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Best Buy Co., Inc. (NYSE:BBY)

Investor Conference Call

January 21, 2009 1:00 pm ET

Executives

Jennifer Driscoll, Vice President of Investor Relations

Bradbury H. Anderson, Vice Chairman and Chief Executive Officer

Brian J. Dunn, Chief Operating Officer

Analysts

Brian Nagel - UBS

David Schick - Stifel Nicolaus

Mitch Kaiser - Piper Jaffray

Michael Lasser - Barclays Capital

Anthony Chukumba - FTN Midwest Securities

Daniel Binder – Jeffries & Company

Jason Blair - Rockdale

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's investor conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions). As a reminder, this call is being recorded for playback and will be available by 12 O’ Clock PM Eastern time today. (Operator instructions). I would now like to turn the conference call over to Ms. Jennifer Driscoll, Vice President of Investor Relations. Please go ahead.

Jennifer Driscoll

Thank you David. Good morning, everyone. Thank you for participating at short notice in this afternoon's investor conference call to discuss our exciting news this morning. We have two speakers for you today. First, Brad Anderson, our current CEO, will provide a brief recap of today's announcement and why the timing was right for him, for Brian and for our company. Second, Brian Dunn, our next CEO, will give you a taste of what to expect from him as he prepares to assume his new role.

Our prepared remarks will only last six, seven minutes, and the balance of our time will be devoted to your questions of Brad and Brian. We would appreciate it if you could focus your questions on today's announcement and keep it at a fairly strategic level. Consistent with our quarterly earnings calls, we request that callers limit themselves to a single question so that we can include more people in our Q&A session. We will stay on the line with you in case clarification is needed.

We would like to remind you that comments made by me or by others representing Best Buy may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. May we also remind you that, as usual, the media are participating in this call in a listen-only mode.

And with that, let's turn the call over to Brad Anderson, who will begin our prepared remarks.

Brad Anderson

That's an interesting freudian slip.

Jennifer Driscoll

I said Brian.

Brad Anderson

Thanks, Jennifer, and thanks to our listeners for participating in this afternoon's call. It is with mixed emotions that I announce my retirement. it's effective in June, which is consistent with the company's succession plan and the timeframe that I had desired. My emotions are mixed because I'm extremely excited about Brian's appointment, as I will explain in a moment. But at the same time, I'll naturally miss my daily interaction with our employees, our vendors, our customers and our investors. I've enjoyed tremendously my 30-plus years with Best Buy. I can't imagine another line of work in which you can combine meetings on true innovations from our customers with efforts to create a strength-based culture and then meet with world leaders as a part of the job responsibility.

That said, the timing of the decision is consistent with my intentions when I accepted the role, and I feel the timing is appropriate for me, for Brian and for Best Buy. It's right for me because I'd like to work less and spend more time with my family. It's right for Brian because he's ready for the new challenge, which also makes it right for Best Buy and our shareholders. I'm genuinely excited that the Board has appointed Brian Dunn as CEO.

I believe Brian is absolutely and indisputably the right leader for us as we embark on the next phase of our growth. We are very fortunate to have someone of Brian's caliber to develop the brand further and accelerate our strategy of customer-centricity. Moreover, I believe that Brian deeply understands one aspect of the company that is very precious to me. At Best Buy, people today can still do what I did, and what Brian did.

I started a job which turned into an adventure and, through discovery, was able to achieve more than I dreamed possible using the unique strengths I had as a human being. Brian had exactly the same experience. Because he likewise cherishes this side of Best Buy and the views of our company -- and views that our company is a collection of these individual stories. I know he will build upon it and attract more people to our overall story, our large story.

Over the next 18 months I intend to complete my term as Vice Chairman of the Board of Directors, and as part of that I will assist with Brian's transition and support the continuation of the company's strategy and our unique culture. During his tenure as President and COO, Brian has driven industry-leading performance from the company's domestic business. He has taken us to new highs in terms of market share, employee retention, vendor relationships and customer satisfaction scores. He has established himself as a powerful brand representative, a strong motivator of employees and a tremendous steward of the company's core values.

