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Operator
Ladies and gentlemen, thank you for standing by.
Welcome to Best Buy's fourth-quarter fiscal 2015 earnings conference call.
(Operator Instructions).
As a reminder, this call is being recorded for playback and will be available by 11 AM Eastern Time today.
(Operator Instructions).
I would now like to turn the conference over to Mollie O'Brien, Vice President of Investor Relations.
Mollie O'Brien - VP of IR
Good morning and thank you.
Joining me on the call today are Hubert Joly, our President and CEO, and Sharon McCollam, our CAO and CFO.
As usual, the media will be participating in this call in a listen-only mode.
This morning's conference call must be considered in conjunction with the two press releases that we issued earlier this morning, including our Q4 earnings release and the second release announcing our plan to return capital to our shareholders.
The Q4 earnings release and today's conference call both contain non-GAAP financial measures that exclude the impact of certain business events.
These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons but should not be compared superior to, as a substitute for, and should be read in conjunction with the GAAP financial measures for the period.
A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release.
As previously announced on December 4, 2014, the Company entered into a definitive agreement to sell its Five Star business in China.
As a result of this agreement Five Star was classified as held for sale at the end of fiscal 2015 and its results were included in discontinued operations for the current and prior year periods.
On February 13 Best Buy completed the sale of Five Star.
We have recast certain financial information for fiscal 2014 and 2015 to reflect the results from the Five Star business as discontinued operations.
This recast financial information is available as Exhibit 99.2 in the Company's Q4 earnings release 8-K filed this morning and on our IR website, investors.
BestBuy.com.
Today's earnings release and conference call also include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements address the financial condition, results of operations, business initiatives, growth plans, operational investments and prospects of the Company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.
Please refer to the Company's current earnings release and SEC filings for more information on these risks and uncertainties.
The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.
In today's earnings release and conference call we refer to consumer electronics industry trends.
The consumer electronics industry, as defined by the NPD group includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging and other categories.
Sales of these products represent approximately 65% of our domestic revenue.
It does not include mobile phones, gaming, movies, music, appliances or services.
I will now turn the call over to Hubert.
Hubert Joly - President & CEO
Good morning, everyone, and thank you for joining us.
I will begin today with an overview of our fourth-quarter and full-year results.
I will then discuss the status of our Renew Blue transformation and our priorities for fiscal 2016 before turning the call over to Sharon for additional details on our quarterly results and commentary on our financial outlook.
So first our financial results.
In the fourth quarter our teams delivered positive comparable sales, improved profitability and continued progress in our Renew Blue transformation.
This resulted in a 1.3% increase in revenue to $14.2 billion and a 23% increase in non-GAAP diluted EPS to $1.48 versus $1.20 last year, primarily driven by growth in our domestic segment.
A compelling merchandise assortment and strong multichannel execution drove these better-than-expected results as we capitalized on the product cycles in large-screen televisions and mobile phones.
These two categories were the primary drivers of our year-over-year revenue growth and more than offset weakness in the tablet category which was impacted by material industry declines.
Our value proposition of expert service, unbeatable price, resonated with customers whether they came to us in store, online or both.
We delivered to our customers a strong multichannel experience and we were uniquely positioned to serve them through our national retail footprint, our online experience, our knowledgeable Blue Shirt and Geek Squad agents and our stores within a store.
We also benefited during the fourth quarter from our investments in inventory availability, mobile phone installment billing, supply chain including faster store replenishment and online delivery, as well as more effective and relevant marketing.
Altogether these results reflect the successful delivery of our holiday plan.
We said that we would execute a highly disciplined operating and promotional plan that would drive a better year-over-year financial outcome for our shareholders and these results reflect that.
On a full-year basis we continue to make progress against the two main problems we had to solve that we outlined in November of 2012: number one, declining comps; and number two, declining operating margins.
In fiscal 2015 we stabilized comparable sales on a full-year basis and delivered incremental non-GAAP SG&A reductions of approximately $420 million resulting in a non-GAAP operating income rate expansion of 80 basis points and a 26% increase in non-GAAP diluted EPS to $2.60.
We also ended the year with $3.9 billion in cash versus $2.6 billion last year.
These results reflect of the cumulative progress since 2012 that we have made against our Renew Blue transformation initiatives.
So to date we have:
Number one, improved our NPS score by 450 basis points.
Number two, we have rolled out 71 Pacific Kitchen & Home and 34 Magnolia Design Center stores within a store in addition to our enhanced vendor experiences.
Number three, we have implemented ship from store across the whole chain driving significant growth for our business.
Number four, have increased our domestic online penetration from 7% to 9.8% of our revenue.
