Best Buy Co., Inc. (BBY) 2020 Regular Meeting of Shareholders Conference (Transcript)

Best Buy Co., Inc. (NYSE:BBY) 2020 Regular Meeting of Shareholders Conference Call June 11, 2020 10:00 AM ET

Company Participants

Hubert Joly - Executive Chairman

Corie Barry - CEO

Mollie O’Brien - Head, IR

Patrick Doyle - Lead Independent Director and Chairman-elect

Conference Call Participants

Marc Goodman - UBS

Operator

Good day and welcome to the Best Buy Annual Meeting of Stockholders. I would now like to turn the conference over Hubert Joly, Executive Chairman of the Board. Please go ahead.

Hubert Joly

Thank you, and good morning, everyone. At this time, I'd like to call the 2020 Regular Meeting of Shareholders to order. I want to thank you for your interest in our company. In this uncertain environment, we know your time is valuable, and we appreciate your taking the time to be with us online today.

In order to protect the health and safety of our directors, executives and employees, Best Buy meeting attendees are with us virtually. And I want to recognize my fellow Board members, Corie Barry our CEO; Lisa Caputo; Patrick Doyle; Russ Fradin; Kathy Higgins Victor; David Kenny; Cindy Kent; Karen McLoughlin; Tommy Millner; Claudia Munce; Richelle Parham; and Gene Woods.

Todd Hartman, our General Counsel and Secretary is also virtually present along with other members of our executive teams and representatives from Deloitte & Touche, our independent auditing firm.

The meeting agenda which will govern the order of business at this meeting is available on our virtual shareholder forum. Please note that only business matters appropriate for shareholder action may be considered at this meeting. We'll try to get to as many of your questions as possible during our question-and-answer session, including questions that may have been submitted online through the shareholder forum prior to the meeting.

Please keep in mind that comments made during the meeting may contain forward-looking statements, which are subject to risks and uncertainties. For more information about the factors that could cause actual results to differ from management's expectations, please see our most recent 10-K and 10-Q filings on our website or on the SEC's website. The Board has appointed Jane Castillo [ph] of Broadridge to take an oath and act as Inspector of Election for this meeting. The polls are open for voting online during the meeting, most shareholders have already voted by proxy, and we have tallied your proxy votes.

For those of you who have not yet voted or who want to change your vote, please vote now by following the instructions online. The polls will close after we announce the items to be voted upon. Until the polls close, any shareholder may revoke or change his or her proxy and may vote on any matter.

The notice of meeting and our proxy materials were mailed by Broadridge, our transfer agent, beginning on April 30, 2020 to all shareholders of record as of April 13, 2020. And as a result, the meeting is being held pursuant to proper notice. Proxies representing approximately 90% out of the approximately 257 million shares of the Company's outstanding shares eligible to vote have been received. And accordingly, the quorum is present and the meeting is duly constituted and should proceed.

Upon motion, the meeting of the minutes of the regular Meeting of Shareholders held on June 11, 2019 will be waived.

Unidentified Company Representative

So, moved.

Hubert Joly

I second.

We've requested our shareholders vote on the following items as set forth in our proxy statement. First, the election of 10 directors nominated by the Board, including Corie Barry, Lisa Caputo, Patrick Doyle, Kathy Higgins Victor, David Kenny, Karen McLoughlin, Tommy Millner, Claudia Munce, Richelle Parham, and Gene Woods each to serve for a one-year term. Second, the ratification of the appointment of Deloitte & Touche, LLP as the Company's independent auditor for the current fiscal year ending on January 30, 2021. The third item of business is an advisory vote on our named executive officer compensation. Fourth, we are seeking shareholder approval of the Best Buy 2020 Omnibus Incentive Plan. Items five through eight, pertain to amendments to our articles of incorporation to eliminate the supermajority voting requirements reflected in these articles.

The Board recommends approval of each Director and for each of the other items. Each Director must receive a majority of votes cast in the amendment to Article IX, Section 10 of the articles requires the affirmative vote of two thirds of the outstanding shares entitled to vote. Each of the other items requires a majority of votes present in person or represented by proxy and entitled to vote in order to be approved. Preliminary results show shareholder approval in alignment with the Board's recommendation on all of the proxy items. We expect to post the final voting results on these matters within four business days on Form 8-K.

