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Summary of Significant Accounting Policies | 12 Months Ended
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Feb. 01, 2025
Summary of Significant Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies Unless the context otherwise requires, the terms “Best Buy,” “we,” “us”, “our” and the “company” in these Notes to Consolidated Financial Statements refer to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries. Description of Business We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life. We accomplish this by leveraging our combination of tech expertise and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes. We have operations in the U.S. and Canada. We have two reportable segments: Domestic and International. The Domestic segment is comprised of our operations in all states, districts and territories of the U.S. and our Best Buy Health business, and includes the brand names Best Buy, Best Buy Ads, Best Buy Business, Best Buy Essentials, Best Buy Health, Current Health, Geek Squad, Imagine That, Insignia, Lively, My Best Buy, My Best Buy Memberships, Pacific Kitchen and Home, TechLiquidators and Yardbird; and the domain names bestbuy.com, currenthealth.com, lively.com, techliquidators.com and yardbird.com. Our International segment is comprised of all operations in Canada under the brand names Best Buy, Best Buy Express, Best Buy Mobile, Geek Squad and TechLiquidators and the domain names bestbuy.ca and techliquidators.ca. Our Domestic and International segments generate revenue from the sale of products and services within six revenue categories: computing and mobile phones, consumer electronics, appliances, entertainment, services and other. In fiscal 2024, we completed the sale of a Mexico subsidiary subsequent to our exit from operations in Mexico and recognized a $21 million gain within Gain on sale of subsidiary, net on our Consolidated Statements of Earnings. Basis of Presentation The consolidated financial statements include the accounts of Best Buy Co., Inc. and its consolidated subsidiaries. All intercompany balances and transactions are eliminated upon consolidation. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts in the consolidated financial statements, as well as the disclosure of contingent liabilities. Future results could be materially affected if actual results were to differ from these estimates and assumptions. Fiscal Year Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2025, fiscal 2024 and fiscal 2023 ended on February 1, 2025, February 3, 2024, and January 28, 2023, respectively. Fiscal 2025 and fiscal 2023 each included 52 weeks. Fiscal 2024 included 53 weeks with the 53rd week occurring in the fiscal fourth quarter. Unless otherwise noted, references to years in these notes to consolidated financial statements relate to fiscal years, not calendar years. Adopted Accounting Pronouncements In the fourth quarter of fiscal 2025, we adopted Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, issued by the Financial Accounting Standards Board (“FASB”). ASU 2023-07 enhances reportable segment disclosure requirements primarily through expanded disclosures around significant segment expenses. The amendments were applied retrospectively to all prior periods presented in these financial statements. See Note 13, Segment and Geographic Information, for the applicable new disclosures. Unadopted Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of specific categories meeting a quantitative threshold within the income tax rate reconciliation, as well as disaggregation of income taxes paid by jurisdiction. This ASU, which can be applied either prospectively or retrospectively, is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of the ASU and expect to include updated income tax disclosures in our fiscal 2026 Form 10-K. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure of specific expense categories in the notes to financial statements. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. We are currently evaluating the impact of the ASU and expect to include updated expense disclosures in our fiscal 2028 Form 10-K. ‎ Segment Information Our business is organized into two reportable segments: Domestic (which is comprised of all states, districts and territories of the U.S. and our Best Buy Health business) and International (which is comprised of all operations in Canada). Our Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer. Our segments are primarily based on geographical area and reflect the way in which internally reported financial information is regularly reviewed by the CODM, who has ultimate responsibility for enterprise decisions, including determining resource allocation for, and monitoring the performance of, the consolidated enterprise, the Domestic segment and the International segment. Cash, Cash Equivalents and Restricted Cash Cash, cash equivalents and restricted cash reported on our Consolidated Balance Sheets are reconciled to the total shown on our Consolidated Statements of Cash Flows as follows ($ in millions):
| February 1, 2025 |  | February 3, 2024 |  | January 28, 2023
Cash and cash equivalents | $ | 1,578 |  |  | $ | 1,447 |  |  | $ | 1,874 |
Restricted cash included in Other current assets |  | 290 |  |  |  | 346 |  |  |  | 379 |
Total cash, cash equivalents and restricted cash | $ | 1,868 |  |  | $ | 1,793 |  |  | $ | 2,253 |
