百思買 (BBY) 2013 Q4 法說會逐字稿

Welcome to Best Buy's fourth-quarter of fiscal 2013 earnings conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this call is being recorded for playback and will be available by 12 p.m.

Eastern Time today.

(Operator Instructions).

The call will end at 9.50 a.m.

Eastern Time.

I would now like to turn the conference over to Bill Seymour, Vice President of Investor Relations.

Good morning and thank you for joining us on our fiscal fourth-quarter 2013 conference call.

As usual the media are participating in this call in a listen-only mode.

Let me remind you that comments made by me or by others representing Best Buy may contain forward-looking statements regarding what we will, expect, plan or intend to do in the upcoming year and beyond.

It is important to keep in mind that any such statements remain subject to risks and uncertainties.

Our SEC filings contain additional information about factors that could cause actual results to differ for management's expectations.

Please note that our reported results this morning include non-GAAP financial measures.

These results should not be confused with the GAAP numbers we reported this morning in our earnings release or with the GAAP numbers we will report in our 10-K.

For GAAP to non-GAAP reconciliations of our reported to adjusted results and guidance please refer to the supplemental schedule in this morning's news release.

As a reminder, to assist you with your modeling, fiscal 2013 was a 53-week year versus 52 weeks in fiscal 2012.

The extra week in fiscal 2013 was in the first quarter.

The extra week of fiscal 2013 added approximately $700 million or 1.5% in revenue, or $0.12 or 3% in non-GAAP EPS.

Now I'd like to turn the call over to Hubert Joly, our President and CEO.

Good morning, everyone, and thank you for joining us.

I would like to begin today with an overview of our fourth-quarter results and our priorities for fiscal 2014.

Then I will turn the call over to Sharon McCollam, our new Chief Administrative and Chief Financial Officer, to provide further details.

But before we get started I'd like to officially introduce Sharon to all of you in her new role.

As many of you know, Sharon joined us in early December.

She came out of retirement after serving for many years as the Chief Operating and Chief Financial Officer with Williams-Sonoma.

Since she joined us we've expanded her role and she is now leading our finance, IT, real estate and supply-chain operations.

And of course her in-depth expertise in these areas has made her an instantly powerful contributor to our transformation and we're thrilled that she is here.

So welcome, Sharon.

I would now like to talk about our better-than-expected results for the fourth quarter.

Our revenue growth of 0.2% -- on revenue growth of 0.2% we delivered non-GAAP diluted earnings per share of $1.64.

Adjusted free cash flow for the year reached $965 million as we aggressively reduced inventories and focused on working capital and cash flow management.

We ended the year with $1.8 billion in cash.

To deliver these results renewed momentum in the domestic business more than offset continued softness in international.

Domestic comparable store sales increased 0.9% with an overall 10 basis point decline in the gross profit rate.

Domestic online revenue increased 11% and so these better-than-expected results were driven by a compelling assortment of new products in key growth categories, increased Blue Shirt training, higher customer engagement in our retail stores and impactful traffic generating marketing initiatives.

It was a quarter that was driven, not given.

And we are encouraged by the intensity, collaboration and momentum that was generated by both our front-line and corporate teams as we began to execute against our Renew Blue initiatives.

Now looking ahead, to build on this momentum in fiscal 2014 we remain focused on the two problems we have to solve -- stabilizing and improving our comparable store sales and increasing profitability across our global businesses.

We recognize, however, that 2014 is a year of transition and that further investment will be required to advance our Renew Blue transformation.

To achieve this I would like to highlight six of our Renew Blue priorities that we will be pursuing in fiscal 2014 including -- number one, accelerating online growth; number two, escalating the multi-channel customer experience; number three, increasing revenue and gross profit per square foot through enhanced store space optimization and merchandising; number four, driving down cost of goods sold through supply-chain efficiencies; number five, continuing to gradually optimize the US real estate portfolio; and number six, further reducing our SG&A costs.

In addition, improving the performance of our international businesses will be another key priority.

All of these priorities are currently underway and we expect each of them to deliver gradual and incremental operating improvements throughout the year.

