BEST BUY CO., INC. Unless the context otherwise requires, the use of the terms "Best Buy ," "we," "us" and "our" refers toBest Buy Co., Inc. and its consolidated subsidiaries. Any references to our website addresses do not constitute incorporation by reference of the information contained on the websites. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in the following sections: ?Overview ?Business Strategy Update ?Results of Operations
?Liquidity and Capital Resources
?Off-Balance-Sheet Arrangements and Contractual Obligations
?Significant Accounting Policies and Estimates
?New Accounting Pronouncements
?Safe Harbor Statement Under the Private Securities Litigation Reform Act
Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 (including the information presented therein under Risk Factors), as well as our other reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.
Overview
Our purpose is to enrich the lives of consumers through technology. We have two reportable segments: Domestic and International. The Domestic segment is comprised of operations, including ourBest Buy Health business, in all states, districts and territories of theU.S. The International segment is comprised of all operations inCanada andMexico . During the third quarter of fiscal 2021, we made the decision to exit our operations inMexico . All stores inMexico were closed as of the end of the first quarter of fiscal 2022, and our International segment will be comprised of operations inCanada going forward. Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information. Our fiscal year ends on the Saturday nearest the end of January. Our business, like that of many retailers, is seasonal. A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season in theU.S. ,Canada andMexico .
Comparable Sales
Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric used by management to evaluate the performance of our existing stores, websites and call centers by measuring the change in net sales for a particular period over the comparable prior-period of equivalent length. Comparable sales includes revenue from stores, websites and call centers operating for at least 14 full months. Stores closed more than 14 days, including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters, are excluded from comparable sales until at least 14 full months after reopening. Acquisitions are included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition. Comparable sales also includes credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. Comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only). Online sales are included in comparable sales. Online sales represent those initiated on a website or app, regardless of whether customers choose to pick up product in store, curbside, at an alternative pick-up location or take delivery direct to their homes. All periods presented apply this methodology consistently. OnMay 9, 2019 , we acquired all outstanding shares ofCritical Signal Technologies, Inc. ("CST"). Consistent with our comparable sales policy, the results of CST are included in our comparable sales calculation beginning in the third quarter of fiscal 2021. InMarch 2020 , theWorld Health Organization declared the outbreak of novel coronavirus disease ("COVID-19") as a pandemic. All stores that were temporarily closed as a result of COVID-19 or operating a curbside-only operating model are included in comparable sales.
On
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We believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores, websites and call centers versus the portion resulting from opening new stores or closing existing stores. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers' methods.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted inthe United States ("GAAP), as well as certain adjusted or non-GAAP financial measures, such as constant currency, non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted earnings per share ("EPS"). We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting also includes non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, price-fixing settlements, gains and losses on investments, intangible asset amortization, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies. In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment's operating results from local currencies intoU.S. dollars for reporting purposes. We also may use the term "constant currency", which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors when there are significant fluctuations in currency rates. Refer to the Consolidated Non-GAAP Financial Measures section below for detailed reconciliations of items impacting non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS in the presented periods.