We've now completed the business portion of our meeting. Is there a motion to adjourn the business portion of the 2020 regular meeting of shareholders?

Unidentified Company Representative

So moved.

Hubert Joly

I second. And I declare the business portion of our regular meeting of shareholder adjourned.

Before I turn it over to Corie to share a few remarks on our results from the past year, I would like to take a few moments to thank departing directors, Russ Fradin and Cindy Kent for their service on the Board.

Russ joined us in 2013 and has graciously served as our lead independent director from 2015 through 2019. During his tenure, he's also served as chair of the compensation and human resources committee and on the audit committee. Russ has been an invaluable partner and a committed leader to the Board. We'd greatly appreciate and acknowledge his many contributions to the Board and Company over the last seven years. We wish him well as he focuses on his role at Clayton, Dubilier & Rice.

Cindy Kent joined the Board in 2018 as we were beginning to pursue our healthcare strategy. Her perspectives and expertise have been incredibly helpful to the Company as we navigate this rapidly evolving environment. During her time on the Board, she served on the finance and investment policy committee and the compensation and human resources committee. And we thank Cindy for her valuable perspectives and contributions to the Company. We wish our well as she focuses on her role as President of Senior Living, at Brookdale Senior Living.

So, on behalf of the Board, the leadership team and the Company as a whole, thank you both for everything you've done for Best Buy. We wish you both the very best in your future endeavors.

I will now pass the mike to Corie.

Corie Barry

Thank you, Hubert.

Let me start by saying a few words about the events that have gripped our home state of Minnesota and the entire country these past two weeks. We've watched tens of thousands take to the street to speak out against fear and injustice, and it has been both inspiring for the commitment it represents and heartbreaking for its profound need. Best Buy is determined to ask the hard question, if everything were on the table, what could we do? I'm asking a diverse group of employees by demography and level in the Company to come back to me, the management team, and the Board in the very near-term with their ideas on substantive, enduring ways to address the inequities we see every day. We are determined to more fully join the fight for equality and justice as a common cause when we will fight and solve together.

More broadly, I wanted to share a few thoughts on the unprecedented situation caused by the COVID-19 pandemic. First, on behalf of all of us at Best Buy, I want to extend our sincere appreciation and gratitude to all of those who are on the front lines, working to keep us safe or maintain essential services. And we offer our heartfelt sympathy to all those who have lost someone to this virus or who are sick with COVID-19.

This pandemic has changed the way we work, learn, care for ourselves, and importantly connect with each other. Against that backdrop, our purpose has never been more relevant to enrich lives through technology. Our leadership team has been responding to the situation with a focus on keeping our customers and our employees safe, while we meet our customers' essential needs. At the same time, we are committed to ensuring that as this evolves, Best Buy is well-positioned to thrive in what will almost certainly be a new and very different environment.

On March 22nd, we proactively moved all our stores to a contactless curbside-only model, allowing us to safely serve customers and comply with government orders and recommendations. We also halted all in-home installation, repair and consultation services choosing to leave the product at or near the doorstep. We did this even in jurisdictions where we were not required to because we believed it was the best way at the time to keep our customers and employees safe.

I am so incredibly proud of our team's ingenuity and execution. They seamlessly implemented a new and highly-effective operating model in a matter of 48 hours across our entire store base. As a result, we retained 81% of last year's sales during the last six weeks of the first quarter, as we operated in the new model. That's 81% sales retention, even though not a single customer stepped foot in our stores. The strong sales retention is a testament to the strength of our multichannel capabilities and the strategic investments we have been making over the past several years. It is also a testament to the Best Buy culture and our focus on the customer experience as the entire organization pivoted to execute and support the new model.

On May 4th, we began providing a new consultation service to our customers in our stores by appointment only. This service allows customers to schedule an appointment with one of our sales associates at their local Best Buy store and get advice tailored to their specific techniques. Customers can schedule appointments by phone, online or by simply driving or walking up to a store. Customers have been responding very positively to this new way of interacting with us in our stores with 98% of customer surveys indicating we made them feel safe during the experience.

