BEST BUY CO., INC.

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BEST BUY CO INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

12/03/2021 | 04:04pm EDT
Unless the context otherwise requires, the use of the terms "Best Buy," "we,"
"us" and "our" refers to Best Buy Co., Inc. and its consolidated subsidiaries.
Any references to our website addresses do not constitute incorporation by
reference of the information contained on the websites.

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide a reader of our financial statements
with a narrative from the perspective of our management on our financial
condition, results of operations, liquidity and certain other factors that may
affect our future results. Unless otherwise noted, transactions and other
factors significantly impacting our financial condition, results of operations
and liquidity are discussed in order of magnitude. Our MD&A is presented in the
following sections:

?Overview

?Business Strategy Update

?Results of Operations

?Liquidity and Capital Resources

?Off-Balance-Sheet Arrangements and Contractual Obligations

?Significant Accounting Policies and Estimates

?New Accounting Pronouncements

?Safe Harbor Statement Under the Private Securities Litigation Reform Act


Our MD&A should be read in conjunction with our Annual Report on Form 10-K for
the fiscal year ended January 30, 2021 (including the information presented
therein under Risk Factors), as well as our other reports on Forms 10-Q and 8-K
and other publicly available information. All amounts herein are unaudited.

Overview


Our purpose is to enrich lives through technology. We do this by leveraging our
unique combination of tech expertise and human touch to meet our customers'
everyday needs, whether they come to us online, visit our stores or invite us
into their homes. We have two reportable segments: Domestic and International.
The Domestic segment is comprised of operations, including our Best Buy Health
business, in all states, districts and territories of the U.S. The International
segment is comprised of all operations in Canada and Mexico. During the third
quarter of fiscal 2021, we made the decision to exit our operations in Mexico.
All stores in Mexico were closed as of the end of the first quarter of fiscal
2022, and our International segment is now comprised of operations in Canada.
Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial
Statements, included in this Quarterly Report on Form 10-Q, for additional
information.

Our fiscal year ends on the Saturday nearest the end of January. Our business,
like that of many retailers, is seasonal. A large proportion of our revenue and
earnings is generated in the fiscal fourth quarter, which includes the majority
of the holiday shopping season in the U.S., Canada and Mexico.

Comparable Sales


Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric
used by management to evaluate the performance of our existing stores, websites
and call centers by measuring the change in net sales for a particular period
over the comparable prior-period of equivalent length. Comparable sales includes
revenue from stores, websites and call centers operating for at least 14 full
months. Stores closed more than 14 days, including but not limited to relocated,
remodeled, expanded and downsized stores, or stores impacted by natural
disasters, are excluded from comparable sales until at least 14 full months
after reopening. Acquisitions are included in comparable sales beginning with
the first full quarter following the first anniversary of the date of the
acquisition. Comparable sales also includes credit card revenue, gift card
breakage, commercial sales and sales of merchandise to wholesalers and dealers,
as applicable. Comparable sales excludes the impact of revenue from discontinued
operations and the effect of fluctuations in foreign currency exchange rates
(applicable to our International segment only). Online sales are included in
comparable sales. Online sales represent those initiated on a website or app,
regardless of whether customers choose to pick up product in store, curbside, at
an alternative pick-up location or take delivery direct to their homes. All
periods presented apply this methodology consistently.

On May 9, 2019, we acquired all outstanding shares of Critical Signal
Technologies, Inc. ("CST"). Consistent with our comparable sales policy, the
results of CST are included in our comparable sales calculation beginning in the
third quarter of fiscal 2021.

In March 2020, the World Health Organization declared the outbreak of novel
coronavirus disease ("COVID-19") as a pandemic. All stores that were temporarily
closed as a result of COVID-19 or operating a curbside-only operating model are
included in comparable sales.

On November 24, 2020, we announced our decision to exit our operations in Mexico. As a result, all revenue from Mexico operations has been excluded from our comparable sales calculation beginning in December of fiscal 2021.

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We believe comparable sales is a meaningful supplemental metric for investors to
evaluate revenue performance resulting from growth in existing stores, websites
and call centers versus the portion resulting from opening new stores or closing
existing stores. The method of calculating comparable sales varies across the
retail industry. As a result, our method of calculating comparable sales may not
be the same as other retailers' methods.

Non-GAAP Financial Measures


This MD&A includes financial information prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"), as well as certain
adjusted or non-GAAP financial measures, such as constant currency, non-GAAP
operating income, non-GAAP effective tax rate and non-GAAP diluted earnings per
share ("EPS"). We believe that non-GAAP financial measures, when reviewed in
conjunction with GAAP financial measures, can provide more information to assist
investors in evaluating current period performance and in assessing future
performance. For these reasons, our internal management reporting also includes
non-GAAP financial measures. Generally, our non-GAAP financial measures include
adjustments for items such as restructuring charges, goodwill impairments,
price-fixing settlements, gains and losses on investments, intangible asset
amortization, certain acquisition-related transaction costs and the tax effect
of all such items. In addition, certain other items may be excluded from
non-GAAP financial measures when we believe doing so provides greater clarity to
management and our investors. These non-GAAP financial measures should be
considered in addition to, and not superior to or as a substitute for, GAAP
financial measures. We strongly encourage investors and shareholders to review
our financial statements and publicly-filed reports in their entirety and not to
rely on any single financial measure. Non-GAAP financial measures as presented
herein may not be comparable to similarly titled measures used by other
companies.

