Welcome to our Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. At that time, [Operator instructions]. As a reminder, this call is being recorded for playback and will be available by approximately 11 A.M. Eastern Time today.

If you need assistance on the call at any time, [Operator Instructions] and the Operator will assist you. I will now turn the conference call over to Mollie O'Brien, Vice President of Investor Relations, please go ahead..

Thank you and good morning everyone. Joining me on the call today are Corie Barry, our CEO, and Matt Bilunas, our CFO. 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 condition, 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 and subsequent 10-Q 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 are reporting record Q2 financial results of $11.8 billion in sales and non-GAAP diluted earnings per share of $2.98. Comparable sales growth was 20% and our non-GAAP operating income growth was 40%.

We are lapping an unusual quarter last year, as our stores were limited to curbside service or in-store appointments for roughly half the quarter. When we compare to two years ago, our results are very strong. Compared to the second quarter of Fiscal '20 revenue is up 24% and our non - GAAP operating income is up 115%.

Clearly, customer demand for technology products and services during the quarter remains very strong. Customers continue to leverage technology to meet their needs. And we provided solutions that help them work, learn, entertain, cook and connect at home.

The demand was also bolstered by an overall strong consumer spending aided by government stimulus, improving wages, and high savings levels. From a merchandising perspective, we saw a strong comparable sales growth in almost all categories.

The biggest contributors to the sales growth in the quarter were home theater, appliances, computing, mobile phones, and services. Product availability improved in the quarter, and except for some pockets in appliances and home theater, we do not believe it materially limited our overall sales growth.

Our merchant, demand planning, and supply chain teams once again did an amazing job managing through the difficult and constantly evolving supply-chain environment.

They worked strategically to bring in as much inventory as possible during the quarter, with actions like acquiring additional transportation, pulling up product flow, and adjusting store assortment based on availability.

There will continue to be challenges, particularly as it relates to congested ports and transportation disruptions, but our teams have set us up for as strong an inventory position as possible as we move forward into the back half of the year.

As we think about the holiday period, we often have varying degrees of inventory and supply chain challenges, and this year will be no different. But we feel confident in our ability to serve our customers during the holiday.

But continued strong demand across retail resulted in an overall less promotional environment, which was a significant driver of our better-than-expected profitability in the quarter. During the quarter, we provided customers multiple ways to interact with us depending on their needs, preference, and comfort.

Similar to last quarter, customers migrated back into stores to touch and feel products and to seek in-person expertise and service. At the same time, they continue to interact with us digitally at a significantly higher rate than pre-pandemic as online sales were 32% of domestic revenues compared to 16% in Q2 of fiscal '20.

Phone and chat volume also remained very high compared to pre-pandemic and sales via these channels continue to decline. In addition, of course, we are interacting with customers in their homes, making large product deliveries, selling solutions, repairing products, and providing sales consultations.

In fact, overall, we are helping our customers with their technology needs in their homes, 20% more than we did 2 years ago in Q2 of Fiscal '20. Through all of these interactions, across all of these touchpoints, 98% of survey customers tell us they feel very safe, which we believe is still incredibly important at this stage in the pandemic.

I want to genuinely thank our store and in-home teams, for creating this safe environment for our customers. And for continuing to provide exceptional service, even in situations where customers resisted following safety guidelines, and in some cases were disrespectful. For customers purchasing online, we delivered products with speed and convenience.

Online sales package delivery was not only much faster than last year, it was faster than 2 years ago. Furthermore, we stack up extremely well versus our competition.

Using a third-party service, we analyze competitor websites on a daily basis, and we consistently lead in the proportion of one day or less for published shipping time across a sample of higher volume zip codes, and higher demand items. In addition, we leveraged our stores to drive fast and convenient fulfillment of online orders.

In Q2, we continue to see about 60% of our online revenue fulfilled by stores, including in-store or curbside pickup, ship from store, or Best Buy employees who are delivering the product to customers out of more than 450 of our stores. The percent of online sales picked up by customers at our stores was 42%, similar to last year's second quarter.

Clearly, the landscape as it relates to the pandemic has been changing rapidly and we remain keenly focused on keeping our employees and customers safe.