Business Strategy Update
In the first quarter of fiscal 2022, our comparable sales grew 37.2% as the impacts of the pandemic continued to drive heightened demand for products and services that focus on the home, which encompasses many aspects of our lives including working, learning, cooking, entertaining, redecorating and remodeling. We provided customers with multiple options for how, when and where they shopped with us to ensure it satisfied their need for safety. Our research indicates our customers look toBest Buy to serve four shopping needs: inspiration, research, convenience and support. In addition, customers expect to be able to seamlessly interact with physical and digital channels. We have the ability to serve all of these needs, at all times, in all channels. We are currently looking at how we can even better deploy our team and our physical assets to meet these customer expectations and needs. We are taking the opportunity to test and pilot a range of models and initiatives to better understand how we can leverage our stores and facilities for more fulfillment purposes, and how we can deliver customer experiences with a more flexible and engaged workforce. Overall, it has become evident to us throughout the pandemic that technology is even more important to people's lives, and we are excited about what that means for our business going forward, especially in combination with both the heightened technology innovation that supports the more home-based way of work and life and our special ability to serve our customers. Our strong financial performance allowed us to share our success with the community, our shareholders, and, importantly, our employees. OnMay 19, 2021 , we announced that we are investing$10 million over five years to create pathways to opportunity for teens from disinvested communities inLos Angeles . As part of that effort, we will build a network of 10 to 12 Teen Tech Centers, which is a key step toward our goal to build a network of 100 Teen Tech Centers by 2025. We believe our Teen Tech Centers help to further our commitments towards economic and social justice in our communities by making a measurable difference in the lives of underserved teenswho may not otherwise have access to technology. In addition, during the first quarter of fiscal 2022, we returned a total of$1.1 billion to shareholders through share repurchases of$927 million and dividends of$175 million . For our employees, to show our appreciation for their hard work over the last several months and in recognition of their ongoing efforts in the face of "pandemic fatigue", we paid employee gratitude bonuses. InMarch 2021 , all hourlyU.S. employees received$500 if full-time and$200 if part-time or occasional/seasonal. Furthermore, all hourly field employees will receive an incremental$150 recognition award inJune 2021 . 16 --------------------------------------------------------------------------------
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Results of Operations
In order to align our fiscal reporting periods and comply with statutory filing
requirements, we consolidate the financial results of our Mexico operations on a
one-month lag. Consistent with such consolidation, the financial and
non-financial information presented in our MD&A relative to these operations is
also presented on a lag. Our policy is to accelerate the recording of events
occurring in the lag period that significantly affect our consolidated financial
statements. No such events were identified for the reported periods.
Consolidated Performance Summary
Selected consolidated financial data was as follows ($ in millions, except per
share amounts):
Three Months Ended
May 1, 2021 May 2, 2020
Revenue $ 11,637 $ 8,562
Revenue % change 35.9 % (6.3) %
Comparable sales % change 37.2 % (5.3) %
Gross profit $ 2,715 $ 1,965 Gross profit as a % of revenue(1) 23.3 % 23.0 % SG&A
$ 1,988 $ 1,735 SG&A as a % of revenue(1) 17.1 % 20.3 % Restructuring charges$ (42) $ 1 Operating income$ 769 $ 229
Operating income as a % of revenue 6.6 % 2.7 % Net earnings
$ 595 $ 159
Diluted earnings per share
(1)Because retailers vary in how they record costs of operating their supply chain between cost of sales and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers' corresponding rates. For additional information regarding costs classified in cost of sales and SG&A, refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 . In the first quarter of fiscal 2022, we generated$11.6 billion in revenue and our comparable sales grew 37.2% as we faced high demand for technology products and services. This demand was driven by continued focus on the home, which encompasses many aspects of our lives including working, learning, cooking, entertaining, redecorating and remodeling. The demand was also bolstered by government stimulus programs and the strong housing environment. Our strong sales performance resulted in operating income rate expansion of 390 basis points during the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021. We also lapped an unusual quarter last year that included both periods of high demand and periods when our stores were closed to customer traffic. Compared to the first quarter of fiscal 2020, our results were very strong, with revenue and diluted earnings per share increasing 27.3% and 136.7%, respectively.
High customer demand, as well as production and distribution disruptions, resulted in product availability constraints that may continue in future quarters.
Revenue, gross profit, SG&A and operating income rate changes in the first quarter of fiscal 2022 were primarily driven by our Domestic segment. For further discussion of each segment's performance, see the Segment Performance Summary below.
Income Tax Expense
Income tax expense increased in the first quarter of fiscal 2022 due to an
increase in pre-tax earnings. Our effective tax rate ("ETR") decreased to 22.4%
in the first quarter of fiscal 2022 compared to 27.4% in the first quarter of
fiscal 2021, primarily due to an increase in the tax benefit from stock-based
compensation.
Our tax provision for interim periods is determined using an estimate of our
annual ETR, adjusted for discrete items, if any, that are taken into account in
the relevant period. We update our estimate of the annual ETR each quarter and
we make a cumulative adjustment if our estimated tax rate changes. Our quarterly
tax provision and our quarterly estimate of our annual ETR are subject to
variation due to several factors, including our ability to accurately forecast
our pre-tax and taxable income and loss by jurisdiction, tax audit developments,
recognition of excess tax benefits or deficiencies related to stock-based
compensation, foreign currency gains (losses), changes in laws or regulations,
and expenses or losses for which tax benefits are not recognized. Our ETR can be
more or less volatile based on the amount of pre-tax earnings. For example, the
impact of discrete items and non-deductible losses on our ETR is greater when
our pre-tax earnings are lower.
