For nearly three years, Best Buy (BBY, Financial) has experienced declines in total and comparable sales each quarter due to the pandemic's demand pull-forward and macroeconomic pressures. However, in Q2, BBY extended its positive streak by surpassing EPS expectations, a feat it has achieved for over five years. EPS grew 10% year-over-year to $1.34.
Additionally, BBY raised its FY25 EPS guidance to $6.10-$6.35, up from $5.75-$6.20, signaling upside EPS guidance for the back half of the year.
- BBY focused on cost containment and higher-margin services and membership businesses to drive earnings growth. Workforce reductions, including management layers, helped reduce SG&A expenses by 3.7% year-over-year. Improved performance in services and membership businesses nudged domestic gross margin up by 20 bps year-over-year to 23.5%.
- On the demand side, there were some positive signs in Q2. Comparable sales declined by 2.3%, better than the expected 3.0% decrease and an improvement from last quarter's 6.1% drop. The primary driver was stronger sales for PCs and tablets as the computing category gains momentum.
- BBY's management anticipated an upgrade cycle in the computing and mobile phone categories, which seems to be unfolding. CEO Corie Barry noted that BBY expects positive sales growth in computing and services for the year. New AI features, like Microsoft's (MSFT, Financial) co-pilot, are boosting the computing category, setting it up for a stronger 2025.
- However, sales for appliances, TVs, and gaming remained weak in Q2. BBY faces concerns about losing market share to competitors like Costco (COST, Financial) and Walmart (WMT, Financial). Due to ongoing weakness in these areas, BBY lowered its FY25 comp guidance to (3.0%) to (1.5%) from (3.0%) to 0.0%.
In summary, BBY is performing well in a challenging environment, driving earnings growth despite sluggish demand for big-ticket items. Momentum in the computing category is gradually improving BBY's comparable sales.