We are continuing to encourage all employees to get COVID vaccinations by providing them with paid time off when they receive the vaccine and providing them absence time to be used in the event they develop side effects. In June, we launched an employee sweepstake with more than $100,000 in cash prizes to encourage our team members to get vaccinated.

To show our appreciation for their hard work and ongoing efforts in the face of pandemic fatigue, we paid employee gratitude bonuses at the beginning of the quarter. In summary, our team has delivered incredible results. To all of our associates across the Company, I thank you for your customer obsession, perseverance, and ingenuity.

Of course, while we were driving these great Q2 results, we were also looking to the future. During the quarter, we continued to roll out and run several tests and pilots as we determine the best path forward to become an even more customer-centric, digitally focused, and efficient Company.

We believe this is crucial to thriving in a new and different environment where customers expect to seamlessly interact with physical and digital channels throughout the shopping journey as they seek inspiration, research, convenience, and support. Last year we introduced a very important membership pilot called Best Buy Beta.

As a reminder, it includes unlimited Geek Squad technical support on all of the technology in your home no matter where or when you purchased it, including 24/7 VIP access to dedicated phone and chat teams, that are only available to members.

It also includes up to 24 months of product protection on most purchases from Best Buy, free delivery and standard installation, exclusive member pricing, a 60-day extended return window, and free shipping of online orders. All for $199 per year.

The offer is designed to give our customers the confidence that whatever their technology needs are, we will be there to help. It leverages our unique strengths and what we can provide customers that no one else can.

The goal is to create a membership experience that customers will love, which in turn results in a higher customer lifetime value and drives the larger share of CE to spend to Best Buy. We are very excited about this membership offer and we are encouraged by the pilot results. Membership acquisition has exceeded our initial forecast.

In addition, data is showing that Beta members interact more frequently and have a higher incremental spend than non-members. Given the breadth of the offer, it is resonating well across all customer demographics and our members are skewing younger than our Total Tech Support Membership Program.

In addition, our employees love telling customers about the program. We plan to scale the program nationally, in stores and online, at the end of Q3 under the new name Best Buy Total Tech. As part of the national rollout, we will be converting our 3.1 million existing Total Tech Support members to the new program.

I want to stress that the goal of the program is for customers to find value in the benefits and use them often. It is not designed to be a standalone margin-driving service offering, particularly in the near term.

In fact, as Matt will discuss later, a full rollout is a near-term investment, which we are confident will be justified with incremental sales growth and long-term customer value. As it relates to our physical stores and operating model, we are continuing to pilot and test many approaches and formats.

Specifically, we test how we can leverage our stores and facilities for more fulfillment purposes, and how we can deliver customer [Indiscernible] supported and engaged workforce. We are not going to outline all of our initiatives today, but I would like to provide a few updates on learning.

We have begun implementing the pilot of our new holistic market approach in Charlotte. As we mentioned last quarter, this pilot is designed to leverage all our assets in a portfolio strategy across stores, fulfillment, services, outlet, lockers, our digital app, and both in-store.

We will be testing and arranging remodeling a number of stores to 15, 25, and 35,000 square foot stores, as well as launching a few [Indiscernible] foot stores. We expect the full rollout of the pilot to span a few quarters either way, including the transition of one store into a new type of outlet.

Our current fits large appliance and TV open box product. With this new outlet pilot, we will have open box products from all categories.

It will also serve as the hub in a new services repair hub and spoke model we are testing, as well as an auto tech mega [Indiscernible] Of course, the reason we are piloting and testing so much is because we are trying some new unique prototypes, and we need the opportunity to learn and adjust before we roll more broadly.

For Minneapolis test stores, were [Indiscernible] to 15,000 square feet to provide more space for fulfillment. We have been making adjustments based on customer and employee feedback.

We've reflowed some of the layouts, added signage to help customers understand the changes we are testing, and added assortments in areas like small appliances, printing, and accessories. We will continue to evolve feedback as it relates to 5,000 square foot store pilot.

We continue to receive positive feedback from customers and employees on store design and the way we are showcasing products. In addition, year to date, this store generated higher revenue than controlled stores in the double-digit percent range. Another pilot that we are excited to launch pre-holiday is our virtual store.

For this, [Indiscernible] in one of our distribution centers that will have merchandising and products, and will be staffed by dedicated associates, including vendor [Indiscernible], but it will have no physical customers.

