BBY Stockk | Best Buy Co. Inc. Q1 2027 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's first quarter fiscal 2027 earnings call. At this time, all participants are in a listen-only mode. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. As a reminder, this call is being recorded. I will now turn the conference over to Molly O'Brien, head of investor relations.

Thank you and good morning everyone. Joining me on the call today are Corie Barry, our CEO, Matt Bilunas, our chief financial and strategy officer, and Jason Bonfig, our chief customer, product and fulfillment officer. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation can be found in this morning's earnings release on our website. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. 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 risks and uncertainties. Before turning the call over to Corie, I want to note the revenue reclassification referenced within this morning's release. Starting this quarter, we have reclassified certain revenue among our categories. The most notable changes were credit card revenue and digital content, which now are fully included within the services category. The reclassification only impacts the presentation of revenue by category and does not affect total revenue or total comparable sales as previously reported, nor does it affect our previously reported earnings or cash flow. And now I will turn the call over to Corie.

Good morning. I want to start by saying how honored and privileged I am to be taking on the CEO role later this year. I'm grateful to the board of directors for the trust, confidence, and encouragement they have shown me. To Corie, I extend my admiration and appreciation. We are so fortunate to have had you at the helm for the past seven years. Best Buy has been a part of my life for almost 27 years. I want to take a few minutes to talk about where Best Buy is headed and the four priorities that will define how we win. The retail landscape is shifting faster than at any point in our history. Customer expectations are evolving. Technology is reshaping how we shop, learn, and live. We do not see this as a threat. We see it as an invitation. Our first priority: we are advancing Best Buy as a retail, media, advertising, and technology company. We're not just a retailer anymore. It means deepening how well we understand our customers. It means continuing to accelerate Best Buy Ads as a meaningful growth engine. And it means expanding our presence across platforms, content, and high-value touchpoints. The second priority: we're going to expand and grow our reach. Our marketplace and strategic partnerships are accelerating. We'll continue to partner with AI companies like OpenAI and Google to make sure we're showing up in the places where customers look for technology and advice. The third priority: we are elevating the Best Buy experience. Every decision should begin with one question: how does this make the customer experience better? Our stores are evolving into activation and experience hubs. Starting this summer, we are growing our store footprint through medium and small format locations. The medium format is in the 20 to 25,000 square foot range. The small format is in the range of 12,000 to 15,000 square feet. Both formats are built around speed, curated assortment, expert service, and a seamless connection to our broader fulfillment network. When we place a store closer to a customer, it sees sales and share lift in that market, but also notable online growth and material lift in multi-channel engagement within the first six months. The fourth priority: we're continuing to be a human-powered and customer-focused company. Our people fuel this company. Looking forward, we are committed to ongoing investment in our people while embracing technology including artificial intelligence that will empower our people to deliver even more remarkable experiences. Bringing it all together, these four priorities reinforce each other. I've never been more confident in where we're headed. Now, I'd like to share some key business updates for Q2 and the rest of the year. As Corie mentioned, we saw improved TV sales trends in Q1 and are excited to continue that momentum with the RGB launch. While some RGB televisions are already on display, we expect the full assortment to launch mid-June. For the next year, Best Buy will be the only national retailer where you can shop, experience, and buy this new technology. RGB provides accurate, full, lifelike color never before possible, sharper image clarity, and peak brightness. The launch will be supported by a robust marketing campaign called 'Believing is Seeing.' Moving to appliances, we've been testing several initiatives and are taking decisive actions in Q2 that we expect to drive improved results, including investments in pricing, marketing, product availability, and delivery speed. We've already seen material improvement in our trends this quarter with month-to-date growth in demand versus last year. In our larger stores, we're consolidating empty space in approximately 70 stores. In 50 stores, these open spaces will be filled with a new Meta experience spanning AI glasses and VR categories, branded 'Meta Labs at Best Buy.' Starting next week, we are introducing rewards points for 8 million paid members. Our My Best Buy Plus and Total members will earn 1% back in rewards on every eligible purchase and 6% back when they use their My Best Buy credit card. Before turning the call over to Matt, I will touch on how we are navigating memory cost increases. As expected, product costs have been increasing and product price increases have been flowing into our assortment. In Q1, our blended computing ASP was flat to last year. As we look into Q2 and the rest of the year, we expect our blended ASP in computing to rise and we expect some elasticity to lead to lower units. However, we expect the magnitude to be significantly muted due to our assortment strategy. Most customers come to us with a budget and through our broad assortment find a great product within that budget. We have also made strategic decisions to pull forward supply in certain areas. At this point, we do not see indications of material inventory supply constraints for the rest of FY27. I will now turn the call over to Matt.