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Segment Performance Summary
Domestic
Selected financial data for the Domestic segment was as follows ($ in millions):
Three Months Ended
May 1, 2021 May 2, 2020
Revenue $ 10,841 $ 7,915
Revenue % change 37.0 % (6.7) %
Comparable sales % change(1) 37.9 % (5.7) %
Gross profit $ 2,526 $ 1,821
Gross profit as a % of revenue 23.3 % 23.0 %
SG&A $ 1,836 $ 1,579
SG&A as a % of revenue 16.9 % 19.9 %
Restructuring charges $ (44) $ 1
Operating income $ 734 $ 241
Operating income as a % of revenue 6.8 % 3.0 %
Selected Online Revenue Data
Total online revenue $ 3,596 $ 3,342 Online revenue as a % of total segment revenue 33.2 % 42.2 % Comparable online sales growth(1)
7.6 % 155.4 %
(1)Online sales are included in the comparable sales calculation.
The increase in revenue in the first quarter of fiscal 2022 was primarily driven by comparable sales growth across almost all of our product categories, partially offset by the loss of revenue from permanent store closures in the past year. Online revenue of$3.6 billion in the first quarter of fiscal 2022 increased 7.6% on a comparable basis, primarily due to higher average order values and increased traffic. Domestic segment stores open at the beginning and end of the first quarters of fiscal 2022 and fiscal 2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows: Fiscal 2022 Fiscal 2021 Total Total Stores Stores at Total Stores at Total Stores at Beginning End of Beginning of Stores Stores at End of of First Stores Stores First First Quarter Opened Closed First Quarter Quarter Opened Closed Quarter Best Buy 956 1 (11) 946 977 - (6) 971 Outlet Centers 14 - - 14 11 1 - 12 Pacific Sales 21 - - 21 21 - - 21 Total 991 1 (11) 981 1,009 1 (6) 1,004 We continuously monitor store performance. As we approach the expiration date of our leases, we evaluate various options for each location, including whether a store should remain open.
Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix Comparable Sales
Three Months Ended Three Months Ended
May 1, 2021 May 2, 2020 May 1, 2021 May 2, 2020
Computing and Mobile
Phones 44 % 48 % 27.3 % - %
Consumer Electronics 30 % 28 % 45.9 % (15.7) %
Appliances 15 % 12 % 66.6 % (2.0) %
Entertainment 6 % 7 % 32.1 % 9.5 %
Services 5 % 5 % 33.2 % (16.1) %
Total 100 % 100 % 37.9 % (5.7) %
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Continued strong demand for technology products and services with a focus on the home, including working, learning, cooking, entertaining, redecorating and remodeling, contributed to our Domestic comparable sales growth across most of our categories. Notable comparable sales changes by revenue category were as follows:
?Computing and Mobile Phones: The 27.3% comparable sales gain was driven primarily by computing, tablets, mobile phones and wearables.
?Consumer Electronics: The 45.9% comparable sales gain was driven primarily by home theater, digital imaging, headphones and portable speakers.
?Appliances: The 66.6% comparable sales gain was driven by large and small appliances.
?Entertainment: The 32.1% comparable sales gain was driven primarily by gaming and virtual reality.
?Services: The 33.2% comparable sales gain was primarily due to our warranty and support services, delivery and installation.
Our gross profit rate increased in the first quarter of fiscal 2022, primarily driven by favorable product margin rates, including reduced promotions, and rate improvement from supply chain costs resulting from a lower mix of online revenue compared to the prior year. This favorability was partially offset by higher installation and delivery costs compared to the prior year when in-home services were temporarily suspended as a result of the pandemic. Our SG&A increased in the first quarter of fiscal 2022, primarily due to higher incentive compensation for corporate and field employees, increased investments in technology and in support of our health initiatives, and increased variable costs associated with higher sales volume, which included items such as credit card processing fees. The restructuring credit in the first quarter of fiscal 2022 primarily related to a reduction in termination benefits resulting from adjustments to previously planned organizational changes and higher-than-expected retention rates. Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.