I would now like to provide additional color on each of these priorities.

To accelerate online growth we intend to improve online traffic and conversion through a number of activities.

Number one, building a unified view of the customer across our various platforms, so to dynamically generate online recommendations for product and shopping information based on customers' needs and preferences.

Number two, implementing a new search platform that helps customers find products more easily with increased relevance.

Number three, creating product pages that have an integrated and consistent browsing experience across all devices.

Number four, enabling a single seamless access to Reward Zone points management and redemption capabilities versus the current segregation between BestBuy.com and MyRewardZone.com.

Number five, creating a new easy process for customers to add additional products and services like warranty and Geek Squad support to their in-store pickup experience.

And number six, increasing our product assortment and enhancing product information.

We expect to implement these changes by next holiday.

The second priority is to escalate the multi-channel customer experience.

In addition to the functionality improvements that we're making online we have introduced a new metric to track customer service levels known by many of you as Net Promoter Score, or NPS.

NPS will measure not only the satisfaction of customers that buy, but also the customers who don't.

In November at our Analyst Day we discussed Best Buy's customer promises.

As a reminder, these promises include offering the customer the latest devices and services all in one place, impartial and knowledgeable advice, competitive prices, the ability to shop when and where they want and support for the life of their products.

To ensure that these promises are upheld we have defined key performance indicators that measure our progress on a monthly basis.

And we are pleased to report that since November our Net Promoter Score has increased by 200 basis points.

We are seeing increased customer satisfaction pertaining to our sales associates, our service and price perception.

Looking ahead we remain relentlessly focused on driving customer satisfaction through better in-stock performance across our various channels, improved price perception through our low price guarantee, higher personalization of our online offers and the reallocation of store labor hours to customer facing activities.

The third priority is to increase revenue and gross profit per square foot through enhanced store space optimization and merchandising.

This year we will reduce space allocated to the negative growth and low-margin CD and DVD categories and replace it with higher growth categories like mobile, appliances and accessories.

And to support these expanded categories we will deepen the product assortment, increase Blue Shirt training and reprioritize marketing investments.

The fourth priority for this year is to drive down cost of goods sold through supply-chain efficiencies.

Our first initiative here is to continue to develop our multi-channel capabilities as we continue to grow our online business.

And to drive this we will expand our online fulfillment into all of our existing distribution centers and improve our allocations of inventory in order to get the inventory into the distribution center closest to the customer.

Additionally, we will be consolidating orders per parcel and refining order management to fill orders from optimal locations.

All of these initiatives will result in improved service levels to the customer and reduced shipping costs.

Another priority for supply-chain will be to reduce expenses by driving transportation efficiencies.

To achieve this we are significantly improving information sharing, collaboration and route planning with our carrier partners to send fuller trucks and reduce empty miles.

Lastly we are reviewing our product movement to identify opportunities to alter product flows and transformation methods to further reduce our expenses.

Our fifth priority is to continue to gradually optimize our US real estate portfolio.

Occupancy cost reductions continue to be a key focus and we made significant progress in fiscal 2013 in both the area of store closings and renegotiated leases.

In fiscal 2013 we permanently closed 49 large-format stores and expect to close an additional five to 10 large-format stores in fiscal 2014.

Additionally, we are being very rigorous about capital allocation and have extended the time frame by which we are measuring the performance of new prototype stores.

This includes all formats including our Richfield prototype store, our Magnolia and Pacific Sales stores within a store and our Best Buy Mobile stand-alone stores.

There are however a small number of selected and opportunistic markets where we are planning to move forward with new stores including 12 new Best Buy Mobile stores, 10 Magnolia design center stores within a store and 18 to 25 Pacific kitchen and home stores within a store.

Our sixth priority is to further reduce SG&A costs where over time we believe there is an opportunity to remove $400 million in cost from the $4.2 billion in annual North America G&A expenses.

Over the last several weeks we have executed phase one of these reductions totaling $150 million in annual savings which included an initial headcount reduction of approximately 400 people.