Number five, we have gained share across multiple categories.
Number six, we have delivered $1.02 billion in Renew Blue cost reductions, exceeding our $1 billion target.
Number seven, we have divested our underperforming European and Chinese businesses.
And number eight, we've intensively managed our capital resources and significantly strengthened our balance sheet.
In light of this progress, and as a demonstration of our commitment to our shareholders, we were pleased to announce this morning our plan to return excess capital.
This plan allows us to continue to invest in the growth of our business and preserve a strong balance sheet.
It includes, number one, a special one-time dividend of $0.51 per share or approximately $180 million related to the net after-tax proceeds from LCD-related legal settlements received in the last three fiscal years.
Number two a 21% increase in our regular quarterly dividend to $0.23 per share.
And number three, the resumption of share repurchases with the intent to repurchase $1 billion worth of shares over the next three years.
So before I turn to our plans for this year I want to publicly thank our employees for the impact of their hard work.
We have a very talented and dedicated set of leaders and employees at Best Buy.
And it is an honor to lead this group of amazing individuals and a privilege to work with each and every one of them.
Now as we look forward to fiscal 2016 and beyond it is imperative that we continue to focus on driving comparable sales and improving operating margins while funding investments in our future.
As we have previously shared, we are pursuing a strategy that is focused on delivering advice, service and convenience at competitive prices to our customers.
Within this strategy we're focused on driving a number of growth initiatives around key product categories, life events and services and to drive these initiatives we are pursuing and investing in the transformation of our key functions and processes.
To provide more color on these initiatives, which reflect continued execution against the 24 months roadmap that we outlined a year ago, I will now provide specific actions we intend to pursue in fiscal 2016.
So the first initiative of our roadmap is merchandising.
Our goal is to create a compelling assortment online and in the stores with a superior end-to-end customer experience that yields enhanced financial returns.
In pursuit of that we plan, number one, to capitalize on the ultra high definition TV cycle through best-in-class merchandising, assortment and customer experience including opening approximately 20 additional Magnolia Design Center stores within a store to end fiscal 2016 with 78.
Then number two, we plan to accelerate our expansion in growing categories with structural barriers to entry like large appliances and mobile phones, including opening approximately 60 additional Pacific Kitchen & Home stores within a store to end fiscal 2016 with 177, as well as extending our installment/billing/selling capability online.
Number three, we plan to grow our connected home in health and wearable businesses to an optimized assortment and improved multichannel customer experience.
Number four, we plan to increase our branded, exclusive and private label assortments.
Number five, we plan to expand our secondary market growth strategy to offer consumers better access to these types of products and improve our margin recovery on returns, replaced and damaged products.
And number six, we plan to apply more science behind our promotional and pricing strategies.
We will also, as part of this merchandising thrust, expand our programs to capture customers at the time of key life events and build long-term relationships with them, including our new mover program and our wedding gift registry which we launched in February.
The second initiative is marketing which provides, of course, crucial support for our merchandising growth opportunities.
In marketing we will accelerate our targeted marketing programs by leveraging our Athena customer database to expand personalization beyond email campaigns.
We will extend the personalization of our targeted email campaigns by dynamically serving relevant [landing] pages when customers click through to our website.
We will continue the evolution of our marketing spend from analog and mass to digital and personalized mediums such as search, mobile devices and retargeting.
And we will continue to increase the number of addressable emails in our customer database.
The next initiative on our roadmap is online.
Our goal here is to serve our customers based on how, where and when they want to be served and capture online share.
In pursuit of that goal we will continue to develop true omni-channel experiences including:
Number one, improving the online visibility of returns open box inventory.
Number two, extending our installment billing selling capability online.
Number three, enhancing the online experience for appliance purchases.
Number four, expanding capabilities for life events like the wedding registry and wish list.
And number five, providing an integrated Geek Squad customer experience across channels and devices and driving increased attach rates.
We will also be continuing the transformation of our e-commerce technology platform and accelerating the transformation of our mobile customer experience which we will support through our new technology development center in Seattle.
Similar to general industry trends our traffic for mobile phones is growing much faster than traditional desktop traffic and we are increasing our mobile investments accordingly.
It is imperative that we engage mobile customers with improved and streamlined access to essential rich product information during the discovery, research and checkout processes.
The next initiative on our roadmap is retail stores.
In our retail stores we are building on the great momentum from our success in fiscal 2015.
And we will be driving increased sales effectiveness and payroll leverage through focus on the individual sales productivity of our associates.
We will be enhancing our in-store customer experience from both an expert service and physical environment perspective, including expanding product training for associates.
And number three, we will be driving growth by implementing market plans that are tailored to specific geographies.
