Matt Bilunas: Yes. I think my reference to normal. Thanks for the question is more related to net credit losses as a percentage to the book. So we haven’t given that number. I won’t give it today, but what we’re seeing now is a more normal rate compared to FY ’20. What we’re watching for is it does that rate increase compared to where it used to be and certainly it’s already higher than it has been the last few years when the net credit losses were very low rate. And that is just more to do with just the state of the consumer. So right now we still see a relatively good consumer to the extent that they are still continuing to make tradeoff decisions weighing a little bit more pressure on their personal finances that could less to go up into next year.
That’s the consideration. We will certainly, as we think about next year, we’re not guiding next year, but we’re thinking about next year, that could be one of the pressures we face as we think about ROI rate just in terms of where does the net credit losses go.
Seth Sigman: Okay, thank you for that. Just any other perspective on credit availability today if that’s impacting demand in any way? And maybe just put that in context of some of the trends that you may be seeing across consumer cohorts or markets, obviously, you talked about some of the bright spots you’ve seen in recent months here and what you’re expecting for the rest of the year. I’m just trying to think about some of the incremental consumer headwinds ahead whether that is student loans or credit availability? Just any other context around some of the consumer behavior you may be seeing where that’s coming from?
Corie Barry: Yes, right now as it relates specifically to the card, we aren’t seeing massive change in credit availability. We’re continuing to see and we’ve said before, about 25% of our business is done on the card. We’re continuing to see those trends. And what are the nice things about our card is as I mentioned it in the prepared remarks, but I want to emphasize that you can either choose points or you can choose 0% financing and so it’s actually it’s an offering that is widely accepted and appreciated, especially against the backdrop so the consumer can decide what’s more relevant for them. So like Matt said, we’re seeing more of a normalization in some of those key metrics. But in general, it remains an incredibly efficient asset for us in partnership, obviously in the profit share structure that we have.
Seth Sigman: Great. Thanks, guys.
Corie Barry: Yes.
Operator: Your next question comes from the line of Liz Suzuki from Bank of America. Your line is open.
Liz Suzuki: Great, thank you. Just a question on appliances, which looked like they were particularly weak this quarter and some other big-box retailers that sell appliances have talked about an increase in vendor-funded incentives and promotions. Have you seen the same behavior from your vendor partners as they try to respond to slower demand and did vendor funding funded promotions have an impact on margins this quarter?
Matt Bilunas: Yes, broadly speaking, we are seeing an increase in vendor-funded promotions across all of our categories and I think appliances would be part of that. I think as we noted in our gross profit rate improvement in Q2, a lot of that was coming from our product margin rates being better year-over-year. Part of that, we’re seeing an uptick in the vendor-supported promotions that we are running. So yes, it is a more promotional environment year-over-year and in some cases, certainly more than it was in FY ’20, but it hasn’t manifested in lower product margins for us. We are seeing both not just us, our vendors wanting to engage in promotional activity to drive and stimulate demand.
Liz Suzuki: Great, thank you. And just on the flip side of some of the categories that were particularly strong. Can you just go into a little more detail on what was successful and like the entertainment and services categories and where you see that going in the next couple of quarters?
Corie Barry: Well, on the entertainment side of things, that really is reflective of gaming and particularly gaming hardware, which had a much more stable supply this year than what we saw last year, so, we feel like that’s a nice indicator as we’re heading into the back half of the year. We mentioned that. And on the services side, that really is mainly reflective of our membership offering and now starting to kind of annualize that higher, larger cohorts of members.
Liz Suzuki: Great, thank you.
Corie Barry: Thank you.
Matt Bilunas: Thank you.
Operator: Your next question comes from the line of Michael Lasser from UBS. Your line is open.
Michael Lasser: Good morning, thanks a lot for taking my question. Matt, you alluded to operating margin pressure in the next fiscal year. So on a similar level of revenue for Best Buy, call it 2024 versus where it was in 2019, what would be the company’s operating margin rate in light of the pressure that it’s experienced from investments in health care and some of the impact of the rise in e-commerce penetration for the business and all the actions that the company has taken to try and preserve the profitability in light of those pressures? And what levers can be pulled from here in order to improve the operating margin rate over time, especially as things like credit income continue to decline?
Matt Bilunas: Yes, thanks for the question, Michael. What I just to clarify when I was referring to specifically was potential pressure on the credit card profit share as we look into next year, but I wasn’t trying to characterize was like overall allied pressure for next year. But to get to your broad question there, I think, as you can appreciate, we’re not going to guide next year. But that being said, if for example, our sales were flat next year as some of the indicators would suggest it would be our expectation or our goal to at least hold LOI rate flat if not drive a little bit of expansion. Like I said, there were few factors here. The first being that credit card. It’s been a tailwind for us. And like I said, it could turn to some pressure.
The second more tactical one is as we enter into next year, we always reset incentive compensation this year. We have a certain amount of that next year, but we reset the one that does sometimes create a little bit of rate pressure, but broadly speaking, if you think about next year and the years outward, a lot of the other drivers are going to be things like the industry — level of industry growth. So the extent that the industry can grow and does grow, we expect to grow with it. And that does create SG&A leverage as our cost structure today is probably more indicative of a sales number that’s higher than what we set. But we’ve talked about this year being a benefit for us, both the membership and the health initiatives the rate has been improving, so similar to our Investor Day, a while back we would expect those initiatives to continue to improve in terms of rate, as we look forward from here on out.
So into next year and in the years after both membership and health will continue to help drive a year-over-year improvement. We also obviously always trying to have a cost takeout initiatives to help mitigate pressures that we face and just help us invest in the right places. But again, like I said, the profit share could become a pressure from an NCL. The other thing to note in terms of the profit share is this potential regulatory changes around late fees. Now, it’s too early to know whether those do or don’t count, but that’s another item to note. And lastly, I don’t think I had mentioned this. We’re still in a consumer environment where it’s a little uneven and steady and so I think as we think about going forward, a lot of it will depend — the industry growth will depend upon that consumer and where they choose to spend their money, but I think like I said, our goal would be to at least maintain a flat rate, if not grow a little bit, if we have flat sales, for example.
Michael Lasser: Thank you very much. My follow-up question is, there is an interesting dynamic that you’re referring to on your call, which is the promotional environment in some cases is higher or more intense than it was in 2019, but you’re getting more vendor funding than you were getting at least relative to last year. So A, how much is your vendor funding up or down relative to 2019, and B, what does this overall promotional environment suggest about the profit pool for selling consumer electronics in the United States in Best Buy’s share of that overall profit pool? Thank you very much.
Corie Barry: So, question one, overall vendor trading up for now. We’re not going to say total amounts of vendor funding, but you can imagine, at any given point in time our vendors like us are trying to think in a very omnichannel way how best can we both stimulate demand and complete excellent customer experiences. When we kind of like look all in at everything our vendors do with us, we feel confident that we have at least as much if not more like total funding in partnership with our vendors, but of course they’re going to use different pockets depending on the environment that we fit in. I think on your profit pool question, Michael, what’s interesting is our vendors and we’ve said this for a long time. Our vendors are as interested as we are in stimulating consumer demand.
