Best Buy 2016 Annual Report Download - page 36

28
adjusted debt to EBITDAR ratio is an important indicator of our creditworthiness. Because non-GAAP financial measures are
not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial
measures having the same or similar names. These non-GAAP financial measures are an additional way of viewing aspects of
our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures
within our discussion of consolidated performance below, provide a more complete understanding of our business. 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.
Business Strategy
On a full year basis, fiscal 2016 marked the second year in a row we increased our Domestic segment revenue and expanded
our operating margin. We also continued to make significant progress against our Renew Blue strategy. During the year, we
continued to gain share in appliances and nearly all of our traditional consumer electronics categories. We grew the Domestic
segment online revenue 13% to over $4 billion, or 11% of total Domestic segment revenue in fiscal 2016. We increased our Net
Promoter Score ("NPS") by over 300 basis points. We continued to improve our employee engagement scores and decreased
employee turnover. We deepened our partnerships with the top tech companies in the world. We delivered $150 million against
our $400 million Renew Blue Phase 2 cost reduction and gross profit optimization program. We consolidated brands and
embarked on a significant transformation in Canada, including the closure of 68 stores. And finally, in one year, we returned
$1.5 billion in cash to our shareholders, including $1 billion in share repurchases, which was originally planned to be
completed over three years.
Fiscal 2017 Priorities
Turning to fiscal 2017, we are entering the next phase of our Renew Blue strategy. Our purpose from a customer standpoint is to
build a company that does a unique job of helping customers learn about and enjoy the latest technology. As we begin this next
phase in fiscal 2017, we will focus on the following priorities: (1) building on our strong industry position and multi-channel
capabilities to drive the existing business; (2) driving cost reduction and efficiencies; and (3) advancing key initiatives to drive
future growth and differentiation.
Our first priority is to build on our strong industry position and multi-channel capabilities to drive the existing business. More
specifically, we plan to implement a number of initiatives across merchandising, marketing, digital, stores, services, and supply
chain.
Our second priority for fiscal 2017 is to reduce cost and drive efficiencies throughout the business. Reducing costs is essential
for us to be able to fund our investments, build our resilience to product cycles and increase our profitability over time.
Furthermore, based on current economic factors and softness in the consumer electronics industry, it is essential that we be
proactive on the cost reduction front.
A key element of our approach to achieving this is to simplify our core business processes to simultaneously improve the
customer experience and drive costs out. As an example, we have a project focused on reducing the amount of open box
appliances we take into our stores by addressing root cause issues. This project has the potential to not only improve the
customer experience but also to drive material savings through lower markdowns, lower transportation costs and better use of
labor in our stores and distribution centers.
More broadly, we aspire to deliver world-class operational performance, defined in terms of quality, service and cost. This
focus has to be a way of life, especially given our margin structure and the volatility of our industry. In fiscal 2016, we
announced a specific cost reduction and gross profit optimization program called Renew Blue Phase 2, with a goal of $400
million over three years on top of the $1 billion we eliminated as part of Phase 1 in fiscal 2015.
Against that goal, in fiscal 2016, we achieved $150 million of annualized savings leaving us with $250 million remaining. In
light of our increased focus on cost and productivity, we believe there are incremental savings that can be achieved above and
beyond our current goal. Partially offsetting these savings, however, will be our expected future investments in the areas of
labor expertise, services pricing and key growth initiatives. In fiscal 2016, these investments totaled approximately $100
million and we expect a similar level in fiscal 2017, which again will be funded by our cost savings.
Our third priority is to advance key initiatives to more deeply transform our company in order to drive future growth and
differentiation. While there may be short-term pressures, we continue to believe we operate in an opportunity rich environment.
The Internet of Things is providing a new technology wave and is making our operating model increasingly relevant to
customers.