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Best Buy (BBY) delivered another quarter of EPS outperformance, driven primarily by strength in higher-margin services, including membership offerings, and healthy demand in computing and mobile phones, fueled by a technology refresh cycle and the launch of AI-enabled PCs. However, this EPS beat is being overshadowed by a downward revision to its FY26 EPS, net sales, and comparable sales guidance reflecting headwinds from weaker consumer demand for big-ticket electronics and the impact of recently implemented tariffs on imports from China and Mexico, which were not factored into the original FY26 guidance issued in 4Q25.

• Enterprise comparable sales in Q1 declined by 0.7%, a step back from the +0.5% growth in 4Q25, marking a return to negative territory and continuing a troubling trend of negative comps in thirteen of the last fourteen quarters. BBY’s Q2 guidance projects comparable sales to be slightly down yr/yr, suggesting ongoing challenges in reversing this decline. 
  • In Q1, strength was evident in computing and mobile phones (47% of total sales), with domestic comparable sales in this category growing 5.8%, driven by a technology refresh cycle, the introduction of AI PCs, and strong consumer interest in innovative, high-price-point products.
  • Conversely, appliances and entertainment (including home theater and gaming) saw continued weakness, attributed to subdued demand for big-ticket discretionary items as inflation-weary consumers prioritize value and delay non-essential purchases, a trend exacerbated by macroeconomic pressures and looming tariff-related price hikes.
• Despite these macro-related headwinds, BBY has maintained relative earnings stability through disciplined cost management and a strategic focus on higher-margin businesses. In Q1, EPS declined by only 4% yr/yr to $1.15, while the domestic gross profit rate edged up 10 bps yr/yr to 23.5%, driven by improved performance in services, particularly membership programs. Operational efficiency also played a critical role, with adjusted SG&A expenses as a percentage of revenue holding steady at 19.6% despite a $109 mln restructuring charge tied to Best Buy Health, reflecting asset impairments and other costs.
• Looking ahead, BBY will focus on its FY26 strategic priorities. which center on three pillars: enhancing omni-channel experiences, scaling new revenue streams like Best Buy Marketplace and Best Buy Ads, and driving operational efficiency to fund investments and offset pressures.
  • The omni-channel focus includes leveraging AI to improve search and personalization capabilities across its digital platforms, where 39.5% of domestic revenue is transacted, aiming to boost engagement and conversion rates.
  • Best Buy Marketplace, set to launch in the U.S. in mid-2025, will allow third-party sellers to list products, adopting a model akin to Amazon (AMZN) and Walmart (WMT), with in-store returns and phased fulfillment services to broaden assortment and drive incremental revenue.
  • Best Buy Ads aims to capitalize on the company’s digital traffic, which saw 20% app growth in Q4, to create a scalable advertising platform.

BBY’s consistent ability to exceed EPS expectations, even amidst persistent sales declines, underscores its operational resilience and strategic focus on high-margin services and cost discipline. However, the downwardly revised FY26 guidance, incorporating tariff impacts and cautious consumer behavior, has weighed on the stock, signaling more challenging quarters ahead.