Best Buy Co. Inc. (NYSE: BBY) Q4 2021 earnings call dated Feb. 25, 2021
Mollie O’Brien — Vice President of Investor Relations
Corie Barry — Chief Executive Officer
Matt Bilunas — Chief Financial Officer
Mike Mohan — President and Chief Operating Officer
Anthony Chukumba — Loop Capital Markets — Analyst
Christopher Horvers — JPMorgan — Analyst
Michael Lasser — UBS — Analyst
Barry Kessler — Piper Sandler — Analyst
Joe Feldman — Telsey Advisory Group — Analyst
Karen Short — Barclays — Analyst
Ladies and gentlemen, thank you for standing by. Welcome to Best Buy’s Fourth Quarter Fiscal Year 2021 Earnings Conference Call.
[Operator Instructions] Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available by approximately 11:00 AM Eastern Time today. [Operator Instructions]
I’ll now turn the conference call over to Mollie O’Brien, Vice President of Investor Relations.
Mollie O’Brien — Vice President of Investor Relations
Thank you, and good morning everyone. Joining me on the call today are, Corie Barry, our CEO; Matt Bilunas, our CFO; and Mike Mohan, our President and COO.
During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning’s earnings release, which is available on our website investors.bestbuy.com.
Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial 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-Qs 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.
Corie Barry — Chief Executive Officer
Good morning, everyone, and thank you for joining us.
During the fourth quarter, our teams across the company delivered an exceptional customer experience in a safe environment. They showed amazing flexibility and execution, managing extraordinary volume in a dynamic situation and we strive every day to create safe shopping experiences often in the face of pandemic fatigue. As the results, today we are reporting strong Q4 financial results, which include comparable sales growth of 12.6% and non-GAAP earnings per share growth of 20%.
We continue to leverage our unique capabilities, including our supply chain expertise, flexible store operating model and ability to shift quickly to digital to meet the ongoing elevated demand for stay at home products and services. Online sales grew almost 90% to a record $6.7 billion and made up 43% of our total domestic sales. Our stores played a pivotal role in the fulfillment of these sales, as almost two-thirds of our online revenue was either picked up in store or curbside, shipped from a store or delivered by a store employee. The percent of online sales picked up by customers at our stores was 48%, representing a 90% increase in volume.
Shift to home volume was up 38%, and even with that increase in volume, we were able to accelerate the delivery speed to our customers on a year-over-year basis by strategically using our partners, our stores and our employee delivery. For additional context, same day shipping volume was up 376% and our employees delivered more than 1 million units. From a product category perspective, the biggest contributors to the strong comp sales growth in the quarter were computing appliances, gaming, virtual reality and home theater.
As you recall, this year, we started holiday promotions in October, which is in our third quarter. We started these events early and spread them over the course of several weeks to help avoid overly crowded days in our stores in order to create a safer shopping experience. These efforts to manage the traffic flow into our stores proved effective and evened out some of the peaks and valleys through the holiday season.
As planned, it also resulted in some holiday sales being pulled into Q3. After reaching 33% comp growth in October, our growth rate moderated as we lapped last year’s November and December holiday sales before accelerating again in January due to the ongoing elevated stay at home demand boosted by government stimulus actions. That sales growth momentum we saw in January has largely continued into February. As a result of both the successful early holiday sales and the product availability issues the industry has been seeing all year, we continue to experience product availability constraints during the fourth quarter, which we believe moderated our holiday sales, particularly in large appliances, computing and televisions.
In addition, demand for the new gaming consoles far outstripped supply across the industry as is well documented. Our teams work closely and effectively with our vendors to bring in as much inventory as possible and inventory positions improved through the quarter. As I step back and reflect upon the whole year, it was truly a year like no other. In addition to an international pandemic, there was social unrest across the nation and numerous natural disasters. I am proud of and inspired by the way our teams have navigated the challenges and what they have accomplished. We saw a remarkable customer demand and delivered outstanding execution that led to a very strong financial results.
