Best Buy's Q

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $9.4B, up 1.6% YOY
• EPS: $1.28 adjusted diluted EPS, down 4% YOY
• Gross Margin: Gross profit rate declined 30 bps YOY; domestic was 23.4%, down 10 bps
• Operating Margin: 3.9% adjusted operating income rate, down 20 bps YOY

Guidance:

• FY26 revenue guided to $41.1–$41.9B; comps -1% to +1%.
• Adjusted operating income rate ~4.2%; tax rate ~25%.
• Adjusted diluted EPS $6.15–$6.30; capex ~$700M.
• Trending toward the high end of the sales range; tariffs within prior assumptions.
• Q3 comps expected similar to Q2 (~+1.6%); Q3 adjusted OI rate ~flat vs last year’s 3.7%.
• FY26 gross margin slightly unfavorable YOY; 2H pressure similar or a bit higher than 1H; mix/competitive pricing headwinds partly offset by Marketplace, Services, and Ads.
• SG&A as % of revenue slightly lower vs FY25; Q3 higher YOY, Q4 lower; low end assumes variable expense reductions.

Business Commentary:

* Revenue and Earnings Growth: - Best Buy reported revenue of $9.4 billion for Q2, achieving comparable sales growth of 1.6%, resulting in an adjusted operating income rate of 3.9% and adjusted earnings per share of $1.28. - The growth was driven by strong performance in gaming, computing, mobile phones, and other categories, despite declines in home theater, appliances, tablets, and drones.

• Gaming Segment Performance:
• Gaming sales grew significantly, driven by the successful launch of the Nintendo Switch 2, with increased sales in both consoles and related peripherals and software.

• The growth was supported by a smooth launch process and strong customer enthusiasm, reflecting Best Buy's robust in-store and online presence.

• Computing Category Momentum:

• Best Buy saw six consecutive quarters of growth in computing, marking the highest number of second quarter laptop unit sales in 15 years.

• Growth was driven by customers' need to replace and upgrade products, along with Best Buy's unique blend of broad assortment and expert advice and support.

• Impact of Tariffs:

• Tariffs were expected to be in line with previous guidance, with mitigation strategies reducing the impact on financial results.
• The company's approach of partnering with vendors and leveraging global supply chains helped minimize the cost increases associated with tariffs.

Sentiment Analysis:

• Management reported better-than-expected Q2 results with comps up 1.6% (highest in 3 years), an adjusted operating margin of 3.9%, and stated they are trending toward the higher end of the FY26 sales range. August comps are up low single digits, and Q3 comps are expected to be similar to Q2. Guidance maintained with confidence despite tariff uncertainty.

Q&A:

• Question from Seth Ian Sigman (Barclays): How did market share trend, and what drives Q3 comps being similar to Q2 given Switch launch timing?
  Response: Share was roughly flattish with better momentum; Q3 comps similar to Q2 driven by continued (but smaller) gaming uplift, stronger mobile computing including iPad, ongoing computing and mobile phone growth.

• Question from Katharine Amanda McShane (Goldman Sachs): Vendors are increasing labor investment (~+20%); what changes are occurring and do you expect a sales lift?
  Response: Vendors are ramping labor, training, in-store experiences, and digital support, enhancing customer engagement across categories; this is embedded in plans to drive growth.

• Question from Christopher Michael Horvers (JPMorgan): How are consumers reacting to tariff-related price moves and is guidance prudent given event gaps?
  Response: Tariff impact was mitigated and not material in Q2; August comps are low single digits, with guidance reflecting typical pre-holiday slowdown between events.

• Question from Christopher Michael Horvers (JPMorgan): Will Switch 2 strength persist into Q4 and does trending to high-end sales imply higher earnings?
  Response: Gaming growth continues in Q3 with usual Q4 strength; trending to top of sales range, but OI rate guide remains unchanged.

• Question from Steven Paul Forbes (Guggenheim Securities): How does the post–Labor Day promo cadence vs last year affect forecasting?
  Response: Promotional breadth and depth are higher than last year and reflected in guidance, with carefully timed events (e.g., Black Friday in July) to capture demand.

• Question from Steven Paul Forbes (Guggenheim Securities): With tariffs, how are you controlling gross margin into holiday?
  Response: Cost sharing varies by vendor and category; broad mitigation (sourcing, promotions, pricing on new launches) keeps cost increases below effective tariff rates.

• Question from Michael Lasser (UBS): With CE profit pools challenged, how will Best Buy drive growth beyond harvesting the core?
  Response: Launching Marketplace and expanding Best Buy Ads to stabilize CE unit share and generate profits that fund pricing and experience investments; deeper vendor partnerships differentiate.

• Question from Michael Lasser (UBS): What investments will stabilize home theater/appliances, and how much will you reinvest?
  Response: TVs: adjust assortment, expand vendor showcases (TCL/Hisense mini-LED, LG OLED), and marketing; Appliances: pivot to duress with faster fulfillment and take-with options; guidance already includes competitive pricing/mix pressures.

• Question from Anthony Chinonye Chukumba (Loop Capital Markets): How did Switch 2 perform vs expectations and how is H2 guidance affected?
  Response: Switch exceeded expectations and drove part of the beat; H2 plans assume ongoing gaming growth alongside continued computing strength.

• Question from Robert Frederick Ohmes (BofA Securities): Will the expanded Verizon/AT&T operating model boost back-half traffic; any more restructuring?
  Response: Expanded carrier model simplifies complex transactions and supports continued mobile growth; no material additional restructuring expected this year.

• Question from Unidentified Analyst (Truist Securities): Update on tariff exposure by country and mitigation progress?
  Response: China sourcing down to ~30–35% from 55% (blended effective tariff ~16%); U.S.+Mexico ~25% (0% tariffs); 40% from other countries; Best Buy directly imports only ~2–3%; mitigations keep cost pass-through well below effective rates.

• Question from Unidentified Analyst (Wells Fargo): How large is the upgrade cycle and how would lower rates help?
  Response: Upgrade cycles vary; computing replacement is strong (pandemic-era refresh, AI PCs, Mac upgrades); lower rates would aid major appliances via increased housing turnover and package purchases.