The next initiative on our roadmap is services.
In fiscal 2015 we significantly reduced our legacy cost structure and improved our services related NPS scores.
We also launched a loss and theft mobile phone insurance program and will complete technology support bundles.
Now despite these accomplishments revenue has been declining largely due to lower attach rates of traditional extended warranties and lower mobile revenue due to our success in decreasing claim severity and frequency which is an operational positive.
So in fiscal 2016 we will be focused on continuing to transform our traditional service offerings to better address customer needs.
We will be integrating the Geek Squad customer experience into BestBuy.com to provide an enhanced service experience to our customers and to increase online attach rates.
We will be continuing to improve our delivery and installation experience.
And we will be increasing the investment in marketing and selling our service offerings.
The next initiative on a roadmap is supply chain.
Our goal in supply chain is to leverage our network and improve our customer experience with increased inventory availability, improved speed to customer and improved home delivery and installation capabilities for our large cube assortments.
In pursuit of that goal we will unlock additional inventory for ship from store; we will continue to pursue cost efficiencies through technology enhancements, including the replacement of our warehouse management system; we will drive growth in large appliances and large TVs by leveraging new original inventory capabilities launched in October; and we will invest in improving our home delivery and installation services NPS.
The last initiative and a roadmap is our cost structure.
So with the $55 million in additional annualized cost reductions announced today, in the past two years we have delivered over $1 billion in North American Renew Blue cost reductions.
In fiscal 2016 we are launching Phase 2 of our Renew Blue cost reduction and gross profit optimization program with a target of approximately $400 million over three years including the remaining benefit of approximately $250 million from our previously discussed returns, replacements and damages opportunity.
These savings, because they are structural in nature, are not expected to begin until the back half of fiscal 2016 and will be driven by streamlined processes and operational efficiencies that will be primarily enabled to investments and systems.
We expect, however, that these incremental savings will be significantly offset by the investments we need to make to fund our growth initiatives.
In fiscal 2016 we expect these incremental investments to total approximately $100 million to $120 million or $0.17 to $0.21 in diluted EPS and fall in three main buckets.
One is the customer experience online and in our retail stores; two is information technology; and three is marketing.
We also expect to increase our fiscal 2016 capital expenditures to approximately $650 million to $700 million from $550 million in fiscal 2015.
So the strategy we just outlined is the foundation for our fiscal 2016 operating plan.
And we are confident in our ability to execute against this as we have demonstrated this past year.
But we will also be facing industry and economic pressures that we discussed last quarter, and in our holiday sales press release, that we expect to impact our business including: more rapidly declining average selling prices in key product categories; weak industry demand in certain product categories; declining demands and increasing price pressures from our extended warranties; and increasingly competitive and costly customer service expectations like free and faster shipping.
So to win against this backdrop investing now is imperative.
And while these investments will put pressure on our fiscal 2016 operating income rate, as Sharon will discuss, we believe they leverage our executional momentum and will allow us to build a differentiated customer experience and a foundation for long-term success.
I'll now turn the call over to Sharon to discuss the details of our fourth-quarter financials and our financial outlook for the first half of fiscal 2016.
Sharon McCollam - CAO & CFO
Thank you, Hubert, and good morning, everyone.
Before I talk about our fourth-quarter results versus last year, I would like to talk about them versus our expectations we shared with you in our holiday sales release.
From a top-line perspective enterprise comparable sales growth of 1.3%, excluding the 70 basis point impact of installment billing, was slightly above our near 1% expectation.
Our non-GAAP operating income rate expansion of 130 basis points was also above our 75 to 90 basis point expectation due to higher than expected vendor participation and our holiday promotional activity.
Combined these better than expected outcomes equated to an incremental $0.10 of EPS.
We also saw a positive $0.03 per diluted share of a nonrecurring tax benefit which partially offset the previously communicated negative $0.10 impact from the reorganization of our European legal entity.
I will now talk about our fourth-quarter results versus last year.
Enterprise revenue increased 1.3% to $14.2 billion.
Enterprise non-GAAP diluted EPS increased $0.28 to $1.48 primarily driven by a more structured and analytical approach to our promotional strategy, better performance of our credit card agreement, the positive flow-through of our gross profit enhancement initiatives, the flow-through of higher year-over-year revenue and the positive impact of changes in our mobile warranty plans which resulted in lower costs due to lower claim frequency.
These favorable impacts were partially offset, however, by the negative $0.07 per diluted share impact in income tax expense that I just discussed.
In our domestic segment revenue increased 3.2% to $12.7 billion despite a 3.2% decline in the NPD reported consumer electronic categories.