Earlier this week, we announced that customers will be able to safely and freely shop at most of our stores without an appointment, starting June 15th. We will continue to enforce social distancing by limiting the number of customers inside the store to 25% of capacity, which allows 60 or more customers in a store depending on the size. We will continue to offer contactless curbside pickup, and in-store consultation for those who prefer to shop that way. We're also back in customers' homes, providing valuable services, like large product delivery, installations and in-home repairs in approximately 80% of U.S. ZIP codes. We are doing this in a new and innovative way, using safety guidelines before, during and after an in-home visit that meet or exceed Centers for Disease Control and Prevention guidance.

The key of course is that we are providing options that let customers choose what works best for them. For the foreseeable future, we will likely employ a variety of models using our local level prowess to customize operations [Technical Difficulty]. And we will continually evolve those operating models based on guidance from state and local governments, as well as our own point of view on the proliferation of the virus, and our ability to operate in a way that is safe for our employees and customers. While it may feel distant considering today's environment [Technical Difficulty] strong results and materially advanced our strategy last year, as we've outlined in our proxy and annual report.

Our fiscal 2020 financial performance included enterprise comparable sales growth of 2.1%, marking our sixth straight year of positive comparable sales. In addition, our non-GAAP operating income rate increased by approximately 30 basis points. We also received several awards and recognition for our efforts in the environment, social and governance space. In fact, in early 2020, we were named to the top five on Barron's Annual 100 Most Sustainable Companies list for the third consecutive year.

You can find more information about our efforts in our annual corporate responsibility and sustainability report, which can be found at investors.bestbuy.com. We are proud of these results, and I want to thank all of our associates for their hard work, commitment to serving customers and amazing execution last year, as we navigated ever-increasing customer expectations, a consistently competitive retail environment and the challenging tariff situation. And this year, during the pandemic, they have faced immense change with grit and determination and compassion and have helped us shape our approach to safe retailing.

Many are working with customers every day, some of whom who are also scared and frustrated in this COVID environment to ensure they have access to the products and services they need to work, learn, entertain and connect from home. Others are working tirelessly to maintain a supply chain that delivers with speed. And so, many employees are making technical and operational changes every hour from their home office. I am truly grateful and feel lucky to be on the team with them.

It would be a pleasure at this point to take any questions you may have. Mollie O’Brien, our Head of Investor Relations will facilitate the question-and answer-session, Mollie?

Question-and-Answer Session

A - Mollie O’Brien

Thank you, Corie. Consistent with past practice, we will now take questions for 15 minutes. If you would like to ask a question, please select the Ask a Question option on the shareholder forum and submit your question online. Our first question is, how do you plan on satisfying customer needs once things get back on track?

Corie Barry

So, this pandemic has changed the way we work and learn and care for ourselves, and like we said in the prepared remarks, connect with each other. And against that backdrop, our purpose has never been more relevant, to enrich lives through technology. We firmly believe our strategy will uniquely position us over the longer term with our unique combination of tech and touch to meet everyday human needs and build more and deeper customer relationships, and we remain focused on putting the customer at the center of what we do aimed at an experience that's designed to provide choice and speed and importantly now, safety. And we realize that the world has moved from being an essential retailer to a safe retailer. And as we noted throughout the pandemic, we have been focused on getting the customers what they need, but doing it in the safest way possible both for our customers and obviously for our employees as well.

First, we moved to contactless curbside service; then we started in-store consultations; and now, we're opening up many of our stores to more of a free flow of traffic, but obviously still subject to strict safety protocols, and we'll likely operate multiple models for quite some time, making sure that we provide customers with that choice that they really want right now. And obviously, there are other components and initiatives within our strategy, such as Best Buy Health, improved membership program by total tech support, and our in-home and in store consultation services that are additional ways in which we're going to very uniquely meet the needs of our customers, both today and into the future.

Mollie O’Brien

Thank you, Corie. The next question, how does the Board plan to protect high-risk employees in the upcoming months?