Instead, customers can interact with our experts via chat, audio, video, and screen sharing, depending on their preference, and be able to see live demos, displays, and physical products. We are excited about the customers.

For example, you could be on our dot.com experience, click on a product you like, and be connected via video, to a blue shirt in the Best Buy virtual store, and never leave your living room.

Or you could be standing in a store, scan a bar code, and be taken through your phone directly to this virtual store where an associate could answer your question. From a fulfillment perspective we piloted last year, we're very successful, and we're continuing to iterate on the model.

As a reminder, while all stores will continue to ship online orders, we are driving efficiency and effectiveness by consolidating ship from store units in a limited number of stores across the country. As we evolve the model overall, we are using fewer stores than last year as hubs.

In addition, we have begun remodeling a subset of stores to deliver an even greater portion of the volume, reducing the sales floor square [Indiscernible], packaging, station equipment, and supplies. These 13 locations should be rolled out by holiday and take on about 25% of the national ship-from-store volume.

As you would expect, the various tests and pilots are intended to identify how our store portfolio should evolve from the role-based serve to their [Indiscernible] these tests we will develop plans that likely include a rollout of investments in more stores and markets.

We have also been evolving our labor model to meet our customer's changing shopping behaviors. For our employees, we are designing for more choice, flexibility, and career opportunity.

We continue to see momentum with our flexible workforce initiative, which is centered on store employees' expertise to perform roles outside of their primary job function. At the end of July, 80% of our associates [Indiscernible] into different work zones, and 50% of associates have earned four or more jobs.

This allows our employees and us to [Indiscernible] in the store and between channels, phone, remote support, or employee product delivery. And very soon we will be able to schedule associates between stores within a market.

This flexibility is important for all of our stores going forward, but even more important for our smaller stores with less labor. This new way of working empowers [Indiscernible] giving them opportunities to learn new skills, broaden their experience jobs.

They are equipped to confidently help customers in more ways, and our data is showing us that once employees add skills, they tend to drive a higher customer NPS.

It also gets team members the ability to earn a different hourly wage depending on the job performed and the potential for working additional shifts that otherwise may not have been available in their primary job function.

We believe our flexible workforce initiatives can add to our ability to attract and retain our employees, particularly in this tight labor market. And in addition to the training and flexibility we offer, we have also invested significantly in compensation and benefits for our associates.

On top of raising our starting wage to $15 last year, we provide a wide array of competitive benefits across many dimensions, including tuition reimbursement, employee product discounts, paid time off for part-time associates, back-up child care, child tutor reimbursement, and many others.

Overall, we are operating with a smaller field workforce than we were pre-pandemic, which is very reflective of how the business model has changed.

As our online revenue has more than doubled from two years ago, we feel like we are largely at the right number as it relates to the strategic evolution of our operating model, the demand we are seeing, and the nature of our customer interaction. What is most important right now is to continue to learn and iterate.

As you can imagine, having a more flexible workforce is a very important component of our operating with a smaller workforce. And technology is crucial to its success as well. In fact, technology is the underpinning to the success of our Company strategy.

We need technology tools and capabilities to help us as we transform and evolve the way we operate. This fact has been clearly reinforced by all of our pilots. There is a myriad of technology projects in development, but here are just a few examples.

We will leverage the electronics sign labels in our stores to make it simpler and more seamless for customers to shop. Especially in our stores with smaller shopping square footage. Specifically, we are adding messaging to the labels that mimic our Dot.Com experience.

In other words, customers will easily be able to see if the product is in stock in that store, or in another store nearby. And when it could be delivered and installed. We are also piloting mobile app checkout so that customers, particularly grab-and-go customers, can quickly check out, without needing to interact with an associate.

For our virtual store to really come to life seamlessly for our customers, we are building out a new digital communication platform, that will combine multiple systems into one experience for a call, chat, video, and screen sharing. We put our customers in control of how and when they want to be served across these vehicles.

Of course, we are also continuing to make significant investments in fundamental technology capabilities, like data and analytics, and broader cloud migration, in order to drive scale, efficiency, and effectiveness. Earlier this month, Fast Company named us to its 2021 list of the 100 Best Workplaces for Innovators.