These savings are being driven by the discontinuation of non-core activities, the takeout of management layers and various improved efficiency improvements including the removal of organizational silos that have driven up costs and undermined accountability and decision-making.

In addition to this $150 million cost takeout we expect additional costs to be eliminated in the second quarter and later this year.

We are continuing to systematically and aggressively challenge all elements of our SG&A cost structure in pursuit of a materially lower cost base.

Now finally, to improve the performance of our international businesses, particularly in Canada and China, we have the same two problems to solve as we have in our domestic businesses -- declining comparable store sales and declining operating margins.

So as an example, in Canada and China we have seen a significant decline in comps and operating income due to overall industry softness, an increasingly competitive micro environment and an overweight cost structure.

To begin addressing these issues in fiscal 2013 we closed 15 stores in Canada and five in China.

In addition, under the leadership of Shari Ballard, our EVP and President of International, we will be rolling out renewed initiatives for our international businesses in fiscal 2014.

Collectively all of these Renew Blue priorities are driving a commitment to action and accountability as our management team focuses on one Best Buy.

And to further this alignment we have implemented a new management incentive program for all leaders that prioritizes the resolution of the two problems we have to solve -- improving comp store sales and increasing profitability.

This incentive scheme also prioritizes measurable improvements in the customer experience, the growth of our online business and the achievement of further SG&A cost reductions.

We believe that aligning the incentive program with the goals of Renew Blue will significantly elevate our success and drive enhanced shareholder value.

I will now turn the call over to Sharon to cover more details on Q4 and our outlook for fiscal 2014.

Thank you, Hubert, and good morning.

As Hubert shared earlier in the call, our fourth-quarter results did exceed our expectations and we are encouraged by what that says for our opportunities in 2014 and beyond as we continue to make progress on our Renew Blue initiative.

The P&L highlights that drove these results were as follows.

Enterprise revenue increased 0.2% to $16.7 billion primarily driven by a 0.9% comparable store sales increase in the Domestic segment partially offset by a 6.6% comparable store sales decline in the International segment.

In the Domestic segment total revenue declined 0.3% to $12.6 billion.

But this decline was driven by the loss of revenues from 49 big-box stores that were closed earlier in the year, but was substantially offset by the positive 0.9% comparable store sales increase previously discussed and incremental revenue from 126 additional Best Buy Mobile stand-alone stores.

It's important to note, however, that this fourth-quarter's comparable store sales were benefited by an estimated 35 basis points due to a calendar shift in this year's pre Super Bowl sales from Q1 of fiscal 2014 to Q4 of fiscal 2013.

Domestic online sales increased 11% reaching a record $1.3 billion as momentum accelerated throughout the quarter.

Highly effective traffic generating marketing initiatives drove these better-than-expected results.

From a merchandising perspective in the Domestic segment strong growth in mobile phone, tablets, eReaders and appliances was partially offset by declines in gaming and digital imaging.

In the International segment total revenue increased 2% to $4.16 billion versus $4.09 billion last year.

This increase was driven by the positive impact of changes in foreign currency rates partially offset by the previously mentioned 6.6% decline in comparable store sales.

From a country perspective, positive comparable store sales in Europe were more than offset by double-digit declines in Canada and China.

In Canada overall industry softness drove this decline.

In China, however, increased competition from eCommerce and year-over-year impact from expired government stimulus programs were the drivers.

Turning now to gross profit, the adjusted fourth-quarter enterprise gross profit rate declined 60 basis points to 22.6% including a 10 basis point decline in the Domestic segment and a 210 basis point decline in the International segment.

In the Domestic segment the fourth-quarter adjusted gross profit rate was 22.4% versus 22.5% last year.

This 10 basis point increase is a net impact of two business drivers.

The first, which represents a 40 basis point decrease, is higher promotional activity, principally in home theater, that was partially offset by lower sales in gaming which sells at a lower gross profit rate.

The second is a 30 basis points benefit from a periodic profit-sharing payment that was earned by the Company based on the long-term performance of the Company's externally managed extended service plan portfolio.

In the International segment the fourth-quarter gross profit rate was 23.4% versus 25.5% last year.