Good morning. Let me start with how our first quarter performance compared to expectations. Enterprise comparable sales increased 2%, exceeding our guidance of approximately 1%. Our adjusted operating income rate of 4.1% was better than planned and was primarily driven by SG&A leverage from higher revenue. Enterprise revenue of $8.9 billion increased 1.9% versus last year. Our adjusted operating income rate increased 30 basis points compared to last year and our adjusted diluted earnings per share increased 11% to $1.28. By month, our enterprise comparable sales were down approximately 1% in February before growing to 3% in March and 4% in April. In our domestic segment, revenue increased 1.5% to $8.2 billion driven by comparable sales growth of 1.8%. The largest contributors to comparable sales growth were gaming, computing, mobile phones, and services, partially offset by a decline in appliances. Our online revenue of $2.6 billion increased 1.4% on a comparable basis and represented 32% of domestic revenue. International revenue of $687 million increased 7% versus last year, primarily driven by comparable sales growth of 4.7% and favorable foreign exchange rates. Our domestic gross profit rate increased 20 basis points to 23.7%, driven by marketplace and Best Buy Ads growth and improved performance from traditional services offerings. During the quarter, we returned a total of $22 million to shareholders through dividends. We ended the quarter with our inventory balance up almost 8% and accounts payable up almost 10% versus last year. The higher inventory balance primarily includes the pull-forward of computing product. In FY27, our key opportunity areas for cost reductions remain supply chain, customer care, reverse logistics, and the continued optimization of our health business. Now, moving on to our full-year fiscal 2027 financial guidance, which remains unchanged: revenue in the range of $41.2 to $42.1 billion; comparable sales of down 1% to up 1%; an adjusted operating income rate of 4.3% to 4.4%; an adjusted effective income tax rate of approximately 25.5%; adjusted diluted earnings per share of $6.30 to $6.60; capital expenditures of approximately $750 million; and we expect to spend approximately $300 million on share repurchases. We expect ad collections to grow 10% to nearly $1 billion. We expect the U.S. marketplace GMV to be at least $1.2 billion for the year. Comparable sales have started strong in May with month-to-date growth up high single digits. Our comparable sales outlook for the full second quarter is approximately 1% growth as we start to lap last year's very successful gaming launch in June. We expect our Q2 operating income rate to be approximately 3.9%, which is flat to last year. I will now turn the call over to Corie for summary comments before the Q&A session.

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. Your first question comes from the line of Peter Keith with Piper Sandler.

Thank you very much. Good morning, Corie. Wish you nothing but the best. And Jason, look forward to working with you going forward. I thought maybe just to focus first on the home theater category. You did cite some pretty nice improvement during the quarter. I wonder if you could talk about what drove that in Q1. And then to clarify on the RGB TV technology — I think you said you have exclusive distribution rights on a national basis for the next year, but does that imply until May of 2027?

