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For nearly three years now, Best Buy (BBY) has seen its total and comparable sales fall on a yr/yr basis in every quarter as the pull-forward in demand during the pandemic and macroeconomic pressures have taken a toll on the consumer electronics category. However, in Q2, BBY extended another long streak, and this one is much more positive. Specifically, the company surpassed EPS expectations yet again -- a feat it has achieved in every quarter over the past five plus years -- as EPS grew 10% yr/yr to $1.34.

Better yet, BBY also sharply increased its FY25 EPS guidance to a range of $6.10-$6.35, up from its prior outlook of $5.75-$6.20, which essentially amounts to upside EPS guidance for the back half of the year.

• Similar to past recent quarters, BBY relied on solid cost containment and a focus on its higher-margin services and membership businesses to drive earnings growth. The company has implemented some workforce reductions, including reducing its layers of management, which helped push SG&A expenses lower by 3.7% yr/yr. Simultaneously, BBY's improved performance from its services category, including its membership business, nudged domestic gross margin higher by 20 bps yr/yr to 23.5%.
• Although the story on the demand side isn't nearly as positive, there were a couple of encouraging data points in Q2. For instance, comparable sales declined by just 2.3%, ahead of its guidance for a decrease of 3.0%, while representing a marked improvement from last quarter's drop of 6.1%. The primary driver for the improvement was a strengthening of sales for PCs and tablets as the computing category continues to build momentum.
• BBY's management team has been anticipating an upgrade cycle to materialize for the computing and mobile phone categories and it appears that this prediction is beginning to unfold. During the earnings call, CEO Corie Barry stated that BBY continued to expect sales in the computing category and services to show positive growth for the year. New AI features and functionalities, such as Microsoft's (MSFT) co-pilot, are providing a spark and as more AI innovations roll out, the computing category should be poised for a stronger year in 2025.
• On the downside, sales for appliances, TVs, and gaming were weak once again in Q2. As BBY continues to struggle in these categories, concerns are mounting that it's losing market share to competitors such as Costco (COST) and Walmart (WMT). Mainly due to the ongoing weakness in these areas, BBY lowered its FY25 comp guidance to (3.0%) to (1.5%) from its prior guidance of (3.0%) to 0.0%.

The main takeaway is that BBY is executing quite well in a difficult business climate, driving solid earnings growth despite sluggish demand for big-ticket items. Furthermore, momentum is gradually building in the computing category, which has BBY's comps moving in the right direction.