This 210 basis points rate decline was primarily driven by a lower gross profit rate in Europe.

In Europe the decline was driven by a higher percentage of revenue coming from the wholesale channel and an unfavorable product mix in addition to greater promotional activity.

The International segment's gross profit rate was also negatively impacted by phone carrier and other periodic payments that were earned by the Company in the prior year that did not recur in Q4 of fiscal year 2013.

Adjusted fourth-quarter enterprise SG&A as a percentage of revenue increased 100 basis points to 17.1% with a 140 basis point increase in the Domestic segment and a 10 basis point decline in the International segment.

In the Domestic segment adjusted SG&A expenses were $2.07 billion or 16.5% of revenues versus $1.9 billion or 15.1% last year.

This 140 basis point increase was primarily driven by increased investments in advertising and other direct selling costs to drive in-store and online revenue; a reversal of incentive compensation expense in the prior year that did not recur in the Q4 of fiscal 2013; an increase in field incentive compensation and executive retention and transition costs; and a year-over-year increase in legal-related reserves.

In the International segment SG&A expenses were $791 million or 19% of revenue versus $782 million or 19.1% last year.

The [10% point] decrease was primarily driven by overall lower costs partially offset by the negative impact of changes in foreign currency exchange rates.

Adjusted free cash flow was $965 million for the year versus the most recently provided guidance of $500 million.

This better-than-expected result was driven by three factors -- an aggressive inventory reduction plan and an intense focus on working capital and cash flow management initiatives that were implemented after the Company's last financial press release; a higher than expected mix in the European business of inventory purchases for business-to-business sales activity that carry substantially longer payment terms; and the impacts of better-than-expected fourth-quarter earnings.

Before we move on to discussing next year, let me touch on the non-cash impairments and restructuring charges that were excluded from our non-GAAP earnings.

First, we recorded a non-cash impairment charge of $822 million primarily to reflect the write off of goodwill for Canada and China as recent economic and competitive pressures contributed to a worse-than-expected fourth-quarter performance and led to lowered long-term outlooks for both countries.

The same factors that resulted in the goodwill impairment also led to higher than normal non-restructuring non-cash asset impairments which were included in the SG&A line and totaled $44 million, including $9 million related to Domestic segment asset impairments.

The Company also recorded restructuring charges totaling $203 million in Q4 of fiscal 2013 primarily related to previously announced store closures in Canada and Europe in addition to severance charges associated with the Renew Blue SG&A cost reduction initiatives outlined previously.

Of this $203 million approximately $140 million is inspected to be paid out in cash primarily over the next two years.

For a full GAAP to non-GAAP reconciliation please see the schedules in today's press release.

Now looking forward to fiscal 2014, Best Buy is at the beginning of a major transformation.

As Hubert said, this year will be a transition year; a year in which we will be taking out costs as fast as we can, but also a year in which we will be simultaneously making substantial investments in Renew Blue initiatives that we believe will deliver significant long-term returns.

To support these initiatives we're expecting capital spending in fiscal year 2014 to be in the range of $700 million to $800 million and incremental SG&A investments to be in the range of $150 million to $200 million.

These investments will be principally in the areas of online, mobile and the multi-channel customer experience in addition to non-recurring costs associated with the insourcing of IT expected to be completed in fiscal 2014 and the replatforming of BestBuy.com expected to be completed in fiscal year 2015.

These incremental SG&A investments, however, are expected to be substantially offset by our Renew Blue cost reduction initiatives, including the $150 million of phase one reductions that were enacted over the last several weeks and the additional reductions that we are expecting to announce in the second quarter and later this year.

From a revenue and earnings perspective in fiscal 2014 we will not be providing financial guidance.

Directionally, however, we do expect the first quarter to be under significant pressure due to -- one, the absence of an additional week and the impact of this year's pre-Super Bowl sales shifting into Q4 versus Q1 of fiscal 2014, which is an approximate impact of $0.14 combined in diluted earnings per share.

Number two, a less favorable product and services mix in the Domestic segment due to the timing of high velocity product launches that occurred in Q1 of fiscal 2013 that are not expected to recur in Q1 of fiscal 2014.