Patrick Doyle

This is Patrick. I'll take that one. So, from the start, the Board has been very involved in the oversight of the actions of the Company has been taking in what are really unprecedented times. From the first days of the pandemic, the team told anyone who was feeling sick or was quarantined that they would keep their job and be paid. We told any employee whose child was home from school that they too would be paid, and throughout this difficult time of really a lot of uncertainty and very fast paced change, we've been committed to communicating as often as possible with our employees. This is included conducting surveys on their need for flexibility, as well as their feelings on returning to work so we can continue to improve our processes and facilitate the deliberate and measured return to corporate workspaces and accommodate those with preexisting conditions or safety concerns. Critically, I think this has included senior leaders like Corie and Mike Mohan talking directly almost every day with frontline employees.

Likewise, we've built the protocols for returning to customers' homes and welcoming them back into our stores jointly with our field employees. We've created a robust feedback loop and are connecting regularly with other field employees to hear how things are going and solicit feedback to challenges that they're facing, and then changing that experience as we go based on that feedback. We've also continued our focus on providing crucial employee benefits and resources like those for mental and financial health, recognizing that the circumstances we face are far more stressful than many of us realize. Our employees remain our most critical asset, and we're going to continue to partner together to ensure we're taking the necessary steps to ensure safety for employees and our customers.

Mollie O’Brien

Thank you, Patrick. Our next question, what does the supply chain of product look like? Are store inventory levels sufficient to make profit amidst COVID-19?

Corie Barry

We actually feel quite good about our inventory levels based on what we currently have visibility to and what we're working with, in terms of our top partners. We believe we will have a solid inventory position from here going through the balance of the quarter. Now, obviously, during Q1, we saw massive shift in demand in the middle of the quarter. So, we did see some inventory constraints in areas like computing, gaming, and small appliances as you genuinely really can't plan for a shift in demand of that magnitude. And I mentioned earlier that starting next week, we will be opening up our stores more broadly. It may take us just a little more time to adjust inventory levels and our supply with a new type of demand at each location. So, it's possible customers might see a little less in store inventory in the near-term as we replenish those store shelves back up. But overall, as a reminder, during our Q1 earnings conference call last month, we did not signal major impacts to Q2 sales based on product constraints.

Mollie O’Brien

Our next question reads, there are numerous examples of corporate sending tasks to be completed and then during the same week, having us undo the task. This is a waste of resources and time, not to mention frustration, can we plan and/or execute better?

Corie Barry

So, we are often in a very fast-paced retail environment. And there are times that require us to change course on topics and procedures as consumer behavior and competitive landscape changes. As we continue to transform, we are also willing to try things that are new, knowing that all these plans won't be successful, but we need to try and learn and shift. We have a great deal of confidence in our field teams and their ability to execute very complex situations at a high level and in a very nimble fashion. And this team's ability to quickly pull together our curbside operating model is an excellent example of being able to execute something new, to execute it well, and to implement it quickly, and it's also a great example of their ability to adapt and change as we learn and adjust some of those processes.

We know that not all of our processes are perfect. And we've talked about that over the past several years. Cost reduction and efficiencies are actually a significant focus area for us and a reflection of that. Some of the largest benefits we've seen through this work have been aimed at actually improving processes, such as large product fulfillment and reducing damage to TVs. If there is a more specific process that you are specifically referencing with your question, I would encourage you to please reach out to me directly, so we can better resolve that specific example.

Mollie O’Brien

Thank you, Corie. We received a few questions related to compensation. The first is why did our store salaried management receive $1,000 spot bonuses during the pandemic, while our IHA team members did not?

Corie Barry

So, the decision to pay the exempt general managers at a $1,000 bonus was due in part to the extra hours that were being asked to these leaders during the implementation, particularly of our curbside operating model, as well as the increased efforts of balancing the schedules of their store when a number of team members didn't feel safe working. More broadly, we are also aware of the additional stress all roles have been under over the past couple of months. For all of our associates leaving their homes to work in stores and distribution centers, we've increased the hourly pay rates during this time. And our in-home advisors in particular showed incredible flexibility during this time, including the transition to virtual chats and phone conversations. We are very proud of the nimble way in which our team quickly transitioned to this alternative way of interacting with our customers, and we're pleased with the number of consultations that took place this way.