Brian has demonstrated an ability to connect with people and inspire them to work together to accomplish extraordinary things. There's no question he has proven himself ready to take the mantle of leadership as Best Buy's CEO. As a company, we believe Brian is best able to lead our company as he chooses from a compelling array of options for navigating the current environment and preparing for the exciting opportunities that lay ahead.

It has been an honor and a privilege to serve our employees and shareholders and to work with such a high-caliber team in building Best Buy to what it is today. And with that, here's Brian Dunn.

Brian Dunn

Good afternoon, everyone, and I want to begin by saying thank you to Brad Anderson. Brad, thank you for your tenacity, for your belief that some things are worth fighting for; in fact, worth standing alone for against a company and an industry that can't quite see it yet. And thank you for your courage. By sheer force of will, you have turned this company's focus from the products we sell to the people we serve, customers. And you did it when we were riding high. when Best Buy could easily have been resting on its laurels, you were preaching caution. And it was not a popular point of view, but you were right and it took courage to fight for it.

And finally, I want to thank you personally for being a mentor to me. The 2.5 years I’ve served as your COO have been the best times of my professional life and the first. I've got to be honest; they have been the most fun and the least fun. Life is a paradox, and that's something else you've taught me. Seriously, I’ve learned a ton from you about the importance of sharpening a point of view and fighting for it and about the difference one courageous person with a sharp point of view can make and I thank you for that.

The truth, as Brad knows, is that the progress we have made in organizing around the customer is always in danger of erosion. We know we must recommit to customer centricity every day, and we will, not simply because I say we will but because it's becoming woven into this company's culture. In many respects, and I know Brad agrees with this, the work is just beginning. Because of the work Brad has led, Best Buy has earned the opportunity to play a unique role in the lives of people and to help, to help people unlock the promise of technology.

I intend to use the assets of a $40 billion multinational company and the insights and ideas of 165,000 individual employees to do it. It's a powerful combination. I have been reflecting a lot on my almost 24 years with this company, for obvious reasons. From our local roots, competing with regional competitors like shock electronics and highland super stores in the '80s to the years of pitched battle with Circuit City, and we have always well off the challenge, and we have always come out on top, for one reason. And that is that we have always ultimately placed our destiny in the hands of the men and women closest to the customer. As long as I'm around, that will continue to be the Best Buy way, even and especially as we find ourselves in competition with some of the biggest and best companies in the history of retail. Make no mistake, we continue to be in uncharted economic waters, but one thing is certain.

Our strategy remains unchanged. We steadfastly believe in the course we're charting, the course the company set six years ago when we launched this strategy. The current retail landscape around the world creates an unprecedented opportunity for us to earn the business of new customers and grow share. We know we are currently up against extremely difficult economic times, but we also understand that these times through their very nature will create new opportunities for those who manage their resources well and yet stay close to the customer.

This thing we call technology is really an increasingly constant backdrop in people's lives -- at home, at work, on the road and literally in the palms of their hands. We call it the connected world, and as exciting as it is, it is also complex and difficult to keep pace with. And that's where we come in. We believe the value we can bring to people in helping them unlock the promise of technology is literally universal, applicable everywhere, and we're committed to earning new customers around the world.

Let me close by saying how honored I am to be given the opportunity to lead this wonderful organization. I’m determined to use the tremendous assets that are disposal to build a future for this company for both employees and investors that is worthy of its past.

With that, we’d like to open the call for the questions from our audience.

Question-and-Answer Session

Operator

(Operator instructions). First question is from the line of Brian Nagel with UBS. Please go ahead.

Brian Nagel - UBS

Hi, good afternoon.

Brian Dunn

Good afternoon Brian.