Yep. Thank you for the question, Peter. I'll start with the TV performance. We saw a strong Q1, which was a change in our trend. We do believe we've gained share with that improved trend. We saw strength across many different parts of the business. ASPs did decline pretty substantially, so we're making sure we're competitive across all the different price points. The RGB launch we're extremely excited about. Products are on our website and in our stores right now, but it'll more materially be fully launched as we get to the middle of June. You are right — we do have an opportunity where we're the only national retailer that has this product. That is a timeframe that's a year, which depends on exactly when the launch date was — between May and June depending on the vendor. But then there's also continued conversations about making sure we represent the latest and greatest in a way our vendors want us to highlight that technology.

Okay, great. That's encouraging. Then maybe another product category that piqued my attention — appliances, which has been under pressure for a while. I think you said it flipped positive in May. I wonder if you could highlight what's working there. We continue to hear that we're just in a duress replacement market. So you're able to shift to faster delivery — what's driving that improvement in appliances and is that something you think can continue positive in Q2?

Yep, thanks again for that question. There's a lot of things that are driving appliance, which is maybe why it's taken us a little bit longer to fix this particular trend. Every customer is a little different in a market that is more duress, and speed does matter. The delivery speed in particular and availability is a critical aspect. When you mix that with making sure customers understand that through marketing messages as well as making sure we're competitive on price, that combination seems to be working pretty effectively. What the team's done around the Memorial Day holiday buying season has been positive. We want to continue to learn from the positive trends we're seeing in May and double down on that, making sure availability and delivery speeds are top of mind as we move forward into additional holidays like July 4th.

Very good. Thank you so much and good luck.

Thank you.

Your next question comes from the line of Christopher Horvers with JP Morgan.

Thanks and good morning. Congratulations, Corie, and best of luck in your next chapter. Looking forward to working with you, Jason. So my first question is: can you talk about the drivers of the May strength? What other categories are accelerating relative to Q1? Did TV turn up? Is computing accelerating as well? And how does this make you think about the Switch lap? Because if you look at the monthlies and the stacks, you had this sharp acceleration in May and you're really decelerating that hard to get down to the 1%. So what informs that overall judgment?

Thanks, Chris. We expect Q2 to be approximately 1% in comps for the full quarter. Like we said, month-to-date through Memorial Day we're sitting at high single digits, and that's actually coming across most of our categories. We're seeing continued growth in computing, mobile phones, the collection of a number of emerging categories, and major appliances has turned to growth in the month of May so far. But to your point, as we get into June, we are going to start lapping the Switch launch last year, which was roughly $200 million of sales in Q2. We'd also say in May we continued to benefit a bit from tax refunds, but most of that benefit came in March and April. It's a pretty significant lap in June and July in terms of lapping that Switch launch. I'd also say as we get to the back half of the quarter into July, we started seeing really strong back-to-school and Windows 10 type of product sales increases within the computing category last year. So at the back end of this quarter, we start to see a little bit more pre-lapping pressure against that computing category. We still feel like computing is going to grow, but the sequentials get a little tougher in that category.

So my follow-up is, it seems like U.S. consumers have become really in tune with supply chains and prices in this post-COVID world with the experience of shortages and big price increases. Is there — have you thought about any of the strength in May given memory touches all of tech and this is something that's in the news cycle — that there's this urgency to buy and get ahead of potential shortages later in the year and potential price increases later in the year?

Understood. Thanks very much.

Thank you.

Your next question comes from the line of Joe Feldman with Telsey Advisory Group.

Thanks. Good morning, guys. Thank you for the color on the store format. I was just wondering if you could share a little bit more there — should we expect to see you guys maybe repositioning stores more, so more relocations or even closures of some of the older legacy stores to shift into this newer format that you're talking about?

Thanks for the question. There's two parts here. The first part is we think that in our larger stores there are opportunities to strategically use some of the space in more effective ways, which we highlighted — partnership with Meta in 50 locations and things like Yardbird shops. We think there's hundreds of additional stores where we can use some of that space more effectively. The rest of what's in those stores is actually highly effective — right location, great place. It's just we have a little bit of space we can use more strategically. The small and medium stores are actually about expanding our reach and putting us in places that we're not today. We're going to highlight some of those locations as we move through the summer. It is not about replacing — it's really about reaching new markets and customers that we haven't been able to reach before with a store.

