Ladies and gentlemen, thank you for standing by. Welcome to Best Buy’s Fiscal Year 2020 Third Quarter Earnings 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 approximately 1 p.m. Eastern Time today. [Operator Instructions] I will now turn the conference over to Mollie O’Brien, Vice President of Investor Relations. Please go ahead. Mollie O’Brien: Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO; Matt Bilunas, our CFO; and Mike Mohan, our President and COO. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning’s earnings release, which is available on our website investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial conditions, business initiatives, growth plans, investments and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company’s current earnings release and our most recent 10-K for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the call over to Corie.

Good morning, everyone, and thank you for joining us. Today we have reported $9.76 billion in revenue, expanded our non-GAAP operating income rate by 70 basis points and delivered non-GAAP diluted earnings per share of a $1.13, which was up 22% compared to the third quarter of last year. We delivered another strong quarter and are excited about our continued momentum and the opportunities we have ahead of us. Our teams continued to execute well and navigate ever increasing customer expectations, a consistently competitive retail environment, and the uncertain tariff situation. And they are doing all this while making significant progress against our Building the New Blue strategy, which we believe will uniquely position us over the long-term. Specifically, our comparable sales growth of 1.7% was on top of 4.3% last year and above the high end of our guidance range for the quarter. Our Domestic segment comparable sales were up 2%, as we continue to focus on the customer experience across online, stores, and at home. From a product category standpoint, the comp growth was driven by strength in appliances, headphones, tablets, and computing, partially offset by declines in gaming and home theater. The Q3 profitability was better-than-expected. This was primarily the result of lower SG&A, due to strong expense management, a reflection of the culture we have built around driving cost reduction and efficiencies to help fund investments and offset pressures. The Q3 gross profit rate was flat on a year-over-year basis. Due to the strong Q3 results, we are updating our annual guidance today. Matt will discuss in more detail later in the call, but at a high level we are maintaining the topline guidance we shared last quarter, while raising the non-GAAP EPS guidance. We are now expecting non-GAAP EPS of $5.81 to $5.91. This compares to the original guidance of $5.45 to $5.65 that we provided last February as we entered the year. As it relates to tariffs, our assumptions of the impact on our business are basically unchanged from our last call. As a reminder, our guidance includes our best estimate of the impact of all tariffs, both implemented and planned, including List 3 at 25%, List 4A at 15%, which was implemented on September 1, and List 4B at 15% which is planned for December 15. As we shared at our Investor Update in September, we are entering the second chapter of Building the New Blue. Our purpose remains the same: to enrich lives through technology. Our strategy is to leverage our unique combination of tech and touch to meet everyday human needs, and build more and deeper relationships with our customers. We introduced three five-year goals at our Investor Update focused on employees, customers, and financials. As a reminder, they are: first, to be one of the best companies to work for in the U.S., exemplified by being named to Fortune 100 Best Companies to Work For list. Second, to double the number of significant customer relationship events to 50 million. This includes total tech support memberships, homes visited, active digital engagement, financial services, and senior life support. And third, to deliver continued top and bottom line growth over time, specifically to get to $50 billion in revenue and a 5% non-GAAP operating income rate in fiscal 2025. We believe our strategy will translate to an economic model that delivers results by better serving existing customers, capturing new demand, entering new spaces, and building capabilities while maintaining profitability over time. Last quarter, we talked about how our penetration by geographic market varies widely, yet our tools and structure have been one-size-fits-all for our local markets. To better serve existing customers, we made strategic changes to our field operations to accelerate growth and to create a more seamless experience across channels, putting single leaders in a position to be accountable for stores, services, supply chain, and home propositions in their market. These leaders are supported by a channel agnostic program centered around insights, data, and analytics, to view market’s largest opportunities and fast-track initiatives that will make a financial impact as well as provide a more seamless customer experience. For example, in the New York area, we are focused on expanding both our fulfillment options and in-home resources. During the quarter, we launched 175 alternate pickup locations for customers in areas where either our store locations are not convenient or the ship-to-home option is not desired. These alternate locations are in UPS stores and CVS stores in the New York market. In New York, as well as Los Angeles and Chicago, online customers can order as late as 8 p.m. and still receive their products the next day for free. Starting in New York, we are also adding the ability for online customers who want their product the same day to select specific three-hour delivery window for that same day delivery. And for those online customers who prefer to pick up the products themselves, we are beginning the process of rolling out curbside pickup at stores in the New York market, where a Best Buy employee will bring the product directly to the customer’s car. To build awareness of these expanded experiences, we have already kicked off a comprehensive local market marketing campaign that includes stores, train stations, billboards, digital, and email. Based on our data, we believe there is much untapped opportunity to serve New York clients