Brian Nagel - UBS

Brad and Brian, congratulations to both of you.

Brian Dunn

Thank you.

Brad Anderson

Thanks.

Brian Nagel - UBS

Brian, a question for you, from a strategic perspective. You're clearly taking the reins of Best Buy at an interesting time for the company and for the industry, with your primary competitor deciding to liquidate just a few days ago. How do you view the market share opportunity for Best Buy in this changing dynamic, both from a near-term and longer-term perspective?

Brian Dunn

Well, I think in the near-term the opportunity is clear. We have an opportunity to earn that business that had previously been shopping with Circuit City, and we intend to be very focused in targeting that customer group and inviting them into Best Buy. I think longer-term that sets us up nicely for the opportunity to more broadly play in this connected world with more customers, and this is entirely about customer acquisition for us as we go through this difficult time.

Brian Nagel - UBS

And just one follow-up if I could, and I know it has only been a few days since the liquidation announcement. But have the conversations with your key vendors changed since that has happened?

Brian Dunn

I can’t comment on the recent conversation with our key vendors, but I can say this. The relationship we have had with our vendors over the last 24 months continues to be extremely strong, and we are very pleased as we look out over the horizon the opportunities that we can, together with our key vendors, participate in.

Operator

Thank you, sir. And our next question comes from the line of David Schick with Stifel Nicolaus. Please go ahead.

David Schick - Stifel Nicolaus

Hi, good afternoon and thanks for doing the call.

Brian Dunn

Thanks David.

David Schick - Stifel Nicolaus

It's a sort of a different take on Brian's question. Do you think strategically over three or five years, does Best Buy act differently in the marketplace without Circuit City? And in what ways, perhaps?

Brian Dunn

I don't know if we act differently. I think what Best Buy does over the next three to five years is we continue to get deep with our customer and we continue to be a place where we can offer our customers the broad spectrum from coming in for the cheapest television they get their hands on for Aunt Louise, to the most complex sort of solution they want to build for themselves and a personal network around their lives. And I think what changes at Best Buy over the next three to five years, we take what we learn and we put it in play in this world of connected digital services, and we really help people build networks around themselves, around their lives that allows them to have the things they want where they want them, when they want them.

Operator

Thank you, sir.

Brian Dunn

Thank you.

Operator

And our next question comes from the line of Mitch Kaiser with Piper Jaffray. Please go ahead.

Mitch Kaiser - Piper Jaffray

Thanks guys, congratulations to you both.

Brain Dunn

Good morning, Mitch.

Mitch Kaiser - Piper Jaffray

Could you talk a little bit about the timing of the announcement? I know obviously you are going through a pretty major restructuring. And maybe, just relate that to the decision to do it right now?

Brad Anderson

I'll tackle -- I sort of had three things in mind as I thought the timing from personal standpoint, one of which is -- and by far, the most important is, I've always believed that the job of the CEO is to get the next CEO ready. And the next CEO needs to be better than the one -- than you are. And the minute you believe that's the case, you need to take action on that. So part of my moving to want to do this right now is the belief that Brian is ready to take on the responsibility, and he can take the company farther than we are. Second, I think that the turmoil of the moment is actually an opportunity. I keep looking at things in the context of essentially storytelling. And this team has got a big challenge it faces that is going to take years to fully solve. And I think the sort of challenge of this leadership team, this new leadership team, taking this on and owning the brand and owning the outcome of taking the company to the next level it needs to come to, it's the right moment in time to do that. And third is, we've just asked a number of employees to leave on a voluntary basis because of the needs of the company and the needs of the company to adjust. In a sense, I think it’s not a bad time for me to join them.

Operator

Thank you, sir. And our next question is from the line of Michael Lasser with Barclays Capital. Please go ahead.

