BEST BUY CO Q2 FY27 earnings call BBY

Best Buy reported better-than-expected Q2 FY27 results with enterprise comparable sales growth of 4.1% and adjusted diluted EPS up 15% to $1.47. The company's strategic initiatives, Best Buy Ads and Marketplace, contributed to gross profit rate expansion. Computing led category growth, marking its tenth consecutive quarter of positive comparable sales, supported by a 21% increase in Best Buy Business team sales. Home theater was the second largest weighted comp driver, achieving its highest sales growth since Q2 FY22, while newer categories like AI glasses and trading cards more than doubled sales year-over-year.

The company observed consistent customer behavior: value-focused spending, attraction to sales events, and willingness to spend on high-price point products when innovation or need arises. The blended average sales price of products was similar to last year, with price increases in computing and phones offset by a mix shift to lower-priced items like trading cards. Management believes the current market reflects a normalization of the industry's innovation and replacement cycles, which plays to Best Buy's strengths as a leading omnichannel technology destination.

Best Buy Ads is on track for 10% growth this year, building on $900 million in collections from last year. The U.S. marketplace, launched a year ago, achieved approximately $300 million in GMV in Q2, with full-year expectations raised to $1.3 billion. The company plans to add international sellers later this quarter, significantly expanding its seller base beyond those with a U.S. physical presence. These initiatives are key drivers of gross profit rate expansion.

Best Buy is expanding its reach through smaller format stores in attractive markets, which accelerate omnichannel engagement and act as customer acquisition engines. Large-format stores are being enhanced with targeted reallocations, such as Meta labs (50 dedicated spaces, 900 sq ft each, staffed by specialists) and integrated outlet experiences. Home theater performance improved due to better execution in assortments, in-stocks, delivery, and installation, with the mid-quarter launch of RGB TVs (exclusive to Best Buy for the next year) expected to be a multi-year driver.

The company launched 'Ask Blue,' a conversational AI shopping and support assistant, integrating product knowledge, reviews, availability, and pricing. Best Buy also completed its commerce integration with OpenAI, allowing customers to discover and purchase products directly within ChatGPT. The membership program, My Best Buy Plus and Total, saw an uptick in sign-ups, with paid members expected to grow from over 8 million in February to approximately 9 million by year-end, offering benefits like rewards, fast shipping, extended returns, and exclusive prices, with new additions like discounted YouTube TV and NFL Sunday Ticket offers.

Computing sales continued to grow for the tenth consecutive quarter, but are expected to slow in the second half due to lapping strong prior-year comparisons, including the Windows 10 end-of-life. Memory cost increases led to mid-teens ASP growth and high single-digit unit declines in Q2. Best Buy is managing this by optimizing assortment, partnering with vendors on promotions, and leveraging trade-ins and financing. Inventory is up high single digits, primarily in computing, due to opportunistic early buying ahead of anticipated price increases, but is considered quick-turning and well-managed for holiday demand.