in their homes. To capitalize on that opportunity, we are building capacity by adding additional in-home advisors and also increasing the training for existing advisors. We have combined additional resources from both the field and corporate teams to provide these new advisors an accelerated, locally focused training program that we believe will speed up their ramp-up time. This will free up capacity for our existing advisors in the market to receive more training designed to strengthen their clienteling skills, which will lead to deeper customer relationships. Based on local market analysis, we have also added capacity across the country where we continue to see strong customer demand for our in-home consultation program. On a national level during the quarter we added 100 in-home advisors to end the quarter with approximately 720 advisors. As we shared at our Investor Updates, 95% of those polled said they would continue working with their in-home advisor and we continue to see higher spend at a higher gross profit rates from our in-home advisor customers versus other customers. We expect our advisors will become more and more productive as we advance our CRM system and enhance our digital tools. Another important way we are better serving customers and building relationships is through our Total Tech Support program. Total Tech Support provides members unlimited Geek Squad support for all of their technology no matter where or when they bought it, in addition to great discounts and installations, protection and in-home services. We have grown the membership to over 2 million members from about 200,000 when we launched nationally in May of last year. It continues to get strong customer reviews and members spend more and are twice as likely to use other services than non-members. We are building on this early success to continue to deliver more benefits our members are asking for. For example, we are piloting a program, we are calling Total Tech Support with networking that includes routers setup and installation, parental controls to manage every device on the network, a subscription to Microsoft Office 365, and 1 terabyte of cloud storage along with all the standard Total Tech Support benefits. We are also continuing to add new services and capabilities that have the potential to attract new customers. As we shared last quarter, Best Buy is now fully certified chain wide as an Apple authorized service provider, becoming the nation’s largest physical destination in terms of points of presence for Apple authorized repair services including same day iPhone repairs. Almost 40% of these Apple repair customers are either new to Best Buy or haven’t made a purchase in the last year. Our lease to own purchasing option is now fully rolled out in 45 states after we added the last nine states including California and New York just a few weeks ago. This provides another purchasing option in addition to our existing strong credit card offer allowing us to help customers make purchases they might not otherwise be able to. Since we began rolling out the program nationally in March, approximately 65% of lease to own customers are either new to Best Buy or haven’t made a purchase in the last year. We also remain focused on developing digital innovation and marketing strategies to drive engagement with our customers. We continue to enhance our digital shopping platforms both online and on our mobile app, with new functionality and a better customer experience. Our app continues to see strong customer ratings and year-to-date usage of the app is up more than 20%, and usage of our app within our stores is up more than 30%. Our store employees love the app, which has also been improved with their needs in mind. They can now much more quickly see pricing, promotions, inventory and fulfillment times, through features such as Top Deals, which I will discuss in a moment, and expanded availability options. The app also provides employees other recommended products if a certain product is out of stock in their store. During the quarter, we materially changed the way we present product deals to our customers. Several years ago, we created a digital version of our weekly ad as we transitioned away from the paper weekly ad that was distributed every Sunday. We no longer distribute any paper weekly ads, and during Q3, we sun-setted the rigid digital weekly ad technology platform and launched a Top Deals section in our app and on our website. This leverages cost and gives us more flexibility to introduce multiple promotional cycles within the week and ensure we featuring our best offers. Most importantly, Top Deals provides a better user experience and helps customers find products faster with fewer clicks, resulting in higher and more consistent traffic throughout the week and better conversion compared to the old experience. At our Investor Update in September, we also spent time talking about the significant opportunity we see in the health space. Specifically, we have reiterated our focus on helping seniors live longer in their homes through our unique combination of tap and touch, thereby reducing their health care costs and bringing greater peace of mind for them and their families and caregivers. We serve approximately 1 million seniors right now and we shared our goal to serve 5 million seniors in fiscal 2025. Today, most of the seniors we serve are utilizing easy-to-use mobile phone products and connected devices that are tailored for seniors and come with a range of relevant services. With our five star service, customers can talk to U.S. based specially trained agents who can connect them to family caregivers, provide concierge services and dispatch emergency personnel. We expect to continue to scale this business over time in order to reach our five-year target. We also expect to advance our commercial business where the services we provide for seniors are paid for by insurance providers. This includes services such as remote monitoring based solutions that provide meaningful insights to improve timely care and reduce the cost to serve frail seniors. As previously discussed, we have successfully closed and integrated three acquisitions that have given us unique and essential capabilities and infrastructure, talent and a base of customer relationships to build from. We have also hired additional talent to deepen our