Number three, the first-quarter carryover effect of sales and marketing investments that were implemented in mid-fiscal year 2013.

A greater investment in price competitiveness including the impact of the Company's recently launched price match program.

And five, the timing and impact of capital and SG&A investments that are hitting the P&L today versus the timing of the realization of the benefits including the insourcing of IT and the replatforming of BestBuy.com.

But despite these first-quarter financial pressures, the energy in the organization around the successful execution of our Renew Blue initiatives is so inspiring.

Our fourth-quarter results and the actions that we've taken since then to begin rationalizing our infrastructure have given the organization something that they have not had in a long time, pride in the outcome and a belief in what is possible.

Our fourth-quarter results have also affirmed what Hubert shared at the November Analyst Day and what I knew to be true when I joined the Company.

Best Buy is the market leader in a highly fragmented and growing market.

We have a powerful platform from which to deliver a superior multi-channel shopping and service experience to our customers.

And while already the 11th largest eCommerce retailer in the US, Best Buy is under penetrated from a market share perspective and early investment returns and the momentum we have seen in the channel validate the potential of this significant growth opportunity.

And the runway to improve financial returns through increased online growth, enhanced retail execution and extensive structural cost reductions is tremendous.

I will now turn the call back to Hubert.

Thank you so much, Sharon.

And before we go to Q&A I wanted to give you a quick update on the process with our founder Dick Schulze.

So yesterday was of course the deadline for Dick to make a qualified offer and no such offer was received.

Now during the process Dick introduced to the Company several impressive private equity sponsors who all expressed interest in an investment in Best Buy.

Now the cost of these investments, however, were determined to be excessive and dilutive to our existing shareholders.

Therefore the Company concluded to not accept these offers.

Despite the significant amount of time that management has spent on this process, the organization has remained focused on our Renew Blue transformation and we will continue to do so as we move forward for the benefit of all of our stakeholders.

So I will now turn the call over to the operator for Q&A.

(Operator Instructions).

Kate McShane, Citi.

My question is surrounding the price matching program that you are going to put in place or is about to be put in place that you did during holiday.

And I wondered if you could compare and contrast what was done during holiday versus what we can expect to see this year and if there were any [learnings during] holiday that you learned.

Hubert, would you like to take that question?

Yes, and good morning, Kate.

The line was not very good; I think your question pertains to price matching activities during the holidays and our strategy going forward.

So this is a decision we made in October to make sure that we enhance our price competitiveness and fight the so-called show rooming phenomenon.

Our Blue Shirts, our teams in the field have been very excited about this program; the customers have been very engaged in this program and we believe that it has helped increase our -- or improve our price perception during the program.

And so, we have been very excited about it.

In terms of impact on our margins -- there was a big concern, right, in terms of the impact it would have.

The impact has really been minimal because in general terms actually our prices are quite competitive.

And as you know, we have decided to move from the pilot to a policy.

So the situation now is that we are matching both online and in the stores.

We have actually expanded the price matching policy to cover essentially all product categories including accessories and hardware and so far there are very few exceptions to the policy.

The fact that we are going to make this a policy and make it permanent may increase the cost a little bit, so that is a factor that we have in mind.

But we are Best Buy and we are determined to be the Best Buy for our customers.

And of course our value proposition for the customer is not just the price; it is all of the five customer promises.

And we like the response we're getting from customers.

Anthony Chukumba, BB&T Capital Markets.

Congrats on the quarter.

So, my question was on the free cash flow.

You significantly reduced your guidance when you reported the holiday sales results and now you came out way, way, way better than that.

I was just wondering -- I know there was the color in the press release, but if you can give us any additional color.

Because I know that there was some concern that maybe it was because vendors were cutting back terms.

And so I would just love a little bit of additional color in terms of what you are able to do to almost double your free cash flow guidance.

Thanks.

Anthony, this is Sharon, and I will take that question.

In order to do that -- obviously I had just joined the Company when we released the previous cash flow guidance.