In our discussions of the operating results of our consolidated business and our
International segment, we sometimes refer to the impact of changes in foreign
currency exchange rates or the impact of foreign currency exchange rate
fluctuations, which are references to the differences between the foreign
currency exchange rates we use to convert the International segment's operating
results from local currencies into U.S. dollars for reporting purposes. We also
may use the term "constant currency", which represents results adjusted to
exclude foreign currency impacts. We calculate those impacts as the difference
between the current period results translated using the current period currency
exchange rates and using the comparable prior period currency exchange rates. We
believe the disclosure of revenue changes in constant currency provides useful
supplementary information to investors when there are significant fluctuations
in currency rates.

Refer to the Consolidated Non-GAAP Financial Measures section below for detailed
reconciliations of items impacting non-GAAP operating income, non-GAAP effective
tax rate and non-GAAP diluted EPS in the presented periods.



Business Strategy Update


Throughout the third quarter of fiscal 2022, we provided customers multiple ways
to interact with us depending on their needs, preference and comfort. Similar to
the first half of fiscal 2022, customers migrated back into our stores to touch
and feel products and to seek in-person expertise and service. At the same time,
they continued to interact with us digitally at a significantly higher rate than
before the pandemic. Online sales were 31% of Domestic revenue compared to 16%
in the third quarter of fiscal 2020, growing by more than $2 billion during that
time. During the third quarter, we reached our fastest small-product delivery
times ever as same-day delivery was up 400% and we nearly doubled the percentage
of products delivered within one day compared to last year.

Product availability continued to improve throughout the quarter. While we had
areas of product constraints, we do not believe this materially limited our
overall sales growth. We are proactively navigating supply chain challenges,
including delays and higher costs, by making strategic sourcing and inventory
decisions earlier in the year to set us up well heading into holiday, pulling up
product flow, adjusting store assortment based on availability and acquiring
additional, alternative transportation. In addition, we believe the deep,
longstanding relationships we have with our transportation and logistics
partners and our product vendors have been instrumental in helping us manage
through the difficult supply chain environment.

We believe we have made the right investment decisions to position us as a leader in omnichannel retailing. We also believe there are even more opportunities ahead of us and that it is important to build on our position of strength to become even more customer-centric, digitally-focused and efficient.


During the quarter, we launched our new membership program, Best Buy
TotaltechTM, nationally and online. Totaltech leverages our strengths across
merchandising, fulfillment, installation, tech support and product repair and is
designed to give our customers the confidence that whatever their technology
needs are, we will be there to help. Members receive product discounts and
priority access to certain in-demand products, free delivery and standard
installation, free technical support, up to 24 months of product protection on
most purchases with active membership and other benefits. The goal of Totaltech
is to create a membership experience that customers will love, and in turn, to
generate a higher customer lifetime value and drive a larger share of consumer
electronics spending to Best Buy.

We also continued to conduct several store tests and pilots during the quarter
to continue our omnichannel evolution in a way that provides equal focus on all
the ways customers shop with us. At the same time, we are piloting and evolving
our labor models to meet our customers' changing shopping behaviors. That means
leveraging technology in stores that do not have as much labor and developing a
much more flexible workforce. This is a workforce that not only provides expert
help across product categories both in-store and virtually, but also flexes into
other activities like curbside fulfillment, and this approach also empowers
employees with the flexibility to pick up shifts at other stores or at our
distribution centers.

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We continue to believe that we are fundamentally in a stronger position than we
expected to be in just two years ago. We believe there has been a structural
increase in the need for technology, and that we now serve a larger install base
of consumer electronics with customers who have an elevated appetite to upgrade
due to constant technology innovation and needs that reflect structural life
changes, like hybrid work and streaming entertainment content. We believe our
significant omnichannel assets, including our ability to inspire what is
possible across the breadth of consumer electronics, as well as our ability to
keep it all working together the way customers want, truly differentiate us
going forward in this new landscape.

Results of Operations


In order to align our fiscal reporting periods and comply with statutory filing
requirements, we consolidate the financial results of our Mexico operations on a
one-month lag. Consistent with such consolidation, the financial and
non-financial information presented in our MD&A relative to these operations is
also presented on a lag. Our policy is to accelerate the recording of events
occurring in the lag period that significantly affect our consolidated financial
statements. No such events were identified for the reported periods.