For the year, we delivered comparable sales growth of 9.7% and non-GAAP earnings per share growth of 30%. We drove record free cash flow of $4.2 billion and ended the year with $5.5 billion in cash and short-term investments. Since the beginning of the pandemic, we have responded to the impacts of it with a focus on safety and helping customers get the products they need to work, learn, cook, entertain and communicate at home. We provided customers with multiple options for how, when and where they shop with us to ensure we met their definition of safe retailing, and customers noticed. The percent of customers surveyed who said we made them feel safe while they were in our stores and while they were in their homes was consistently above 97% throughout the year.
To best serve our customers during the pandemic, we had to be innovative and flexible. Early in the year, we quickly rolled out enhanced curbside pickup across our stores to provide our customers convenience when we made the difficult decision to close our stores in March. In May, we developed an in-store appointment model that provided our customers with an option to shop in our stores as we prepared to open stores back up to customer shopping. We developed solutions like virtual consultations with advisors and video chats with our store associates.
In addition, we made significant improvements to the functionality and customer experience of our app to provide access to shopping, support and fulfillment. This is sort of not only new users of the app, but also increased levels of customer engagement with the app. In Q4, first-time launches of the app were up almost 80% and the average number of app visits per unique users were up 34%. During the year, we also increased our investment in support of our employees. Early on in the pandemic, we continue to pay employees who weren’t working for a full month after we closed our stores to customer shopping.
We paid hourly appreciation pay for those who are working on the front lines and established multiple hardship funds for anyone impacted physically, emotionally or financially by COVID. We provided enhanced benefits that included 100% coverage of COVID related health care expenses, expanded caregiver needs, additional support for backup childcare, tutoring reimbursement and access to physical and mental health virtual visits. Including our estimates for fiscal ’22, we will have invested more than $75 million on enhancements to our structural employee benefits over a three-year period.
In addition to enhanced benefits, starting in August, we raised the starting minimum wage to $15 per hour for all our employees, which brought our average hourly wage for hourly employees up to $17.67. To show our appreciation for their hard work over the past year and in recognition of their ongoing efforts in the face of pandemic fatigue, we are paying employees an additional cash gratitude bonus. In the next few weeks, all hourly US employees will receive $500 as full time and $200 if part time or occasional/seasonal.
In addition to help keep employees and customers safe, we are encouraging all employees to get COVID vaccinations as they are available 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 that weren’t they’re needing to stay home and rest after receiving the vaccinations. In all the COVID related decisions we have made since the beginning of the pandemic to support our employees totaled more than $315 million. This includes paying employees while they were working to restore closures, appreciation pay, guaranteed pay, bonuses, vaccination support and hardship funds.
We have also deepened our commitment to community. Last year, we made a $40 million donation to the Best Buy Foundation to accelerate the progress toward our goal to reach 100 Teen Tech Centers across the US and we committed to making systemic permanent changes that addressed social injustices to improve our company and our communities. We also signed the climate pledge committing to be carbon-neutral across our operations by 2040, a decade earlier than our previous goal of 2050. We were honored to be recognized for our efforts by Barron’s earlier this month, when we were named to the top of their Most Sustainable Public Companies list. The list rated the 1,000 largest public companies on five key stakeholder categories, shareholders, employees, customers, community and planet.
Notably, Best Buy was also called out as the company with the leading COVID response, citing our efforts to maintain employee and customer safety, help employees experiencing hardship and continue to meet the technology needs of customers. This is the fourth time we have been in the top 5 and the second time, we have been in the number one position. As we think about our strategy moving forward, many of the things we discussed at our 2019 Investor Update came to life in a very accelerated way last year. It is important to reiterate the following three concepts we believe to be permanent and structural implications of the pandemic that are shaping our strategic priorities.
One, customer shopping behavior will be permanently changed in a way that is even more digital and puts customers entirely in control to shop how they want. Our strategy is to embrace that reality and to lead not follow. It is too early to know exactly how much of our sales and customer shopping activity will be via digital channels over time. But as I mentioned earlier, online sales were up 43% of our domestic sales. Online sales were 43% of our domestic sales in fiscal ’21 and we are planning for the mix to be approximately 40% in fiscal ’22. That compares to 19% in fiscal ’20 and only 5% just 10 years ago.
Two, our workforce will need to evolve in a way that meets the needs of customers, while providing more flexible opportunities for our employees. And three, technology is playing an even more crucial role in people’s lives and as a result, our purpose to enrich lives through technology has never been more important. We play a vital role in bringing technology to life for both our customers and our vendor partners. These concepts are extensive and interdependent, and we are as quickly as possible, both implementing change today and assessing future implications across our entire business, including how we evolve our stores and labor models and how we spend our investment dollars.
