The Real Surprise in Best Buy’s Earnings — And What It Signals for Holiday Spending

Best Buy’s third-quarter report lands at a delicate moment for the U.S. consumer, but the electronics retailer managed to thread the needle with a solid beat and a modest raise to guidance heading into the holiday season. The company topped expectations on both earnings and revenue, delivered better-than-forecast comparable sales, and sounded cautiously upbeat on demand for key tech categories. The stock initially popped to around $78 before sliding back toward $75, leaving shares still pinned between their 50-day moving average near $77.68 and the 200-day around $73.35 – a fitting visual for a story that is better, but not quite “breakout” yet.

For the quarter , Best Buy reported revenue of $9.67 billion versus consensus of $9.59 billion, with comparable sales up 2.7% year over year, ahead of the roughly 1.6% analysts were modeling. Adjusted EPS came in at $1.40, a comfortable beat versus expectations around $1.30–$1.31. On a GAAP basis, EPS was much lower at $0.66, reflecting sizable non-cash impairments in the Best Buy Health business. Net income fell to $140 million from $273 million a year ago, but the underlying operating performance in the core retail engine is clearly stronger than the headline profit drop implies.

Geographically, both the domestic and international businesses contributed to the upside. Domestic revenue rose 2.1% to $8.88 billion, driven by 2.4% comparable sales growth. The largest category contributors on a weighted basis were computing, gaming, and mobile phones – precisely the areas management has been waiting to see re-accelerate as new products and AI-enabled devices hit the market. Those gains were partially offset by declines in home theater and appliances, where demand remains softer as housing turnover and big-ticket discretionary spending lag. Online revenue in the U.S. grew 3.5% on a comparable basis to $2.82 billion and represented 31.8% of domestic sales, essentially flat as a mix versus last year but still a very large digital contribution for a “big box” retailer. International revenue climbed 6.1% to $794 million, with comparable sales up 6.3% and an additional boost from Best Buy Express locations, partially offset by FX headwinds. International gross margin even improved modestly thanks to favorable supply chain costs.

Margins and profitability were more nuanced. Overall gross profit was $2.25 billion, with the domestic gross profit rate dipping to 23.3% from 23.6% a year earlier. Management cited lower product margins as the primary drag, partially offset by better rates in services. That fits with a consumer who is “deal focused and attracted to more predictable sales moments,” as executives put it on the call – think big promo windows and highly visible price points rather than impulse buying at full price. In the U.S., adjusted SG&A was flat in dollar terms at $1.71 billion but leveraged nicely, falling to 19.2% of revenue from 19.7% as Best Buy kept a tight lid on costs. International SG&A also improved as a percentage of sales, dropping to 19.3% from 20.7%. Adjusted operating income held up far better than GAAP, with the main distortion coming from Best Buy Health.

That health segment is, for now, the problem child. Best Buy recorded $192 million of pre-tax non-cash impairments tied to Best Buy Health, including goodwill, intangibles, and long-lived assets. A shift in the customer base and pressures in Medicaid and Medicare Advantage markets forced management to revise longer-term projections downward, triggering the impairment review. The result was a higher effective tax rate (31.5% versus 23.9% last year) due to non-deductible goodwill. On an adjusted basis, however, the effective tax rate was a more normal 24.6%. The message: Health is not derailing the core business, but the blue-sky optimism around that vertical has clearly faded.

The outlook is where the quarter really earns its “better than feared” label. Best Buy raised full-year guidance across the key lines. The company now expects revenue of $41.65–$41.95 billion, up from $41.1–$41.9 billion and essentially implying slight growth versus last year’s $41.53 billion. Comparable sales are now forecast to increase 0.5–1.2%, an upgrade from the previous range of -1% to +1%. Adjusted EPS is guided to $6.25–$6.35, up from $6.15–$6.30, with an unchanged adjusted operating margin target of about 4.2%. For Q4 specifically, management is calling for comps in a fairly tight band of -1.0% to +1.0% and an adjusted operating income rate of 4.8–4.9%, reflecting both holiday promotional intensity and the benefit of better mix and marketplace initiatives.

On the consumer front, commentary was surprisingly constructive given the macro handwringing. Management emphasized that customers remain “resilient, but deal focused,” leaning into clearly defined sales events and promotional windows. The quarter saw better-than-expected demand in computing, gaming, and mobile phones, helped by catalysts such as Nintendo Switch 2, the latest iPhones, and a growing wave of AI-enabled laptops. At the same time, the slower growth rate of Switch 2 versus Q2 and ongoing weakness in appliances and home theater underscore that this is a selective upgrade cycle, not a broad-based spending boom. Best Buy is trying to meet consumers where they are by launching its Marketplace platform and leaning more heavily into its model of expert advice plus attractive financing and promotions.

From a shareholder perspective, capital return remains a steady backstop. The company returned $234 million in Q3 via $199 million of dividends and $35 million of buybacks, and still expects to deploy roughly $300 million on repurchases for the full year. A regular quarterly dividend of $0.95 per share was reaffirmed, payable in early January. That income stream, combined with a stabilizing top line and modestly rising EPS, gives value-oriented investors something to hang onto even if holiday trends are choppier than hoped.

The technical picture, however, matches the fundamental message: this is a steady improvement, not a dramatic inflection—yet. With shares oscillating between the 50-day and 200-day moving averages since mid-November, the market is essentially waiting to see whether raised guidance and a healthier tech demand backdrop can unlock a sustained breakout, or whether a cautious, promotion-driven consumer will drag the stock back toward longer-term support. The holiday quarter, and whether Best Buy can convert category momentum and Marketplace traction into higher-margin growth, will likely determine which side of that range finally gives way.