Mollie O’Brien

The next compensation-related question is, when will the Board recognize that the general managers are the heartbeat of the Company and compensate them correctly?

Corie Barry

Without question we know our store managers are critical to the Company's success. We are incredibly proud of the way our store managers have led their stores in this constantly-changing environment. They are the leaders that are executing literally a new model every few weeks, and this is only possible through their leadership. And we shared at our Investor Day in September that our store general manager tenure in role is about six years and nearly half of them started as part time or seasonal workers with Best Buy. That is nearly 500 people who have found a lifelong career with us serving their teams and our customers along the way. We're going to be competitive in the markets that we operate in, both to retain the great talent we have in our stores and recruit talent when necessary. And we continue to closely monitor and evaluate pay structures for all of our associates, inclusive of benefits and incentive pay as the landscape evolves.

Our strategy has been to approach this topic holistically. While starting base pay is of course important, we are also always looking at creating an attractive overall employee value proposition, including wages, incentives for both full time and part time associates, employee benefits, skill development, career advancement, and importantly, a very human and purposeful culture. We want to make sure that we're competitive and creating environments for people to flourish and grow and have long-term careers here at Best Buy. And I would encourage all of our employees to reach out directly to either their human resource support or their leader, if they have any concerns about their specific pay structure.

Mollie O’Brien

The shareholder asking our next compensation-related question is seeking to gain additional insight on how the Board is compensated and asking if we would rethink the pay structure for the people running our stores and all in-store employees, especially in terms of paying them more or paying sales people a commission.

Hubert Joly

So, Mollie, I'll take the part of the question that’s related to the Board, and Corie will take the second part. I’ll start by saying,, obviously, a Company's success is based on having the right skills in a variety of roles, and that includes the Board. And so, I've been with Best Buy for eight years, first as CEO and then as Chairman and CEO, and of course the last year as Executive Chairman. And based on my experience, I would like to highlight that the Board plays an enormously valuable role in ensuring we're picking the right leaders, helping us shape our strategy and provide oversight for risk management.

And furthermore, having an experienced Board with a diverse set of skills has proven to be immensely valuable in a time of crisis. So, against that backdrop, from a compensation standpoint, we evaluate the compensation structure of our Board members in the same way we assess compensation for all roles. And each year, the compensation committee reviews the total compensation paid to our directors. The purpose of the review is to ensure that the level of compensation is appropriate to attract and retain a diverse group of directors with a breadth of experience necessary to perform the Board's duties and to fairly compensate directors for their service.

Corie Barry

And then, to specifically ask the end -- and answer the end of the question, as I noted in my answer to the last question, we do take a very holistic approach to compensation for all employees. And we will continue to closely monitor and evaluate pay structures across our associates, inclusive of benefits and incentive pay as the landscape continues to evolve, and we will do it at a localized level, making sure that it makes sense based on the local competition. As an example, we increased the hourly pay for all store associates that have been working since the outbreak of the pandemic, because it was the right thing to do in this situation. We're going to be competitive in the markets that we operate in to both retain great talent that we have in our stores already and then recruit more talent into the organization.

Mollie O’Brien

Thank you, Corie. Our last question reads, Mr. Chairman, the recent growth in the size of passive mutual funds corporate ownership interest in U.S. corporations has been dramatic, raising important policy and corporate governance issues. Currently BlackRock owns 6.9% and Vanguard owns 10.3% of the Company's outstanding shares. BlackRock manages assets and the Company's retirement plan. Does the Board see this growing ownership concentration of passive index fund holders as a positive or negative development as regards to long-term corporate planning and performance? And also are there potential conflicts of interest when a 5% holder is managing company retirement plan assets? Thank you, Mr. Chairman.

Hubert Joly

Yes. Thank you. I would say three things. First, how shareholders decide to invest the funds they manage is really their decision. It’s not for us to comment on that. Now, as a company, we work for the benefit of all of our stakeholders and in particular all of our shareholders with a sense of purpose and the focus on creating value, in particular over time.