Our research indicates our customers look to Best Buy to serve four shopping needs: inspiration, research, convenience and support. And customers expect to be able to seamlessly interact with physical and digital channels. We must be ready to serve all of these needs at all times in all channels. We are building all of our experiences around meeting these needs as we move from being a big box retailer with a strong omnichannel presence to an omnichannel retailer with a large store footprint for support and fulfillment.
Fundamentally, when you’re looking for help and want to be inspired the best experience will always be in our stores talking to one of our amazing employees. The proximity to a physical store still matters to many customers. Our store serve an important role in fulfillment and support and also provide awareness and convenience that are critical to retaining and growing sales, but we also know that customer shopping behaviors are changing and we need to evolve with them. In the fourth quarter, the pandemic drove a roughly 15% reduction in traffic to our stores, including both in-store shoppers and customers picking up online orders by in-store or curbside. And while some traffic will likely shift back to our store channel in fiscal ’22 like many retailers, we believe much of what we saw last year will be permanent.
Our employees and the stores will always be central to our strategy, we are simply looking at how we can best deploy our team and our physical assets to meet customer expectations and opportunity to test and pilot a range of models and initiatives in our change with the need to learn and understand how customer shopping behavior is changing. We are already gathering brings and iterating on our initiatives. An example is our ship from store hub pilot that we’ve talked about for the past few quarters.
During Q4, we used 340 stores or roughly 35% of our store locations to handle about 70% of our total shift from store unit. We believe that we can achieve similar results consolidated volume using a smaller group of stores as hubs over time. In addition, in a subset of these stores, we plan to reduce the sales force square footage and install warehouse freight packaging station equipment and supplies. As a result, we expect to drive both efficiency and effectiveness. We also continue to pilot reduced selling square footage and alternative layouts in a number of stores in the Minneapolis market.
As you would expect pandemic or not, we’re constantly looking at our store network, responding to customer and demographic shifts just as any retailer does. We will continue our normal review process, which involves putting stores through rigorous evaluations as their leases come up for renewal. As we look to the near-term, there will be higher thresholds on renewing leases as we evaluate the role each store plays in its market, the investments required to meet our customer needs and the expected return based on a new retail landscape. For context, we have approximately 450 leases coming up for renewal in the next three years or an average of 150 each year.
As part of the review process, we have closed approximately 20 large format locations each of the past two years and expect to close a higher number this year. We have also been reducing the length of our average lease term, which will continue to provide us flexibility. In addition to our physical stores, our operating model needs to evolve to meet our customers’ changing shopping behaviors that have been accelerated by the pandemic. The sudden and last thing, shift customers have made to shopping more regularly and seamlessly across all of our channels has forced us to look at how we get our work done.
Our response to the pandemic has shown our ability to be successful when broadening the scope of responsibility of our associates and has highlighted the importance of ongoing flexibility and adaptability. This too was a hypothesis, we shared at our 2019 investor update and was massively accelerated by customer shopping behavior changes. Since the pandemic began, our overall headcount has been going through a transformation. As a reminder, we made the difficult decision to furlough approximately 51,000 retail employees due to store closures last April. By August, we have brought back about two-thirds of them.
As we approached the fourth quarter, any remaining employees that had been on furlough were asked to return to work as seasonal employees for the holidays. As employees who are on furlough decided not to come back and other employees left as a result of attrition, we have not been backfilling positions as we consider how to adjust our operations to better meet our customers’ needs going forward. As a result we entered fiscal ’21 with 123,000 employees across the entire organization, and we are leaving the year with about 102,000 team members, a decline of roughly 21,000 or 17%. Even though head count across the enterprise has been declining primarily due to this attrition, we still have had to make difficult decisions.
Earlier this month, one of those decisions was to adjust the mix of full-time and part-time employees at each of our store locations. At an aggregate level, this was due to having too many full time and not enough part-time employees. As part of the process, part time roles were offered to many of the displaced full-time employees who are interested and qualified. The end result was that we laid off and provided severance to approximately 5,000 employees, the majority of which were full time. At the same time, we are adding approximately 2,000 additional part-time positions.
