Corie Barry
Chief Executive Officer at Best Buy
Good morning everyone and thank you for joining us. I am proud of our team's execution and their relentless focus on providing amazing service to our customers, during what is clearly a challenged environment for our industry. Customers have high expectations regarding service and we were pleased to see NPS improvements across many areas of our business as we continue to focus on creating differentiated experiences that customers would love into the future. Today, we are reporting Q3 financial results that are ahead of our expectations.
Throughout the quarter, we were committed to balancing our near-term response to current conditions and managing well what is in our control, while also advancing our strategic initiatives and investing in areas important for our long-term growth. Our comparable sales were down 10.4% on a Year-over-Year basis. This represents 8% revenue growth over the third-quarter of pre-pandemic fiscal 2020, which was consistent with the growth compared to fiscal 2020 that we saw last quarter.
As expected, our non-GAAP operating income rate declined compared to last year due to the increased promotional environment for consumer electronics, the investments in our growth initiatives, and SG&A deleverage from the lower revenue. Our non-GAAP earnings per share was up 22% versus pre pandemic fiscal 2020. We continued to manage our inventory effectively. Our inventory at the end of Q3 was down almost 15% from the third quarter of last year. This is more than our Q3 sales decline and projected Q4 sales due to a few factors. First, from a timing perspective, some receipts came in a few days later than expected and arrived just after the quarter closed. Additionally, due to supply constraints last year, we focused on bringing inventory in earlier to secure it for holiday. So, October of last year ended with an unusually high-level of inventory.
For additional context, this year $600 million in receipts moved from October into the first two weeks of November. This shift equates to about 8% of our inventory. The promotional environment continues to be considerably more intense than last year. Like Q2, the level of promotionality in Q3 was similar to pre-pandemic levels and in some areas was even more promotional as the industry worked through excess inventory in the channel, as well as response to softer customer demand.
From a merchandising perspective, we saw Year-over-Year sales declines across most product categories. Consistent with the first-half of the year, the largest impacts to our Enterprise comparable sales came from computing and home theater. Compared to Q3 of fiscal 2020, our computing revenue remains 23% higher and our appliances revenue remains 37% higher. Our blended average selling price or ASP in Q3 was down slightly on a Year-over-Year basis. ASPs will likely continue to be lower on a Year-over-Year basis as promotional activity that was largely absent during much of the pandemic has returned. Compared to fiscal 2020, ASPs continue to be higher and we believe they will likely remain higher going forward. This is due to two factors that have been driving ASPs higher for years and accelerated during the pandemic.
First, category mix. We have driven material growth and mixed more into products like large appliances and large TVs, which carry high ASPs. Second, within categories, customers have mixed into premium products at higher price points. I would like to pause here for a moment and talk about what we are seeing as it relates to consumer behavior. As I step back at the highest macrolevel across retail, each customer is making trade-offs, especially with the significant impact of inflation on the basics like food, fuel, and lodging. This disproportionately impacts lower income consumers as a much larger proportion of their spend is on those basics.
Across consumers, we can also see that savings are being drawn down and credit usage is going up. And value clearly matters to everyone. During Q3 we continue to see more interest in sales events geared at exceptional value. As a result, there is no one way to describe all customers and we have repeatedly referred to the impacts of the current macro-environment on consumers as uneven and unsettled. As it relates to our results as a specialty CE retailer, we saw relatively consistent behavior from our purchasing customers in Q3. Our demographic mix is basically steady versus last year and pre-pandemic. Our blended mix of premium product is higher, both units and dollars than last year and pre-pandemic. Within some specific categories, we can see some cohorts of customers trading down, but it is not aggregating into an overall impact.
While sales are down in our signature categories as we lap the strong growth of the pandemic years, our initiative to expand our presence in adjacent categories is driving sales growth. While still small overall, we are driving sales growth in e-bikes and outdoor living categories as we expand to more stores in addition to our online assortment. Outdoor furniture, in particular, is demonstrating strong growth, driven by new showrooms for our Yardbird assortment, including in our Best Buy stores and new standalone showrooms.
From a health and wellness perspective, we launched over-the-counter hearing aids last month in almost 300 stores and online, including a new online hearing assessment tool. Volume is still relatively low, but the Q3 sales growth rate exceeded our expectations and demonstrates that customers see Best Buy as a relevant provider of these products. As you have likely noticed, the holiday shopping season has begun and now more than ever, our customers are looking to bring joy back into their holiday celebration. Like we said on our last earnings call, we expect shopping patterns will look more similar to historical holiday periods and what we have seen in the last two years. Specifically, we expect there will be more customer shopping activity concentrated on Black Friday Week, Cyber Monday, and the two weeks leading up to December 25th.
Our results so far in October and the first two weeks of November have come in largely as expected and support this view thus far. From an inventory perspective, we have approached holiday strategically, placing bets in areas that require a longer lead-time and taking a more flexible approach in other areas. We believe this gives us more room to invest and partner with vendors so changes in demand provide additional sales opportunity.