Consolidated Performance Summary

Selected consolidated financial data was as follows ($ in millions, except per share amounts):


                                             Three Months Ended                         Nine Months Ended
                                    October 30, 2021     October 31, 2020     October 30, 2021     October 31, 2020
Revenue                            $        11,910      $        11,853      $        35,396      $        30,325
Revenue % change                               0.5  %              21.4  %              16.7  %               6.6  %
Comparable sales % change                      1.6  %              23.0  %              17.5  %               8.1  %
Gross profit                       $         2,802      $         2,795      $         8,327      $         7,030
Gross profit as a % of revenue(1)             23.5  %              23.6  %              23.5  %              23.2  %
SG&A                               $         2,133      $         2,123      $         6,130      $         5,560
SG&A as a % of revenue(1)                     17.9  %              17.9  %              17.3  %              18.3  %
Restructuring charges              $            (1)     $           111      $           (39)     $           112
Operating income                   $           670      $           561      $         2,236      $         1,358
Operating income as a % of revenue             5.6  %               4.7  %               6.3  %               4.5  %
Net earnings                       $           499      $           391      $         1,828      $           982
Diluted earnings per share         $          2.00      $          1.48      $          7.23      $          3.74


(1)Because retailers vary in how they record costs of operating their supply
chain between cost of sales and SG&A, our gross profit rate and SG&A rate may
not be comparable to other retailers' corresponding rates. For additional
information regarding costs classified in cost of sales and SG&A, refer to Note
1, Summary of Significant Accounting Policies, of the Notes to Consolidated
Financial Statements included in our Annual Report on Form 10-K for the fiscal
year ended January 30, 2021.

In the third quarter and first nine months of fiscal 2022, we generated $11.9
billion and $35.4 billion in revenue, and our comparable sales grew 1.6% and
17.5%, respectively. We continued to experience demand for technology products
and services, as consumers continued to leverage technology to meet their needs,
and we provided solutions that help them work, learn, entertain, cook and
connect at home. Our performance resulted in operating income rate increases of
0.9% and 1.8% during the third quarter and first nine months of fiscal 2022,
respectively.

See the Segment Performance Summary below for discussion of our Domestic and International segments' performance.

Income Tax Expense


Income tax expense remained relatively unchanged in the third quarter of fiscal
2022. Our effective tax rate ("ETR") decreased to 25.1% in the third quarter of
fiscal 2022 compared to 29.6% in the third quarter of fiscal 2021, primarily due
to a decrease in losses for which tax benefits were not recognized.

Income tax expense increased in the first nine months of fiscal 2022, primarily
due to an increase in pre-tax earnings, partially offset by the resolution of
certain discrete tax matters which occurred during the second quarter of fiscal
2022. Our ETR decreased to 18.1% in the first nine months of fiscal 2022
compared to 26.4% in the first nine months of fiscal 2021, primarily due to the
resolution of certain discrete tax matters which occurred during the second
quarter of fiscal 2022, as well as a decrease in losses for which tax benefits
were not recognized. Refer to Note 10, Income Taxes, of the Notes to Condensed
Consolidated Financial Statements, included in this Quarterly Report on Form
10-Q, for additional information.

Our tax provision for interim periods is determined using an estimate of our
annual ETR, adjusted for discrete items, if any, that are taken into account in
the relevant period. We update our estimate of the annual ETR each quarter and
we make a cumulative adjustment if our estimated tax rate changes. Our quarterly
tax provision and our quarterly estimate of our annual ETR are subject to
variation due to several factors, including our ability to accurately forecast
our pre-tax and taxable income and loss by jurisdiction, tax audit developments,
recognition of excess tax benefits or deficiencies related to stock-based
compensation, foreign currency gains (losses), changes in laws or regulations,
and expenses or losses for which tax benefits are not recognized. Our ETR can be
more or less volatile based on the amount of pre-tax earnings. For example, the
impact of discrete items and non-deductible losses on our ETR is greater when
our pre-tax earnings are lower.

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Segment Performance Summary

Domestic

Selected financial data for the Domestic segment was as follows ($ in millions):

                                             Three Months Ended                         Nine Months Ended
                                    October 30, 2021     October 31, 2020     October 30, 2021     October 31, 2020
Revenue                            $        10,985      $        10,850      $        32,837      $        27,893
Revenue % change                               1.2  %              21.0  %              17.7  %               6.2  %
Comparable sales % change(1)                   2.0  %              22.6  %              18.3  %               7.5  %
Gross profit                       $         2,571      $         2,604      $         7,703      $         6,509
Gross profit as a % of revenue                23.4  %              24.0  %              23.5  %              23.3  %
SG&A                               $         1,962      $         1,948      $         5,647      $         5,087
SG&A as a % of revenue                        17.9  %              18.0  %              17.2  %              18.2  %
Restructuring charges              $              -     $            44      $           (44)     $            45
Operating income                   $           609      $           612      $         2,100      $         1,377
Operating income as a % of revenue             5.5  %               5.6  %               6.4  %               4.9  %
Selected Online Revenue Data
Total online revenue               $         3,436      $         3,823      $        10,518      $        12,014
Online revenue as a % of total
segment revenue                               31.3  %              35.2  %              32.0  %              43.1  %
Comparable online sales %
change(1)                                    (10.1) %             173.7  %             (12.5) %             191.4  %

(1)Online sales are included in the comparable sales calculation.


The increase in revenue in the third quarter and first nine months of fiscal
2022 was primarily driven by comparable sales growth across most of our product
categories, partially offset by the loss of revenue from permanent store
closures in the past year. Online revenue of $3.4 billion and $10.5 billion in
the third quarter and first nine months of fiscal 2022 decreased 10.1% and
12.5%, respectively, on a comparable basis, primarily due to channel shifts in
customer shopping behavior as a result of the COVID-19 pandemic.

