Best Buy Company, Inc. 2027 Q2 Earnings Call

Molly, please go ahead. Thank you, and good morning, everyone.

Joining me on the call today are Corie Barry, our CEO, and Jason Bonfig, our Chief Customer, Product, and Fulfillment Officer and incoming CEO. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, and an explanation of why these non-GAAP financial measures are useful, can be found in this morning's earnings release, available on our website, investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments, and expected performance of the company, and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the company's current earnings release and our most recent Form 10-K and subsequent Form 10-Qs for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Earlier this month, we announced the appointment of our new CFO, Anne Bramman. As Anne started at the company just eight days ago, Corie will cover the financial portion of today's call. I will turn the call over to Corie.

Good morning, everyone, and thank you for joining us. This is my last earnings call as Best Buy CEO, and before I discuss our results, I want to express my sincere gratitude to the incredible employees of this company, who have made the past 27 years truly extraordinary. It has been a privilege to work alongside such talented, dedicated, and customer-focused teams throughout my career. I also want to thank all of you on the call. Over the years, I have greatly valued the opportunity to share our progress, discuss our strategy, and build relationships with many of you in the investment community. Your engagement, insights, and support have meant a great deal to me. It has been a joy to transition with Jason, not just seamlessly, but in a way that continues to accelerate progress.

As I hand the baton to Jason and the leadership team, I do so with absolute confidence. They are experienced and talented leaders, guiding a business that is well-positioned for continued success. Thank you for being part of this journey, and I wish you all the very best. Now, onto our second quarter results. Today, we are very pleased to report better than expected Q2 results. Our comparable sales grew 4.1% versus last year, with positive comps across almost all our major product categories. We also drove operating income rate expansion and EPS growth. Specifically, on revenue of $9.8 billion, we delivered an adjusted operating income rate of 4.3%, an adjusted diluted EPS of $1.47, which was up 15% versus last year.

I want to extend my appreciation to our employees across the company for their commitment to our customers and for the strong execution of our strategy. We are successfully strengthening our position in retail as a leading omni-channel destination for technology, while at the same time scaling new profit streams that we expect to provide considerable benefit over time. Our Best Buy Ads and marketplace initiatives continued to hit their performance targets and contributed to our gross profit rate expansion. From a category perspective, computing growth led the way this quarter. We delivered our 10th consecutive quarter of positive comparable sales, driven by a combination of customer need to upgrade and replace and product innovation. Our Q2 computing sales continued to be supported by the strong performance of our Best Buy Business team, which increased its sales by 21% versus last year.

We are excited to announce that home theater was the second biggest weighted comp driver this quarter, with the highest sales growth since Q2 of fiscal 2022. We drove market share gains throughout the quarter, and our performance was broad-based across product tiers and price points. We saw continued strong growth in the group of newer and emerging categories, including AI glasses, trading cards, and health rings. Sales for this group of categories in Q2 more than doubled versus last year. In mobile phones, we delivered our sixth consecutive quarter of growth, driven by our expanded partnerships and in-store operating model improvements with large carriers. In major appliances, we continued the strength we saw in May and delivered slight sales growth for the full quarter.

This material improvement in growth trends compared to prior quarters was due to the combination of our investments in pricing, marketing, delivery speed, and product availability.

As expected, we saw comparable sales decline in our traditional gaming category as we lacked the successful launch of the Nintendo Switch 2 in June of last year. Our Q2 results did not materially change our existing commentary on the customer. Consistent with the past several quarters, we see a customer who is still spending but is value-focused and attracted to sales moments. Importantly, while customers continue to be thoughtful about big-ticket purchases, they are willing to spend on high price point products when they need to or when there is technology innovation. We are pleased with our first half results and our momentum as we enter the second half of the year, and we are raising our annual financial guidance. I am beyond excited to turn the call over to Jason to provide further details on our performance and key business updates.

Thank you, Corie. Good morning, everyone. The strength of our results reflects both deliberate actions we have taken to position the business for growth and a healthy demand environment for our category. Over the past several years, we have invested in areas that matter most to our customers, including elevating specialty expertise in our stores, partnering closely with our vendors to bring innovation to market, and improving fulfillment, speed, and execution across our supply chain. These initiatives, along with replacement and upgrade cycles, innovation, and external demand drivers such as higher tax refunds, supported the top-line performance. On our last earnings call, I discussed four priorities that will define how we win in the months and years ahead. As a reminder, they are as follows. First, we are advancing Best Buy as a retail media advertising and technology company. Second, we are going to expand and grow our reach.

Third, we are elevating the Best Buy experience. Fourth, we are continuing to be a human-powered and customer-focused company. These four priorities aren't separate tracks. They reinforce each other. A better experience delivered through the right footprints and formats drives reach. Greater reach generates customer insights that fuels us as a media and technology company. All of it is powered by our people, equipped with the best training and technology in the industry, doing what only Best Buy can do. I would like to provide key highlights and updates on the progress. Regarding Best Buy Ads, we are on track to deliver 10% growth this year on top of $900 million in collections last year. The Best Buy Ads team will host our second-ever showcase on September 23rd to highlight our growing scale, performance, and innovation to key decision-makers across agencies, brands, partners, and press.

Last week marked one year since our launch of the U.S. marketplace, and we are pleased with how it's expanding our reach with new SKUs and categories. Key experience indicators like five-star customer rating and return rates are in line with our first-party business, and we are vetting and adding new sellers constantly. Our domestic marketplace GMV reached approximately $300 million in the second quarter. We now expect our marketplace to reach $1.3 billion GMV for the full year, driven by a stronger than anticipated performance. We will begin adding international sellers later this quarter, which opens us up to a materially new group of sellers, as previously all sellers needed to have a U.S. physical presence.

Another way we are expanding our reach is through smaller format stores that allow us to enter attractive markets that cannot support our traditional Best Buy store format, thereby extending the Best Buy experience to new customers and communities. Although the strategy is still in its early stages, we are pleased with the customer response and encouraged by the performance we are seeing. What is particularly exciting is the way these stores accelerate omnichannel engagement. Customers often begin their relationship with Best Buy through a store visit, but quickly adopt our app, our digital channels, membership, programs, and services. As a result, these locations act as both retail destinations and customer acquisition engines. I want to be clear that we continue to see significant value in our large format stores. Through a series of targeted enhancements, we are utilizing these assets more effectively than ever while improving the customer experience.