This is our first time on the list, which recognizes companies that created cultures of innovation despite the challenges posed by the pandemic. During the quarter, we continued to expand our assortment in newer categories where we can leverage our ability to commercialize new technology.

For example, in the past year, across fitness and wearables, wellness and health, we have more than doubled our vendor partners and grew our SKU count by more than 150%.

These include [Indiscernible], specifically those focused on conditional health management that helps customers track blood glucose levels, keep tabs on heart data, manage weight, or even help identify allergens in food.

Furthermore, we are working with hospitals and care centers to cure-rate health products for their patients on co-branded landing pages. Because customers are looking to us to complete their solutions, we are also expanding to additional adjacent categories.

For example, we have expanded our assortment in categories like outdoor living as more and more consumers look to makeover or upgrade their outdoor spaces. This includes products like patio furniture, grills, fire pits, and electric mowers, to name a few. Many of these products are available online only as part of our digital-first strategy.

All together, they are a small part of our overall business but growing fast as we continue to add to the assortment. In the back half of the year, we expect to add more products in the fitness, beauty, sleep, pain management, vision, hearing, and electric transportation categories.

Before I conclude my prepared ongoing commitment to inclusion and diversity and our community. During the second quarter, we announced our commitment to spend at least $1.2 billion with BIPOC and diverse businesses, by 2025.

This pledge includes plans to increase all forms of spending with black, indigenous, and people of color businesses, from nearly every corner of the Company. From how we bring goods and services to stores, to where and how we advertise.

The goal is to create a stronger community of diverse suppliers and to help increase BIPOC representation in the tech industry. In addition, earlier this month, we announced we are investing up to $10 million with brown venture group, a venture capital firm that focuses exclusively on black, Latino, and indigenous technology startups.

The goal of this investment is to help break down the systemic barriers often faced by BIPOC, entrepreneurs, including lack of access to funding, and empowering the next tech generation. To make a difference in our local communities, we are passionate about building out our Teen Tech Center program.

These provide teens in disinvested communities access to the training, tools, and mentorship needed to succeed in post-secondary opportunities and careers. We are also building a diverse talent pipeline for jobs of the future.

During the second quarter, we launched our first-ever opportunity for customers to donate to the Best Buy Foundation in support of teen tech centers. Between July 11th and September 11th, customers can choose to donate when they make a purchase, including at a Best Buy store, bestbuy.com, or the Best Buy app.

We also just published our 16th annual ESG report, which outlines how we are working across the Company to have a positive impact on our planet, employees, customers, and communities.

In terms of the environment, this past year, we exceeded our goal to reduce carbon emissions in our operations by 60% through investments in renewable energy and operational improvements. We are on track to reduce our carbon emissions by 75% by 2030.

And we signed the climate pledge committed to being carbon-neutral by 2040, a decade faster than our previous goal of 2050. We also have a robust trade-in program that brings a useful second life to products that might otherwise sit idle in someone's home or end up in a landfill.

For products that need to be recycled, we continue to operate the most comprehensive consumer electronics and appliances take-back program in the U.S., taking back more than 2 billion pounds since 2009. Available on our corporate website, our ESG report also outlines the ways we support our employees and communities.

In summary, we have delivered a remarkable first half against a volatile backdrop. I am so proud of the execution of our teams as they continue to safely meet the needs of our customers in ways that I would argue no one else can.

Based on the strength of the business and our expectations for continued customer demand, we are raising our sales outlook for the back half.

Of course, the environment as it relates to the pandemic is still rapidly evolving and there is uncertainty as to the associated impact on many important factors, including consumer shopping behavior, the share of wallet on services, like dining and travel, return to the office and return-to-school.

Furthermore, we continue to believe the holiday season will remain unique against that backdrop. That being said, our teams have proven they can and will continue to proactively navigate these factors. And they remain ready to respond and adjust the business as the environment potentially changes.

Over the longer term, we are fundamentally in a stronger position than we expected to be just two years ago. There has been a dramatic and structural increase in the need for technology.

And we now serve a much larger install-base of consumer electronics with customers who have an elevated appetite to upgrade due to constant technology innovation and needs that reflect permanent life changes, like hybrid work and streaming entertainment content.

This is only underscored by the recent Senate passage of the Infrastructure Bill, which will provide even more access to broadband and give us the opportunity to serve the needs of currently under-served communities.