expertise. That includes Dr. Daniel Grossman, our new Chief Medical Officer for Best Buy Health. He is a practicing emergency medicine physician at a major academic medical center in Rochester, Minnesota, with extensive strategy and business development experiences at leading health tech companies. He has been on all sides of health care, physicians, patients, payer, disrupter and educator. We are excited to have him on our team. As we have reiterated many times, our continued focus on reducing costs and driving efficiencies in order to fund investments and help offset pressures is a key element of our long-term strategy. In September, we announced a new cost reduction and efficiency target of $1 billion by the end of fiscal 2025. We made good progress against this new goal during the third quarter and plan to provide more detailed annual updates on our Q4 call going forward. In addition to our strong business results, we have continued to make strides toward our goal of becoming one of the best companies to work for in the United States. For example, we have recently added a variety of employee benefits, including paid caregiver leave, paid time off for part-time employees, back up childcare, a PTO purchase plan and enhanced mental health resources. We also increased our adoption assistance benefit and introduced a new surrogacy benefit as part of our efforts to support employees who want to grow their families. And finally, last month we announced an updated dress code that allows employees to wear jeans and comfortable shoes. This is something our store employees have been asking for and importantly, saves them money. These changes have all been extremely well received by our store teams across the country. These are just a few examples of the ways we are continuing to invest in our people and underscore our commitment to be a great place to work and these investments have produced some very positive results. Our store turnover remains in the low 30% range, compared to 50% five years ago and our average store general manager has been in his or her role for about six years. In fact, as we enter Q4, more than 92% of our store general managers already have experience leading their stores through a holiday season. Our progress has also been noticed outside the company. We are proud of the breadth of recognition we have received in recent months, including ranking number 66 on Forbes list of the World’s Best Employers and being named the number one Best Company to Work For during the holiday season by Glassdoor. We are also honored to be ranked one of the top employers for students and graduates of historically black colleges and universities. Our culture at Best Buy is incredibly strong. It’s the reason I am here and I firmly believe it is our competitive advantage. As we look ahead, we are excited about our holiday plans and everything we have to offer our customers this holiday season. Our team has once again put together a best-in-class assortment, prepared an amazing set of deals and ensured we have great inventory availability across all the product categories we carry, and we are supporting that work with a steady drum beat of marketing and promotions that will keep Best Buy top of mind with shoppers throughout the holiday season. Earlier this month, we released our Black Friday ad full of thousands of deals on the hottest tech. Hundreds of those deals were available immediately and we will continue to provide compelling offers throughout the holiday season. On the fulfillment side, we are making it even easier and much faster for customers this year. We are promising free next day delivery on thousands of items all season long with no membership or minimum purchase required. The fact that we are able to make that promise to our customers is a huge testament to all the work our teams have done throughout our supply chain transformation. About 99% of our customers now live in a ZIP code where next day delivery is available, up from 80% last quarter and if a customer lives in an area where free next day delivery isn’t available or they are shopping for an item that isn’t eligible for it, they can still get free standard shipping. As we have shared previously, we also offer same day delivery on thousands of items in 42 markets, and of course, store pick-up remains a fast and convenient option for our customers. More than 70% of Americans live within 10 miles of a Best Buy store and we promise that their items will be ready within one hour of placing an order. And on average 80% of online orders are ready for store pick-up in less than 30 minutes. The NPS store for the experience continues to increase about 40% of our online sales are pick-up in our stores. Finally, as I mentioned earlier, we are offering curbside pick-up in a few stores in New York and other select markets across the country allowing customers to pick-up their without even getting out of the car. Our fulfillment options are all focused on providing customers with the choice and convenience they expect and deserve, and with the digital shopping experience on the Best Buy mobile app, it is now easy and intuitive to see your options for when and where you can get your order whether you opt for delivery or store pick-up. I also want to highlight that once again, this year we are supporting the St. Jude Thanksgiving campaign with customer and employee donations in our stores and online. We have been the program’s top fundraising partner for three consecutive years, helping to raise $80 million for St. Jude’s lifesaving work since we first partnered in 2013. We hope to bring that cumulative total to more than $100 million with this holiday season. In summary, we are pleased to report strong results for the third quarter and our teams are excited and ready to deliver an outstanding holiday season. I want to take a moment to genuinely thank our amazing Best Buy employees in advance for all their hard work this week and throughout the holidays, whether you work in one of our stores, spend your time making house calls to our customers’ homes or work in a distribution center or the corporate office, please know that you are a critical part of what makes Best Buy so special. The holidays can be a fun and very busy time in retail and I want you to know how much we sincerely appreciate all that you do. And with that, I will now turn the call over to Matt.