Michael Lasser - Barclays Capital

Good afternoon and thanks for taking my question and let me add my congratulations to everyone as well; a question for Brian. The difficult environment has motivated the company to be more selective with how it allocates resources and, more specifically, cut costs. How quickly do you return to an aggressive posture with respect to making investments, whether it be operating expenses or CapEx, when you see a normalized environment returning? And could that view be somewhat obscured because of the market share gains you are likely to experience with the absence of Circuit City?

Brian Dunn

Let me say it this way, Michael. I want to be very clear. We are not retiring investment in growth opportunities that we see. It's very fair to say that we are being more selective as we look at the wide array of options that have been developed under Brad's leadership. And there are a number of places, and I think about our Best Buy Mobile business, for instance, that we have talked about at length. There are places where we can make meaningful investment now that helps us with this connectivity we want to provide to our customers. You will continue to see us do that. You will also see us be very prudent with the investments we make in this difficult environment. We understand the importance of things like operating cash flows and liquidity and all those sorts of notions. So you are going to see us make investments in areas that we have very developed hypotheses in, and I think over time you are going to see us continue to have an appetite to explore new avenues and new growth streams for us. But you are going to see some very focused attention from us on where we deploy resources through this storm.

Operator

(Operator instructions). Our next question comes from the line of Anthony Chukumba with FTN Midwest Securities. Please go ahead.

Anthony Chukumba - FTN Midwest Securities

Hi, let me add my congratulations as well.

Brian Dunn

Thank you.

Anthony Chukumba - FTN Midwest Securities

Just had a sort of a broad strategic question -- obviously, there has been a number of new initiatives and investments recently, The Carphone Warehouse joint venture, going into China, now going into London, this summer possibly going into Mexico and Turkey. I guess my question was, with the change in leadership, is it just sort of status quo, let's continue to execute the strategy, continue to make these investments? Or, is there any sort of reevaluating some of the strategies that you've recently laid out?

Brian Dunn

Thank you for the question. There's nothing status quo about it. We have opened in Mexico City, and we are very pleased with the early outcomes there. We believe this notion of taking an engaged employee and asking them to participate with their experiences and their passions and what they have learned and connecting that with a customer that has real needs around technology and helping that customer put the technology in service of their lives, as opposed to being imprisoned by it. We think that is sort of a universal value proposition. You combine that with strong, engaged local leadership, and which we are blessed, and I think we have – I’m confident that we have a recipe that is successful, will be successful in all of places we take it. So our appetite in Mexico and China and Europe is unabated. In fact, we see those opportunities as even being more important as we go forward.

Jennifer Driscoll

Thank you Brian next question please.

Operator

Thank you, and our next question comes from the line of Daniel Binder, with Jeffries & Company.

Daniel Binder – Jeffries & Company

Hi it’s Dan Binder. Just a real question on philosophical differences, if any. I don't think there huge, between the two of you. But I'm curious as rising stars come up through an organization, I have to imagine there's sort of a short list that they sort of build in their head and say, hey, if I was CEO, I'd want to do this, this and this. I'm just curious if you could share with us a little bit about what we might expect that would be a little bit different. And then secondly, with the recent voluntary departures, I'm just curious. Are there any meaningful gaps that you think need to be addressed sooner rather than later, where you may have had some stronger voluntary departures than you expected?

Brad Anderson

Let me just -- just to set the table, I just wanted to share my own experience when I was -- it's a fairly similar circumstance. It was announced at the end of January in 2002 that, at the annual meeting in June, I would take over as CEO. So in a sense, we are repeating a pattern. What I did when I had an opportunity, that interval this was following on after Dick Schultze, was I had always had differences in terms of the way I looked at the business and what I wanted to do. I took that interval of about five months to really refine the message and the point of view that I subsequently, with the annual meeting, was then able to realize. And so from the lens, in terms of -- it's hard, I think, for a new CEO to announce the difference of position while I'm still here.