Domestic segment stores open at the beginning and end of the third quarters of
fiscal 2022 and fiscal 2021, excluding stores that were temporarily closed as a
result of COVID-19, were as follows:

                                       Fiscal 2022                                                Fiscal 2021
                                                                            Total Stores
                 Total Stores at                            Total Stores    at Beginning                              Total Stores
                  Beginning of       Stores      Stores       at End of       of Third        Stores       Stores       at End of
                  Third Quarter      Opened      Closed     Third Quarter      Quarter        Opened       Closed     Third Quarter
Best Buy                  947             -         (9)            938             970              -        (14)            956
Outlet Centers             15            1            -             16              14              -           -             14
Pacific Sales              21             -           -             21              21              -           -             21
Total                     983            1          (9)            975           1,005              -        (14)            991


We continuously monitor store performance. As we approach the expiration date of
our leases, we evaluate various options for each location, including whether a
store should remain open.

Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:


                                    Revenue Mix                                Comparable Sales
                                Three Months Ended                            Three Months Ended
                                                                                             October 31,
                       October 30, 2021     October 31, 2020     October 30, 2021               2020
Computing and Mobile
Phones                           45  %                 47  %                (2.4) %                21.5  %
Consumer Electronics             30  %                 29  %                 5.5  %                21.1  %
Appliances                       15  %                 14  %                10.9  %                39.3  %
Entertainment                     5  %                  5  %                 4.1  %                17.5  %
Services                          5  %                  5  %                (5.6) %                12.7  %
Total                           100  %                100  %                 2.0  %                22.6  %


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Notable comparable sales changes were as follows:

?Computing and Mobile Phones: The 2.4% comparable sales decline was driven primarily by computing, networking and tablets, partially offset by a comparable sales gain in mobile phones.

?Consumer Electronics: The 5.5% comparable sales gain was driven primarily by home theater, headphones and portable speakers and health and fitness.

?Appliances: The 10.9% comparable sales gain was driven primarily by large appliances.

?Entertainment: The 4.1% comparable sales gain was driven primarily by gaming.


?Services: The 5.6% comparable sales decline was driven primarily by the launch
of our Totaltech membership offering that includes benefits that were previously
stand-alone revenue-generating services, such as warranty and installation.

Our gross profit rate decreased in the third quarter of fiscal 2022, primarily
driven by lower product margin rates due to lapping low levels of promotions,
product damages and product returns last year, as well as increased inventory
shrink primarily due to theft. Our gross profit rate also decreased from lower
services margin rates, which included rate pressure associated with our
Totaltech membership offering that includes incremental customer benefits, and
associated costs, compared to our previous Total Tech Support offer. These
decreases were partially offset by higher profit-sharing revenue from our
private label and co-branded credit card arrangement.

Our gross profit rate increased in the first nine months of fiscal 2022, primarily driven by product margin rate improvement from supply chain costs resulting from a lower mix of online revenue compared to the prior year, higher profit-sharing revenue from our private label and co-branded credit card arrangement and favorability from reduced promotions. These increases were partially offset by lower services margin rates.


Our SG&A increased in the third quarter of fiscal 2022, primarily due to higher
advertising expenses and increased technology investments, which were partially
offset by lapping last year's $40 million donation to the Best Buy Foundation
and lower incentive compensation.

Our SG&A increased in the first nine months of fiscal 2022, primarily due to
higher short-term incentive compensation, technology investments, advertising
expenses and store payroll expenses, which included $81 million of employee
retention credits in the prior year period as a result of the Federal
Coronavirus Aid, Relief and Economic Security Act. This was partially offset by
lapping last year's $40 million donation to the Best Buy Foundation.

The restructuring charges in the third quarter and first nine months of fiscal
2021 primarily related to termination benefits associated with actions taken to
more broadly align our corporate organizational structure in support of our
strategy. The restructuring credit in the first nine months of fiscal 2022
primarily related to subsequent adjustments to termination benefits resulting
from changes in our previously planned organizational changes and
higher-than-expected retention rates. Refer to Note 2, Restructuring, of the
Notes to Condensed Consolidated Financial Statements, included in this Quarterly
Report on Form 10-Q, for additional information.

Our operating income rate decreased in the third quarter of fiscal 2022,
primarily driven by the unfavorable gross profit rate described above, partially
offset by lower restructuring charges and increased leverage from higher sales
volume on our fixed expenses, which resulted in a favorable SG&A rate.

Our operating income rate increased in the first nine months of fiscal 2022,
primarily driven by the favorability in gross profit rate described above and
increased leverage from higher sales volume on our fixed expenses, which
resulted in a favorable SG&A rate.

International

Selected financial data for the International segment was as follows ($ in millions):


                                            Three Months Ended                         Nine Months Ended
                                   October 30, 2021     October 31, 2020     October 30, 2021     October 31, 2020
Revenue                           $          925       $        1,003       $         2,559      $        2,432
Revenue % change                            (7.8) %              25.4  %                5.2  %             11.8  %
Comparable sales % change                   (3.0) %              27.3  %                7.7  %             15.1  %
Gross profit                      $          231       $          191       $           624      $          521
Gross profit as a % of revenue              25.0  %              19.0  %               24.4  %             21.4  %
SG&A                              $          171       $          175       $           483      $          473
SG&A as a % of revenue                      18.5  %              17.4  %               18.9  %             19.4  %
Restructuring charges             $           (1)      $           67       $             5      $           67
Operating income (loss)           $           61       $          (51)      $           136      $          (19)
Operating income (loss) as a % of
revenue                                      6.6  %              (5.1) %                5.3  %             (0.8) %


The decrease in revenue in the third quarter of fiscal 2022 was primarily driven
by lower revenue in Mexico as a result of our decision in the third quarter of
fiscal 2021 to exit operations and a comparable sales decline of 3.0% in Canada.
These decreases were partially offset by the benefit of approximately 4.5% of
favorable foreign currency exchange rates.