Good morning, and hello, everyone. Before I talk about our third quarter results versus last year, I would like to talk about them versus the expectations we shared with you last quarter. On Enterprise revenue of $9.76 billion, we delivered non-GAAP diluted earnings per share of $1.13, both of which exceeded our expectations. We saw better than expected top line results in the computing category and a bit softer than planned in the home theater category. Our operating income rate also exceeded the high end of our expectations for the quarter. The higher operating income rate was primarily driven by strong expense management, which was partially offset by a lower gross profit rate than expected. Consistent with our expectations heading into the quarter, recently implemented tariffs on imported goods from China did not have a material impact on our Q3 results. From an international standpoint, we generated slightly higher operating income than we expected despite our top line results being below expectations. Lastly, the favorable earnings per share results versus our guidance also included a $0.03 per share benefit from a lower effective tax rate. I will now talk about our third quarter results versus last year. Enterprise revenue increased 1.8% to $9.76 billion, primarily due to the comparable sales increase of 1.7%. Enterprise non-GAAP diluted EPS increased $0.20 or 22% to $1.13. This increase was driven by, one, increased operating income dollars from both a higher operating income rate and higher revenue, and two, a $0.06 per share benefit from the net share count change. These favorable items were partially offset by a negative $0.03 per share impact from a higher effective tax rate. In our Domestic segment, the revenue increased 2.4% to $8.96 billion. This increase was driven by a comparable sales increase of 2% from revenue from GreatCall, which was acquired in October of 2018, partially offset by a loss of revenue from store closures in the past year. GreatCall revenue will be included in our comparable sales calculation the beginning of the start of this year’s fiscal fourth quarter. From a merchandising perspective, the largest comparable sales growth drivers were appliances, which includes both major and small appliances, headphones, tablets and computing. These drivers were partially offset by the clients in our gaming and home theater categories. In addition, comparable sales in the services category increased 12.9% versus last year. Similar to the past few quarters, part of the services growth was due to or revenue recognition for our Total Tech Support offer. As a reminder, we will begin to lap this revenue refinement during the years of Q4, so we expect the services year-over-year growth rate to slow materially compared to Q3. Domestic online revenue of $1.4 billion was 15.6% of Domestic revenue, up from 13.8% last year. On a comparable basis, our online revenue increased 15% on top of 12.6% growth in the third quarter of last year, which was primarily given by a higher average order values. In our International segment, revenue decreased 4.1% to $800 million. This was primarily driven by a comparable sales decline of 1.9% and approximately 170 basis points of negative foreign currency impact. Turning now to gross profit, the Enterprise growth profit rate was 24.2% was flat to last year. The Domestic gross profit rate of 24.3% versus 24.4% last year. The 10-basis-point decrease was primarily driven by mix into lower margin products, which was partially offset by the impact of GreatCall’s higher gross profit rate. International gross profit rate increased 30 basis points to 22.5%, primarily due to higher year-over-year gross profit rate in Canada, which was driven by higher margin in the services category. Now turning to SG&A, domestic non-GAAP SG&A was $1.78 billion or 19.9% of revenue versus 20.6% of revenue last year. SG&A dollars decreased $24 million, primarily due to lower incentive compensation expense and strong expense management. These favorable items were partially offset by GreatCall operating expenses. International SG&A was $173 million or 21.6% of revenue versus $178 million or 21.3% of revenue last year, a $5 million decrease was primarily driven by the favorable impact of foreign exchange rates. On a non-GAAP basis, the effective tax rate of 24.8%, compared to 22.7% last year. The higher rate versus last year was primarily driven by the favorable resolution of certain tax matters in the prior year. We returned a total of $499 million to shareholders through share repurchases of $368 million and dividends of $131 million. With a year-to-date share buyback spend of $700 million we expect to be in the high side of our target of $750 million to $1 billion in share repurchases this year. Our ending inventory addition was down approximately 7% compared to last year. This decrease is primarily due to a timing of Black Friday and Cyber Monday, which occur a week later this year versus last year. Finally, we are still planning capital expenditures for the year to be in the range of $750 million to $800 million. Now, I will discuss our outlook. Let me start with a few comments specific to tariffs. As Corie mentioned earlier, the guidance we are providing today continues to include the estimated impacts of all tariffs net of the mitigating actions we are taking. These include, one, bringing in products ahead of the tariff implementations, two, decisions around vendor and SKU assortment, three, promotional and pricing strategies, four, sourcing changes, and five, other strategies employed in partnership with our vendors. As a quick reminder, the List 4 tariffs are at a 15% level and have two effective dates. The first effective date was September 1st and the most notable affected categories relative to Best Buy are televisions, smartwatches and headphones. The second effective date is December 15th and the most notable categories relative to Best Buy are computing, mobile phones and gaming consoles. Now back to our outlook. Today, we are raising our full year non-GAAP EPS range to reflect the strong Q3 profitability, as well as our improved expectations for Q4. As we shared last quarter, operating income rate expansion in Q3 followed by operating income rate decline in Q4 was assumed in the original guidance we provided at the start of the year. In Q4, we expect a decline in gross profit rate. We expect SG&A rate to be slightly favorable on a year-over-year basis, primarily driven by lower incentive compensation expense. To provide some color on the expected gross profit rate decline, there are three primary drivers all roughly similarly sized. First, we expect a mix of products to have a negative impact on our product margin rates. As I shared last -- on last quarter’s call, this was due in part to giving our teams a little more flexibility to navigate through the holiday season. Second, we anticipate great pressure in our services category, with the largest driver being higher delivery and installation costs. And three -- and third, our outlook, of course, also includes the estimated impacts of all tariffs. One more note on Q4 expected gross profit rate from a sequential point of view. As I reminded you last quarter, we fully lapped the acquisition of GreatCall and the revenue recognition refinement to our Total Tech Support offer in Q4. So they will no longer be a source of gross profit rate expansion as they have been in the last four quarters. Specifically, our guidance for the fourth quarter is Enterprise revenue in the range of $14.75 billion to $15.15 billion, enterprise comparable sales growth of 0.5% to 3%, non-GAAP diluted EPS of $2.65 to $2.75 and non-GAAP effective income tax rate of approximately 24% and a diluted weighted average share count of approximately 261 million shares. On a full year basis we are now expecting Enterprise revenue in the range of $43.2 billion to $43.6 billion and Enterprise comparable sales growth of 1% to 2%. Enterprise non-GAAP operating income rate slightly up to fiscal 2019’s rate of 4.6%, non-GAAP effective income tax rate of approximately 23.3% and non-GAAP diluted EPS in a range of $5.81 to $5.91, which compares to our previous guidance of $5.60 to $5.75. I will now turn the call over to the operator for questions.