Now, third thing is, as it relates to conflict of interest, we have a great process at the Company for managing any potential conflict of interest.

Mollie O’Brien

Our question-and-answer session has ended. At this time, I'm going to turn the meeting over to you, Hubert and Corie to wrap up.

Hubert Joly

Thank you, Mollie.

So, of course, today is an emotional day for me, as we complete the passage of the baton to the next generation of Best Buy leaders. A year ago, it gave me great pleasure to congratulate Corie as she became the Company's fifth CEO. And today, I'm equally excited to welcome Patrick Doyle in the role of Board Chairman.

I have enjoyed my eight years at Best Buy immensely working with an extraordinary group of people to reinvigorate and rejuvenate one of the country's finest companies. I am proud at which we've built together and of the seamless transition we've orchestrated. Even more so, I'm incredibly proud of how the Best Buy team is leading through this crisis. I am extremely confident in the future of Best Buy and will, of course, keep watching how the Best Buy team continues to lead this organization forward.

Speaking from my heart, I am very grateful for the eight years I've spent here and especially grateful for the gifts of meaning, love and joy I have received from so many over the years. While my formal role ends today, I know that the friendships we've built over the years will not. I look forward to continue to nurture and enjoy these friendships for many years to come.

While there's naturally some heartache stemming from this change of role. I am very excited about my next chapter. My purpose, as I move forward, doesn't change, it is to try and make a positive difference on people around me and to use the platform I have to make a positive difference in the world. In that context, I’m very excited about the book I am writing, The Heart of Business, Leadership Principles for the Next Era of Capitalism, which is slated to be published in the spring of 2021.

I'm also excited about joining the faculty at Harvard business school next month, about my continued service in a number of boards and about the work I have begun to mentor and coach executives around the globe, as they seek to lead with purpose and humanity.

It goes without saying that part of this next chapter will entail keeping a human connection with Best Buy and not just as a customer. I'm very excited to continue as an advisor to Corie and the Board, not frankly that they need much advice and to continue to work with the Company in the area of philanthropy, specifically on the continued development of our Teen Tech Centers, especially my new hometown New York City.

In any event, I would say to my former colleagues and everyone I've interacted with over the years, that you should always feel free to reach out to me. I'd love to hear from you as we all continue on our respective journeys. I am keeping my Best Buy email address, so you can easily find me there. And now, as my last official act, I recognize my friend and our Chief Executive Officer, Corie Barry for her closing remarks. Thank you very much.

Corie Barry

Before we conclude this meeting, I would like to say a few words about our now former Executive Chairman, Hubert Joly. From the day he walked into Best Buy eight years ago, our Company has never been the same. His energy, enthusiasm and astonishing intellect drove us all to make the hard choices, do the hard work and take the risks necessary to turn this Company around. I will never forget the leadership he displayed in those dark days, and it has served as an inspiration and model for me and our colleagues in these new and uncharted waters. The mentorship he emphasized and the purposeful way in which he did it have changed not just the Company, but the lives of many, including me. In fact, of all the things I admire about Hubert, it is not what he accomplished, but rather how he did it. It's the fact that even as he set out to save this Company and make no mistake, he did save Best Buy. He did it embracing what he calls purposeful leadership. This is the notion that accompany and its leaders are here to make a positive difference in the world and serve all our stakeholders, including our customers, employees, vendors, communities, and shareholders.

As Hubert said, while it is imperative that we make money, that is not our purpose. Our purpose is something larger. Specifically, at Best Buy, it is to enrich lives through technology by addressing key human needs. It is his abiding belief that real magic, and that's the phrase he uses, can happen when the individual working at the company can connect their purpose with the purpose of the company. Hubert, you created that magic every day, and our gratitude for you knows no bounds. From the bottom of my heart and on behalf of the management team, the Board and countless Best Buy employees and shareholders, thank you. [Indiscernible]. Meaning we look forward to remaining connected with you as friends.

At this time, we conclude the meeting and look forward to connecting with you again next year. Thank you for attending our 2020 Shareholder Meeting. Have a wonderful day.

Operator

The conference has now concluded. Thank you for attending today's meeting. You may now disconnect.