Our revenue growth was driven by comparable sales growth of 2% excluding the estimated 80 basis point benefit associated with installment billing and a $68 million or 55 basis point improvement in the performance of our credit card agreement versus a negative $65 million or 50 basis point impact last year.
Domestic online revenue on a comparable basis increased 9.7% to $1.7 billion, primarily due to substantially improved inventory availability made possible by the chain wide rollout of ship from store in January of 2014.
Higher conversion rates and increased traffic driven by greater investment in online marketing also contributed to our year-over-year growth.
This growth, however, was substantially offset by material industry softness in tablets, a category with high online penetration, and a channel shift in mobile revenue that resulted from the customers' enthusiasm for installment billing plans which could only be sold in our retail stores.
As a percentage of total domestic revenue online revenue increased 90 basis points to 13.5% versus 12.6% last year.
Versus last year's online growth, this year's online comparable sales growth of 9% was lower for two primary reasons.
First, we saw the expected 600 basis points of pressure from lapping last year's gaming console introductions and our initial 400 store ship from store rollout.
We also saw approximately 500 basis points of unexpected additional pressure from tablets and mobile for the reasons that I just discussed.
As all of these pressures, however, are expected to continue into Q1 and the impact of gaming and our chain wide rollout of ship from store will increase from 600 basis points of pressure in Q4 to 1,000 basis points in Q1, online growth in Q1 is expected to be in the mid-single-digit range.
From a merchandising perspective during the fourth quarter comparable sales growth in televisions, mobile phones and computing was significantly offset by the material decline in tablets.
The growth in mobile phones was primarily driven by higher year-over-year selling prices.
We also saw continued comparable sales declines in services in Q4.
This decline of 11.4% was primarily driven by lower mobile repair revenue due to our success in decreasing claim frequency and lower attach rates.
In our international segment revenue did decline 12.4% to $1.5 billion due to a negative foreign currency impact of 750 basis points, a comparable sales decline of 4% due to industry declines in Canada and the loss of revenue from store closures in Canada.
From a merchandising perspective, comparable sales growth in mobile phones was more than offset by declines in tablets, gaming and digital imaging.
Turning now to gross profit, the Enterprise non-GAAP gross profit rate for the fourth quarter was 21.3% versus 20.2% last year, an increase of 110 basis points.
The domestic gross profit rate increased 120 basis points to 21.2% versus 20% last year.
This increase was primarily due to the more structured and analytical approach to our promotional strategy; the ongoing improvements in supply-chain efficiencies and higher margin recovery on returned, replaced and damaged products; a 40 basis point positive impact related to our credit card agreement as compared to a negative 40 basis point impact in Q4 of last year; and the positive impact of changes in our mobile warranty plans which resulted and lower costs due to lower claims frequency.
These increases were partially offset by structural investments and price competitiveness particularly in accessories.
The international gross profit rate was flat year-over-year at 21.7%.
Now turning to SG&A, enterprise-level non-GAAP SG&A was $2.2 billion or 15.5% of revenue versus 15.7% last year, an increase of $9 million in dollars but a reduction of 20 basis points in rates.
Domestic non-GAAP SG&A was $1.9 billion or 15.3% of revenue versus 15.5% last year, an increase of $41 million.
This dollar increase was primarily driven by higher incentive compensation and Renew Blue investments in customer facing initiatives.
These increases were partially offset by the realization of our Renew Blue cost reduction initiative and tighter expense management throughout the Company.
The 20 basis point rate improvement was driven by year-over-year sales leverage.
International non-GAAP SG&A was $262 million or 17.3% of revenue versus 17% of revenue last year, a decline in dollars of $32 million.
This dollar increase was primarily driven by the positive impact of foreign currency, lower expenses due to store closures in Canada and the realization of our Renew Blue cost reductions in Canada.
The 30 basis point rate increase was driven by year-over-year sales deleverage.
Also as it relates to the international segment, we completed the sale of our Five Star business in China and continue to focus on Renew Blue transformation in Canada.
I would now like to talk about fiscal 2016.
In fiscal 2016 we expect the financial impact of the investments and economic pressures that Hubert discussed earlier to begin in Q1 and continue throughout the year.
From a top-line perspective our current expectation is consistent with the outlook we provided in our holiday sales release.
While we're optimistic about the potential of new product launches, our limited visibility due to timing and quantity keep us cautious.
As such our Q1 and Q2 expectation for enterprise revenue and comparable sales growth, excluding the estimated impact of installment billing, continues to be in the range of flat to negative low-single-digits.
This change in trend versus Q4 is primarily driven by ongoing material declines in the tablet category in addition to holiday momentum around high-profile giftable products not continuing post holiday.