Thank you, sir. [Operator Instructions] We will now take our first question over the phone from Karen Short from Barclays. Please go ahead. Your line is open.

Oh! Hi. Thanks for taking my question. I am wondering if you could just give a little bit more color on the puts and takes on what would get you to the low versus the high end of the comp guidance range for the year – or for the fourth quarter. And then kind of looking into what that would imply on the operating margin as well, just some little more color on the puts and takes?

Sure. This is Matt. I will take that question. First, in terms of the revenue guidance range, I think, obviously, holiday is always a special season for consumer electronics. Price and convenience is very important, and like any holiday, we take a very disciplined approach to setting the range, and so what we have set, we feel it’s very appropriate. I think in terms of what we are excited about that could be a good guide, we have a lot of exciting plans and offers and a lot of those includes very strong fulfillment options for our consumers. We still feel like the consumer is relatively strong and the economic indicators are in a good spot. Although, there’s been some -- a little bit of waning of consumer confidence, we still feel like the consumer’s in a good position, so that’s a good thing for us. Sequentially, mobile phones and computing are expected to improve a little bit in Q4. Home theater is also expected to get a little better than it has been on trend. In terms of what could go the other way, I think, obviously, in the holiday period, a lot of other retailers use our category sometimes to drive traffic, so we are thoughtful about thinking about that in our guidance range. Also -- there’s always a possibility of inventory constraints. We don’t see things at this point, but that’s always a possibility. And in terms of gaming, that’s -- it’s been soft all year and that’s something that we’re thoughtful about the range. On the gross profit side, I think, the puts and takes, I think, we talked about what the pressure was in Q4. I think, obviously, as you go through the holiday, you are never quite sure exactly what all the consumers are going to purchase, and the outlet sales mix can sometimes put a little bit of pressure either to the good or to the bad on your margin. Also, to the extent that our services offerings hold and continue to generate some excitement to the holiday, that could be a good guide as well.

Okay. Thanks. That’s helpful. And just to follow up on the lease to own, you rolled that out to nine new states and any early read on that, maybe percent of customers new versus existing, and then any color on any impact on the comp although I realize it’s still very small?

Yeah. I will tell a little bit about lease to own. First, we were going to start in the same place which is this is an offering we think, it is really good for our customers. At Best Buy, we always start with the branded credit card, but now we have another option for people who may not want to get into a credit card offering or may just have a more challenged credit history. We have talked a little bit about that at Investor Day. It is still a relatively small portion of the comp growth that we are seeing, but it is importantly an incremental -- either new or what had been a lapsed customer for us, and so we really like this opportunity to bring that customer back in. We didn’t launch the next nine states -- the new nine states including New York and California until just a couple of weeks ago, was very late into the third quarter. So, we will see how that plays here over the holiday season and into next year. Next year is really where we feel like we have a chance to continue to accelerate our growth here. This is something you can imagine that takes our associates some time to get comfortable with. It’s a different type of offer, and they need to definitely feel like they have good comfort in offering it. And we also continue to improve our experiences, both in-store, the information we ask for. But importantly next year, we want to be able to also offer it online, which would be a great addition for us. So we like it. It’s a good secondary offer, but still relatively small in terms of the overall comp.

Great. Thank you.

You bet.

We will now take our next question over the phone from Scot Ciccarelli from RBC Capital Markets. Please go ahead. Your line is open.

Good morning, guys. So can you talk about the estimated impact on margins from GreatCall and Total Tech Support? It just seems to me those are higher margin businesses. I guess I would have expected maybe a little better gross margin performance just given the growth of those two segments? Thanks.

Yeah. Thank you. I think in our prepared remarks, we talked about how those were both benefits to us for the last four quarters, so they have been helping on the margins. And I think it’s important to remember that from a GreatCall perspective, it increases the margin rate a bit, but it also increases the operating. So from an OI perspective, it’s still relatively neutral. On TTS, what we called out is a specific part to the revenue recognition refinement that we made. Service is a much bigger category. It includes obviously all the other runoff of legacy system, great legacy support offers, as well as installation and delivery and so when you put them together, we try to think of services in totality, and that is not as we talked about, it is a pressure in Q4. So, that’s kind of the way to think about those two.

I guess I was looking for any kind of quantification, but are you -- but basically the way we should think about it is on an EBIT basis it’s pretty similar to the rest of the corporate run rate? Is that what you are saying, no real contribution to the EBIT line?

Yeah. The EBIT line it’s pretty -- it’s relatively neutral for both of those two things as you consider all the factors of services into the TTS as well.

Got it. Okay. Thanks, guys.

Our next question comes from Greg Melich from Evercore. Please go ahead. Your line is open.

Hi. Thanks. Just a follow-up on the operating profit in the fourth quarter and then a more strategic question. Operating rate should be down in the fourth quarter, but on SG&A dollars, I missed what do you expect is part of that, if it wasn’t for the cycling the incentive comp a year ago. How much would dollars have been up in the third quarter and what would you expect in the fourth quarter?

Yeah. We are not going to get specifics on how much dollars would have been without lower incentive compensation. In Q4, we do expect a carry on some strong SG&A management in Q4. So in Q4 the puts and takes are really lower incentive compensation, but we are also investing a little bit in advertising and labor. So it is going to be -- we do expect it to be favorable comparatively but we are not giving specifics on the lower incentives number.

Got it. And then if we look, overall, I mean, obviously, the comp looks solid. You are driving some categories where maybe we didn’t -- we keep seeing nice growth like appliances. If we were to take the comp in the third quarter and even look into the fourth quarter next year. How much of that comp is driven by average ticket and how much of it is by continued traffic or transaction growth, whether it would be online or in-store?