I would also stress that while November typically represents the largest influx of inventory in Q4, we will continue to receive inventory every week throughout the holiday season to replenish inventory levels. While aligning inventory levels with uncertain and evolving customer demand is always challenging, we are well-positioned and feel confident we will be able to react quickly to changes we may see in customer demand.
From a labor standpoint, we have seen a strong pool of applicants for seasonal associates to supplement our store team. This combined with our investments and wages over the past few years and comparably low turnover that remains close to pre pandemic levels means we are ready to provide our customers the great service they expect to find in our stores. We are excited about the promotions and deals we have planned for all our customers, including special promotions available to Total Tech and my Best Buy members. We have curated gift list with inspiration for all, from family members to foodies and content creators to gamers. For added ease of shopping and peace of mind, we have extent both our store hours and our product return policy for the holiday season.
We're also offering free next day delivery on thousands of items in addition to our convenience store and curbside pickup option. We feel confident heading into what could be an uneven holiday season and we have tailored our offerings to delight our customers, whatever their budget. Strategically as we look ahead, we are positioning ourselves to lead the way in the future of retailing. This is a future where the customer is in control and expect seamless experiences across all touch points. It is becoming more evident every quarter that the pandemic induced shopping behavior changes are sticky and that our digital penetration of domestic sales will likely remain above 30%.
For the first-nine months of the year, our online sales as a percentage of domestic revenue was 31%, nearly twice as high as pre-pandemic. We expect that penetration rate to begin to increase again over time as it did pre-pandemic. Additionally customer demand for other virtual interactions has remained elevated and we have seen strong and sustained sales growth from our investments in chat, phone, and video sales experiences this year. Of course, that also means that almost 70% of customers are shopping in our stores. And customers representing 42% of our online sales pick up their products at our stores. As such, it is imperative we continue to invest in our stores and elevate our unique experiences. One way, we are doing that is with our 35,000 square-foot experience store remodel. We remain excited about these as we continue to see positive results from our longer running Houston and Charlotte remodels, including stronger sales, increased customer penetration, and higher net promoter scores.
These stores highlight broader assortment, including the opportunity to showcase the new categories I referenced earlier and really bring them to life. The remodels also include premium home theater and premium appliances, more space for consultations and services, and expanded fulfillment capabilities like larger warehouses, in-store and curbside pickup and 24 x 7 lockers. Additionally, as you would expect, they all include the very best most up-to-date vendor experiences showcasing premium merchandising and specialized labor. While market conditions have created a tough environment for delivering remodels, our incredible and dedicated team was able to deliver 42 of them by Black Friday. We plan to provide a broader update on our store portfolio refresh strategy at year end. We are also leveraging technology in our stores more than ever to continue to elevate our customer and employee experiences in more cost-effective ways. For example, we've introduced a new app for our associates called Solution Sidekick that provides a guided selling experience consistent across departments channels and location. With the app, associates interacting With the customer can see the customer's profile in the moment, including historical purchases and active memberships. As the associates starts and order with product recommendations, the app automatically calculates total tax savings for existing and prospective members and recommends additional product solution.
Importantly if a customer isn't ready to buy in the moment, associates can send the product recommendations and a recap of the conversation to the customer by a email, text, or QR code so they can purchase later at their convenience. It is early, but we are very encouraged by the ramping employee adoption of the app and the higher revenue per transaction we are seeing when associates leverage Solution Sidekick. We are also leveraging our investment in electronic sign labels to provide a better and more efficient experience for customers who want to buy a product that is locked up or not readily available on the shelf. We've added new functionality that allows the customer to scan the QR code with their phones camera and push a button notifying they are ready to purchase.
This sends the store associate an instant and prioritize notification to pick the product and have it ready at pickup. We also took a much more digital approach when building out the experience for our 5,000 square-foot store pilot we opened in Charlotte over the summer, highly leveraging these digital tools. Similar to the U.S., we are evolving our model in Canada as well and continue to see better-than-expected financial results there. We have been piloting initiatives there, including technology subscription, online marketplace, a market focused test, and small store formats. This expands our testing and innovation capabilities and provides opportunities to learn from their experiences when they are able to iterate faster and are further along in their pilots. We are excited to be able to innovate and leverage learnings on both sides of the border.
Turning to membership, our Best Buy Totaltech offering is a very important initiative to drive deeper relationships with our customers. Last month, we passed the one year anniversary of our national launch and we are pleased to report that Totaltech is driving the member behavior we envision. Members are engaging more frequently with us and shifting their share of wallet to Best Buy. Additionally, members continue to rate our experiences higher. Our net promoter score from Totaltech members remain considerably higher than non-members. Nearly half of the new members joining the program in the past year were either new or lapsed customers, reinforcing that the value of total resonates beyond our existing loyal customers.