We will also be anniversarying approximately 80 basis points of enterprise growth in the first half of last year driven by the chain wide rollout of ship from store.
From a non-GAAP operating income rate perspective we are also reiterating our outlook for Q1 and Q2 of down approximately 30 to 50 basis points, including lapping last year's Q1 15 basis point one-time benefit associated with the new credit card agreement.
This decline reflects the economic and growth pressures that we just outlined, the investments we are making to drive our fiscal 2016 growth initiatives and our anticipated SG&A inflation.
Additionally, we expect the Q1 and Q2 non-GAAP continuing operations effective income tax rate to be in the range of 39% to 40%.
But despite these first half pressures we are encouraged by the execution and momentum that we saw in the fourth quarter and are excited about the opportunities that lie ahead for next year.
While we remain cautious on the overall industry, the strength of the Best Buy brand and our track record of improving our operational performance provide us with a strong confidence in our ability to deliver against the roadmap that we outlined today.
I would now like to turn the call over to the operator for questions.
Operator
(Operator Instructions).
Greg Melich, Evercore ISI.
Greg Melich - Analyst
Sharon, could you give us a little more detail on the guidance, the 30 to 50 bps of margin pressure in the first half, how that breaks down between gross margin and SG&A?
And then also what is taking CapEx up this year, what that is being spent on?
Thanks.
Sharon McCollam - CAO & CFO
We -- Greg, we expect the decline primarily to come from the SG&A line.
We are making these investments, as we discussed last quarter, and we expect those to begin in the first quarter.
We have actually already begun and those will continue obviously throughout this year.
We will continue to be working on the disciplined approach that we are taking to our promotional strategies and continuing to also work on our Renew Blue cost reductions as it relates to the gross profit.
But predominantly our pressures in 2016 are clearly coming from the SG&A line.
As you talk about the incremental investments that we are making, they are in capabilities.
Competitively we are going to be more cautious this year about talking about specifically where we are putting them.
But when you think about the things that Hubert outlined in quite a bit of detail, we are investing in our categories where we see big barriers to entry such as appliances and in the mobile business.
We are investing in our supply chain.
We are investing behind our roll out of life events and gift registry.
Remember, those are initiatives that will have an extended tail as far as revenue goes.
So we are going to invest in the marketing and the capabilities upfront and then the revenue to flow at a later date.
So again, you end up with early on investment.
We will also, as we talked about, be making some major investments in systems.
We talked about a new warehouse management system.
Of course, we have our ongoing investment in online.
Hubert talked about the integration of Geek Squad into our business as well as some of the initiatives we have around our services businesses which will also require some both capital and expense investments in 2016.
So those would be the major buckets under which we will be investing.
I will add one more, which I know you all have seen the benefit of.
Hubert talked about the adding of the Pac Sales and the Magnolia Design stores within our stores.
These have been very successful for us, we expect to continue to do that.
The other thing you saw last year, and certainly you saw us do it and you saw the customer response to it through the comp that went along with it, was the investment that we've made in our stores, either the vendor investment in the physical presence of our stores or what we have done there.
We are finding that there are ways for us to significantly enhance the customer experience through investment in the transformation of the footprint within the four walls of our stores.
And we expect to continue to invest in that this year as well because we like -- we are really very much seeing the customer react and respond to what we have done there.
Greg Melich - Analyst
Thanks.
Operator
Dan Binder, Jefferies.
Dan Binder - Analyst
Congratulations on a good quarter.
My questions were around the payback on this investment spending that you are doing.
Maybe if you could give us a little bit of color on how you think about that payback in the back half of this year and into next?
Sharon McCollam - CAO & CFO
Yes, Dan, this is Sharon, I will take that.
The payback on these investments is going to be back loaded.
The initial payback on some of these investments will happen in the back half of the year.
The difference between the investments we've been making the last two years of Renew Blue and the investments that we are making now, these are much more structural and they will actually come incrementally.
As an example, some of the work that we are doing in the supply chain, we will roll out a portion this year, a portion next year and a portion after that.
Returns, replacements and damages is another one.
We will create the capability online this year, then there are things that we will add to the system that we'll implement going into Q4 and that will go into next year and the year after.
So when we looked at that $400 million that Hubert laid out, we were very deliberate in how we talked about that because those are the areas where we are going to see improvement and cost reduction and margin enhancement.
But they are going to be very gradual and incremental as they flow through.
So that is how we see it.
Obviously we are not going to be guiding it by quarter, by year.
But basically over the next three years we expect to see these both not only driving the cost lines but also driving the top line.
Our investments -- most of our investments right now and the ones I think that are going to be most substantial, are actually going to be investments that are to drive top-line growth.