Decisions like these are never easy or taken lightly, but they position us to be more responsive and flexible as we continue to refine our operating model going forward in response to the incredibly rapid change in how customers want to shop with us. It is important to add that we are intent on re-scaling and retraining employees wherever possible, so we can retain our people and employees can flexibly work across all our channels. Our vision of a flexible workforce is about more than having our associates gain the knowledge and skills to be effective in more areas within the traditional store setting. It expands to include the type of interactions that have become even more relevant in a digital shopping environment.
Over the past year, thousands of employees who possessed unique skills were leveraged across multiple areas of our business, like virtual sales, chat, phone and remote support. In addition, we are investing in people and hiring in areas like supply chain, smart — small parcel delivery, customer care and technology and support of our long-term strategy. As the last year has demonstrated, technology is playing an even more crucial role in people’s lives. We are excited about the technology trends and innovation we see over the next several years.
As expected, there has been immense innovation in the consumer health category. The fitness industry has pivoted quickly and the category is exploring as consumers want to stay fit at home and outfit home gyms. Beyond the connected equipment customers now have the ability to integrate data bringing different types of activities like rowing, biking and running into any number of wearable devices to measure their overall fitness and progress more seamlessly. There is also innovation around more chronic conditions such as diabetes and heart disease with wearables that monitor insulin levels and heart rates. Hearing aids is another category going through innovation and we are excited to help our customers with hearing needs, both online and in our stores.
The proliferation of health-related devices has become so great. We created a health and wellness digital shopping experience accessible directly from the home page of our website. Of course, there is an innovation curve in products that help people work at home as well. There is an influx of products around all aspects from high-tech chairs to monitors to standing desks. These are products that were not even on vendor roadmaps before the pandemic, and now truly complete the working at home experience.
Access to 5G is still growing as networks are rolling out across cities. As we move into next year and the year after, it will be more mainstream and accessible for all of us. We are excited about the introduction of new products over time that will leverage the speed and capabilities of 5G beyond the mobile phone. Of course, our customers expect Best Buy to be there to help inspire and support all their technology. Our consultation program continues to be an important differentiator and advisors are inspiring technology solutions by a customer consultations happening in homes, digitally in stores and via chat and phone.
We are also leveraging our consultation program with our partners. For example, customers can schedule an appointment with one of our advisors, whilst shopping on samsung.com. On the support side, our total tech support program continues to receive very strong customer ratings and is a unique program that we believe only we can offer. Membership growth recovered after we opened our stores more broadly. We continue to see significant opportunity over time to evolve all of our many customer memberships, which also includes our millions of My Best Buy customers.
We purposefully pressed pause on this initiative at the start of the pandemic and are planning to roll out a pilot in the next few months that will leverage our learnings from the material evolution of customer shopping behavior over the past year. I’d also like to update you on our health business more broadly. The pandemic has only served to underscore our purpose and strategy. The adoption of virtual care and Telehealth by patients and physicians has been greatly accelerated by COVID-19 and is expected to continue to grow.
We see significant opportunity over the long term to make the experience much better for both patients and physicians by providing an integrated seamless technology solution that is easy to use. To that end, our Best Buy Health strategy focuses on three areas that start with our strength in retail and build to connecting patients and physicians. The first focus area is the consumer health category, I spoke about a little earlier. These products are for customers who want to be healthier, sleep better or need to monitor a chronic condition like diabetes or heart disease for example.
The second area is active aging, which includes device based emergency response and other services for Generation A who wish to continue to live independently in their homes. Active aging builds on the GreatCall, CST and Biosense ex acquisitions. The third focus area is virtual care and includes digital health carrying center services that connect patients and physicians to enable virtual care and remote patient monitoring. We provide personal emergency response, remote patient monitoring and care counseling services to payers serving Medicare Advantage and Medicaid populations, and we will expand these services to help people monitor their chronic disease and connect to their physician.
Our differentiated approach combines Best Buy’s in-home and care counseling services with digital health. By digital health, we mean curated monitoring devices, packaged with the consumer in mind with the platform to distribute, activate and test the devices to ensure the consumer can use them and connect to their physician. In fiscal ’22, we plan to expand the consumer health product assortment and additional devices and services to our active aging business and add new remote patient monitoring offerings and a new technology platform in virtual care. In order to do this, we plan to invest in people, product development and the ongoing development of our health technology platforms and our data analytics and intelligence engines.