Got it. That's really helpful. And one more separate question — I know you talked about inventory pulling forward some of the goods, but how should we think about inventory for the balance of the year? Should that growth rate slow down or match sales better? Just any color you could share would be helpful.

Yeah, I think we'll continue to play it as strategically as possible. The pull-forward is almost entirely driven by the fact we want to bring in as much computing inventory earlier at lower cost as much as we can, and that's what's represented in the quarter-end inventory balance. You can see our payables are actually up more than our inventory, so we're in a good working position. As we get into Q3, there could be a continued level of elevated inventory, all really healthy inventory, but those are going to be places for us to be strategically well placed in terms of the product we had at the cost profile that we like. Over time, for sure, our goal would be to get down to inventory balances that are more in line with forward supply needs. We've proven over the years we're really tight at managing our inventory — we run our inventory a lot leaner than a lot of competitors do. But this is a very strategic decision to make sure we have the right product at the right time, taking advantage of the cost.

Excellent. Thanks. Good luck this quarter, guys. Thank you.

Thank you.

Your next question comes from the line of Anthony Chukumba with Loop Capital Markets.

Good morning. Thank you so much for taking my question, and let me extend the same sentiments to Corie and Jason. So, a lot of good information — I really appreciate all the color. As you think about the fact that you got off to such a strong start in May, was it really just sort of like appliances and the end of the long tail of the larger income tax refunds, or was there anything else specifically that you saw in the month of May that drove that strength?

Yeah, like I said earlier, we saw actually strength across almost all of our categories. For sure, majors trends improved, TV trends continued to improve. But we saw continued sales improvement from computing and a lot of our other smaller categories. There was some tax refund benefit sitting in May — proportionally a lot smaller than what we would have seen in March and April. So there is some, but I wouldn't say that was the significant driver of sales so far in May based on our estimation. I think it was pretty broad-based. The Memorial Day sale has been successful for us, and that's across a lot of our businesses.

Got it. And just one quick follow-up. I thought it was interesting — about 65% of your online orders either being delivered or available for pickup in a day, and in fact it's up 500 basis points year-over-year. Do you think that's driving any improvement in your online business, that higher availability, or is that just kind of table stakes at this point?

Got it. Thank you.

Your next question comes from the line of Greg Melich with Evercore ISI.

Thanks. So first, Corie, thank you. And Jason, congrats. I wanted to dig a little deeper on rebates and tariffs. Like last year, that went through a lot. I'm just curious, have you applied for rebates? Do you expect to get any through the course of the year? And perhaps more importantly, how are some of your vendors thinking about using any rebates or the suspension of tariffs to improve the value prop and fight back against some of the ASP increases you talked about?

Yeah, so as Corie talked about, the vast majority of money will be flowing back to our vendors. We're in conversations that as they want to deliver value back to our customers, especially customers that purchased in Best Buy locations and made that choice, we have a lot of tools both in our physical store environment and through our digital channels to allow them to do that. If they decide they want to invest back in giving customers value, we can be an outlet for that to happen very quickly, and we hope that a lot of them make that decision. The last thing I would say is, if you think about tariffs as a little bit of a corollary to the memory situation — we talked about making price adjustments as a last resort throughout the better part of the last year, but while it impacted some parts of the assortment, it did not result in overall ASP increases at the blended enterprise level, which I think just underscores the point that our customers come with a budget, we're going to have a wide range of price points and availability, and we'll be there to meet customer needs no matter what their budget is.

Great. Thanks. And then a quick follow-up in terms of the larger format stores — I understand the reallocation to the Meta Labs and other things. Are we still planning on probably rationalizing a dozen of the larger stores a year, or does that level out at this point?