And so, you are going to see it both on the top line and coming through the operating income rate.
Dan Binder - Analyst
And then if I could just a follow up on the management change or departure today.
Can you just give us a little color on what you are looking for in the next executive that will head up services?
Maybe a profile of what you are looking for and how you think you can counter the negative trends in that business?
Hubert Joly - President & CEO
Yes, good morning, Dan.
This is Hubert and thank you for your kind comments.
Of course we won't comment on the departing individual, but before I answer directly the question let me say a couple of things about services.
Number one, I'm very proud of the work that our 20,000 Geek Squad agents do every day in our stores, online or when they go into clients' homes to help install or support some of the toys that we sell to our customers.
Number two, I am very proud of the progress that we have made with our net promoter score in services in some of the new offers we've introduced.
Now clearly we also have a lot of work to do to continue the transformation.
I have laid out a number of priorities around the transformation of our traditional service offerings: developing the Geek Squad experience online and in a multichannel fashion; improving delivery/installation; and increasing the investments in marketing and selling our services; and more broadly speaking, supporting our growth in an integrated fashion as we go to market with a customer experience that leverages our unique capabilities which of course include the Geek Squad.
So just in case anyone of you would like to apply for the job, let me answer your question now around the profile.
We are looking for somebody that's almost a CEO for that business.
This is a real business within our business, somebody who combines strong operational performance as well as a strong strategic and growth oriented approach.
Somebody who is good with cost and customers.
Somebody who is good with technology and online as well as high touch experiences and somebody who is going to help us improve what we have, which is a great set of assets, but take it to the next level.
So of course we are launching -- we have launched an external search.
In the meantime, services will report directly into me; I will have great help from several of my colleagues.
But the fact that services will report directly into me is of course an indication of the strategic importance we see for services today and in our future strategy.
Dan Binder - Analyst
Thank you.
Operator
Simeon Gutman, Morgan Stanley.
Simeon Gutman - Analyst
First on the top line, I guess if my math is right that the contribution to the comp or the top line from TVs is somewhere in the mid-single-digits.
We realize that tablets are weak but laptops are helping, but I think you also have appliances that are healthy.
So I'm just trying to get a little more color on bridging the gap from where that contribution is coming from TV to how we get back to flat to negative low singles.
Is it more slippage in healthy categories or do you see some of the declining categories getting a little weaker?
Sharon McCollam - CAO & CFO
As we -- yes, Simeon, we see this tablet decline was substantial and we need to make sure that it is in perspective.
In Q4 we saw the tablet category down 30% approximately, the NPD reported category down 30%.
And at any point in time Best Buy is going to have a 20% plus share of that category.
So it has a significant impact on our top line, it has a lesser impact on our profitability.
As you know, it is not one of our most profitable categories, but certainly it drives a lot of traffic to our stores.
The other contributor to -- from Q3 or Q4 to Q1 is what we called out which was the 80 basis points of growth that was driven last year by the 1,400 store rollout of ship from store.
80 basis points is substantial.
And so that is another pressure, because remember last year in Q4 we only rolled out all of the stores starting in January.
So we only had 400 stores shipping in the first two months of the fourth quarter and then we had 1,400 shipping in the fourth quarter.
So the year-over-year comp for Q1 is much, much more difficult than it was in Q4.
Another area, and we are not going to go into extensive detail on it, it is highly competitive, is also the discussion we had in the Q3 conference call around a more disciplined promotional strategy.
Hubert cleverly defined it as following the rats into the rat hole, so to speak, around the Black Friday holiday sort of time frame.
But there other times during the year when you see similar behaviors.
And so there is a very rationalized approach and we will continue to execute that.
I am sure that you can see it flowing through in the gross profit rate.
So that is another area, but certainly less impactful than the other two that I just described.
Simeon Gutman - Analyst
Okay.
And then one follow-up on the capital return, and congratulations for reaching -- getting back to the buyback.
We could all do the math on sort of what the dollars are going to look like, $1 billion, you said $180 million from the special div, and I think the increased dividend itself is relatively minor.
You will probably walk before you run on this capital return, but I mean there is still a lot of cash on the balance sheet.
It looks like you're going to generate a lot of cash next year.
I mean sitting from here it looks like there is still a lot of upside to that capital return plan.
I mean is that fair, Sharon?
And then how soon could you unlock some of that upside?
Sharon McCollam - CAO & CFO
Sure.
Simeon, we continue to believe that having an extremely strong balance sheet is important to the transformation.
We also believe that maintaining on our balance sheet flexibility in order to pursue possible growth strategies is important too.
However, we do also, as I told you guys we would, we do also believe there is a point where you are carrying too much cash, thus the reason for our return on capital plan.
