Best Buy 2015 Annual Report Download - page 35

Table of Contents
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Fiscal 2016 Trends
The strategy outlined above is the foundation of our fiscal 2016 operating plan, and we are confident in our ability to execute
against it as we have demonstrated this past year. However, we will also be facing industry and economic pressures, which we
expect to impact our business, including (1) more rapidly declining average selling prices in key product categories; (2) weak
industry demand in certain product categories; (3) declining demand and increasing pricing pressures for our extended
warranties; and (4) increasingly competitive and costly customer service expectations like free and faster shipping.
To win against this backdrop, investing now is imperative. While these investments will put pressure on our fiscal 2016
operating income rate, we believe they leverage our executional momentum and will allow us to build a differentiated customer
experience and a foundation for long-term success. In fiscal 2016, we expect the financial impact of the aforementioned
investments and economic pressures in the first quarter and continue throughout the year.
From a revenue perspective, fiscal 2016 first and second quarter Enterprise revenue and comparable sales growth, excluding
the estimated impact of installment billing, is expected to be in the range of flat to negative low-single digits. This change in
trend versus the fourth quarter of fiscal 2015 is primarily driven by ongoing material declines in the tablet category, in addition
to typical 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 fiscal 2015 driven by the chain-wide rollout of ship-from-
store.
From a non-GAAP operating income rate perspective, we expect fiscal 2016 first and second quarter to be down approximately
0.3% of revenue to 0.5% of revenue, including lapping fiscal 2015 first quarter 15-basis point benefit associated with our credit
card agreement. This decline reflects the economic and growth pressures outlined above, the investments we are making to
drive our fiscal 2016 growth initiatives and our anticipated SG&A inflation. Additionally, we expect the fiscal 2016 first and
second quarter non-GAAP continuing operations effective income tax rate to be in the range of 39% to 40%.
Canada
In March 2015, we made a decision to consolidate Future Shop and Best Buy stores and websites in Canada under the Best Buy
brand in order to strengthen our position as Canada’s leading provider of consumer electronics products, services and solutions.
As a result of this decision, we also reviewed our real estate footprint in Canada to address the fact that a significant number of
Future Shop and Best Buy stores are located in close proximity to each other. The result of this review is the permanent closure
of 66 Future Shop locations and the conversion of 65 Future Shop stores to the Best Buy brand. Following this consolidation,
we will continue to have a strong store presence in all major markets in Canada.
Looking ahead, investments up to $160 million will be made in Best Buy stores and bestbuy.ca to build a leading multi-channel
customer experience. This multi-faceted strategy will include: (1) launching major home appliances in all stores; (2) working
with our vendor partners to bring their products to life in a more compelling way; (3) increasing our staffing levels to better
serve our customers; (4) investing in the online shopping experience, for example by expanding in-store pick-up areas for
online customers and launching a ship-from-store program, making in-store inventory available to online customers across the
country.
As a result of these changes, we expect to increase our capital spending by up to $160 million over the next 12 to 24 months. In
addition, we expect to record restructuring charges and non-restructuring impairments in the range of $200 million to $280
million, or a GAAP diluted earnings per share impact of $0.41 to $0.58. We expect that the majority of these charges will be
recorded in the first quarter of fiscal 2016. The total charges includes approximately $140 million to $180 million of cash
charges – primarily related to future rent obligations and severance – that will be paid over the next 5 years.
We also expect our fiscal 2016 GAAP and non-GAAP diluted earnings per share to be negatively impacted in the range of
$0.10 to $0.20 due primarily to a temporary increase in operational expenses associated with consolidation activities and store
disruptions resulting from our investments to support the Best Buy multi-channel customer experience. Due to the transitional
nature of the majority of these costs, we do not expect this negative earnings per share impact to continue into future years.
See Note 13, Subsequent Events, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K for further information about the restructuring charges related to
this action.