Best Buy 2016 Annual Report Download - page 37

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We are investing to be the leading technology expert who makes it easy to learn about and confidently enjoy the best
technology. In this context, we believe we have ongoing growth opportunities around key product categories, as well as from
increasing our share of wallet with existing customers and acquiring new customers within our target segment who are
passionate about technology and need help with it. Our Services capabilities and Geek Squad are key building blocks of this
strategy. While it is not visible in our services top line results today, we are making progress to bring these opportunities to life.
Over the last two years, we have improved many aspects of our extended service plan and repair operations. We have also had
to adjust our pricing of our extended service plans. We are seeing the results of our efforts through substantial increases in NPS,
higher total customer interactions and from a financial point of view, the periodic profit sharing payments we earned this year.
We are also beginning to see improving attach rates as we enter fiscal 2017.
Building on this foundational work, we will continue our work to improve the customer experience and enhance our service
offering and capabilities, in support of our mission to help customers learn about and enjoy the latest technology. While we are
energized by the potential of this opportunity, the work necessary to capture it takes time. Thus, fiscal 2017 will be another year
of gradual and incremental improvement, with more meaningful results expected in fiscal 2018.
Fiscal 2017 Trends
We believe that the consumer electronics industry will continue to be characterized by product innovation cycles. We are
undeterred by this fact - as we believe there will always be technology innovation. Our imperative is, that in these cycles, we
continue to deliver superior execution against what is in our control, recognizing that the cycles rarely align at any point in
time.
In fiscal 2017, we are focused on continuing to build on our foundation to both drive and capitalize on these technology cycles.
In parallel, we are focused on building the key initiatives outlined above that we believe will result in stronger relationships
with our customers, provide profitable revenue even during down cycles and continue to create long-term shareholder value.
Over time, as the fruit of these key initiatives materialize, we expect to accelerate our revenue and operating income growth by
taking advantage of opportunities provided by ongoing technology innovation and the need customers have for help. In the
short-term, we expect to be characterized by our strong cash flow generating capabilities and our intent to regularly return
excess free cash flow to shareholders.
From a financial outlook perspective, for fiscal 2017, based on current industry dynamics and how we see the various product
cycles playing out in our Domestic segment, we are expecting revenue declines in the first half followed by growth in the back
half. We also expect that our strong execution and operational capabilities will allow us to continue to gain market share. In this
context we are targeting flat Domestic segment revenue for the full fiscal year due to continued growth in appliances,
connected home and home theater in particular, but recognize that it will be challenging without a strong mobile cycle and
improvements in the NPD-reported categories overall.
Despite the soft revenue environment, we will target approximately flat operating income, including the lapping of the
significant periodic profit sharing benefits from our services plan portfolio that we earned in fiscal 2016. A key element to
achieve this will be the delivery of our cost reduction and gross profit optimization initiatives. In addition, we intend to reward
our shareholders by being a premium dividend payer and increasing our EPS through ongoing share repurchases.
After three consecutive years of strong cash flow generation under Renew Blue, we believe now is an ideal time to provide a
view of our long-term capital allocation strategy. This strategy is based on our strong cash position today and our ongoing
confidence in our future cash-flow generation. At the core of this strategy is our intent to first fund our operations and growth
investments, including potential acquisitions, and then to return the remaining excess free cash flow to our shareholders, over
time, through dividends and share repurchases, while maintaining investment grade credit metrics. This strategy targets the
return of excess free cash flow to shareholders through a 35% to 45% non-GAAP dividend payout ratio (defined as dividends
divided by non-GAAP net earnings) and regular share repurchases with a minimum annual expectation of offsetting dilution
from equity compensation.
In line with this strategy, our fiscal 2017 return of capital plan includes (1) a 22% increase in the regular quarterly dividend to
$0.28 per share; (2) the intent to repurchase $1 billion worth of shares over the next two years; and (3) a special dividend of
$0.45 per share, or approximately $145 million. This is in addition to the $1.5 billion in cash we returned to shareholders in
fiscal 2016.