So we feel that this is our first step as we go into our third year of the transformation.
As we talked about, we have some additional investments to make this year.
And as we get through this year and we see how we progress of course this will be a conversation we have each year.
We obviously are committed to returning excess capital to our shareholders I think, I hope at least, that today's announcement demonstrates that.
And we continue to believe that our approach is prudent at this point.
So more to come coming into next year.
We have got a year to deliver it, let's just keep in mind we've got a whole year to deliver here.
But obviously today's announcement shows our first steps.
Simeon Gutman - Analyst
Thank you.
Operator
Mike Baker, Deutsche Bank.
Mike Baker - Analyst
So a couple of questions.
One, can you talk about your store footprint?
Do you have any store closures expected of the big boxes?
And maybe looking at some of the stores you have closed over the last couple of years, anything you can talk about in terms of transfer rates or EBIT benefit from closing a store?
Thanks.
Hubert Joly - President & CEO
Yes, good morning, Mike.
Consistently in the last two years we have said that we would gradually and continuously optimize our store footprint and every quarter you can see the numbers both in our mobile stores and in our big-box stores.
These are minor numbers at this point in time.
We have been very clear that we would not make big announcements because our priority has been -- in fact the biggest leverage of for us has been to improve the performance of ours stores through investments in the customer experience, the multichannel approach and so forth.
So it has been a good approach.
In terms of retention, one of the things we are very excited about is our investments in our Athena customer database and our more personalized communication.
As we develop these -- continue to develop these capabilities -- we made progress last year, we made more progress this year -- this will be a very important [strategic] weapon for us as we move forward as we can talk to the individual customers.
Closing stores when you don't have this capability is a waste of a lot of resources.
So I think we are seeing the continuation of what we have been saying and what we have been doing.
Mike Baker - Analyst
Okay, thanks, helpful.
If I could ask one more just to Sharon or maybe both of you.
I think your operating profit dollars on a non-GAAP basis enterprise wide for the full year, I think I calculated up 29%.
It's a big number.
Is that what you expected heading into the year?
And I guess the question is what came in better than expected?
Is it really all three of the big line items of sales, gross profit and SG&A or was it one more than another that really beat your plan?
Thanks.
Sharon McCollam - CAO & CFO
Yes, so versus our original expectations for this year, if you just go back to the beginning of the year as we've been giving you an outlook each quarter, the place where the year really exceeded our expectation was on the gross profit line.
In the first half of the year we had the tremendous SG&A savings, but then in the back half we made some investments.
So while the SG&A was certainly a highlight and year over year certainly a huge driver of our year-over-year improvement, the place where we really made more progress than we expected was in our gross profit.
Two drivers of that.
One is the investments that we have made, one came from some of the SG&A we invested of course which was in this pricing and promotional capability and some of the decisions that we made around that.
The other thing in Q4 that we would attribute our success to was a highly disciplined marketing plan to back up the merchandising.
Clearly the merchandise assortment was very strong in Q4 and then that was of course supported by the marketing which was extremely targeted, focused and effective.
We told you guys the year prior that this was an area we had to work on; there was great emphasis put in that area.
So, but in the end the other place where we saw an exceptional outcome was merchandising.
Inventory, the -- there was a lot of drama in Q4, port strikes, various things.
One of the core competencies at Best Buy is inventory management.
And obviously our positioning from a merchandising point of view with the vendors also contributed.
There were some great products and Best Buy had the great products.
So it was a combination of a lot of things, but when you look at the P&L and you want to put it down on a piece of paper it was really the top line and the gross profit improvements that we have been able to drive.
Mike Baker - Analyst
Okay, thanks.
That is a very helpful answer.
Thanks.
Operator
David Magee, SunTrust Robinson Humphrey.
David Magee - Analyst
Good quarter and good morning.
My first question has to do with just the commentary around making services more attractive to consumers.
And I think obviously that sort of plays into a better warranty attachment rate in the future for the Company.
Can you just give a little more color about how that -- how you're sort of seeing that playing out?
Hubert Joly - President & CEO
Yes, good morning, David, and thank you for your kind comments.
Services has really you could say two major components, one is the extended warranties which is more an insurance business or an assurance business.
And two, services that help customers take advantage of, implement these toys that we sell them.
We see enormous opportunities there.
When you step back the technology that is available today is more complex, richer than it has ever been and there is a growing gap between what these technologies, these products can do and the understanding of customers about the possibilities.
Also it is increasingly connected.
Think about it 15 years ago, that is a long time ago.
In our homes we had a personal computer maybe connected to a printer and a fax line with dial up service, and then we had a CRT TV, some audio equipment.
