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Best Buy Co., Inc. (BBY - Free Report) reported second-quarter fiscal 2025 results, wherein both revenues and earnings topped the Zacks Consensus Estimate. While the top line declined year over year, earnings improved.
Best Buy stock soared 14% on Aug. 29, driven by better-than-expected quarterly results and an upbeat earnings forecast for the fiscal year. Looking forward, management foresees continued stabilization in the industry through the remainder of the fiscal year.
Best Buy Co., Inc. Price, Consensus and EPS Surprise
Adjusted earnings of $1.34 per share surpassed the Zacks Consensus Estimate of $1.15. The bottom line increased 9.8% from $1.22 in the year-ago period.
Enterprise revenues declined 3.1% from the prior-year quarter's level of $9,288 million. The figure beat the consensus estimate of $9,230 million. Enterprise comparable sales dropped 2.3% year over year. We had expected enterprise comparable sales to fall 3%.
Gross profit dropped 1.5% year over year to $2.2 billion while the gross margin expanded 30 basis points (bps) to 23.5%. We had projected a gross margin expansion of 40 basis points.
Adjusted operating income was $381 million, up from $362 million in the year-ago quarter. The adjusted operating margin increased 30 bps to 4.1%.
Adjusted selling, general and administrative (SG&A) expenses of $1.8 billion dipped 2.9% year over year. SG&A, as a percentage of sales, remained constant at 19.4%. We had estimated SG&A expenses to deleverage 70 basis points.
Domestic and International Operations
The Domestic segment’s revenues fell 3% to $8.62 billion. This year-over-year decline was induced by a comparable sales decrease of 2.3%. From a merchandising perspective, the key drivers of the comparable sales decline were appliances, home theater and gaming, somewhat offset by growth in the tablets, computing and services categories.
We expected a 3.8% decline in the Domestic segment's revenues. The segment’s online revenues of $2.72 billion decreased 1.6% on a comparable basis. As a percentage of total Domestic revenues, online revenues were 31.5% compared with 31% last year.
The segment’s gross margin increased 40 bps to 23.5% due to enhanced financial results from the services category, including its membership offerings. This was partly offset by lower product margin rates and profit-sharing revenues from the company’s private label and co-branded credit card arrangement. The segment’s adjusted operating income was $364 million or 4.2% of revenues, higher than $343 million or 3.9% reported in the year-ago quarter.
In the International segment, revenues dipped 4% year over year to $665 million. This decrease was due to the negative impact of foreign exchange rates and a 1.8% decline in comparable sales. The segment’s adjusted operating income was $17 million or 2.6% of revenues, lower than the $19 million or 2.7% reported in the year-ago quarter.
This segment’s gross margin contracted 30 bps to 23.9% due to lower product margin rates and higher supply chain costs, somewhat offset by growth in the higher-margin services category.
BBY’s Financial Snapshot
Best Buy ended the quarter with cash and cash equivalents of $1.4 billion, long-term debt of $1.2 billion and a total equity of $3.1 billion.
In the fiscal second quarter, BBY returned about $301 million to its shareholders via dividends of $203 million and share repurchases of $98 million.
What to Expect From Best Buy in Fiscal 2025?
We acknowledge softness in the consumer spending environment owing to underlying inflationary pressure and a higher interest rate environment. For fiscal 2025, Best Buy now anticipates revenues to be in the range of $41.3-$41.9, lower than the prior guidance of $41.3-$42.6 billion.
BBY envisions comparable sales to decline in the band of 1.5-3% compared with the prior estimate of 0-3% decline. The company had reported consolidated revenues of $43.5 billion, with a comparable sales decline of 6.8% in fiscal 2024.
Best Buy expects an adjusted operating margin of 4.1-4.2% compared with 4.1% in fiscal 2024. The company had earlier guided operating margin to be in the range of 3.9-4.1%.
Management now foresees adjusted earnings per share to be between $6.10 and $6.35 as compared to the prior forecast of $5.75-$6.20. Capital expenditure is anticipated to be $750 million.
For the third quarter, Best Buy anticipates a year-over-year comparable sales decline of 1%. The adjusted operating income rate is expected to be 3.7% compared with 3.8% reported in the year-ago period.
In the past three months, this Zacks Rank #4 (Sell) company has gained 18.2% compared with the industry’s growth of 9.7%.
Image Source: Zacks Investment Research
Solid Picks in BBY’s Sector
We have highlighted three better-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. (ANF - Free Report) , Deckers (DECK - Free Report) , and DICK'S Sporting Goods (DKS - Free Report) .
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 9.8% and 52.4%, respectively, from the year-ago reported figures. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 47.2% in each of the trailing four quarters. The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago figure.
DICK'S Sporting operates as an omni-channel sporting goods retailer. It currently carries a Zacks Rank #2. DKS has a trailing four-quarter earnings surprise of 4.7%, on average. The Zacks Consensus Estimate for DICK Sporting’s current fiscal-year sales and earnings implies growth of 1.9% and 6.9%, respectively, from the year-ago reported numbers.