Yeah, I think we've got a pretty tight process around understanding the profitability of our stores. Our large stores are still extremely profitable, cash flow positive. We like generally where a lot of them sit. To the extent that we have a better location to move them to, we will certainly entertain that, and if they end up not meeting the economic hurdles, we will certainly make decisions to close them. The pace of those closures might be slow compared to where they've been in the past. In some cases, you want to close a store to open it up in a stronger retail node in another part of the market. We feel like the store is extremely valuable — convenience for our customers, enables very quick delivery and fulfillment options. They're all very economically profitable for us.

I appreciate it. Thanks and good luck, guys.

Thank you.

Your next question comes from the line of Mike Baker with DA Davidson.

Thanks. First question on the memory topic. So it sounds like customers come in for a budget. So maybe if costs go up, they trade down to a different machine — how does that impact margins? And then follow-up is, you don't expect any supply chain issues for fiscal 2027, but what about next year as we think ahead?

I'll start, maybe Jason can jump in. From a margin perspective, we don't see it having a large impact to the margin rate overall. What's been actually a bit of pressure this year in terms of margin rates on the product margin rate side is more of the mix pressure in the early part of the year of not having lapped the gaming release last year, but also just making sure we're being sharp on promotions, particularly in the majors business and a little bit in some other categories. That has been more of the product margin pressure for the year versus the memory cost issue.

And as far as supply chain goes, I mentioned this is a dynamic situation. We have great partnerships with our vendors. For the rest of this fiscal year, we do not expect to have material product shortages in the category that's most affected, which is computing. We'll continue to watch it closely. If that changes, we'll make sure to communicate it. But at this point in time, visibility through the end of the year, we feel like we're in good shape. As far as what's going to happen in previous years — I think that's more people trying to make predictions, and we'll work closely with the vendors to try to figure that out as we move into next fiscal year.

Okay, thanks for that. One more follow-up if I could on TVs. Understanding you sound like you're winning back some share — can you talk about the industry in general? What you've seen so far? Has there been a tax refund bump on that, or are we finally hitting a replacement cycle, what, six years after everyone bought a new TV during COVID?

So I think there's a couple things. We think we gained market share in Q1, but obviously our revenue was still not positive, so that would indicate the industry didn't grow in Q1. The second thing is we're excited about RGB and the ability for that to be an accelerator for the business. There has not been a material new display technology in television since 2013 with the launch of OLED — it's a long time, which was one of the reasons we're so excited about it. The other stat that I think is really interesting: in 2020 there were about 49 million televisions sold. The upgrade cycle is somewhere between five and seven years. So we're getting to that point where we have a lot of customers that have products that are ready to upgrade and there's a new technology being introduced that can be accessible to a lot of customers. We're excited about where that business has the potential to go — not that dissimilar to where computing was when we started this trend of nine straight quarters of growth. We're getting into an upgrade cycle, we have new technology, which is where we excel. Those are all really good things. The category didn't grow from an industry perspective in Q1. We're optimistic about Q2, but we'll see what happens.

Thank you.

Thank you.

Thank you.

Your next question comes from the line of Steven Zaccone with Citigroup.

Great. Good morning. Thanks so much for taking my question. Corie and Jason, congrats on the next step in both of your careers. I wanted to ask about some of the emerging categories. You mentioned they doubled versus last year. Trading cards was mentioned — it's kind of popular right now. Can you talk about the growth a bit more? Is this bringing in a different customer? Do you see this as a one-time lift or is this some categories that can continue to see growth over the balance of the year?

I think the other thing is we just want to stay close to where we see customer trends. Cards and collectibles is an interesting one, and we're finding ways to use the uniqueness that we have with both great digital properties and a physical property to make sure that we can try to meet customer demand in a little bit different way. It's one of the things that's driving lines in front of our stores many mornings when we have a drop, which many other retailers don't have the physical locations to be able to play in that area. Making sure that the customers who want to stand in line are able to get the particular cards they're interested in. We're excited about it. We want to make sure that we continue to listen to our customers and make adjustments to how it shows up, not only on our website but also in our stores. There may be opportunities where we can continue to expand that category as well.