Cash equivalents consist primarily of highly liquid investments with original maturities of three months or less. Amounts included in restricted cash are primarily restricted to cover product protection plans provided under our membership offerings and self-insurance liabilities. Receivables Receivables consist primarily of amounts due from banks for vendors for various vendor funding programs, customer credit card and debit card transactions, and mobile phone network operators for device sales and commissions. Receivables are stated at their carrying values, net of a reserve for expected credit losses, which is primarily based on historical collection trends. Our allowances for uncollectible receivables were $26 million and $32 million as of February 1, 2025, and February 3, 2024, respectively. We had $48 million and $43 million of write-offs in fiscal 2025 and fiscal 2024, respectively. Merchandise Inventories Merchandise inventories are recorded at the lower of cost or net realizable value. The weighted-average method is used to determine the cost of inventory which includes costs of in-bound freight to move inventory into our distribution centers. Also included as a reduction to the cost of inventory are certain vendor allowances. Costs associated with storing and transporting merchandise inventories to our retail stores are expensed as incurred and included within Cost of sales on our Consolidated Statements of Earnings. Our inventory valuation also reflects markdown adjustments for the excess of cost over the net recovery we expect to realize from the ultimate sale or other disposal of inventory and establish a new cost basis. No adjustment is recorded for inventory that we expect to return to our vendors for full credit. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdown adjustments or an increase in the newly established cost basis. Our inventory valuation reflects adjustments for physical inventory losses (resulting from, for example, theft). Physical inventory is maintained through a combination of full location counts and more regular cycle counts. Property and Equipment Property and equipment is initially recorded at cost. We depreciate property and equipment to its residual value using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the lease term, which includes optional renewal periods if they are reasonably certain. Accelerated depreciation methods are generally used for income tax purposes. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from our Consolidated Balance Sheets and any resulting gain or loss is reflected on our Consolidated Statements of Earnings. Repairs and maintenance costs are expensed as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized at cost and depreciated over its remaining useful life. Estimated useful lives by major asset category are as follows (in years):
Asset Category | Useful Life
Buildings | 5-35
Leasehold improvements | 5-10
Fixtures and equipment | 2-15
Capitalized software is included in Fixtures and equipment on our Consolidated Balance Sheets. Costs associated with the acquisition or development of software for internal use are capitalized at cost and amortized over the expected useful life of the software, generally from two years to five years. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software's functionality. Software maintenance and training costs are expensed as incurred. The costs of developing software for sale to customers are expensed as incurred until technological feasibility is established, which generally leads to expensing substantially all costs. Costs associated with implementing cloud-computing arrangements that are service contracts are capitalized using methodology similar to internal-use software, but are included in Other assets on our Consolidated Balance Sheets. Impairment of Long-Lived Assets Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets with impairment indicators for potential impairment, we first compare the carrying value of the asset to its estimated undiscounted future cash flows. If the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to its estimated fair value, which is typically based on estimated discounted future cash flows. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. We evaluate locations for triggering events on a quarterly basis. For store locations, our primary indicator that asset carrying values may not be recoverable is negative store operating income for the most recent 12-month period. We also monitor other factors when evaluating store locations for impairment, including significant changes in the manner of use or expected life of the assets, or significant changes in our business strategies. When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For example, long-lived assets deployed at store locations are reviewed for impairment at either the individual store level or at the local market level. Such reviews involve comparing the net carrying value of all assets to the net cash flow projections for each store or market. In addition, we conduct separate impairment reviews at other levels as appropriate, for example, to evaluate the potential impairment of assets shared by several areas of operations, such as information technology systems. Leases The majority of our lease obligations are real estate operating leases used in our retail and distribution operations. Our finance leases are primarily equipment-related. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on our Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components. We have elected to account for these lease agreements with both lease and non-lease components as a single component for all classes of assets. Leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term. Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We estimate the incremental borrowing rate for each lease based on an evaluation of our credit ratings and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the terms of the lease. Our operating leases also typically require payment of real estate taxes, common area maintenance and insurance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Operating lease assets also include prepaid lease payments and initial direct costs and are reduced by lease incentives. We generally do not include options to extend or terminate a lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term. Refer to Note 6, Leases, for additional information. Goodwill and Intangible Assets Goodwill Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We test goodwill for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. We monitor the existence of potential impairment indicators throughout the fiscal year. We test for goodwill impairment at the reporting unit level. Reporting units are determined by identifying operating segments (or components thereof) that constitute businesses for which discrete financial information is available and is regularly reviewed by segment management. We have goodwill in two reporting units – Best Buy Domestic and Best Buy Health – with carrying values of $492 million