Our operating income rate increased in the first quarter of fiscal 2022, primarily driven by the favorability in gross profit rate and SG&A rate described above.
International
Selected financial data for the International segment was as follows ($ in
millions):
Three Months Ended
May 1, 2021 May 2, 2020
Revenue $ 796 $ 647
Revenue % change 23.0 % (2.1) %
Comparable sales % change 27.8 % 0.2 %
Gross profit $ 189 $ 144
Gross profit as a % of revenue 23.7 % 22.3 %
SG&A $ 152 $ 156
SG&A as a % of revenue 19.1 % 24.1 %
Restructuring charges $ 2 $ -
Operating income (loss) $ 35 $ (12) Operating income (loss) as a % of revenue 4.4 % (1.9) %
The increase in revenue in the first quarter of fiscal 2022 was primarily driven by comparable sales growth across most of our product categories and the benefit of approximately 1,000 basis points of favorable foreign currency exchange rate fluctuations. The increase was partially offset by lower revenue inMexico of$69 million as a result of our decision in the third quarter of fiscal 2021 to exit operations. International segment stores open at the beginning and end of the first quarters of fiscal 2022 and fiscal 2021, excluding stores that were temporarily closed as a result of COVID-19, were as follows: Fiscal 2022 Fiscal 2021 Total Stores at Total Stores Total Stores at Total Stores Beginning of Stores Stores at End of
Beginning of Stores Stores at End of
First Quarter Opened Closed First Quarter First Quarter Opened Closed First Quarter
Canada
Best Buy 131 - (1) 130 131 - - 131
Best Buy Mobile 33 - - 33 42 - (1) 41
Mexico
Best Buy 4 - (4) - 35 - - 35
Best Buy Express - - - - 14 - - 14
Total 168 - (5) 163 222 - (1) 221
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International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix Comparable Sales
Three Months Ended Three Months Ended
May 1, 2021 May 2, 2020 May 1, 2021 May 2, 2020
Computing and Mobile Phones 50 % 48 % 36.5 % 4.6 %
Consumer Electronics 27 % 27 % 23.9 % (12.7) %
Appliances 9 % 9 % 28.9 % 0.1 %
Entertainment 8 % 9 % 12.2 % 58.0 %
Services 4 % 5 % 7.8 % (19.5) %
Other 2 % 2 % 7.6 % 1.1 %
Total 100 % 100 % 27.8 % 0.2 %
Similar to the Domestic segment, continued strong demand for technology products
and services with a focus on the home, including working, learning, cooking,
entertaining, redecorating and remodeling, contributed to our International
segment's comparable sales growth across most of our categories. Notable
comparable sales changes by revenue category were as follows:
?Computing and Mobile Phones: The 36.5% comparable sales gain was driven primarily by computing, mobile phones and tablets.
?Consumer Electronics: The 23.9% comparable sales gain was driven primarily by home theater and health and fitness.
?Appliances: The 28.9% comparable sales gain was driven by large and small appliances.
?Entertainment: The 12.2% comparable sales gain was driven primarily by virtual reality.
?Services: The 7.8% comparable sales gain was primarily due to our warranty services.
?Other: The 7.6% comparable sales gain was driven primarily by outdoor products.
Our gross profit rate increased in the first quarter of fiscal 2022, primarily due to improved product margin rates and a$6 million benefit associated with more favorable-than-expected inventory markdowns related to our decision to exit operations inMexico .
Our SG&A decreased in the first quarter of fiscal 2022, primarily due to our
decision to exit operations in
Restructuring charges in the first quarter of fiscal 2022 primarily related to our decision to exit operations inMexico . Refer to Note 2, Restructuring, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, for additional information.
Our operating income rate increased in the first quarter of fiscal 2022, primarily driven by the favorable gross profit rate described above.