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The increase in revenue in the first nine months of fiscal 2022 was primarily
driven by the benefit of approximately 8.0% of favorable foreign currency
exchange rates and comparable sales growth of 7.7%. These increases were
partially offset by lower revenue in Mexico as a result of our decision in the
third quarter of fiscal 2021 to exit operations.

International segment stores open at the beginning and end of the third quarters
of fiscal 2022 and fiscal 2021, excluding stores that were temporarily closed as
a result of COVID-19, were as follows:

                                           Fiscal 2022                                                    Fiscal 2021
                   Total Stores at                                 Total Stores    Total Stores at                             Total Stores
                 Beginning of Third      Stores        Stores        at End 

of Beginning of Stores Stores at End of

                       Quarter           Opened        Closed      Third Quarter    Third Quarter      Opened       Closed     Third Quarter
Canada
Best Buy                      129              -             -            129               131              -           -            131
Best Buy Mobile                33              -             -             33                40              -         (3)             37
Mexico
Best Buy                         -             -             -               -               34              -         (3)             31
Best Buy Express                 -             -             -               -               14              -           -             14
Total                         162              -             -            162               219              -         (6)            213

International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:

                                  Revenue Mix                        Comparable Sales
                              Three Months Ended                    Three Months Ended
                                                               October 30,       October 31,
                      October 30, 2021    October 31, 2020        2021              2020
Computing and Mobile
Phones                           50  %               53  %           (6.7) %           35.7  %
Consumer Electronics             27  %               27  %           (0.8) %           13.3  %
Appliances                        9  %                9  %           (1.8) %           40.1  %
Entertainment                     6  %                5  %           15.0  %           35.6  %
Services                          6  %                5  %           (2.2) %            4.3  %
Other                             2  %                1  %           17.0  %           22.0  %
Total                           100  %              100  %           (3.0) %           27.3  %

Notable comparable sales changes were as follows:

?Computing and Mobile Phones: The 6.7% comparable sales decline was driven primarily by computing.

?Consumer Electronics: The 0.8% comparable sales decline was driven primarily by digital imaging and headphones and portable speakers.

?Appliances: The 1.8% comparable sales decline was driven primarily by large appliances.

?Entertainment: The 15.0% comparable sales gain was driven primarily by gaming and virtual reality.

?Services: The 2.2% comparable sales decline was driven primarily by our repair services.


The increases in our gross profit rate in the third quarter and first nine
months of fiscal 2022 were primarily driven by improved product margin rates in
Canada and sales mixing out of Mexico, which had a lower gross profit rate than
Canada. The increases were also driven by $36 million of inventory markdowns
incurred in the prior year associated with our decision to exit operations in
Mexico.

Our SG&A decreased in the third quarter of fiscal 2022, primarily due to lower
expenses in Mexico as a result of our decision to exit operations, partially
offset by the unfavorable impact of foreign currency exchange rates and
increased store payroll expense in Canada.

Our SG&A increased in the first nine months of fiscal 2022, primarily due to the
unfavorable impact of foreign currency exchange rates and increased incentive
compensation and store payroll expense in Canada, partially offset by lower
expenses in Mexico as a result of our decision to exit operations.

The restructuring charges for all periods presented primarily related to our
decision to exit operations in Mexico. Refer to Note 2, Restructuring, of the
Notes to Condensed Consolidated Financial Statements, included in this Quarterly
Report on Form 10-Q, for additional information.

Our operating income rate increased in the third quarter of fiscal 2022, primarily due to lower restructuring charges and the favorability in gross profit rate described above.


Our operating income rate increased in the first nine months of fiscal 2022,
primarily due to the favorability in gross profit rate described above, lower
restructuring charges and increased leverage from higher sales volume on our
fixed expenses, which resulted in a favorable SG&A rate.

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Consolidated Non-GAAP Financial Measures


Reconciliations of operating income, effective tax rate and diluted EPS (GAAP
financial measures) to non-GAAP operating income, non-GAAP effective tax rate
and non-GAAP diluted EPS (non-GAAP financial measures) were as follows ($ in
millions, except per share amounts):

                                             Three Months Ended                         Nine Months Ended
                                   October 30, 2021      October 31, 2020     October 30, 2021     October 31, 2020
Operating income                  $            670      $          561       $         2,236      $        1,358
% of revenue                                   5.6  %              4.7  %                6.3  %              4.5  %
Intangible asset amortization(1)                20                  20                    60                  60
Acquisition-related transaction
costs(1)                                         5                    -                    5                    -
Restructuring charges(2)                        (1)                111                   (39)                112
Restructuring - inventory
markdowns(3)                                      -                 36                    (6)                 36
Non-GAAP operating income         $            694      $          728       $         2,256      $        1,566
% of revenue                                   5.8  %              6.1  %                6.4  %              5.2  %