and $416 million, respectively, as of February 1, 2025, and carrying values of $492 million and $891 million, respectively, as of February 3, 2024. In fiscal 2025, we recorded a goodwill impairment related to our Best Buy Health reporting unit. Our impairment testing involves a comparison of the fair value of each reporting unit with its carrying value, including goodwill. Fair value reflects our estimate of the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction. We use a combination of discounted cash flow (“DCF”) analysis and market data, such as revenue multiples and quoted market prices, for observable comparable companies. DCF analysis requires detailed forecasts of cash flow drivers, such as revenue growth rates, margin rates and capital investments, and estimates of weighted-average cost of capital rates. If the fair value of a reporting unit exceeds its carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the total amount of goodwill allocated to that reporting unit. Intangible Assets Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value, as appropriate. We amortize definite-lived intangible assets associated with acquisitions over the estimated useful lives of the assets. We review these assets for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. We monitor the existence of potential impairment indicators throughout the fiscal year and recognize an impairment loss for any portion of the carrying value that is not recoverable. The goodwill impairment recorded in the fourth quarter of fiscal 2025 related to our Best Buy Health reporting unit was a triggering event to evaluate Best Buy Health intangible assets for impairment. No intangible asset impairments were identified. We do not amortize indefinite-lived intangible assets, but test for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate that the carrying value may not be recoverable. We utilize the relief from royalty method to determine the fair value of our indefinite-lived intangible asset. If the carrying value exceeds its fair value, we recognize an impairment loss in an amount equal to the excess. Refer to Note 3, Goodwill and Intangible Assets, for additional information. Derivatives Net Investment Hedges We use foreign currency forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations. The contracts have terms of up to 12 months. For a net investment hedge, we recognize changes in the fair value of the derivative as a component of foreign currency translation within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. We limit recognition in net earnings of amounts previously recorded in other comprehensive income to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. We report the gains and losses, if any, related to the amount excluded from the assessment of hedge effectiveness on our Consolidated Statements of Earnings. Net cash flows related to our net investment hedges are presented within Investing activities on our Consolidated Statements of Cash Flows. Fair Value Hedges We utilize “receive fixed-rate, pay variable-rate” interest rate swaps to mitigate the effect of interest rate risk on our $500 million principal amount of notes due October 1, 2028 (“2028 Notes”). Our interest rate swap contracts are considered perfect hedges because the critical terms and notional amounts match those of our fixed-rate debt being hedged and are, therefore, accounted for as fair value hedges using the shortcut method. Under the shortcut method, we recognize the change in the fair value of the derivatives with an offsetting change to the carrying value of the debt. Accordingly, there is no net impact on our Consolidated Statements of Earnings from the fair value of the derivatives. Net cash flows related to our fair value hedges are presented within Operating activities on our Consolidated Statements of Cash Flows. Derivatives Not Designated as Hedging Instruments We use foreign currency forward contracts to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies. The contracts generally have terms of up to 12 months. These derivative instruments are not designated in hedging relationships and, therefore, we record gains and losses on these contracts directly to our Consolidated Statements of Earnings. Net cash flows related to our derivatives not designated as hedging instruments are presented within Operating activities on our Consolidated Statements of Cash Flows. Refer to Note 5, Derivative Instruments, for additional information. Fair Value Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs: Level 1 — Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date. Level 2 — Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; • Inputs other than quoted prices that are observable for the asset or liability; and • Inputs that are derived principally from or corroborated by other observable market data. Level 3 — Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. Fair value measurements are based on significant unobservable inputs (Level 3). Fixed asset fair values are primarily derived using a DCF analysis to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF analysis generally include our forecasts of net cash generated from investment operations, as well as an appropriate discount rate. Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and intangible assets, which are remeasured when the derived fair value is below carrying value on our Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value to fair value, except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is typically recorded within Selling, general and administrative expenses (“SG&A”) or Restructuring charges on our Consolidated Statements of Earnings for non-restructuring and restructuring charges, respectively. In fiscal 2025, we recorded a goodwill impairment related to our Best Buy Health reporting unit within Goodwill impairment on our Consolidated Statements of Earnings. Refer to Note 3, Goodwill and Intangible Assets, and Note 4, Fair Value Measurements, for additional information. Insurance We are self-insured for certain losses related to workers’ compensation, medical, general liability and auto claims; however, we obtain third-party excess insurance coverage to limit our exposure to certain claims. Some of these self-insured losses are managed through a wholly-owned insurance captive. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We utilize valuations provided by qualified, independent third-party actuaries as well as internal resources with insurance and risk expertise. Our net self-insured liabilities included on our Consolidated Balance Sheets were as follows ($ in millions):