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Earnings Beat & Raised EPS Guidance Propel Best Buy Stock Higher
Best Buy Co., Inc. (BBY - Free Report) reported second-quarter fiscal 2025 results, wherein both revenues and earnings topped the Zacks Consensus Estimate. While the top line declined year over year, earnings improved.
Best Buy stock soared 14% on Aug. 29, driven by better-than-expected quarterly results and an upbeat earnings forecast for the fiscal year. Looking forward, management foresees continued stabilization in the industry through the remainder of the fiscal year.
Best Buy Co., Inc. Price, Consensus and EPS Surprise
Best Buy Co., Inc. price-consensus-eps-surprise-chart | Best Buy Co., Inc. Quote
BBY’s Quarterly Performance
Adjusted earnings of $1.34 per share surpassed the Zacks Consensus Estimate of $1.15. The bottom line increased 9.8% from $1.22 in the year-ago period.
Enterprise revenues declined 3.1% from the prior-year quarter's level of $9,288 million. The figure beat the consensus estimate of $9,230 million. Enterprise comparable sales dropped 2.3% year over year. We had expected enterprise comparable sales to fall 3%.
Gross profit dropped 1.5% year over year to $2.2 billion while the gross margin expanded 30 basis points (bps) to 23.5%. We had projected a gross margin expansion of 40 basis points.
Adjusted operating income was $381 million, up from $362 million in the year-ago quarter. The adjusted operating margin increased 30 bps to 4.1%.
Adjusted selling, general and administrative (SG&A) expenses of $1.8 billion dipped 2.9% year over year. SG&A, as a percentage of sales, remained constant at 19.4%. We had estimated SG&A expenses to deleverage 70 basis points.
Domestic and International Operations
The Domestic segment’s revenues fell 3% to $8.62 billion. This year-over-year decline was induced by a comparable sales decrease of 2.3%. From a merchandising perspective, the key drivers of the comparable sales decline were appliances, home theater and gaming, somewhat offset by growth in the tablets, computing and services categories.
We expected a 3.8% decline in the Domestic segment's revenues. The segment’s online revenues of $2.72 billion decreased 1.6% on a comparable basis. As a percentage of total Domestic revenues, online revenues were 31.5% compared with 31% last year.
The segment’s gross margin increased 40 bps to 23.5% due to enhanced financial results from the services category, including its membership offerings. This was partly offset by lower product margin rates and profit-sharing revenues from the company’s private label and co-branded credit card arrangement. The segment’s adjusted operating income was $364 million or 4.2% of revenues, higher than $343 million or 3.9% reported in the year-ago quarter.
In the International segment, revenues dipped 4% year over year to $665 million. This decrease was due to the negative impact of foreign exchange rates and a 1.8% decline in comparable sales. The segment’s adjusted operating income was $17 million or 2.6% of revenues, lower than the $19 million or 2.7% reported in the year-ago quarter.
This segment’s gross margin contracted 30 bps to 23.9% due to lower product margin rates and higher supply chain costs, somewhat offset by growth in the higher-margin services category.
BBY’s Financial Snapshot
Best Buy ended the quarter with cash and cash equivalents of $1.4 billion, long-term debt of $1.2 billion and a total equity of $3.1 billion.
In the fiscal second quarter, BBY returned about $301 million to its shareholders via dividends of $203 million and share repurchases of $98 million.
What to Expect From Best Buy in Fiscal 2025?
We acknowledge softness in the consumer spending environment owing to underlying inflationary pressure and a higher interest rate environment. For fiscal 2025, Best Buy now anticipates revenues to be in the range of $41.3-$41.9, lower than the prior guidance of $41.3-$42.6 billion.
BBY envisions comparable sales to decline in the band of 1.5-3% compared with the prior estimate of 0-3% decline. The company had reported consolidated revenues of $43.5 billion, with a comparable sales decline of 6.8% in fiscal 2024.
Best Buy expects an adjusted operating margin of 4.1-4.2% compared with 4.1% in fiscal 2024. The company had earlier guided operating margin to be in the range of 3.9-4.1%.
Management now foresees adjusted earnings per share to be between $6.10 and $6.35 as compared to the prior forecast of $5.75-$6.20. Capital expenditure is anticipated to be $750 million.
For the third quarter, Best Buy anticipates a year-over-year comparable sales decline of 1%. The adjusted operating income rate is expected to be 3.7% compared with 3.8% reported in the year-ago period.
In the past three months, this Zacks Rank #4 (Sell) company has gained 18.2% compared with the industry’s growth of 9.7%.
Image Source: Zacks Investment Research
Solid Picks in BBY’s Sector
We have highlighted three better-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. (ANF - Free Report) , Deckers (DECK - Free Report) , and DICK'S Sporting Goods (DKS - Free Report) .
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 9.8% and 52.4%, respectively, from the year-ago reported figures. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 47.2% in each of the trailing four quarters. The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago figure.
DICK'S Sporting operates as an omni-channel sporting goods retailer. It currently carries a Zacks Rank #2. DKS has a trailing four-quarter earnings surprise of 4.7%, on average. The Zacks Consensus Estimate for DICK Sporting’s current fiscal-year sales and earnings implies growth of 1.9% and 6.9%, respectively, from the year-ago reported numbers.