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Consolidated Non-GAAP Financial Measures
Reconciliations of operating income, effective tax rate and diluted EPS (GAAP
financial measures) to non-GAAP operating income, non-GAAP effective tax rate
and non-GAAP diluted EPS (non-GAAP financial measures) were as follows ($ in
millions, except per share amounts):
Three Months Ended
May 1, 2021 May 2, 2020
Operating income $ 769 $ 229
% of revenue 6.6 % 2.7 %
Restructuring - inventory markdowns(1) (6) -
Intangible asset amortization(2) 20 20
Restructuring charges(3) (42) 1
Non-GAAP operating income $ 741 $ 250
% of revenue 6.4 % 2.9 %
Effective tax rate 22.4 % 27.4 %
Intangible asset amortization(2) - % (0.2) %
Restructuring charges(3) 0.1 % - %
Non-GAAP effective tax rate 22.5 % 27.2 %
Diluted EPS $ 2.32 $ 0.61
Restructuring - inventory markdowns(1) (0.02) -
Intangible asset amortization(2) 0.08 0.08
Restructuring charges(3) (0.17) -
Income tax impact of non-GAAP adjustments(4) 0.02 (0.02)
Non-GAAP diluted EPS $ 2.23 $ 0.67 (1)Represents inventory markdown adjustments recorded within cost of sales
associated with the exit from operations in
(2)Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology.
(3)Represents adjustments to previously planned organizational changes and higher-than-expected retention rates in the Domestic segment and charges and subsequent adjustments associated with the decision to exit operations inMexico in the International segment for the period endedMay 1, 2021 . Represents charges associated withU.S. retail operating model changes for the period endedMay 2, 2020 . (4)The non-GAAP adjustments primarily relate to theU.S. andMexico . As such, the income tax charge is calculated using the statutory tax rate of 24.5% for allU.S. non-GAAP items for all periods presented. There is no income tax charge for theMexico non-GAAP items, as there was no tax benefit recognized on these expenses in the calculation of GAAP income tax expense. Our non-GAAP operating income rate increased in the first quarter of fiscal 2022, primarily driven by a higher gross profit rate due to favorable product margin rates and rate improvement from supply chain costs, and increased leverage from higher sales volume on our fixed expenses, which resulted in a favorable SG&A rate.
Our non-GAAP effective tax rate decreased in the first quarter of fiscal 2022, primarily due to an increase in the tax benefit from stock-based compensation.
Our non-GAAP diluted EPS increased in the first quarter of fiscal 2022, primarily driven by the increase in non-GAAP operating income.
Liquidity and Capital Resources
We closely manage our liquidity and capital resources. Our liquidity
requirements depend on key variables, including the level of investment required
to support our business strategies, the performance of our business, capital
expenditures, credit facilities, short-term borrowing arrangements and working
capital management. Capital expenditures and share repurchases are a component
of our cash flow and capital management strategy, which, to a large extent, we
can adjust in response to economic and other changes in our business
environment. We have a disciplined approach to capital allocation, which focuses
on investing in key priorities that support our strategy.
Cash, cash equivalents and short-term investments were as follows ($ in
millions):
May 1, 2021 January 30, 2021 May 2, 2020
Cash and cash equivalents $ 4,278 $ 5,494 $ 3,919
Short-term investments 60 - -
Total cash, cash equivalents
and short-term investments $ 4,338 $ 5,494 $ 3,919
The decrease in cash, cash equivalents and short-term investments from January
30, 2021 , was primarily due to an increase in share repurchases. The increase in
cash, cash equivalents and short-term investments from May 2, 2020 , was
primarily driven by an increase in operating cash flows from higher earnings
over the past twelve months. This increase was partially offset by the repayment
of our $1.25 billion short-term draw on our five-year senior unsecured revolving
credit facility that was fully drawn as of May 2, 2020 , and increases in share
repurchases, capital expenditures and dividends.
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Cash Flows
Cash flows from total operations were as follows ($ in millions):
Three Months Ended
May 1, 2021 May 2, 2020
Total cash provided by (used
in):
Operating activities $ 105 $ 827
Investing activities (253) (179)
Financing activities (1,089) 1,049
Effect of exchange rate changes
on cash 5 (18)
Increase (decrease) in cash, cash
equivalents and restricted cash $ (1,232) $ 1,679
Operating Activities
The decrease in cash provided by operating activities in the first quarter of
fiscal 2022 was primarily due to changes in inventory, which saw a decrease in
receipts in the prior-year period from measures taken in light of COVID-19 and
an increase in receipts in the current-year period to match our inventory levels
to increased demand. This decrease was partially offset by higher earnings in
the current-year period.