So the wonderful thing about being more omni-channel now is that tends to be how we look at our organic metric where we are looking at all of our metrics together. And what we saw in Q3 was traffic across all our channels was up at as was our average order value. And so those two were up, we thought and total transactions down just a little bit, but broadly like the health we are seeing in broad traffic up and those order value is up as well.

That’s great. And then a last one on just tariffs, I want to make sure I am clear that we are talking -- we talk about List 4. Do you assume that the 15% is going to happen in December or is it just not material because it’s so late in the quarter?

Yeah. It’s a little bit of both. We are assuming…

Okay.

…that that goes in at the 15th, and at the same time, it’s not very -- that portion, that tranche is not very material on the quarter. That tranche becomes more of a conversation piece for next year.

That’s great. Well, happy holidays, and good luck, guys.

Thank you.

Our next question comes from Matt McClintock from Raymond James. Please go ahead. Your line is open.

Hi. Yes. Good morning, everyone. Corie, I wanted to dig into IHA a little bit. You talked about hiring an additional 100 IHAs this quarter, but then you also talked about putting in an accelerated training program for IHAs and it seems like you are building out an infrastructure to maybe meaningfully accelerate the number of IHAs that you have. Can you just dig into that a little bit, am I reading that right? Can you talk more to that? Thank you.

Well, I think -- thank you for the question. I think since day one we have said our focus here is on making the very best in-home experience we can seamlessly across all the ways that we interact with people in their homes. And we said repeatedly over the last couple of years, we are going to take our time pacing this, because we definitely want to ensure creating clienteling at scale is not an easy task and we want to do everything we can to make sure we exceed the customer’s expectations if we get a chance to be in their home. I think some of what we have learned around how best to train is now being translated into to your point a bit of a different approach to training. It used to be when we pulled someone on Board we would use other IHAs to a very large extent to really help them understand what was expected of them, how to build a base of business and how to continue to build their clienteling. I think what we have done better now is created a much more standardized training program upfront that we can administer and allows the existing IHAs to continue to build a more robust clienteling capability while we are bringing new IHAs up to speed and getting them ready and working quickly. And so, I think, the team is learning a lot about how best to bring people on, what you train them in first, how to take your more experienced IHAs and put them against some of the more complex jobs. All of those are turning -- helping us continue to refine the IHA model. So to your point, I don’t know if I would say it’s just accelerated as much as us continuing to take the learning and pace where we think is appropriate based on the demand we are seeing. Importantly, I would also underscore the example that we gave in the New York market, which is we also think there are specific markets where this offering could be and should be even more relevant than others. When you look at the data about how people want to interact with us, how they want help in their homes, we think we uniquely have a really interesting opportunity to help people in their homes in these markets, and therefore, our ramping and training a little bit differently for some of these markets.

Thanks for that color. And then just as a follow-up, you talked a lot about your next day same day fulfillment and how you have improved that year-over-year. How do you look at that strategically for the fourth quarter, specifically this holiday season, given that it’s a shorter holiday season? And how does that compare competitively to other people that sell your products, clearly some of your peers have those options, but for the breadth of product that you sell, it would seem like a lot of your pet competitors just can’t match that?

Hey, Matt. This is Mike. Thanks for the question. I will start with the last part. We feel really good about how we are positioned competitively. Our teams there just call it two-thirds the way through our supply chain transformation and the progress we have seen to-date and the customer response has been fantastic. And we look at all aspects of what the customers see on our site versus competitors and what we are able to deliver. I think what makes it unique at Best Buy is a combination of automation we put in our large facilities, the metro e-commerce facilities that we added to some of our major markets. And then we have been doing in-store fulfillment both in-store pick-up and ship from store, longer than anybody else. And I think we have found ways to refine that so we can actually deliver on promises on the products that people want the most, so these high value consumer electronic items and depending on where you live in the country, we are just as good as anybody at getting you stuff right away. You can come to our stores or you can get stuff the very next day. And what complements that, I think, that has to be said, as you have got to be in stock on these items too, and I think, that’s something that our teams have proven expertise in. And so you put those all together and that’s what lets us deliver on we think a very compelling fulfillment promise, one that doesn’t cost us a lot of extra money, because of the investments we have made and it’s something that, Matt, talked about in his remarks, we are going to lead into help drive the comp in our fourth quarter.

Thanks a lot, Mike. Best of luck everyone.

Thank you.

Thank you.

We will now take our next question from Joe Feldman from Telsey Advisory Group. Please go ahead. Your line is open.

Thanks, guys. Congratulations on the quarter. I wanted to go back to inventory for a moment. You had mentioned you knew it was down timing related to the holiday, but how should we think about it for the fourth quarter, presumably you have brought in a lot more at this point. But just what type of rate of increase should we expect for the fourth quarter if any?

Sure. This is Matt. I think we are not going to get the rate of increase at the end of the year at this point, but I think the teams are feeling very well-positioned for the holiday week. Like I said, we had a lower inventory position at the end of Q3 simply because of the holiday shift in timing of being a week a little -- a week later this year. The teams will do what they need to do to be in a good position. I think we are always very thoughtful about bringing in the right amount and how much of that is owned versus not. So I think we are not going to give a specific amount, but I would expect us to continue to match that with the pace of sales that we expect as we head into next year.

