Why Is Best Buy (BBY) Down 4.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Best Buy (BBY). Shares have lost about 4.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Best Buy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.

Best Buy’s Q4 Earnings Beat Signals Strong Strategic Execution

Best Buy reported fourth-quarter fiscal 2026 results, wherein revenues lagged the Zacks Consensus Estimate and earnings surpassed the same. Also, the top line declined and the bottom line rose year over year.

Insight Into BBY’s Quarterly Performance

Adjusted earnings of $2.61 per share surpassed the Zacks Consensus Estimate of $2.48. Also, the bottom line increased 1.2% from $2.58 per share in the year-ago period.

Enterprise revenues came in at $13,814 million, lagging the consensus mark of $13,907 million and declined 1% from the prior-year quarter's $13,948 million. Enterprise comparable sales declined 0.8% year over year. By month, the enterprise comparable sales declined approximately 3% in November, improved to 0.2% growth in December and increased 0.4% in January.

Gross profit edged down 1.2% to $2.88 billion, while the gross margin remained flat year over year at 20.9%.

Adjusted SG&A expenses were $2.19 million, down 1.8% year over year. Adjusted SG&A, as a percentage of revenues, was down 20 bps to 15.8%.

Adjusted operating income was $695 million, up 0.7% from the year-ago quarter. The adjusted operating margin of 5% rose 10 bps from the prior-year period.

BBY’s Domestic & International Operations

Domestic revenues totaled $12.58 billion and represented a 1.1% year-over-year decline, driven by a 0.8% decrease in comparable sales. From a merchandising standpoint, the most significant weighted contributors to the comparable sales decline were home theater and appliances. These declines were partially offset by growth in computing and mobile phones. Domestic online revenues were $4.91 billion, reflecting a 2.3% decrease on a comparable basis. Online sales accounted for 39% of the total Domestic revenues compared with 39.5% in the prior year.

The domestic gross margin was 20.9%, approximately flat year over year. Growth in Best Buy Ads and Marketplace contributed positively to the gross margin but was largely offset by lower product margin rates. Domestic adjusted SG&A expenses were $2.00 billion, or 15.9% of revenues compared with $2.03 billion, or 16% of revenues, last year. The decrease in adjusted SG&A was driven by lower compensation expenses, including incentive pay, as well as reduced Best Buy Health expenses. These reductions were partially offset by higher costs associated with the company’s Marketplace and Best Buy Ads initiatives.

International revenues totaled $1.24 billion, increased 0.5% year over year. The rise was primarily driven by favorable foreign exchange rates, partially offset by a 1.3% decline in comparable sales.

The International gross margin was 20.5%, down 90 basis points year over year. The decline was mainly attributable to lower product margin rates. The segment’s adjusted SG&A expenses were $189 million, or 15.3% of revenues, compared with $194 million, or 15.7% of revenues, in the prior year. The reduction in adjusted SG&A was primarily due to lower compensation expenses, including incentive compensation, partially offset by the unfavorable impacts of foreign exchange rates.

BBY’s Financial Snapshot

Best Buy ended the quarter with cash and cash equivalents of $1.74 billion, long-term debt of $1.17 billion, and a total equity of $2.96 million.

In the quarter under review, the company returned $272 million to shareholders, consisting of $199 million in dividends and $73 million in share repurchases.

For fiscal 2026, total shareholder returns amounted to $1.07 billion, including $801 million paid out in dividends and $273 million used for share buybacks. For fiscal 2027, the company expects to allocate $300 million toward share repurchases.

Moreover, the board of directors approved a 1% increase in the regular quarterly cash dividend, raising it to 96 cents per common share. The dividend will be paid out on Apr. 14, 2026, to shareholders of record as of the close of business on March 24, 2026.

What Lies Ahead for Best Buy?

For fiscal 2027, the company expects revenues from $41.2 billion to $42.1 billion. Comparable sales are projected to fluctuate between a 1% decline and 1% growth. The company expects its gross margin to improve 30 basis points from that reported in the prior year, driven by growth in Best Buy Ads and its U.S. Marketplace platform.

Turning to adjusted SG&A, expenses are projected to increase to support the continued expansion of Ads and Marketplace initiatives, including higher spending on advertising, technology and employee compensation. Incentive compensation is also expected to rise as performance targets are reset for the upcoming year, with the high end of the company’s guidance indicating an increase of $30 million from that reported in fiscal 2026.

Store payroll expenses are anticipated to rise at the high end of the revenue outlook, with minimal impact on the overall rate. These increases are expected to be partially offset by lower expenses within Best Buy Health. The low end of the company’s guidance assumes further reductions in variable expenses, including incentive compensation, to better align costs with sales trends.

The adjusted operating margin is anticipated between 4.3% and 4.4%. Adjusted earnings per share are forecast to be $6.30 to $6.60. Capital expenditure for the year is estimated at $750 million.

For the first quarter, the company expects comparable sales to increase 1%, along with an adjusted operating margin of 3.9%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Best Buy has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a score of A on the value side, putting it in the top 20% for value investors.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Best Buy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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