Our unique omnichannel assets, including our ability to inspire what is possible across the breadth of CE products, as well as our ability to keep it all working together with the way customers want, truly differentiate us going forward in this new landscape.

Now, I would like to turn the call over to Matt, for details on our results and insights on our outlook for the next quarter and the full year..

enterprise revenue in the range of $51 billion to $52 billion, comparable sales growth of 9% to 11%, and a non-GAAP gross profit rate slightly higher than last year. For SG&A, we expect growth of approximately 9%, which compares to the prior outlook of 6% to 7% growth.

The increased expense is primarily due to higher store payroll costs and other variable items associated with the higher sales outlook. In addition, we expect the incentive compensation for the full year to increase by approximately $275 million or at the high end of our previously provided range.

We expect our non-GAAP effective tax rate to be approximately 20%, we expect capital expenditures to be in the range of $800 million to $850 million, and lastly, we expect to spend at least $2.5 billion on share purchases.

In closing, over the last two years, our teams have successfully adapted to various changes to our operating model and a dramatic shift in customer shopping behavior. We have seen a surge in reliance in demand for technology as our customers also adapt to their changing needs.

The result is that we now expect our sales will surpass $51 billion this year. That is more than $7 billion of increased sales over a two-year period. Thank you, to all our employees for driving these amazing results. I will now turn the call over to the operators for questions..

Thank you. [Operator instructions] We'll move on to our first question from Steven Forbes of Guggenheim Securities. Please go ahead. Your line is now open..

Good morning. I wanted to focus on the pricing and promotional environment. And so maybe I'll just ask my 2 questions together.

The first part is, as we think about the price increases that are being passed through here to the consumer, can you provide some context around the magnitude of them and how the industry as a whole is addressing these? Rather -- is everyone passing them through or do you see potential increases in promotional activity? And then the follow-up to that is, as we think about the holiday period, in past years, other competitors utilizing the category to drive traffic during the holiday period.

Can you talk about the expectation for holiday as a whole, as it relates to frequency and depth of promotional activity? Thank you..

Why don't I start, and then Corie can jump in. I think there's a few questions in there. I -- Overall, what we're seeing was the first half of the year was less promotional, similar to the trends we experienced last year during the pandemic. As we -- as I said in my comments, we are starting to see us lap those periods of very low promotionality.

As in July, we're actually seeing the mix of items on promotion and the discounts associated with promotions are actually higher than last year. So, we're starting to see a bit more return to a promotional level that -- more than last year, but still higher than -- still less promotional than two years ago. And so, we do see that increasing.

and over that period of time where promotions have been lower, customers have been essentially paying higher prices because the costs -- we haven't been promoting as much. And so that's certainly part of the aspect. Also, within pricing, we certainly are seeing a little bit of inflation as well as you look at the prices of goods.

In some cases, those are being passed on to consumers. Appliances is an example where there has been increases to the cost of those goods, which the industry is generally passing on.

But overall, inflation hasn't been a bigger part of our ASP increases, it's been more on the promotionality versus inflation has been relatively small impacting the first half. It might be a little bit more in the back half, but I wouldn't expect inflation as it relates to pricing to be as significant..

And I would just simply underscore our priority is always to be priced competitively. And that will be the case no matter what's coming through the costing side of things.

As we head into holiday, specifically to that part of your question, we said even in the prepared remarks, we would expect the back half to be more promotional, and Matt alluded to July being a little bit of that lead into what we're seeing.

And we would expect the products that we sell to be products that people really want for holiday, and therefore, that environment to heat up correspondingly. And so, that is part of what's embedded in the guide going forward..

Thank you. Best of luck..

Thank you..

Thank you..

We'll now move onto our next question from Peter Keith of Piper Sandler. Please go ahead. Your line is open..

Hey, good morning, everyone. Thanks so much. Great results here. I was hoping you could flesh out a little more on the membership program. It seems interesting. I guess, for the same price, it's basically upgraded to Total Tech Support.

Can you confirm it's going to be at all stores by year-end? And then, the gross margin pressure you're experiencing, is that something that will be ongoing or is it more of an annualized effect the program gets ramped up?.