And we had -- at the time I joined we were discussing and the organization was already discussing actions to take as it relates to working capital management.

So subsequent to that time there were several things that we did that drove this.

And the biggest of them -- and then there was one that is not driven, it is a result of a business change in Europe.

So let me walk through them in a little more detail.

First of all, the inventory was lower -- ended lower than we anticipated and a portion of that was the additional sales, but in addition to that we had -- we did an entire study of a layer of our inventory that was very slow moving and that was eligible for return to vendor.

And so, we had a full-court press in the organization on taking this non-productive working capital and returning it to vendors.

Now, this is a process that when you think through it you go from the store to a regional center, from the regional center to the vendor the paperwork has got to be intact.

And then you can legitimately deduct that from payables that you would owe to the vendors thus turning it into cash.

So to have guided a process that we had not historically executed, now of course has become part of our baseline execution, would have been probably a little bit premature.

But the execution of this yielded well over $300 million of additional cash flow.

So we were thrilled with the execution across the organization, this was full-court press and that was one driver.

The next -- a second driver is that, if you recall from my prepared remarks, in Europe we talked about the fact that they had a significantly higher mix of wholesale sales during the quarter.

And as part of this business-to-business sales effort activity being so much higher than anticipated, the payment terms on inventory purchases associated with this B2B business are substantially longer.

So Europe delivered a substantial benefit -- international in general delivered, but it all really came out of Europe and that brought in virtually -- actually slightly more than the balance.

And then of course because of our stronger performance we did have some slightly higher receivables which were the offset.

So that is what drove it, it was pure operational execution.

And then on top of that, Anthony, the smallest piece, but truly is aggressive cash management.

We as a Company have not necessarily had the disciplines in place around that area.

And of course going forward again we have -- we are building into our processes a much more thoughtful approach to cash management with all of our vendors.

And I'm not just talking about vendors associated with our inventory purchases, but our general -- we do a lot of purchasing, as you can tell from our SG&A initiative around here, that don't have anything to do with product for resale.

So that is another area that we have gone after.

Sharon, do you want to touch on the vendor terms?

There was a question from Anthony about changing vendor terms or a concern about this, which of course is not the case.

Do you want to maybe make that point?

Yes, Anthony, we affirmed that in fiscal 2013 there were no changes in vendor terms.

I know that people were trying to get their head around this and they were trying to understand it, but that had nothing to do with the $500 million.

It all had to do with bringing the inventory in earlier because of the calendar.

And all of the things that we talked about in our last press release were exactly how it came out.

Had we not done this aggressive return of slow moving inventory that had return capabilities with the vendors this number would have been back into that range if you take out the benefit from the shift in revenue in Europe to wholesale.

Okay, that is very helpful color.

Good luck with fiscal year 2014 and keep up the good work.

Greg Melich, ISI Group.

Thanks, Hubert and Sharon; I know it has been busy there.

On the domestic SG&A, it was up 9% in the fourth quarter and you described it in dollar terms.

It seems like some of it is sort of just transitional and cycling some reversals from a year before, but a lot of it is ongoing as well.

Could you help us understand the balance of how much of that 9% dollar growth you think is ongoing as opposed to just a cycling issue?

Yes, Greg, your question cut out a little bit, but I think what your question was is in the SG&A that we reported in the fourth quarter it was up substantially or a bit more than you might have anticipated and you wanted to know how much of that was going to continue into 2014.

So I will answer that question and if that is not right you can come back and ask -- and help me with that question.

As far as the changes, what we talked about in the press release is that there was a one-time -- a credit last year that did not recur this year.

We also in the fourth quarter had some legal reserves that we had recorded that of course I don't -- we don't have those frequently, so there were some things that were unusual that way.

As I look at the SG&A, I perhaps would be more effective in answering this question by stepping back and just talking about SG&A and talking about our SG&A cost reduction initiatives.

My early observations, having been here just now a short time, but in total agreement with Hubert is that the SG&A infrastructure at Best Buy is too high.

There are some investments in the numbers that we are looking at in Q4 related to the Renew Blue field compensation plan that was put into place and there are investments right now in Q4 that are related to this IT transition.