Thanks. And then just to get more specific on appliances, can you talk about what continues to drive the strength there? I mean, are you -- presumably you guys are taking some market share. I am wondering where you think that’s coming from, but also just what is driving such good strength on top of prior strength?

Joe, it’s Mike. I will amplify a bit of the fulfillment comments to Matt. That’s part of the reason why we have improved our appliance business with the investments we have made in fulfillment. It wasn’t just speed and small parcel, and leveraging our store network. It was our large product delivery and how we built support with our own teams and with partners and we have make sure we improved that. And it’s complemented with the investments we have made in training, marketing, the in-store experience and we thought about this category end-to-end. And as I think most of you know is, a large percentage of appliance purchases happen with something that you don’t expect occurs, an appliance in your house breaks. And frankly a few years ago we just weren’t very good at that and we have made some really big improvements on how we can help customers navigate for items they can get a very next day, for things they can take with them from our stores, and then we continue the reinforcement with our in-home advisors the ability to help sell appliances when we are in your homes and continue to expand our assortment. So it’s a suite of investments across the Board that helped drive this. And as you know, we are now on our eighth year and counting on consecutive comp growth and we have been awarded JD Powers top honors third year in appliances and we like the category a lot and we like the customer response to what we are doing right now.

Great. Thanks. Good luck with the holiday period.

Thank you.

Thank you.

Our next question comes from Jonathan Matuszewski from Jefferies. Please go ahead. Your line is open.

Yeah. Thanks for taking my questions. So some retailers have called out lengthened purchase decision cycles resulting from tariff-driven price increases. From the strength of your comp, I’d imagine you are not, but maybe just comment on that and speak to how consumers maybe digesting some of the selected price increases you have instituted and whether you are making an expectation for greater elasticity in 4Q? Thanks.

This one is so difficult and we talked about before there just really isn’t a precedent for where we are right now and there are a lot of moving pieces. And as you can imagine, both our teams and our vendors are employing a number of strategies. In the third quarter specifically, we definitely saw a limited number of small price increases. And if you look at the items that were on the list on 4A things like TVs, and especially, some of the smaller screen size. I think in general what’s difficult, though, is that you now have quite a few items that are on any of the less than elasticities for any given individual item are incredibly difficult. And in fact, I think, it’s even more difficult as you head into Q4, which is a highly promotional season and we will be less about whether or not there’s a tariff on any individual item, it will be about promotional positioning throughout the quarter. And so I give our teams a great deal of credit for pretty carefully navigating thus far and to have really good plans into Q4 and we are seeing a variety of mitigation tactics go into place. We talked about this last time we had the call, obviously, we are thinking about where we assort and who we assort, definitely we are seeing promotional decisions being made by every single retailer out there as we head into this period. Obviously some of these are global vendors and they are thinking about how they move their supply chain, what pieces and parts they put into and how they decide to structure any of their different assemblies and we are already seeing some of the manufacturing move. And so, yes, we saw a little bit of impact into Q3, but as Matt said, it wasn’t material enough for us to quantify our call out. Q4 I think is all about price and promotion, and how you are positioning, and we will see how this evolves as we head into next year.

Great. That’s helpful. And then just you mentioned some exciting new kind of fulfillment options in kind of the New York City area. So just help us think about what’s the timeframe as you think about maybe rolling out some of those options elsewhere in the country?

Yeah. Jonathan, it’s Mike. New York is a great place for us to start primarily because of the density of consumers and our sheer lack of stores in some of the areas we would like to support customers and where we see opportunities from alternative pick-up locations and curbside. Those are primarily the two things we launched in New York first. We see an opportunity to scale those both nationally as we get past this holiday because there clearly things that add value to the shopping experience at Best Buy and that’s something that we think we can do. So it’s a great question. Thank you for asking it.

Thank you.

Our next question comes from Scott Mushkin from R5 Capital. Please go ahead. Your line is open.

Hey, guys. Thanks for taking my questions. So one was a thought about, as we think about next year, it looks like you guys are putting up pretty strong comps even though there’s really not a product cycle going on at least that’s my thought. And as we get into next year, it seems like you would have a number of drivers as we get 8K TVs coming down in price, we get a 5G iPhone, and we have two new gaming consoles. So how are you guys thinking about this year versus next year and are my thoughts right?

So, obviously, we are not going to guide for next year yet. But I think what we like about this year is it underscores what has been our strategic point of view and that is people want and need electronics and those are going to continue to evolve over time and we have a very unique offering digitally in our stores and in-home that will help people make the best decisions and keep their products working. As we head into next year, there’s obviously some things to be excited about. And counter point to that or at least something else to consider is the ongoing impact of tariffs potentially as we head into next year. So what the teams are doing right now as you can imagine is working through all of that, all the mitigation strategies that I just talked about and thinking about how we can put together the right suite of offers and experiences for our customers next year. I think no matter what, we feel like strategically we are positioned in the right way to capitalize on and commercialize new technology, which consistently we are able to do in a way that is very unique in the marketplace.

Great. And then my second question actually is, I guess, more strategic, obviously, you guys have been active, somewhat active in M&A with GreatCall and others that you have done. As you look at interconnected home more broadly, Corie, is there more you can do here as we look out rather very pointed at healthcare right now, but it seems like there’s a huge market and huge opportunity especially as you layer in 5G capabilities?