Thank you, Peter. I'll start, and then Matt can talk a little bit about financial ramifications. So, what was important to us in beta, was understanding; how can we build on some of what we're learning in Total Tech Support in terms of what our customers love, but add onto that what we think will continue to provide them value over time.

Like many membership programs are just continuing to evolve based on what we're learning distinctly from our customers. And so, we started testing data actually just at the very beginning of this fiscal year.

And as we said in the prepared remarks, we're definitely seeing uptake that is greater than both what we expected, greater than what we were seeing in Total Tech support, and I think it's the combination of features that we talked about in the prepared remarks, that are making our customers come to us more frequently.

And like we also said, spend a bit more each time that they're coming to see us because you have this combination that keeps customers very sticky to the Best Buy brand. And so, this is really an evolution of what we have learned in Total Tech Support.

Started testing in the very beginning of this year and then we plan to actually roll out towards the end of Q3. So it will be in place, like Matt said, and have a bigger impact for Q4. But the key for us is that we expect the membership to grow faster than what we saw in TTS.

And we've seen that play out in the pilot, and we're going to keep iterating on the offers, frankly, depending on what it is that customers really value and what it is that keeps them loving our brand and very loyal to the brand. I'll let Matt talk a little bit about the financial implications..

Thank you. Thanks for the question, Peter. Essentially, as you would imagine, the Total Tech offer is just far more inclusive to of -- to the benefits to our customers. And so, with that, you're seeing more costs associated with Total Tech. It just has more enhanced benefits than what we had offering in TTS.

And that is essentially driving the gross margin profit -- gross margin impact in the back half of this year. The intent of Total Tech is not to actually drive margin rate. The intent of Total Tech is for us to increase sales and therefore leverage more sales into the future.

So, the short-term impact certainly is going to be a gross profit rate impact. As you look forward, the intent is for not to be gross profit accretive because what we want people to do is to use it more. That usage will create more sales and create more leverage on our bottom line in the future.

And that's the overall take, but as you would imagine, the enhanced spend do come with more cost, but we believe that will keep people secure and coming back and increase our share at wall with them..

Okay. Sounds great. Thanks for the feedback..

Thank you..

We'll move on to our next question from Michael Lasser of UBS. Please go ahead. Your line is open..

Good morning. Thanks a lot for taking my question. Do the guidance now include the expectations that your comps could be flatten down in the second half of this year versus last year? You've previously assumed that it could be more down-high single-digits.

It sounds like the difference being that consumers have yet to really shift their wallet to the categories that you expected, do you think this reflects some permanent change in behavior or it's going to happen, it's just that it's not going to happen in the second half of the year and it's going to be more like a 2022 event? And can you also give us an indication how you factored in any sort of composition of your inventory in the back half, meaning, while up significantly overall, are there any areas where you might be a little short on inventory that will lead to some out of stocks when you factor that into the flat down 2%?.

So, I will start particularly on the wallet shift question. We noted in the prepared remarks that we definitely are seeing that shift happen slower than what we thought. And it's less than a shift, it's actually been -- for a while, we're seeing growth in both sides.

And as Matt said, as the pandemic has redoubled its efforts, we've seen it shifting away a little bit from some of the experiences, that we've just seen this growth continue honestly, in both experiences and on the retail side. I think we're pragmatic and we've said in the prepared remarks, we believe at some point that shift will continue to happen.

I think it is being pushed out a bit. But importantly, there are also systemic changes that have happened in the way that all of us live, right? If you think about something like hybrid work models, that's not just something that's going to happen in the back half or in a quarter.

That is likely a new way of working going forward, or streaming, and the amount of streaming content. That's not just in the moment change, that is a change in how people will consume content going forward. And so, I think honestly you have a little bit of both sides here. You have real systemic changes that have happened in the way that we live.

And there's, I think, a push out in people really shifting hard that spending to experiences.

And then part of that is being how healthy the consumer is in terms of, still, savings rates that are at all-time highs and very healthy balance sheets, access to credit, and all of those fundamentals staying really solid, I think is helping buoy this demand across both experiences and retail..

Yes, I'll just add a little bit. Corie did a great job explaining the consumer side of that. I think, overall, as you talked about, we are now expecting flat to down 3% in the back half, and that's much better than we had expected at the end of last quarter, which was more closer to down approximately 8%.