Brian Dunn

(Multiple speakers). I, too, will tell you -- as you rightly call out, I started off as a salesperson in this Company almost 24 years ago and have made all the steps in between. And, at every single level, I have thought to myself, boy, when I get there I'm going to do this, this and this. And invariably, the richness and the complexity of the challenges always inform your point of view. So I intend to take the weeks and months ahead and get very sharp around my point of view and where I'm going to take this organization directionally, building on the beautiful foundation that Brad has set for us.

Brad Anderson

And then there was the second --

Brian Dunn

Around the voluntary -- so when you embark on a path, as we have -- and I'm very proud of the organization in that we put our money where our mouth is, put our values right front and center in a tough time, and Best Buy endeavors to stand for choice -- choice for our customers, choice for our employees. So we provided our employees a choice and gave them an attractive option to choose. And I'm very happy for all the people that chose it, and for many, many, and for all the varied reasons, I'm thrilled for all of them. And of course, there are some places where it has created talent gaps.

And Best Buy, we are blessed in that we have 165,000 people and a rich bench and a rich set of points of view, people who are anxious to step in and make their mark and make their difference. And that's part of any sort of transition, generational transition, if you will. And I'm actually quite excited about the energy that that will bring to us. I also think that this is a great opportunity for us to be thinking about not only talent we have inside the Company, but to look outside for fresh perspectives and skill sets that might not be readily available here. And, I also believe that it gives us a bit of a gift that we're going to be able to move faster around some of the transitions we'd like to do.

Daniel Binder – Jeffries & Company

Thank you.

Jennifer Driscoll

Thank you Brad and Brian

Operator

And our final question comes from the line of Jason Blair with Rockdale. Please go ahead.

Jason Blair - Rockdale

Thank you for taking my call, and Brian, congratulations on your new role with the Company.

Brian Dunn

Thank you very much.

Jason Blair - Rockdale

I wanted to ask the success of customer-centricity, I guess, comes from maximizing gross margin by focusing on a profitable customer base that you can up sell to higher price points and attach services and warranties to. But it seems to me that it's a niche business model. So now, with 21% share in the US, do you risk outgrowing your niche? And, does your current share limit your ability to fend off discount competitors like Wal-Mart, Costco and Amazon that have done a really good job of picking off a lot of your profit pools?

Brian Dunn

It's a great question and it's a nice description of the front end. And I'm right with you, right up to the niche piece. I don't think that it's a niche. I think there are broad -- across the broad spectrum, there are places that we can create value for our customer segments from the opening price point, all the way through the most premium sale you might imagine. As I mentioned earlier in the call, I also think that this has global ramifications. You take this core value proposition that you know the customer, your customers, better than anyone else, and you take this rich array of strategic vendor partnerships. And you take that knowledge and this network of partners you have, and you can create solutions, if you will, for customers across a broad bandwidth. So I don't see it as targeted to just a high-end niche, if you will. I see it as very much across the broad spectrum of our customer base.

Jennifer Driscoll

And do you want to talk about Best Buy Mobile as an example?

Brian Dunn

I think that's a great -- I think, if you take Best Buy Mobile, is the sort of vivid example of this, our Best Buy Mobile and the work we have done that's not just -- that's right out of customer centricity, right out of what we learned about our customers and what our employees were telling us about how we were participating in that business and how poorly we were participating in that business. And what we have learned through its success, and it continues to be a great success, is that this value proposition has elements that appeal to a broad bandwidth of customers, and it's directionally very, very encouraging for us.

Operator

Thank you, and Ms. Driscoll, I have no further questions in the queue. I would like to turn the call back over to you.

Jennifer Driscoll

Thanks, David, and thanks to our audience for participating in our investor conference call at short notice. As a reminder, a replay will be available in the United States by dialing 800-405-2236 or, internationally, dial 303-590-3000. The personal identification number is 11125596. The replay will be available from 2:00 PM Central time today until noon Central time next Wednesday, January 28. You also can hear the replay of our call on our website under -- For Our Investors. Thank you, and with that we conclude our call.

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