Investing Activities
The increase in cash used in investing activities in the first quarter of fiscal 2022 was primarily driven by an increase in purchases of short-term investments.
Financing Activities
The increase in cash used in financing activities in the first quarter of fiscal 2022 was driven primarily by the$1.25 billion short-term draw on our five-year senior unsecured revolving credit facility in the prior-year period and an increase in share repurchases. During the first quarter of fiscal 2021, in light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of our$1.25 billion five-year senior unsecured revolving credit facility that was repaid in full inJuly 2020 . We also temporarily suspended share repurchases from March toNovember 2020 .
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents, our credit facilities and other debt arrangements are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, share repurchases, dividends and strategic initiatives, including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms. Subsequent to the first quarter of fiscal 2022, onMay 18, 2021 , we entered into a$1.25 billion five-year senior unsecured revolving credit facility agreement (the "Five-Year Facility Agreement") with a syndicate of banks. The Five-Year Facility Agreement replaced the previous$1.25 billion senior unsecured revolving credit facility (the "Previous Facility") with a syndicate of banks, which was originally scheduled to expire inApril 2023 , but was terminated onMay 18, 2021 . The Five-Year Facility Agreement permits borrowings of up to$1.25 billion and expires inMay 2026 . As discussed above, we executed a short-term draw on the full amount of our Previous Facility onMarch 19, 2020 , which remained outstanding untilJuly 27, 2020 , when the Previous Facility was repaid in full. There were no borrowings outstanding under the Previous Facility as ofMay 1, 2021 , orJanuary 30, 2021 . Our credit ratings and outlook as ofJune 2, 2021 , are summarized below. OnMay 20, 2021 ,Standard & Poor's upgraded its rating to BBB+ and confirmed its outlook of Stable. Moody's rating and outlook remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 . Rating Agency Rating Outlook Standard & Poor's BBB+ Stable Moody's A3 Stable 22
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Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position and changes in our business strategy. If changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs.
Restricted Cash
Our liquidity is also affected by restricted cash balances that are primarily restricted to use for workers' compensation and general liability insurance claims. Restricted cash, which is included in Other current assets on our Condensed Consolidated Balance Sheets, was$115 million ,$131 million and$115 million atMay 1, 2021 ,January 30, 2021 , andMay 2, 2020 , respectively. The decrease fromJanuary 30, 2021 , was primarily due to the timing of insurance premium payments. Debt and Capital As ofMay 1, 2021 , we had$500 million of principal amount of notes dueOctober 1, 2028 , and$650 million of principal amount of notes dueOctober 1, 2030 . Refer to Note 5, Debt, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q, and Note 8, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 , for additional information about our outstanding debt.
Share Repurchases and Dividends
We repurchase our common stock and pay dividends pursuant to programs approved
by our Board of Directors ("Board"). The payment of cash dividends is also
subject to customary legal and contractual restrictions. Our long-term capital
allocation strategy is to first fund operations and investments in growth and
then return excess cash over time to shareholders through dividends and share
repurchases while maintaining investment-grade credit metrics.
On February 16, 2021 , our Board approved a new $5.0 billion share repurchase
program, which replaced the $3.0 billion share repurchase program authorized on
February 23, 2019 . There is no expiration date governing the period over which
we can repurchase shares under this new authorization. As of May 1, 2021 , $4.2
billion of the $5.0 billion share repurchase authorization was available. On May
27, 2021 , we announced an increase in the amount of share repurchases planned in
fiscal 2022 to $2.5 billion .