We are insourcing aspects of IT and doing other insourcings and we got double cost; those will not continue.

But looking at the cost base just in general, it is not in any way optimized.

And we have significant incremental opportunities, $150 million was our first step at reducing the cost, but it is -- and it is not all about headcount.

A significant piece of this is going to come from non-payroll and benefit-related reductions and it is going to come gradually and incrementally during the year.

So, in Q1 we were hit really hard with this base of cost that was added early last year that we are not -- will not be continuing in our cycle.

We've taken out a piece of it, we're going to take out another piece and are already prepared to announce additional reductions for Q2 which we will talk more about in a few weeks or so from now or next release.

And then we have additional reductions with a cadence throughout the balance of the year.

So to summarize, I would say there is a piece of this that will continue and then you will see dual and incremental reductions.

Q1 is going to have a lot of pressure, Q2 still has pressure, it is going to -- we are going to have the charges associated with taking the cost out.

Then Q3 and Q4 we are going to be slimmer and we will continue to take cost out going forward.

That's great, thank you.

Gary Balter, Credit Suisse.

First of all, just one clarification on the earlier question that was asked on price matching, because when you go on your site it doesn't mention matching online.

But some of your Christmas stuff was matching online.

So what is the policy now going forward?

So let me be very clear, the price messaging matching strategy applies both online and in the stores.

You see it under the words Low Price Guarantee, Gary -- and first of all, let me thank you for visiting our site, I hope you are buying and --.

Well, I didn't have the guarantee so I didn't buy -- no, just kidding.

(Laughter) so, would you like to tell me what SKU you would like to -- would you like to handle this now?

Yes, I will talk to you after (laughter).

We're very customer focused, as you can see.

I can see.

The Low Price Guarantee is the word for the price match and you see it on the site.

And I will double check right after this call myself so that the -- because I'm concerned about what you are saying.

But let there be no doubt, the price matching is both online and can get it online and in the stores and it covers of course our brick-and-mortar competitors as well as our online competitors.

Okay and then just a question, could you talk about your progress on the website?

Like you obviously laid it out as one of the priorities.

Could you tell us like where you are in terms of progress on that and how long you see that taking in terms of getting to a site that you are comfortable with?

Yes, thank you, Gary.

And so, this is going to be a dual process.

One side of the process is to work with the existing site and make gradual incremental progress, as mentioned, a number of things we're going to be focused on and we'll be ready for it next holiday and this will continue.

So this deals with the interaction with the customers, it deals with search, it deals with assortment, it deals with integration.

One of the surprises has been the fact that we have these multiple sites -- BestBuy.com, MyRewardZone.com, GeekSquad.com -- that have not been integrated and so the customer experience -- we are talking about multi-channel, even multi-website, it was not integrated.

So we are addressing that with the existing infrastructure.

And then in parallel to this we will be -- we will have a project to reconstruct, redevelop a new platform and, as you would expect, that takes longer.

We expect this to probably take a couple of years, roughly speaking, which is why of course we don't want to wait a couple of years and we will have this dual track.

So keep shopping during the year, expect next holiday some wonderful enhancements and then continue coming back and providing us feedback.

And just to calm you down here, make you happy, I did buy a 55-inch Samsung TV just before the Super Bowl at your store.

So I am spending money at Best Buy, that should --.

Gary, I couldn't be happier.

And I am actually looking at the site on my iPad and you can see Low Price Guarantee.

It says we'll match prices on qualifying products, see details and so forth.

But you have the Low Price Guarantee, it is on the front page and towards the left in the bottom third of the page.

Okay, thank you.

Chris Horvers, JPMorgan.

Holistically can you talk about the outlook for domestic gross margin as you look ahead?

It seems like there was only that one warranty item that was not sustainable.

So do you think we have reached the point, we have got the smartphone mix issue behind us.

Have we reached stabilization?

And if not what would be sort of the puts and takes as you look ahead that could sway us from current levels?

Chris, this is Sharon, I'm going to take that question.