Effective tax rate                            25.1  %             29.6  %               18.1  %             26.4  %
Intangible asset amortization(1)              (0.1) %             (1.5) %                0.1  %             (1.1) %
Restructuring charges(2)                          - %             (3.2) %               (0.1) %             (0.8) %
Non-GAAP effective tax rate                   25.0  %             24.9  %               18.1  %             24.5  %

Diluted EPS                       $           2.00      $         1.48       $          7.23      $         3.74
Intangible asset amortization(1)              0.08                0.08                  0.24                0.23
Acquisition-related transaction
costs(1)                                      0.02                    -                 0.02                    -
Restructuring charges(2)                          -               0.42                 (0.15)               0.43
Restructuring - inventory
markdowns(3)                                      -               0.14                 (0.03)               0.13
Income tax impact of non-GAAP
adjustments(4)                               (0.02)              (0.06)                (0.02)              (0.10)
Non-GAAP diluted EPS              $           2.08      $         2.06       $          7.29      $         4.43


(1)Represents charges associated with acquisitions, including: (1) the non-cash
amortization of definite-lived intangible assets, including customer
relationships, tradenames and developed technology; and (2) acquisition-related
transaction and due diligence costs, primarily comprised of professional fees.

(2)Represents charges and subsequent adjustments related to actions taken in the
Domestic segment to better align the company's organizational structure with its
strategic focus and the decision to exit operations in Mexico in the
International segment.

(3)Represents inventory markdown adjustments recorded within cost of sales associated with the decision to exit operations in Mexico.


(4)The non-GAAP adjustments primarily relate to the U.S. and Mexico. As such,
the income tax charge is calculated using the statutory tax rate of 24.5% for
all U.S. non-GAAP items for all periods presented. There is no income tax charge
for the Mexico non-GAAP items, as there was no tax benefit recognized on these
expenses in the calculation of GAAP income tax expense.

Our non-GAAP operating income rate decreased in the third quarter of fiscal 2022, primarily driven by a lower gross profit rate in our Domestic segment.


Our non-GAAP operating income rate increased in the first nine months of fiscal
2022, primarily driven by a higher gross profit rate due to favorable supply
chain costs resulting from a lower mix of online revenue compared to the prior
year, and increased leverage from higher sales volume on our fixed expenses,
which resulted in a favorable SG&A rate.

Our non-GAAP effective tax rate remained relatively unchanged in the third
quarter of fiscal 2022. Our non-GAAP effective tax rate decreased in the first
nine months of fiscal 2022, primarily due to the resolution of certain discrete
tax matters which occurred during the second quarter of fiscal 2022. Refer to
Note 10, Income Taxes, of the Notes to Condensed Consolidated Financial
Statements, included in this Quarterly Report on Form 10-Q, for additional
information.

Our non-GAAP diluted EPS increased in the third quarter of fiscal 2022, primarily driven by lower diluted weighted-average common shares outstanding from share purchases.

Our non-GAAP diluted EPS increased in the first nine months of fiscal 2022, primarily driven by the increase in non-GAAP operating income, the lower non-GAAP effective tax rate and lower diluted weighted-average common shares outstanding from share purchases.

Liquidity and Capital Resources


We closely manage our liquidity and capital resources. Our liquidity
requirements depend on key variables, including the level of investment required
to support our business strategies, the performance of our business, capital
expenditures, credit facilities, short-term borrowing arrangements and working
capital management. Capital expenditures and share repurchases are a component
of our cash flow and capital management strategy, which, to a large extent, we
can adjust in response to economic and other changes in our business
environment. We have a disciplined approach to capital allocation, which focuses
on investing in key priorities that support our strategy.

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Cash, cash equivalents and short-term investments were as follows ($ in millions):


                                                  October 30, 2021       January 30, 2021       October 31, 2020
Cash and cash equivalents                       $           3,465      $           5,494      $           5,136
Short-term investments                                           -                      -                   545
Total cash, cash equivalents
and short-term investments                      $           3,465      $           5,494      $           5,681


The decrease in cash and cash equivalents from January 30, 2021, was primarily due to increases in share repurchases, capital expenditures and dividend payments. This was partially offset by positive cash flows from operations, primarily driven by earnings.


The decrease in cash, cash equivalents and short-term investments from October
31, 2020, was primarily due to increases in share repurchases, the repayment of
our $650 million principal amount of notes due March 15, 2021, capital
expenditures and dividend payments. This was partially offset by positive cash
flows from operations, primarily driven by earnings.

Cash Flows

Cash flows from total operations were as follows ($ in millions):

Nine Months Ended

                                                                  October 30, 2021      October 31, 2020
Total cash provided by (used
in):
Operating activities                                            $           1,061      $          3,907
Investing activities                                                         (707)               (1,153)
Financing activities                                                       (2,347)                  170
Effect of exchange rate changes
on cash                                                                         6                    (8)
Increase (decrease) in cash, cash
equivalents and restricted cash                                 $          (1,987)     $          2,916


Operating Activities

The decrease in cash provided by operating activities in the first nine months
of fiscal 2022 compared to the prior-year period was primarily due to the timing
and volume of inventory purchases and payments, reflecting an earlier and more
pronounced build of inventory for the holiday season in fiscal 2022, as we
sought to manage supply chain challenges and sustained strong demand in most
product categories. As a result, our inventory balance at the end of the third
quarter of fiscal 2022 was materially higher than fiscal 2021, and a larger
proportion of inventory purchases had been paid for by the end of the quarter.
These decreases were partially offset by higher earnings in the current-year
period.

