Best Buy Co., Inc. (BBY) Earnings

Management highlights

### Overall Q1 Performance - Q1 total enterprise revenue was $8.9 billion, with 2% comparable sales growth that exceeded the 1% guidance, adjusted operating income rate of 4.1% (up 30 basis points year-over-year), and adjusted diluted EPS of $1.28 (up 11% year-over-year). - 65% of online purchases were delivered or available for pickup within one day, up from ~60% year-over-year; 45% of online purchases are picked up in-store, leveraging Best Buy's physical footprint as a key asset. - Best Buy ads and the domestic marketplace exceeded Q1 performance targets and contributed positively to gross margin rates; domestic marketplace GMV reached ~$250 million in Q1, pushing total domestic sales growth including marketplace to over 4%. ### Strategic Priorities (Under Incoming CEO Jason Bonfig) - **Evolve into a retail, media, advertising, and technology company**: Deepen customer understanding to accelerate high-margin Best Buy ads as a core growth engine, and expand presence across customer touchpoints, platforms, and content. - **Expand reach via marketplace and strategic partnerships**: Grow assortment via the marketplace and 1P business, capitalize on growing consumer trends like collectibles, and partner with AI leaders OpenAI and Google to meet customers where they search for technology and advice. - **Elevate the customer experience**: Refine store formats and footprint; launch new medium-format (20,000–25,000 sq ft) and small-format (12,000–15,000 sq ft) stores this summer to enter underserved markets and trade areas where full-size stores do not fit, without compromising service or fulfillment speed. Repurpose empty space in ~70 existing large stores for value-add initiatives: 50 stores will get 900 sq ft branded Meta Labs for AI glasses and VR experiences, 20 stores will host Yardbird outdoor furniture or outlet assortment, with room for hundreds more conversions over coming years. Continue to build differentiated value via services, membership, and fulfillment capabilities. - **Maintain human-powered, customer-focused culture**: Continue investing in employee training and empowerment, while leveraging AI to enable teams to deliver stronger customer experiences. ### Key Operational Updates - CEO succession: Outgoing CEO Corey Berry will step down on November 1, with incoming CEO Jason Bonfig transitioning seamlessly alongside Berry until that date. - Membership program update: Starting next week, 8 million paid My Best Buy Plus/Total members will earn 1% back in rewards on all eligible purchases (6% back with the Best Buy credit card), in addition to existing benefits like free shipping, extended returns, exclusive pricing, and product protection/support for Total members. - Memory cost increases: Product costs and prices are rising, with blended computing ASP expected to rise in Q2 and the remainder of FY27, leading to mild expected unit elasticity that will be muted by Best Buy's broad price-point assortment. Best Buy pulled forward computing supply to mitigate impacts, and no material supply constraints are expected for the rest of FY27. - Appliance turnaround initiatives: After extended pressure from the weak housing market and competitive retail environment, Q2 initiatives including pricing investment, marketing, improved product availability, and faster delivery have driven positive month-to-date demand growth in May, with planned digital experience improvements for online appliance sales coming later in Q2. - Exclusive RGB TV launch: Full national exclusive assortment of new RGB TVs launches mid-June, supported by a national marketing campaign (

Guidance

- Full year fiscal 2027 guidance is maintained unchanged from prior estimates: Total revenue is projected between $41.2–$42.1 billion, comparable sales between a 1% decline and 1% increase, adjusted operating income rate between 4.3%–4.4%, adjusted effective tax rate of ~25.5%, adjusted diluted EPS between $6.30–$6.60, capital expenditures of ~$750 million, and planned share repurchases of ~$300 million. - Full year expectations include 10% ad revenue growth to nearly $1 billion, and domestic marketplace GMV of at least $1.2 billion. Gross profit rate is projected to improve ~30 basis points driven by Best Buy ads and marketplace growth, with traditional services and membership expected to have a neutral impact on gross profit rate year-over-year. - Q2 2027 guidance: Comparable sales are projected to grow ~1% for the full quarter, with strong high-single-digit month-to-date growth in May partially offset by lapping the large Switch 2 launch from June 2026. Q2 operating income rate is expected to be ~3.9%, flat year-over-year.