I think one of the things I would add to that situation is inventory. We feel like we're in a good spot as we look to the back half of this year. I think you asked about inventory. We are still seeing pockets of inventory, but quite honestly, we are really healthy, strong position, and are preparing ourselves very well for the holiday season.

So that clearly adds to our optimism to the back half as well. They are also a lot of uncertainties as you look at it, but we'll update people as we go..

And my follow-up question is on the promotional environment and gross margins. You've mentioned that July, you saw promotions higher than they were in 2020, but still down from where they were in 2019, so how do you factor in your gross margin expectations for the next couple of quarters, where the promotional environment's going to be.

Will it still be higher than or below 2019? And under what conditions could you see some of the other players in the space as it become more promotional than they were in 2019, especially if sales really start to slow at a greater rate than you're expecting?.

Yes, I think overall we're always going to be very aware of what our competitors are doing in the back half, whether it's back-to-school or the holiday season, so we'll always be prepared to adjust as appropriately. We are very thoughtful about how we compete and where we compete, in being thoughtful managers of the P&L, if you will.

But overall, I would say, the promotionality we would say probably a little bit higher than what we experienced last year or fiscal '21, but still less promotional than we saw in fiscal '20 starting right now. Again, we'll look at that and manage it as it comes and as we see the holiday unfolds a little bit.

But because we were fundamentally always be competitive, but I think, generally, will be more promotional than last year, probably less promotional than two years ago..

Thank you, very much and good luck..

Thank you..

And now we will take our next question from Karen Short of Barclays, please go ahead. Your line is open..

Hi, thanks very much. Just a couple of questions to clarify. First of all, on the gross margin. So, it's fair to say that, with respect to the roll out of Best Buy Total Tech, that that will pressure gross margins from Q1 through Q3 of next year. That's just a clarification.

And then my bigger picture question was, when you think about the overall higher installed base of consumer electronics since this pandemic began.

Wondering if you could give a little color on how you actually see the acceleration in the innovation cycle playing out, meaning obviously we'll have shorter and shorter life cycles leading to need to upgrade more frequently, but I'm wondering if you could just contextualize that a little bit..

Thanks for the question, Karen. Yes, I will start and then Corie can jump in on the last part of the question. We're not ready to guide next year yet, but so certainly we are expecting Total Tech to pressure Q3 of this year and Q4 of this year as we roll it out. As you can appreciate, we're still trying to understand usage at a roll out level.

And so, it's a little early for us to talk about where -- how long that pressure will exist and in what line of the P&L. As I said, the goal is for it not to actually be accretive to margins.

It's supposed to be used, and with that usage will come more costs, but overall, we do expect it to grow our sales over a long term and increase our improve our experiences. It's a bit early to tell how that impacts for next year, but we'll obviously update people as we learn more..

On the question of install bases, it's my favorite question, we definitely are seeing more penetration of goods because people have consumer electronics from multiple locations, and use cases, in their lives. In a hybrid work model, I might have one setup at home. I might have one setup and [Indiscernible] go.

And so, you've seen this deeper penetration then, of people's homes and lives.

What's interesting about that is what you hit on in terms of innovation, [Indiscernible] companies that have both benefited from that deeper penetration in yield to innovate in a way that will inspire customers to replace replacement cycles condensing that are coming online that are really useful to people.

I mean, if you think about the evolution of just cameras in computers over the last year because so many people are using video, now you've got cameras that track you, even [Indiscernible] going to be this constant drive features and attributes that you add to [Indiscernible].

And really what's fascinating is based on survey data that we're looking at right now, intent to purchase still remains very high in the next 12-month window, which to us says, you've got people who already are trying to think about what might be the more upgrade that's going to help me live at home schooling or another extended period of working from home.

While these are really difficult numbers to [Indiscernible], we are for sure seeing [Indiscernible] looking for those new attributes. And then importantly, vendor partners who are really working harder to create that next suite of solutions that will [Indiscernible] really fundamental structural changes in how we're living our lives..

Great, thanks..

Thank you..

We now move on to our next question from Brad Thomas of KeyBanc Capital Markets. Please go ahead. Your line is open..