Investing Activities

The decrease in cash used in investing activities in the first nine months of
fiscal 2022 compared to the prior-year period was primarily driven by a decrease
in purchases of short-term investments.

Financing Activities


The increase in cash used in financing activities in the first nine months of
fiscal 2022 compared to the prior-year period was driven primarily by an
increase in share repurchases, which were temporarily suspended from March to
November of fiscal 2021. Fiscal 2021 also included the issuance of our $650
million principal amount of notes due October 1, 2030.

Sources of Liquidity


Funds generated by operating activities, available cash and cash equivalents,
our credit facilities and other debt arrangements are our most significant
sources of liquidity. We believe our sources of liquidity will be sufficient to
fund operations and anticipated capital expenditures, share repurchases,
dividends and strategic initiatives, including business combinations. However,
in the event our liquidity is insufficient, we may be required to limit our
spending. There can be no assurance that we will continue to generate cash flows
at or above current levels or that we will be able to maintain our ability to
borrow under our existing credit facilities or obtain additional financing, if
necessary, on favorable terms.

On May 18, 2021, we entered into a $1.25 billion five year senior unsecured
revolving credit facility agreement (the "Five-Year Facility Agreement") with a
syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25
billion senior unsecured revolving credit facility (the "Previous Facility")
with a syndicate of banks, which was originally scheduled to expire in April
2023, but was terminated on May 18, 2021. The Five-Year Facility Agreement
permits borrowings of up to $1.25 billion and expires in May 2026. There were no
borrowings outstanding under the Five-Year Facility Agreement as of October 30,
2021, or the Previous Facility as of January 30, 2021, or October 31, 2020.

Our credit ratings and outlook as of December 1, 2021, are summarized below. On
May 20, 2021, Standard & Poor's upgraded its rating to BBB+ and confirmed its
outlook of Stable. Moody's rating and outlook remained unchanged from those
disclosed in our Annual Report on Form 10-K for the fiscal year ended January
30, 2021.

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Rating Agency               Rating    Outlook
Standard & Poor's        BBB+     Stable
Moody's                  A3      Stable


Credit rating agencies review their ratings periodically, and, therefore, the
credit rating assigned to us by each agency may be subject to revision at any
time. Factors that can affect our credit ratings include changes in our
operating performance, the economic environment, conditions in the retail and
consumer electronics industries, our financial position and changes in our
business strategy. If changes in our credit ratings were to occur, they could
impact, among other things, interest costs for certain of our credit facilities,
our future borrowing costs, access to capital markets, vendor financing terms
and future new-store leasing costs.

Restricted Cash


Our liquidity is also affected by restricted cash balances that are primarily
restricted to use for workers' compensation and general liability insurance
claims, and product protection plans provided under our Totaltech membership
offering. Restricted cash, which is included in Other current assets on our
Condensed Consolidated Balance Sheets, was $173 million, $131 million and $135
million at October 30, 2021, January 30, 2021, and October 31, 2020,
respectively. The increases from January 30, 2021, and October 31, 2020, were
primarily due to the initial funding related to the national launch of our
Totaltech membership offering in October 2021.

Debt and Capital


As of October 30, 2021, we had $500 million of principal amount of notes due
October 1, 2028, and $650 million of principal amount of notes due October 1,
2030. Refer to Note 6, Debt, of the Notes to Condensed Consolidated Financial
Statements, included in this Quarterly Report on Form 10-Q, and Note 8, Debt, of
the Notes to Consolidated Financial Statements included in our Annual Report on
Form 10-K for the fiscal year ended January 30, 2021, for additional information
about our outstanding debt.

Share Repurchases and Dividends


We repurchase our common stock and pay dividends pursuant to programs approved
by our Board of Directors ("Board"). The payment of cash dividends is also
subject to customary legal and contractual restrictions. Our long-term capital
allocation strategy is to first fund operations and investments in growth and
then return excess cash over time to shareholders through dividends and share
repurchases while maintaining investment-grade credit metrics.

On February 16, 2021, our Board approved a new $5.0 billion share repurchase
program. There is no expiration date governing the period over which we can
repurchase shares under this new authorization. As of October 30, 2021, $3.4
billion of the $5.0 billion share repurchase authorization was available. On
August 24, 2021, we announced our plan to repurchase more than $2.5 billion of
shares in fiscal 2022.

Share repurchase and dividend activity was as follows ($ and shares in millions, except per share amounts):


                                            Three Months Ended                           Nine Months Ended
                                  October 30, 2021      October 31, 2020       October 30, 2021      October 31, 2020
Total cost of shares repurchased $        426         $                -     $            1,757     $              56
Average price per share          $     115.94         $                -     $           111.33     $           86.30
Number of shares repurchased              3.7                          -                   15.8                   0.6
Regular quarterly cash dividend
per share                        $       0.70         $            0.55      $            2.10      $            1.65
Cash dividends declared and paid $        172         $             142      $             522      $             426


The total cost of shares repurchased increased in fiscal 2022, primarily due to
the temporary suspension of all share repurchases from March to November of
fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties.
Cash dividends declared and paid increased in fiscal 2022 primarily due to the
increase in the regular quarterly cash dividend per share.