It’s interesting. We don’t talk about it as much or talk about the M&A in it as much, but if you go into our stores, almost every what we would commercially refer to as department is connected to the next one or could be connected to the next one. And our associates are uniquely well-suited to help people navigate through the compatibility or the ability for people to connect broadly in their homes. 5G we have talked about it, it’s going to be a slow roll. It’s going to be market by market. But we have also said, we think there will be some interesting product innovation and that we again uniquely are able to help the consumer through what’s available specifically for them in their market and how could it show up for them in their home in a very seamless and integrated way. And I think, you will see and you have seen the stores continue to evolve in ways that highlight that interconnected capability. And I think, again, our team will, obviously, capitalize on that ability to commercialize any new technology, excuse me, that’s coming down the pipe that will help capitalize on 5G and just processing and information power that will provide.

Next question, please?

Our next question comes from Zack Fadem from Wells Fargo. Please go ahead. Your line is open.

Hey. Good morning. Can you walk us through your view of the impact of some of the Q4 headwinds around six fewer selling days? And then the Intel supply issues and to what extent you have incorporated these items in your outlook?

So first on the holiday selling season, every bit of consumer data would say consumers are starting earlier in the hopes that they actually can finish earlier. We don’t ever know exactly how that plays out for them, but that is every bit of consumer data that we are seeing. And I think every bit of data that we have seen certainly over the last five years is that the promotional cycle continues to pull earlier and earlier, and that more and more people are launching ads and deals earlier and earlier. Additionally, the fulfillment options that are available to people have completely changed the competitive landscape in terms of how quickly you can get your items with next day, same day, in-store pick-up, all of these being available and we feel particularly strategically relevant for us with our physical locations, our ability to be in your home, our next day available to 99% of the ZIP codes this really suits us well. And so our point of view is that the less days is much less relevant than it used to be historically and that you are going to capture that demand slightly differently, but that demand is coming. We like to joke and say there’s still the same number of days between Halloween and Christmas, and so we feel like shoppers are going to meet their needs the way that they want given all the fulfillment options. In terms of the Intel news, our team would say they feel very well-equipped for holidays and that we have the right products. We have -- Matt talked about inventory, very good inventory levels, lots of availability both in our stores and online. And then we will continue to work on that issue as we head into the next year. And I would argue our merchants are very good at navigating situations like this and are working towards the impacts for next year.

Got it. Thanks, Corie. And then on the gaming category weakness, curious if you could expand on that in a little more detail whether you think it’s primary -- primarily innovation driven or if there’s something structural there. Just curious on your thoughts on when the category could turn around?

Yeah. Zack, it’s Mike. I think, the gaming category still is exciting. We think about it broad -- more broadly than just the console category based on what we think and where consumers are looking for experiences to be enhanced. Obviously we are on the year cycle of new devices coming out next holiday. So you have got kind of the best of both worlds for consumers thinking about what they want to do and thinking now -- between now and next holiday what they are feeling. So we have talked about gaming not being a driver for our business and we are seeing that reflect ourselves in the result. But also the category is promotional and drives good footsteps. And clearly this holiday you can see by what we are promoting. There’s some exciting offers and there’s still demand for that. Just at lower price points than they historically have been. I think there’s a sizeable shift and it will be for the foreseeable future how software compliments the experience and we have seen that for some time. So the consumer wants to move into higher power costs of devices more connected as it plays really good to our strengths on getting the right devices and the right accessories to meet the solution. And we think it will still be a great category for us as we move forward.

Got it. I appreciate that. Thanks so much.

Thank you.

Thank you.

And our last question will come from Chris Horvers from JP Morgan. Please go ahead. Your line is open.

Thanks. Good morning. Can you talk about what drove the improvements in the computing category relative to the prior trend, it seems like that perked up which is great for your business. And then as you look to the fourth quarter, how are you thinking about that category and what drives the expected improvement in home theater?

Yeah. Chris, it’s Mike. I will start and then, Corie, and Matt, can just chime in. We don’t segment our selling seasons interdependent of our quarters, but we came out of period argues are really strong back-to-school season for Best Buy. Corie talked about in your remarks about the evolution of our weekly ad to Top Deals, which lets us to be more flexible and how we offer deals to everybody that greatly benefited our back-to-school program with our ability to offer students more directly. We focused on a new marketing segment and went for a younger demographic with where we placed our media. And our team is, we already talked about briefly as they do a fantastic job of finding the right value propositions to get things in play and then get a handful of new products shipped during the quarter, which was excellent and we did a superb job on offering pre-orders and an ability to get rid of your old devices. And so when I look at that for Q3 it plays itself going into Q4 quite well and we are seeing great demand on our holiday products right now, we see no reason why it won’t continue, and so we feel good about that experience. We have been investing in for years continues to pay dividends for us. Corie, would you add anything?

No. I would just underscore, I think, this is a place where the team’s done a great job every computer that you could want to look at, feel and touch and get help with is available. And in spaces like now where there’s clearly interest on processing power, interest in high-end tablets, interest in computing, we are just very well-positioned to capitalize on that. So thank you all so much for joining us today. We look forward to updating you in our Q4 call in February, and we all hope -- we hope that you all have a safe and very happy holidays. Thank you.

Ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect.