Best Buy rallies 10% on improved margins, EPS outlook
Best Buy's Q2 earnings report for FY25 showcased a blend of positive surprises and cautious optimism. The company reported earnings per share (EPS) of $1.34, surpassing analyst expectations by $0.18 compared to the FactSet Consensus estimate of $1.16. This strong EPS performance indicates a robust profit margin and effective cost management. However, revenue for the quarter was $9.29 billion, which represents a 3.1% decline year-over-year, slightly outpacing the Consensus revenue estimate of $9.23 billion, the company's revenue decline was within the expected range.
Comparable sales, a key performance metric, declined by 2.3% in Q2. This performance was slightly better than the company's own guidance, which had projected a decline of 3%. The ability to outperform this metric suggests that Best Buy's strategies to enhance its product offerings and customer experience are partially paying off, even in a challenging retail environment.
Looking ahead, Best Buy has revised its guidance for the fiscal year 2025. The company now expects EPS to be in the range of $6.10 to $6.35, up from the prior guidance of $5.75 to $6.20, and exceeding the consensus estimate of $6.07. This positive revision reflects better-than-expected profitability during the first half of the year. On the revenue front, Best Buy anticipates a range of $41.3 billion to $41.9 billion for FY25, a slight reduction from the previous guidance of $41.3 billion to $42.6 billion but still in line with the consensus of $41.75 billion.
For Q3, the company projects comparable sales to decline by approximately 1.0% and a non-GAAP operating income rate of about 3.7%. This forward guidance suggests a cautious but steady outlook, acknowledging ongoing challenges while highlighting areas of potential stability and growth.
Domestic performance in Q2 showed a revenue decrease of 3.0% to $8.62 billion, driven by a 2.3% decline in comparable sales. Key areas of weakness included appliances, home theater, and gaming, though growth was observed in tablets, computing, and services. Notably, domestic online revenue fell by 1.6%, but online sales still accounted for 31.5% of total domestic revenue, up from 31.0% last year. The improvement in the gross profit rate to 23.5% from 23.1% was largely attributed to stronger performance in the services category, despite lower product margins.
Internationally, Best Buy faced a 4.0% decline in revenue to $665 million, primarily due to unfavorable foreign exchange rates and a 1.8% drop in comparable sales. The international gross profit rate decreased slightly to 23.9% from 24.2%, reflecting higher supply chain costs. However, SG&A expenses in the international segment were reduced to 21.4% of revenue, down from 21.5% the previous year, due to lower advertising costs and favorable currency impacts.
In terms of shareholder returns, Best Buy allocated $301 million in Q2 FY25 through dividends and share repurchases. The company plans to return approximately $500 million to shareholders for the full fiscal year. Additionally, a quarterly dividend of $0.94 per share has been authorized, payable on October 10, 2024, demonstrating Best Buy's commitment to returning value to shareholders while managing its financial strategy prudently.