Segment performance

**Domestic Segment**: Revenue increased 1.5% year-over-year to $8.2 billion, with comparable sales growth of 1.8%. Online revenue was $2.6 billion, up 1.4% on a comparable basis, representing 32% of domestic revenue. Domestic gross profit rate increased 20 basis points to 23.7%, driven by growth in Best Buy ads and marketplace, partially offset by lower product margin rates. Positive comparable sales growth came from gaming, computing, mobile phones, and services; appliances saw a year-over-year sales decline. **International Segment**: Revenue increased 7% year-over-year to $687 million, driven by 4.7% comparable sales growth and favorable foreign exchange impacts. Gross profit rate decreased 50 basis points to 21.5%, primarily due to lower product margin rates. **Product Category Contribution**: The largest contributors to domestic comparable sales growth were gaming (supported by strong console and popular software demand), computing (ninth consecutive positive quarter, 15% growth for the Best Buy business unit across education, corporate, and healthcare clients), mobile phones (fifth consecutive growth quarter, driven by expanded carrier partnerships and positive new launch reception), and services (reclassified to include credit card and digital content revenue, which did not change total revenue). New/emerging categories (AI glasses, 3D printers, collectibles, health rings, PC gaming handhelds) saw sales double year-over-year. Home theater TV sales declined slightly year-over-year but showed material improvement in growth trends and gained market share in Q1. Appliances sales continued to see year-over-year pressure in Q1, with recent month-to-date growth turning positive in May.

Risks & headwinds

- Ongoing sales pressure in the appliances category, driven by a stagnant housing market and competitive retail environment, though recent initiatives have improved demand trends. - Rising memory costs that are expected to increase computing average selling prices, which could lead to unit volume declines despite expected muted elasticity. - Consumer spending discretion: Customers remain value-focused and thoughtful about big-ticket purchases, which could create top-line volatility if economic conditions weaken. - Uncertainty around future memory supply chain conditions beyond the current fiscal year 2027.

Analyst Q&A

• Q: What drove Q1 home theater TV improvement, and does Best Buy's one-year national exclusivity for RGB TVs run through May/June 2027? /

  A: Q1 TV improvement came from improved trend and market share gains across price points, driven by more competitive ASPs. Best Buy is the only national retailer with RGB TVs for approximately one year starting from the mid-June 2026 full launch, putting the exclusivity window through mid-2027. Management will continue discussions with vendors to maintain preferential positioning for the new technology moving forward.

• Q: What is driving the recent improvement in pressured appliance sales, and can positive growth continue in Q2? /

  A: The improvement comes from a combination of targeted changes: faster delivery, better product availability, competitive pricing, and improved marketing to communicate these benefits to customers. The positive trend was already visible during the May Memorial Day shopping period, and management will refine and double down on these initiatives ahead of the July 4th holiday to sustain growth.

• Q: Is the new small/medium store format strategy meant to replace existing legacy large stores, or is it for expansion? /

  A: The new formats are exclusively for expanding reach into new markets and underserved communities where Best Buy does not currently have a store presence. The space reallocation strategy for existing large stores repurposes underutilized space for new high-value initiatives (like Meta Labs) rather than closing profitable existing locations, which still perform well for the company.

• Q: How should investors think about inventory levels for the rest of FY27 after the Q1 pull forward of computing inventory? /

  A: The Q1 inventory increase is a strategic move to secure lower computing costs ahead of expected memory price increases. Over time, management intends to bring inventory levels back in line with sales growth, but will hold strategically positioned elevated inventory to maintain favorable cost profiles through the year. The team has a strong track record of lean inventory management and is closely monitoring levels.

• Q: Is strong May demand driven by consumer pulling forward purchases ahead of expected memory-related price increases? /

  A: Management sees no evidence of pull-forward behavior in consumer data. Very few customers are aware of or concerned about memory cost increases, and consumer behavior remains consistent with recent quarters: resilient but value-focused, willing to spend on needed or innovative tech within their personal budgets, which plays to Best Buy's broad assortment strength.