Very early retention data shows renewal rates running largely in line with our original expectations. Totaltech is a comprehensive membership with wide appeal across demographics. For example, younger generations and those with children utilize more of our newer warranty and member pricing benefits and older generations utilize more of our enhanced services and support benefits. Our associates continue to love the program since it clearly provides value to every single customer and simplifies the sales interaction. While we are encouraged by the results in the first full-year, we will continue to iterate based on the macro-environment and what is most relevant to our customers.
As we said last quarter, we have been encouraged with the pace at which we have been acquiring new customers, considering the uniqueness of the offer, the macro-environment and the decline in our product sales. Nevertheless, these factors have resulted in a lower member count than our original expectation. Last quarter, we enhanced our in-store point-of-sale tools to better assist our team in showcasing the value of Totaltech to potential new members. And the early results continue to be positive. We are also activating on ways to continue to improve acquisition through our digital channels.
From an optimization perspective, we will evolve the program in ways that also reduce our cost-to-serve. We have now lapped the financial pressure from the initial investment impact and anticipate the program to have a neutral impact on Q4 from a Year-over-Year perspective. Over time, we expect the program to contribute to operating income rate expansion as the program continues to build and we iterate on the offering. In the current economic environment, many consumers are facing increasing financial constraints. We believe we are well-positioned to meet customers' needs in this environment.
In addition to creating key promotional moments, offering competitive prices, repairing and supporting existing products and scaling our Best Buy outlets, we offer multiple financing options to improve affordability. These include our co-branded Citibank credit card, lease-to-own program, Buy Now Pay Later options, and most recently, our exclusive upgrade plus program for Apple MacBook. Upgrade plus powered by citizens pay is a brand-new program that allows customers to acquire Mac laptops and related accessories for a low monthly fee. After three years, they can easily turn in their old laptop and upgrade to the latest tech while they continue paying a low monthly fee.
We can then refurbish this old laptop and offer it to a new customer through our outlet stores or digital platform. This partnership with Apple is a great example of how we work with our vendors in unique ways to commercialize and showcase their technology innovation while also offering unique value and confidence to our customers. In a different example of a unique vendor partnership, we have started a pilot in the homebuilder space through a collaboration with Whirlpool and one of the top home builders in the U.S. to provide and install everything from connected doorbells and thermostat to large appliances. So early, we have delivered five of the roughly 45 markets for the homebuilder, which is giving us great insight for how we may be able to expand the pilot.
Based on what we've learned, we see this model as an opportunity to partner with numerous other homebuilders to provide them similar or expanded solutions based on our capability. Before closing and turning the call over to Matt, I would like to provide a few updates on our commitment to our employees and the communities we serve. The Best Buy Foundation's Teen Tech Centers are providing access, inspiration, and opportunity for young people in the communities that need it most. We continue to expand the program with 52 Teen Tech Centers opened across the country, including opening our ninth Teen Tech Center in the Twin Cities, our hometown.
We also remain committed to creating an environment where all employees feel engaged and have access to specialized benefits and resources. We're proud to have women leaders at the highest levels of our company and believe it reflects our commitment to support our employees and their loved ones. This year, we are honored to rank number 15 on Forbes 2022 list of the world's top female friendly company, which recognizes companies that support women professionally and personally. Similarly, we were honored to be named as one of Forbes 2022 America's Best Employers for veterans, our first time on that list.
In summary, I am proud of our nimble execution this quarter and this year. Our teams have been navigating well through an incredibly dynamic environment and I want to thank them for their ingenuity, drive, and commitment to our customers. There is of course ongoing macro uncertainty and as we head through the holiday and into next year, we believe it will continue to be an uneven backdrop. Indicators remain unusually varied. The job market remains strong. Consumer spending continues and inflation appears to be slowing a bit, but savings are starting to erode. Consumer confidence is low. The housing market is cooling and inflation remains a particular concern on the basics like food, fuel, and lodging, all of which have a profound and sustained impact.
As you would expect, we are planning for multiple scenarios given a very unsettled and uneven consumer response to these varied indicators. We are adjusting our cost structure as we respond to current and potential future conditions. We are also making strategic decisions and trade offs to continue to advance our initiatives. We are doubling down on our ability to lead the future of omnichannel retail and capitalize on opportunities as the industry moves through this downturn and eventually returns to growth again. We are as confident and excited about our future as ever. Technology demand over the past few years has resulted in a larger installed-base and customers will want and need to replace and upgrade their tech devices, particularly as we near the three-year mark since the start of the pandemic. At the same time, our technology vendor partners will continue to innovate and drive excitement and demand. We are the leading technology solutions provider for the home, a home increasingly dependent on all this technology working together and evolving over time.
We are uniquely positioned to inspire and help customers with all aspects of their technology on deciding what to purchase, to installing it and getting the most out of it all the way to helping when it's not working. We leverage our specialized Geek Squad agents, our expert sales associates and consultants, experienced merchants and sophisticated supply chain to deliver experiences no one else can in customers' homes virtually, digitally, and in our stores.
I will now turn the call over to Matt for more details on our third-quarter financials and fourth-quarter outlook.