I think that you have to take a look at 2013, the fiscal year, and look at it by quarter.

And what you saw throughout the year was the more competitive environment playing out in the gross profit rates.

So now we have gotten into Q4 and what we believe is that we will continue -- Q4 was a more promotional quarter especially in Europe.

So when you are looking at the enterprise level, I'm talking about the Domestic business now.

When you look at Q4 we believe that coming off of that level you are going to start seeing stabilization in that margin.

And our hope would be, through our supply chain and our cost efficiencies and cost of goods sold initiatives under Renew Blue, that we can improve that.

But this is going to be the challenge for Q1.

It was throughout the year that we saw the competitive pricing environment escalate and up against Q1 we are going to have a challenge in the gross margin because last year was so much stronger.

So that is how you should think about it going forward, but just to put that -- I'm not giving guidance but to just point it out to all of you so that you can model.

Please take a look at that and you are going to see what I am talking about.

Right, so we sort of look back in time and we think about what -- typically what 4Q margin looks like, that is sort of the basis that we build backwards from basically?

I think Q4 was -- because of the impact that we saw from Europe and some other things I think it was a little bit lower.

But, yes, you need to take a look at how the year progressed.

And now we feel that we are in a place where we can start stabilizing and building.

I want to come back one second on Gary's question about the price match to be very precise, which is that the movement from the [tightest] phase of our price matching to the permanent policy is March 3. And so, in the stores it's on March 3 that you will see the new signage and so forth.

But as I have said, it is a transitional and very precise point.

Okay, operator, this will be the last question, thank you.

Joe Feldman, Telsey Advisory Group.

Thanks for taking my question and congratulations on the quarter.

I wanted to also dig into the Internet a little bit and the eCommerce sales and was just curious, the complexion of what you saw in eCommerce relative to the stores in the past quarter in terms of maybe the types of products you are selling online.

Did you see any changes from prior quarters?

Had you seen any change in profitability?

Or just -- and how you are thinking about the capital deployments going forward.

Among that CapEx spending, how much is going towards eCommerce this year?

Hubert, would you like to take that question on online?

Yes.

Thank you very much, Joe, and I love your question because online is always number one in our thoughts.

It is a huge area of emphasis for us.

So online, of course we saw good growth in tablets, phones and accessories during the quarter.

Down the road we will sell to customers the way they want to buy.

And of course simpler products will be sold probably primarily online and more complex products will be sold more in the stores.

And of course the customers will have the choice.

We are focused on growing online as well as expanding the profitability of online.

We have the firm belief that at the end of the day online and the stores should have the same level of profitability.

So some of the emphasis going forward will have to do with increasing -- improving the basket online, including one thing I mentioned which is the ability -- the easier ability to buy our services online as well as expanding the basket through recommendation.

So lots of opportunities there.

In terms of the investments, we have said with Sharon we are going to be very disciplined around the allocation of capital with a view to enhancing our return on invested capital.

So we know what our priorities are and that makes it easier.

So online is an area of emphasis from a CapEx standpoint and notably from an IT standpoint.

And we are focused on driving that.

We understand that both from an OpEx and CapEx standpoint the fact that we are going to have these investments in the two platforms, the existing platform and a new platform will create a bit of a bump, if you will.

But we are determined to do the right thing, provided that we keep this focus on return on invested capital.

And, Hubert, I might just add one more highlight on dot.com for the fourth quarter, which is on top of that 11% growth we also had an improvement in the gross profit rate.

So despite the investments we made in the marketing and the price match we did start seeing an improvement in the profitability and the gross profit in the online business which of course is also very encouraging as we start making these investments.

So, thank you.

And just before we conclude I would like to of course share our excitement about the early momentum we're seeing here and thank you for your support.

This is going to be a very exciting journey.

We are going to have ongoing dialogues around this.

We look forward, Sharon and I, to continuously updating you on our progress and our building momentum.

So, thank you for your support and continued interest.

Thank you.

Ladies and gentlemen, that concludes today's Best Buy fourth-quarter fiscal 2013 earnings conference call.

Thank you for your participation.

You may now disconnect.