Now everything is connected.
You have multiple networks in your house and its complex and it is complex to implement, it is complex to support, it is complex to take advantage of.
So we see enormous opportunities to help customers in this area as part of our strategy to grow in the various categories we have talked about.
And we are uniquely positioned there because there is only so much you can -- I mean there is a lot we can do remotely, and today we can troubleshoot your computer remotely using online tools.
But there is a limit to this.
And we have this gift which is we have these 20,000 people, Geek Squad agents, at the Company and including those who get into people's homes.
And to support and set up a network and everything that goes around it, that is a very unique capability.
So I think that is going to be the core theme.
So there's going to be work on making sure that the exited warranty and product specific services are highly competitive and are effectively marketed and promoted and sold.
And then there is building you could say this professional services offering inside of capabilities to help our customers.
David Magee - Analyst
Thank you.
And as a quick follow up, the Company's ability to sell return merchandise online after the holiday, does that help narrow the profitability gap between online and retail?
Is that meaningful?
Hubert Joly - President & CEO
Well, it is an interesting shift, right, because when these return products, or these could be also end-of-life products, the margin on these products is actually lower by definition.
And so, if you sell them online as opposed to in the stores it has an impact on the margin of the online activities which, by the way, means that in many ways the online channel and the store channel both from a revenue and a profit standpoint increasingly become blurred, right.
And so, we are focused first and foremost on improving the haul.
We pay attention to each of these channels, but they are increasingly blurred from a customer experience and in a P&L standpoint.
David Magee - Analyst
Great, thank you.
Operator
Joe Feldman, Telsey Advisory Group.
Joe Feldman - Analyst
Thanks for taking the question and congratulation.
Wanted to just get a little bit more color around the returns and damages.
And that opportunity there and the impact maybe that you had in the quarter, are you seeing an uptick in that?
Because I know it has been a focus, but it feels like there are definitely ways that you could emphasize and improve that.
Sharon McCollam - CAO & CFO
Yes, if you took a look at the -- go back to the transcript and what we said, we did see benefit this year virtually in every quarter.
And in Q4 was our biggest quarter obviously where we saw incremental return from that initiative.
At this point we said within that $400 million over the next three years there is about $250 million left out of returns, replacements and damages.
So that is kind of an indication because that was a potential impact of about $350 million.
We have made substantial progress in this area and we have made about as much progress as we can make without major structural changes to our system and our capabilities of being able to show that product in the online channel.
So that is the structural investments that we are making this year in order to take that initiative to the next level.
So you are seeing it, your recollection of the things we've said is absolutely correct, and we expect to see more going into 2016.
As you know, we did bring up that product on the website.
It is harder to find than we would like it to be because of the way our back end inventory system comes together.
So we are having to do a lot of work there in order to make it easily searchable on the site and we believe that that will be the next evolution of our benefits that we will see from that initiative.
Joe Feldman - Analyst
Thanks.
And if I could follow up with a -- you guys mentioned a more scientific promotional approach this holiday season.
I just was hoping I'd get a little more color on that.
I recall last year it was -- you guys kind of went deeper than you had wanted to on promotions but anything like were you leveraging systems or how was the approach different from your view?
Hubert Joly - President & CEO
Yes, Joe, I would say a couple of things.
Pricing and promotion of course is a science where tools and science and experience are really important.
And last year we invested in teams and tools and capabilities that allowed us to have better information.
Also I think that our team probably will use more wisdom as well, it is a combination, right.
To illustrate the point -- in some cases you may have a particular competitor that has a certain product with limited quantities and a price set up to -- or promotions set up to drive traffic to their outlets.
In some cases it may make sense for us to match, in other cases it may not make sense to match when we have much bigger quantities and they have very limited capabilities.
So I would say the way we manage competitive reaction this year with the help of this additional science was very helpful.
So I was very proud of our team there and it is combined with a very strong assortment and marketing also give us more confidence.
To execute retail is really about execution.
And given the ability of our teams to execute in an orderly fashion was I think a very important point of our holiday.
So I hope these comments are helpful.
Joe Feldman - Analyst
Yes, that was very helpful.
Thank you, guys.
And good luck with this quarter.
Hubert Joly - President & CEO
Thank you so much.
And in closing, earlier on the call I thanked our teams at Best Buy for delivering these great results.
In closing I would like to of course thank our shareholders for your support and the confidence you are placing in us.
I hope that this morning we did a good job of conveying our excitement about our Q4 results and about our opportunities.
And we look forward to continuing the dialogue.
And again, thank you so very much for your confidence and your support.
Have a great day.
Thank you.
Operator
And that concludes today's conference call.
Thank you for your participation.