies. For example, in partnership with Google, this quarter, we rolled out enhanced self-service support that leverages a Gen AI powered virtual assistant to help our customers quickly troubleshoot product issues, make changes to their order delivery and scheduling, and even manage their software Geek Squad subscriptions and membership.
We can now help 60% of our chat users solely with this technology without the need for a live customer support person. We are in the early stages of rolling this capability to our IVR phone system so customers can get their questions answered without having to wait for a live agent. We are, of course, closely observing feedback as we implement these capabilities to ensure we are maintaining a good customer experience.
As I take a step back, the technology enhancements and process improvements [Phonetic] we have made in our customer service capability in the last three years have decreased our cost per customer contact by more than 20%, while improving the customer experience. Within this work, we are very proud to have recently been named a recipient of Forrester's 2024 Technology Strategy Impact Award. This award recognizes our work to use AI to create better, more human experiences for both our customers and employees.
Our third key priority for the year is to continue our disciplined approach to capital allocation in this environment. We expect our enterprise capital expenditures for fiscal '25 will be about $50 million lower than last year at approximately $750 million. We are raising our expectation for share repurchases from $350 million to $500 million for the year.
As we previously discussed, our fourth key priority for fiscal '25 is longer term in nature. We will explore opportunities that leverage our scale and capabilities to drive incremental, profitable revenue streams overseas. This includes our collaboration with Bell Canada to operate 167 small format consumer electronics retail stores across Canada. These stores, previously known as the Source, which was a wholly-owned subsidiary of Bell Canada, are being rebranded as Best Buy Express. We opened the first store in June and as of today, we have completed more than 70 implementations. We expect to roll out the rest of the stores by the end of the year.
We are providing a curated CE assortment and Geek Squad services as well as supply chain marketing and e-commerce. Bell is the exclusive telecommunications services provider and is also responsible for the store operating costs of the partnership. This collaboration allows us to expand our presence in malls and in smaller and mid-sized communities, reaching 61 brand new markets for Best Buy Canada. We are very encouraged by the results of the two pilot stores and proud of the rapid pace with which our teams are implementing locations.
Switching to the US. We have a team branded Best Buy business that is focused on providing tech products and solutions for businesses in specific industries, including education, healthcare and hospitality. This business generates more than $1 billion per year in sales and delivered low single digit growth in the first half of the year. We have a dedicated online website for business customers leading to a 60% digital mix of revenue. In addition, we expect to increasingly leverage our unique Geek Squad capabilities to provide services like device lifecycle management to other businesses, on top of the meaningful growth we have already seen in the services part of this business.
In addition, we continue to partner with our vendors in ways that drive incremental revenue streams. We are growing our Partner Plus program, leveraging our supply chain and fulfillment capabilities, vendor partners can offer their own online customers the option to conveniently pick up their products at a local Best Buy store or we will ship the product to their customers home. In addition to our current partners like Samsung, Lenovo, Therabody and Aura, we are adding incremental partners to further drive both units and profit growth.
In another example, during the quarter we expanded our multi-year agreement with Amazon to build Insignia and Toshiba branded televisions with the Fire TV operating system. Were excited, Fire TV will be available on all Insignia TVs ranging from the 24-inch model to our largest 85-inch model, as well as new screen sizes in the future with more inventory availability across all price points. Customers can also purchase these TVs from us on Amazon.com with the option to conveniently pick up their products at a local Best Buy store.
We also have an agreement with Roku to sell their Roku branded TVs. With this agreement, advertisers can leverage our first-party audiences when buying Roku Media with improved targeting and closed loop reporting. This gives advertisers a unique opportunity to reach in market consumers with greater precision within the leading streaming platform.
Before I close and turn the call over to Matt, I want to take a moment to recognize our employees for their continued work to support the communities we serve. This summer, we welcomed more than 3,000 kids and teens at Geek Squad Academy camps across the country. These camps provide the opportunity to learn skills on everything from coding, game design, digital music and more. The response within these communities has been incredible and I continue to be inspired and amazed every summer by the work of our Geek Squad agents, employees and volunteers to inspire young minds.
We are proud to be named to the 2024 best places for high school graduates to start a career list, a first-of-a-kind ranking released by the American Opportunity Index. And I'm also proud to share that for the 10th consecutive year, Best Buy has been named a best place to work for disability inclusion, earning a top score of 100% on the 2024 Disability Equality Index.
In summary, we executed well in the first half of the year, and the sequential improvement in sales supports our belief that this will be a year of increasing stabilization. As we all observe, the broader macro narrative can change often and sometimes quickly. We see a consumer who is seeking value in sales events and one who is also willing to spend on high price point products when they need to or when there is new compelling technology. We don't believe anything in our data signals that customer behavior has changed in a way that would make us increasingly cautious. Thus, we are balancing our optimism in both the industry and our positioning with a pragmatic approach to likely uneven customer behavior going forward.
As I said earlier, this year, we are focused on continuing to sharpen our customer experiences and industry positioning, while expanding our operating margin on a 52-week basis. We intend to strengthen our position in key categories like computing, home theater and major appliances through elevated experiences that capitalize on innovation, pointed marketing spend and sharp pricing. We are the largest CE specialty retailer with the unique range of product assortment and expert services to help our customers discover how unexpected technology solutions can bring to life what matters to them. We believe we are putting ourselves in the best position for fiscal '25 and beyond. As our industry returns to growth, we expect to grow our sales and expand our operating income rate.
I will now turn the call over to Matt for more details on Q2 financial performance and our outlook.