Share repurchase and dividend activity was as follows ($ and shares in millions,
except per share amounts):
Three Months Ended
May 1, 2021 May 2, 2020
Total cost of shares repurchased $ 915 $ 56
Average price per share $ 108.69 $ 86.30
Number of shares repurchased 8.4 0.6
Regular quarterly cash dividends per share
$ 175 $
141
The total cost of shares repurchased increased in the first quarter of fiscal 2022, primarily due to the temporary suspension of all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related concerns. Cash dividends declared and paid increased in the first quarter of fiscal 2022 primarily due to an increase in the regular quarterly cash dividend per share. Between the end of the first quarter of fiscal 2022 onMay 1, 2021 , andJune 2, 2021 , we repurchased an incremental 0.2 million shares of our common stock at a cost of$28 million . Other Financial Measures Our current ratio, calculated as current assets divided by current liabilities, remained relatively unchanged at 1.2 as ofMay 1, 2021 , andJanuary 30, 2021 , and 1.0 as ofMay 2, 2020 . Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings over the trailing twelve months declined to 0.6 as ofMay 1, 2021 , compared to 0.8 as ofJanuary 30, 2021 , and 1.8 as ofMay 2, 2020 . The decrease fromMay 2, 2020 , was primarily due to the$1.25 billion short-term draw on the Previous Facility in the first quarter of fiscal 2021.
Off-Balance-Sheet Arrangements and Contractual Obligations
Our liquidity is not dependent on the use of off-balance-sheet financing
arrangements other than in connection with our
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There has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2021. See our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 , for additional information regarding our off-balance-sheet arrangements and contractual obligations.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 . We discuss our critical accounting estimates in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 . There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2021.
New Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
provide a "safe harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies. With the exception of
historical information, the matters discussed in this Quarterly Report on Form
10-Q are forward-looking statements and may be identified by the use of words
such as "anticipate," "assume," "believe," "estimate," "expect," "guidance,"
"intend," "outlook," "plan," "project" and other words and terms of similar
meaning. Such statements reflect our current views and estimates with respect to
future market conditions, company performance and financial results, operational
investments, business prospects, new strategies, the competitive environment and
other events. These statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from the potential results
discussed in such forward-looking statements. Readers should review Item 1A,
Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended
January 30, 2021 , for a description of important factors that could cause our
actual results to differ materially from those contemplated by the
forward-looking statements made in this Quarterly Report on Form 10-Q. Among the
factors that could cause actual results and outcomes to differ materially from
those contained in such forward-looking statements are the following: the
duration and scope of the COVID-19 pandemic and its resurgence and the impact on
demand for our products and services, levels of consumer confidence and our
supply chain; macroeconomic pressures in the markets in which we operate
(including but not limited to the effects of COVID-19, fluctuations in housing
prices, energy markets and jobless rates); future outbreaks, catastrophic
events, health crises and pandemics; susceptibility of our products to
technological advancements, product life cycles and launches; conditions in the
industries and categories in which we operate; changes in consumer preferences,
spending and debt; competition (including from multi-channel retailers,
e-commerce business, technology service providers, traditional store-based
retailers, vendors and mobile network carriers); our ability to attract and
retain qualified employees; changes in market compensation rates; our expansion
strategies; our focus on services as a strategic priority; our reliance on key
vendors and mobile network carriers (including product availability); our
ability to maintain positive brand perception and recognition; our company
transformation; our mix of products and services; our ability to effectively
manage strategic ventures, alliances or acquisitions; our ability to effectively
manage our real estate portfolio; interruptions and other supply chain issues;
any material disruption in our relationship with or the services of third-party
vendors, risks related to our exclusive brand products and risks associated with
vendors that source products outside of the U.S. ; trade restrictions or changes
in the costs of imports (including existing or new tariffs or duties and changes
in the amount of any such tariffs or duties); our reliance on our information
technology systems; our dependence on internet and telecommunications access and
capabilities; our ability to prevent or effectively respond to a cyber-attack,
privacy or security breach; product safety and quality concerns; changes to
labor or employment laws or regulations; risks arising from statutory,
regulatory and legal developments (including tax statutes and regulations);
risks arising from our international activities; failure to effectively manage
our costs; our dependence on cash flows and net earnings generated during the
fourth fiscal quarter; pricing investments and promotional activity; economic or
regulatory developments that might affect our ability to provide attractive
promotional financing; constraints in the capital markets; changes to our vendor
credit terms; changes in our credit ratings; and general economic uncertainty in
key global markets and worsening of global economic conditions or low levels of
economic growth. We caution that the foregoing list of important factors is not
complete. Any forward-looking statements speak only as of the date they are
made, and we assume no obligation to update any forward-looking statement that
we may make.
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