| February 1, 2025 |  | February 3, 2024
Accrued compensation and related expenses | $ | 23 |  |  | $ | 41 |
Accrued liabilities |  | 65 |  |  |  | 70 |
Long-term liabilities |  | 69 |  |  |  | 57 |
Total | $ | 157 |  |  | $ | 168 |
Income Taxes We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. We record a valuation allowance to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized. In determining our provision for income taxes, we use an annual effective income tax rate based on annual income, permanent differences between book and tax income and statutory income tax rates. The effective income tax rate also reflects our assessment of the ultimate outcome of tax audits. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available. Discrete events, such as audit settlements or changes in tax laws, are recognized in the period in which they occur. Our income tax returns are routinely examined by domestic and foreign tax authorities. At any one time, multiple tax years are subject to audit by the various taxing authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provisions in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. We include our liability for unrecognized tax benefits, including accrued penalties and interest, in Long-term liabilities on our Consolidated Balance Sheets and in Income tax expense on our Consolidated Statements of Earnings. Refer to Note 10, Income Taxes, for additional information. Supply Chain Financing We have a supply chain financing program with an independent financial institution, whereby some of our suppliers have the opportunity to receive accounts payable settlements early, at a discount, facilitated by the financial institution. Under this program, the financial institution agrees to terms with our suppliers, including amounts that are eligible for early payment, the timing of such payments and the discounts. The financial institution then pays the supplier based on the payment terms agreed to. Suppliers’ participation in this program is at their own option. The financial institution can vary discounts offered at their own discretion. Our rights and obligations to our suppliers – which are typically formalized in standardized agreements – are not affected by the existence of the program. Our liability associated with the funded participation in the program, which is primarily included in Accounts payable on our Consolidated Balance Sheets, was as follows ($ in millions):
| 2025
Supply chain financing liability at beginning of period | $ | 426 |
Invoices confirmed during the year |  | 4,048 |
Confirmed invoices paid during the year |  | (4,076) |
Supply chain financing liability at end of period | $ | 398 |
Accrued Liabilities The major components of accrued liabilities are sales tax liabilities, advertising accruals, insurance liabilities, sales return reserves and customer deposits. Long-Term Liabilities The major components of long-term liabilities are deferred revenue from our private label and co-branded credit card arrangement and unrecognized tax benefits. Foreign Currency Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Consolidated Balance Sheet dates. Results of operations and cash flows are translated using the average exchange rates throughout the periods. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of shareholders' equity in Accumulated other comprehensive income on our Consolidated Balance Sheets. Gains and losses from foreign currency transactions, which are included in SG&A on our Consolidated Statements of Earnings, have not been significant in any period presented. Revenue Recognition We generate substantially all of our revenue from contracts with customers from the sale of products and services, both as a principal and as an agent. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Our revenue excludes sales and usage-based taxes collected and is reported net of sales refunds, which includes an estimate of future returns and contract cancellations based on historical refund rates, with a corresponding reduction to cost of sales. We defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied, typically when control of a product is transferred to the customer or a service is completed. Product Revenue Product revenue is recognized when the customer takes physical control, either in our stores or at their home. Any fees charged to customers for delivery are recognized when delivery has been completed. We use delivery information to determine when to recognize revenue for delivered products and any related delivery fee revenue. In most cases, we are the principal to product contracts as we have control of the physical products prior to transfer to the customer. Accordingly, revenue is recognized on a gross basis. For certain sales, primarily activation-based software licenses and third-party stored-value cards, we are the sales agent providing access to the content and recognize commission revenue net of amounts due to third parties who fulfill the performance obligation. For these transactions, commission revenue is typically recorded once customers have taken possession of licenses or cards and can access their benefits. Warranty obligations associated with the sale of our exclusive brands products are assurance-type warranties that are a guarantee of the product’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract. ‎ Services - When we are the principal We recognize revenue for services, such as delivery, installation, set-up, software troubleshooting, product repair and data services once the service is completed, as this is when the customer has the ability to direct the use of and obtain the benefits of the service or serviced product. Payment terms are typically at the point of sale, but may also occur upon completion of the service. Our service contracts are primarily with retail customers, merchandise vendors (for factory