Between the end of the third quarter of fiscal 2022 on October 30, 2021, and December 1, 2021, we repurchased an incremental 3.6 million shares of our common stock at a cost of $452 million.

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Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities,
remained relatively unchanged at 1.1 as of October 30, 2021, and October 31,
2020, and 1.2 as of January 30, 2021.

Our debt to earnings ratio, calculated as total debt (including current portion)
divided by net earnings over the trailing twelve months decreased to 0.5 as of
October 30, 2021, compared to 0.8 as of January 30, 2021, and 1.1 as of October
31, 2020, primarily due to higher earnings. The decrease from October 31, 2020,
was also due to the retirement of our $650 million principal amount of notes due
March 15, 2021, in December 2020.

Off-Balance-Sheet Arrangements and Contractual Obligations


Our liquidity is not dependent on the use of off-balance-sheet financing
arrangements other than in connection with our $1.25 billion in undrawn capacity
on our Five-Year Facility Agreement as of October 30, 2021, which, if drawn
upon, would be included in either short-term or long-term debt on our Condensed
Consolidated Balance Sheets.

There has been no material change in our contractual obligations other than in
the ordinary course of business since the end of fiscal 2021. See our Annual
Report on Form 10-K for the fiscal year ended January 30, 2021, for additional
information regarding our off-balance-sheet arrangements and contractual
obligations.

Significant Accounting Policies and Estimates


We describe our significant accounting policies in Note 1, Summary of
Significant Accounting Policies, of the Notes to Consolidated Financial
Statements, and our critical accounting estimates in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in our
Annual Report on Form 10-K for the fiscal year ended January 30, 2021. There
have been no significant changes in our significant accounting policies or
critical accounting estimates since the end of fiscal 2021.



New Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.

Safe Harbor Statement Under the Private Securities Litigation Reform Act


Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
provide a "safe harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies. With the exception of
historical information, the matters discussed in this Quarterly Report on Form
10-Q are forward-looking statements and may be identified by the use of words
such as "anticipate," "assume," "believe," "estimate," "expect," "guidance,"
"intend," "outlook," "plan," "project" and other words and terms of similar
meaning. Such statements reflect our current views and estimates with respect to
future market conditions, company performance and financial results, operational
investments, business prospects, new strategies, the competitive environment and
other events. These statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from the potential results
discussed in such forward-looking statements. Readers should review Item 1A,
Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended
January 30, 2021, for a description of important factors that could cause our
actual results to differ materially from those contemplated by the
forward-looking statements made in this Quarterly Report on Form 10-Q. Among the
factors that could cause actual results and outcomes to differ materially from
those contained in such forward-looking statements are the following: the
duration and scope of the COVID-19 pandemic and its resurgences and the impact
on demand for our products and services; levels of consumer confidence;
interruptions and other supply chain issues; any material disruption in our
relationship with or the services of third-party vendors, risks related to our
exclusive brand products and risks associated with vendors that source products
outside of the U.S.; macroeconomic pressures in the markets in which we operate
(including but not limited to the effects of COVID-19, increased levels of
inventory loss due to organized crime, petty theft or otherwise, fluctuations in
housing prices, energy markets and jobless rates); future outbreaks,
catastrophic events, health crises and pandemics; susceptibility of our products
to technological advancements, product life cycles and launches; conditions in
the industries and categories in which we operate; changes in consumer
preferences, spending and debt; competition (including from multi-channel
retailers, e-commerce business, technology service providers, traditional
store-based retailers, vendors and mobile network carriers); our ability to
attract and retain qualified employees; changes in market compensation rates;
our expansion strategies; our focus on services as a strategic priority; our
reliance on key vendors and mobile network carriers (including product
availability); our ability to maintain positive brand perception and
recognition; our company transformation; our mix of products and services; our
ability to effectively manage strategic ventures, alliances or acquisitions; our
ability to effectively manage our real estate portfolio; trade restrictions or
changes in the costs of imports (including existing or new tariffs or duties and
changes in the amount of any such tariffs or duties); our reliance on our
information technology systems; our dependence on internet and
telecommunications access and capabilities; our ability to prevent or
effectively respond to a cyber-attack, privacy or security breach; product
safety and quality concerns; changes to labor or employment laws or regulations;
risks arising from statutory, regulatory and legal developments (including tax
statutes and regulations); risks arising from our international activities;
failure to effectively manage our costs; our dependence on cash flows and net
earnings generated during the fourth fiscal quarter; pricing investments and
promotional activity; economic or regulatory developments that might affect our
ability to provide attractive promotional financing; constraints in the capital
markets; changes to our vendor credit terms; changes in our credit ratings; and
general economic uncertainty in key global markets and worsening of global

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economic conditions or low levels of economic growth. We caution that the foregoing list of important factors is not complete. Any forward-looking statements speak only as of the date they are made and we assume no obligation to update any forward-looking statement that we may make.

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