In addition to the investments in our health strategy, our investments in technology and automation will be important aspects in defining how our model continues to evolve in the future. As has been our practice for the past eight years, we have continued our commitment to leverage cost reductions and efficiencies to help offset investments in pressures. Our current target set in 2019 is to achieve an additional $1 billion in annualized cost reductions and efficiencies by the end of fiscal ’25. We achieved approximately $340 million toward our new goal during fiscal ’21 taking our total to $500 million towards this goal.
In summary, during fiscal ’21, we managed through the challenging environment, in a way that allowed us to accelerate many aspects of our strategy, to deliver on our purpose and thrive in a new and forever changed environment. Our teams collectively changed the way we do business at a pace we never imagined. And I must reiterate how proud I am of their perseverance and commitment. As a result we advanced our five-year plan both strategically and financially much further than we expected. While we are ahead of plan in several strategic areas, the disruption of the pandemic has also in business has proven to be even more strategically relevant to our mission.
The pandemic certainly disrupted the progress and the path forward will take time. We also still have meaningful opportunity to evolve our membership and services models to drive loyalty. In addition, we will need to invest in our future as we proactively above all the channels of our business to deliver amazing customer experiences in a world where half of the revenue might be initiated online. All that being said, we see a path that leads to margin expansion beyond what we articulated at our last Investor Update.
In fiscal ’22, we expect our operating income rate to be lower than fiscal ’21’s 5.8% operating income rate, as we continue to navigate and cycle impacts of the pandemic, while investing in our strategy as Matt will discuss. We are still in the midst of the pandemic. So we are not updating with a specific metric, but we see long-term non-GAAP operating income rate that is beyond the 5% fiscal ’25 target, we introduced in September 2019.
Now I would like to turn the call over to Matt for details on our results and insights on our outlook for fiscal ’22.
Matt Bilunas — Chief Financial Officer
Good morning. Our financial results for the year far surpassed what we thought was possible entering the year. We are leading fiscal ’21 with an even healthier balance sheet and we — than when we started the year and saw our non-GAAP operating income rate expand 90 basis points versus the prior year.
The rate expansion was possible due to both our ability to capitalize on the elevated demand for technology and by reducing spend early in the year in certain discretionary areas beyond the unknown — based on the unknown situation we are facing at the beginning of the pandemic.
We also accelerated strategy that allowed us to begin adjusting our cost structure to what we believe will be a permanent shift in how customers want to shop. Despite the difficult decisions we made, throughout the year we remain committed on investing in areas we felt were most crucial to delivering our future growth plans.
Let me now share more detail specific to our fourth quarter. On enterprise revenue of $16.9 billion, we delivered non-GAAP diluted earnings per share of $3.48, an increase of 20% versus last year. Our non-GAAP operating income rate of 6.9% increased 40 basis points. This rate expansion was driven by approximately 90 basis points of leverage from the higher sales volume on our SG&A, which was partially offset by a 60 basis point decline in our gross profit rate.
In addition, a lower effective tax rate had a $0.08 favorable year-over-year impact on our non-GAAP diluted EPS. In our domestic segment, revenue for the quarter increased 11% to $15.4 billion, an all-time high for revenue in a single quarter. Comparable sales growth of 12% was partially offset by the loss of revenue from stores that were permanently closed in the past year. From a merchandising perspective, we had broad based strength across most of our categories with the largest drivers of comparable growth coming from computing, appliances, gaming, virtual reality and home theater. This growth was partially offset by declines in headphones and mobile phones.
Turning now to gross profit. The domestic non-GAAP gross profit rate declined 50 basis points to 20.7%, primarily driven by supply chain cost associated with a higher mix of online revenue. In the fourth quarter, our online sales were 43% of our overall domestic sales in the quarter compared to 25% last year. Although it was a smaller impact from the supply chain costs, our category mix was also a pressure this quarter. These items were partially offset by a promotional environment that was more favorable compared to last year.