warranty repairs) and extended warranty underwriters. For technical support membership contracts (for example, our My Best Buy Plus™ or My Best Buy Total™ memberships), we are responsible for providing support services to customers. These contracts have terms ranging from one month to one year and typically contain several performance obligations. Payment for the membership contracts is typically due at the start of the contract period. We have determined that our contracts do not include a significant financing component. For performance obligations provided over the term of the contract, we typically recognize revenue on a usage basis, an input method of measuring progress over the related contract term. This method involves the estimation of expected usage patterns, primarily derived from historical information, as this depicts when customers use the services and, accordingly, when delivery of the performance obligation occurs. There is judgment in, for example, estimating the relative standalone selling price for bundled performance obligations; the appropriate recognition methodology for each performance obligation; and, for those based on usage, the expected pattern of consumption across a large portfolio of customers. When insufficient reliable and relevant history is available to estimate usage, we generally recognize revenue ratably over the life of the contract until such history has accumulated. Services - When we are the agent On behalf of third-party underwriters, we sell various hardware protection plans to customers that provide extended warranty coverage on their device purchases. Such plans have terms ranging from one month to five years. Payment is due at the point of sale. Third-party underwriters assume the risk associated with the coverage and are primarily responsible for fulfillment. We record the net commissions (the amount charged to the customer less the premiums remitted to the underwriter) as revenue once the corresponding product revenue is recognized. In addition, in some cases we are eligible to receive profit-sharing payments, a form of variable consideration, which are dependent upon the financial performance of the underwriter’s protection plan portfolio. We do not share in any losses of the portfolio. We record any profit share as revenue once the uncertainty associated with the portfolio period, which is calendar-year based, is no longer constrained using the expected value method. This typically occurs during our fiscal fourth quarter, with payment of the profit share occurring in the subsequent fiscal year. Net commissions and profit-sharing revenue earned from the sale of extended warranties represented 0.9%, 0.8% and 0.9% of revenue in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. We earn commissions from mobile network carriers to sell service contracts on their platforms. Revenue is recognized upon sale of the contract and activation of the customer on the provider’s platform. The time between when we activate the service with the customer and when we receive payment from the content provider is generally 30 to 60 days, which is after control has passed. Activation commissions are subject to repayment to the carrier primarily in the event of customer cancellation for specified time periods after the sale. Commission revenue from mobile network carriers is reported net of expected cancellations, which we estimate based on historical cancellation rates. Credit Card Revenue We offer promotional financing and credit cards issued by third-party banks that manage and directly extend credit to our customers. Approximately 25% of Domestic segment revenue in fiscal 2025, fiscal 2024 and fiscal 2023 was transacted using one of our branded cards. We provide a license to our brand and marketing services, and we facilitate credit applications in our stores and online. The banks are the sole owners of the accounts receivable generated under the program and, accordingly, we do not hold any customer receivables related to these programs and act as an agent in the financing transactions with customers. We are eligible to receive a profit share from certain of our banking partners based on the annual performance of their corresponding portfolio. We receive profit-share payments quarterly based on forecasts of full-year performance shortly after the end of each program quarter. This is a form of variable consideration. We record such profit share as revenue over time using the most likely amount method, which reflects the amount earned each quarter when it is determined that the likelihood of a significant revenue reversal is not probable, which is typically quarterly. Profit-sharing revenue from our credit card arrangement approximated 1.1%, 1.4% and 1.4% of Domestic segment revenue in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. Best Buy Gift Cards We sell Best Buy gift cards to our customers in our retail stores, online and through select third parties. Our gift cards do not expire. We recognize revenue from gift cards when the card is redeemed by the customer. We also recognize revenue for the portion of gift card values that is not expected to be redeemed (“breakage”). We estimate breakage based on historical patterns and other factors, such as laws and regulations applicable to each jurisdiction. We recognize breakage revenue using a method that is consistent with customer redemption patterns. Typically, over 90% of gift card redemptions (and therefore recognition of over 90% of gift card breakage revenue) occur within one year of issuance. There is judgment in assessing the level at which we group gift cards for analysis of breakage rates, redemption patterns and the ultimate value of gift cards which we do not expect to be redeemed. ‎ Sales Incentives We frequently offer sales incentives that entitle our customers to receive a gift card at the time of purchase or an instant savings coupon that can be redeemed towards a future purchase. For sales incentives issued to customers that are only earned in conjunction with the purchase of products or services, the sales incentives represent an option that is a material right and, accordingly, is a performance obligation in the contract. The revenue allocated to these sales incentives is deferred