Hi, good morning. Great quarter. I was hoping you could talk a little bit more about what you think about categories. I see in 2Q very strong results on a 1 and 2-year basis across the board. With comps having slowed to be declining in the [Indiscernible] that are going to be strongest in weakness. Thank you..

I think there's a lot of categories that will continue [Indiscernible] be upon the levels of inventory that we receive. Appliances has been a category, both large and small, have been growing for years at a time. So, we just see more opportunities there. Clearly, a home theater has opportunities as it always does in the back of the holiday season.

So those are some of the bigger ones. I think computing might be an area where it might be a little bit -- it might be slower based add over the last several years going back, but there are a number of categories that will continue to grow..

New category and new product introductions. Both the new categories that we talked about that we're expanding into. While not as big, definitely as likely some new product launches stimulate back to the question about constant innovation that always stimulate a little bit of demand as well..

Great, and Corie, if you could tell us a bit -- a longer-term [Indiscernible].

Technology. The second area is all about emergency response device-based tools back in our homes. And that builds on some of acquisitions that we've already seen. Then the third, which is a little bit more nascent is [Indiscernible] digital health caring center services that can connect patients and physicians to enable [Indiscernible].

That one is the most nascent, and that one will take the longest to develop.

On the first two, you can hear even our prepared remarks, the unmet, proliferating right now to help people manage their our own care is absolutely incredible, and so on the consumer side, we feel really strong [Indiscernible] dependency that business rebound, especially as we're starting to see more people come back into our stores, and I think the assets as you think about virtual carriers, we've all gone through.

And that [Indiscernible] person hospital does it, but instead be able [Indiscernible] I think, obviously, there's an even greater use case now than there was [Indiscernible] that together, I think broadly we remain really optimistic about how the future of healthcare can be changed through technology and the role that we can play in it it..

Really helpful. Thank you so much..

Thank you..

We'll now move onto our next question from Scott Mushkin of R5 Capital. Please go ahead. Your line is open..

My question is, I had to get my arms a little bit better around that for [Indiscernible] it looked like from an inventory perspective, from a margin perspective, it just seems in the fourth quarter there is always a challenge, but I was wondering if you'd give us a little bit more what you're thinking there. [Indiscernible] question as well.

And I'll start that later..

Yeah, thanks. We've jump on the last part there. I think we're very confident that we're [Indiscernible] demand of our customers. There's always a level of constrained inventory when you are still seeing pockets of constrained now.

We are in a very health -- more in certain areas, but we have a high degree as we've talked about, transfer ability between categories and within category assortment to meet customers' demand. I think, overall, from a gross profit perspective, one of the -- we did talk about how we expect to see gross profit rate pressure in Q4.

The total picture, we will see probably more return to more promotionality compared to last year, but again, overall, compared to two years ago, it should be less. But again, we'll watch and see where it goes and adjust accordingly..

Great, I appreciate the color. And then my second question is what you guys talked about with the whole, again, just looking for a little bit more detail. Are you guys going to be remodeling on there, when we will it be complete? Any more details around that. That sounds very exciting..

Yeah.

I am [Indiscernible] because I think it uniquely [Indiscernible] across both our physical assets, our stores, seeing every single store, there will be a number of remodels, but it's not every single one, but it also [Indiscernible] our consultants and designers and advisors in our stores, and leverage them across not just conventional storefronts, but also in places like an outlet, or in places like an auto [Indiscernible] or ten auto base, where you can work on all the cars together as an example.

And we said in the [Indiscernible] role everything out in the market, all the model changes that go with that as you learn how to more flexibly operate all of these models.

But the goal for us is balancing that -- this isn't just about like quantity of stores, this is [Indiscernible] to do for you, and then the operating model and the people flexibly working around that physical footprint in a way that uniquely provides [Indiscernible] customers both that inspiration and [Indiscernible] no one else can.

And so, I [Indiscernible] on one concept, but trying to put all the concepts together and say if I want to serve a market, how I help a customer navigate different Best Buy experiences, and also help our employees work more flexibly across all those experiences. With --.

-- guys on the incredible job, given what's been thrown at you, so -- next work..

Thank you very much..

Thank you..

So, I just want to close by saying, thank you [Indiscernible] being associates and thank you all so much for joining us today. [Indiscernible] our progress during our next call coming up in November. Have a great day.