Our international non-GAAP gross profit rate decreased 180 basis points to 20.8% primarily due to increased supply chain costs from a higher mix of online sales and a lower sales mix from the higher margin services category. Moving next to SG&A. Domestic non-GAAP SG&A increased 5% compared to last year and decreased 90 basis points as a percentage of revenue. As expected, the largest drivers of the expense increase versus last year were one, higher incentive compensation for corporate and field employees at approximately $55 million. Two, increased variable cost associated with higher sales volume, which included items such as credit card processing fees; and three, technology investments which also include support of our health initiatives. These increased expenses were partially offset by lower store payroll expense.
Let me share some additional context on the increased expense from our technology investments. Technology has and increasingly will be the foundation of how we will operate and how we accelerate our strategy. This includes continued technology investments and capabilities to support our health initiatives, increasing and improving our digital interactions with customers, simplifying task in our stores and building upon our analytics to support decisions we make on a daily basis.
We are also modernizing our systems and tools as well as utilizing more cloud-based solutions. For example, we are partnering with Microsoft to leverage its cloud to help power our health care offerings. In addition, we are transforming the structure of our technology teams by bringing more headcount in-house versus using contract workers. Let me next provide more context on a $129 million in restructuring charges from this quarter, which also include a $13 million benefit within cost of sales, about $88 million of the charges related to changes in our domestic segment to realign our organizational structure with our strategic priorities. The remaining $41 million is primarily related to our previously announced plans to exit operations in Mexico.
We don’t anticipate any additional material charges in Mexico in future quarters. And all of our store locations in Mexico will be closed by the end of Q1. Moving to the balance sheet, we ended the quarter with $5.5 billion in cash and short-term investments. At the end of Q4, our inventory balance was approximately 8% higher than last year’s comparable period to support the current demand for technology. Approximately half of the year-over-year increase is related to inventory year we are still experiencing constraints driven by the high demand in several of our key categories.
During fiscal ’21, we returned $880 million to shareholders through $568 million in dividends and $312 million in share repurchases. We resumed share repurchases during the fourth quarter after suspending activity last March. This morning we announced a 27% increase in our quarterly dividend to $0.70 per share. We also announced our plans to spend at least $2 billion on share repurchases in fiscal ’22. In addition, our Board of Directors approved a new $5 billion share repurchase authorization, replacing the existing authorization dated February 2019, which had a $1.7 billion in repurchases remaining at the end of fiscal ’21.
As we look to our fiscal ’22, we are not providing our traditional guidance but I would like to share our planning assumptions as we enter the year. As we start fiscal ’22, the demand for technology remains at elevated levels, and the sales growth momentum we saw in January has continued through the first three weeks of February. The uncertainty around the administration of the COVID vaccine, the subsequent impact to customer demand for shopping patterns, makes it difficult to predict how sustainable these trends will be. Other factors to consider include government stimulus actions and the risk of continued higher unemployment.
With that being said, we estimate fiscal ’22 total comparable sales growth in the range of down 2% to up 1%. This range reflects a scenario in which customers resume or accelerate spend in areas that were slowed during the pandemic, such as travel and dining out in the back half of this year. Overall, we expect growth to be positive in the first half of the year and then negative in the back half as we lap strong comp growth in Q3 and Q4 of fiscal ’21. We will update our expectations during the year if needed, as there is more clarity to the various factors driving our outlook.
Regardless, we anticipate revenue for fiscal ’22 will be higher than what we would have expected it to be at this time last year. From a gross profit rate perspective, we are planning for a non-GAAP rate that is slightly below our fiscal ’21 rate. We anticipate more promotional pressure then we experienced this past year as inventory becomes more available and competition likely increases. As Corie mentioned, we are planning for online sales to represent approximately 40% of our domestic sales in fiscal ’22, which is only slightly lower than our mix in fiscal ’21.
As a result, supply chain related costs are not expected to have a material impact on our rate compared to the prior year. From an SG&A standpoint, we are expecting dollars to increase as a percentage in the low single digit range. There are a number of factors driving the expected increase. First, we expect our SG&A increased — expense to increase to approximately $100 million on a year-over-year basis as we lap COVID related decisions we made last year to preserve liquidity. This includes returning to more normalized spend on items such as 401(k) company match, advertising spend, store overhead items such as maintenance.
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