as a contract liability and is based on the cards that are projected to be redeemed. We recognize revenue for this performance obligation when it is redeemed by the customer or when it is not expected to be redeemed. There is judgment in determining the level at which we group incentives based on similar redemption patterns, future redemption patterns and the ultimate number of incentives that we do not expect to be redeemed. We also issue coupons that are not earned in conjunction with a purchase of a product or service, typically as part of targeted marketing activities. This is not a performance obligation, but is recognized as a reduction of the transaction price when redeemed by the customer. Customer Loyalty Programs We have customer loyalty programs which allow members to earn points when using our private label and co-branded credit cards. Points earned enable members to receive a certificate that may be redeemed on future purchases. Certificate expirations are typically two months from the date of issuance. Our loyalty programs represent customer options that provide a material right and, accordingly, are performance obligations for each applicable contract. The relative standalone selling price of points earned by our loyalty program members is deferred and included in Deferred revenue on our Consolidated Balance Sheets based on the percentage of points that are projected to be redeemed. We recognize revenue for this performance obligation over time when a certificate is redeemed by the customer. There is inherent judgment in estimating the value of our customer loyalty programs as they are susceptible to factors outside of our influence, particularly customer redemption activity. However, we have significant experience in estimating the amount and timing of redemptions of certificates, based primarily on historical data. Refer to Note 9, Revenue, and Note 13, Segment and Geographic Information, for additional information. Cost of Sales and Selling, General and Administrative Expenses Types of costs classified in each major expense category are as follows:
Cost of Sales
Cost of products sold, including:
Cash discounts on payments to merchandise vendors
Costs associated with operating our distribution network, including payroll and benefit costs, occupancy costs and depreciation
Customer shipping and handling expenses
Freight expenses associated with moving merchandise inventories from our distribution centers to our retail stores
Freight expenses associated with moving merchandise inventories from our vendors to our distribution centers
Markdowns
Physical inventory losses
Vendor allowances that are not a reimbursement of specific, incremental and identifiable costs
Cost of services provided, including:
Cost of replacement parts and related freight expenses
Payroll and benefit costs for services employees associated with providing the service
Selling, General and Administrative Expenses
Advertising costs
Charitable contributions
Depreciation and amortization related to retail, services and corporate assets
Long-lived asset impairment charges
Occupancy and maintenance costs of retail, services and corporate facilities
Other administrative costs, such as supplies, travel and lodging
Outside and outsourced service fees
Payroll and benefit costs for retail and corporate employees, including termination benefits incurred as part of normal operations
Tender costs, including bank charges and costs associated with credit and debit card interchange fees
Vendor allowances that are a reimbursement of specific, incremental and identifiable costs
Vendor Allowances We receive funds from our merchandise vendors through a variety of programs and arrangements, primarily in the form of purchases-based or sales-based volumes and for product advertising and placement. We recognize vendor allowances based on purchases and sales as a reduction of cost of sales when the associated inventory is sold. Vendor allowances for advertising and placement are recognized as a reduction of cost of sales ratably over the corresponding performance period. Funds that are determined to be a reimbursement of specific, incremental and identifiable costs incurred to sell vendors’ products are recorded as an offset to the related expense within SG&A on our Consolidated Statements of Earnings when incurred. ‎ Advertising Costs Advertising costs, which are included in SG&A on our Consolidated Statements of Earnings, primarily consist of digital advertisements. Digital advertising costs are generally expensed as incurred, which is typically when customers either view or click through a digital ad. Other advertising costs are expensed the first time the advertisement runs, or as broadcast costs are incurred. Advertising costs were $846 million, $794 million and $864 million in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. Stock-Based Compensation We recognize stock-based compensation expense for the fair value of our stock-based compensation awards, which is determined based on the closing market price of our stock at the date of grant for time-based share awards and Monte-Carlo simulation for market-based share awards. Compensation expense is recognized on a straight-line basis over the period in which services are required. Forfeitures are expensed as incurred or upon termination. Refer to Note 8, Shareholders’ Equity, for additional information. Earnings per Share We compute our basic earnings per share based on the weighted-average number of common shares outstanding, and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued as calculated using the treasury stock method. Potentially dilutive securities include stock options and non-vested share awards. Non-vested market-based share awards and non-vested performance-based share awards, to the extent they exist, are included in the average diluted shares outstanding each period if established market or performance criteria have been met at the end of the respective periods. Refer to Note 8, Shareholders’ Equity, for additional information. Comprehensive Income (Loss) Comprehensive income (loss) is computed as net earnings plus or minus certain other items that are recorded directly to shareholders’ equity.

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