Great. Thanks for that detail. The follow-up I had was just — you mentioned ASP is likely to go up and you expect some unit elasticity. Can you just help us understand the cadence of that as we go over the course of the year? Is this something that's more of an ASP peak in the second half? Just help us understand that dynamic.

Yeah, as it relates to computing, I think we expect ASPs to grow as we get into the next few quarters. Exactly how much we're not guiding, but we would expect that based on the cost increases that we have seen and continue to expect to see as we get into Q2 and Q3. But again, what it's meant so far for our whole company, the blended ASP has been pretty muted, pretty flat. Whether this rises the overall yet to be seen, because a lot of things go into the overall ASP calculation in terms of the mix of products. So on the computing side for sure, probably expect to see a little bit of an ASP increase. But I would re-emphasize the point that consumers aren't all generally aware of the cost of some of these items because it's been so long for them to shop. They come in with a specific budget and purpose in mind. They don't necessarily trade on specs — they trade on the use cases and the devices. We feel good about navigating that when it does come. We've seen some evidence of that as it relates to tariffs in terms of they come in for a budget and we continue to drive strength in that category.

I would also add — you see it in our inventory growth. We're looking at ways to partner with vendors to mitigate this as much as possible. So predicting exactly which quarter the peak's going to happen — we actually want to influence that. We brought in more inventory, you saw that in Q1, because we think it allows us to have that broader assortment and have those choices for our customers. We'll continue to take that stance wherever it is beneficial to customers and the way our assortment shows up.

Great. Thanks for that detail.

Your next question comes from the line of Brian Nagel with Oppenheimer.

Good morning. Thank you for taking my question. So Jason and Corie, congrats on your new roles. So I guess the first question I want to ask — I appreciate all the commentary on RGB. I guess more of a maybe a longer-term philosophical question, but as you look at this launch, and I think you in response to a prior question talked about the OLED launch more than 10 years ago — but the question I want to ask is, how significant could this be from either the driver of replacement demand or just improved demand overall? And then you mentioned the exclusivity that Best Buy's enjoying here for a year — remind me, is that unique, or has Best Buy seen this type of dynamic in prior TV launches or in other significant launches?

I know we're talking explicitly about RGB here, but if I kind of take it up a notch, this is the example of where our model shines. Period. When there is innovation, we are able to lean in. That means our employees are getting specialty training and they're all invested. That means we use our services backbone so that we can provide that super easy upgrade experience that I talked about. And you can see it across more of our categories kind of getting back to that normalized state where we get the chance to commercialize new technology better than anyone.

That's all very helpful. I appreciate that. So my second question, I guess a little nearer term — there's a lot of talk broadly in discretionary about tax refunds, larger tax refunds. As you look at Best Buy's business, from Q1 then maybe in particular the acceleration in sales growth we saw into May, is there any way that you could look and say how much these larger tax refunds have likely added to this?

Yeah, we certainly tried to estimate what we thought the amount of the tax refund coming would be for Q1 and also for what would extend into May. So we certainly had an estimate — you can imagine we had an idea of what we thought would be the impact in Q1. Now, how specific were we, how close to that? It's really hard to do that math. We know that we did probably enjoy a benefit from it. We feel like it's about what we thought it was going to be. And certainly as we got into May, we do feel like there's a little bit of what's sitting in May strength as well related to it. But again, more of that was March and April for our consumers, which tend to gravitate to the more higher income. So it definitely was part of it, something we had planned for, about what we thought it was going to be, and for sure helping a little bit as we get into May.

This concludes today's call. Thank you for attending. You may now disconnect.