Executive Summary
Best Buy reported a modest revenue decline in Q1 FY2026 (BBY’s QQ1 2026) with stronger profitability relative to expectations, highlighted by an adjusted operating income rate of 3.8% (roughly flat YoY) on revenue of $8.88 billion. Management emphasized resilience of consumer demand amidst persistent inflation, a robust omnichannel framework, and ongoing investments in higher-margin offerings such as services, memberships, and digital initiatives. Online sales continued to accelerate, representing about 32% of domestic revenue, with 60% of online orders delivered or available for pickup within one day and the best-ever ship-to-home on-time performance in three years. The quarter featured meaningful tariff-related discussions and supply-chain mitigations, with the company updating its full-year outlook to reflect current tariff levels and sourcing dynamics.
Looking ahead, Best Buy reaffirmed its strategic priorities for fiscal 2026: (1) enhance the omnichannel experience; (2) launch and scale incremental profit streams via Best Buy Marketplace and Best Buy Ads; and (3) pursue cost reductions and efficiency gains to fund investments. The guided full-year figures imply revenue of $41.1–$41.9 billion, comparable sales between -1% and +1%, and an adjusted operating income rate near 4.2%, with adjusted EPS in a $6.15–$6.30 band. The company projects mid-year Marketplace activation with anticipated operating income rate accretion, albeit with initial startup costs and cannibalization of first-party revenue. Cash flow remained modestly negative for the quarter, reflecting capex, buybacks, and dividends, while cash, debt, and liquidity metrics remain solid amid ongoing investment in growth initiatives. The assessment suggests a constructive risk-reward profile for long-term investors, anchored by a durable omnichannel platform and expanding monetization via Marketplace and Ads, offset by tariff uncertainty and competition in a volatile macro backdrop.
Key Performance Indicators
QoQ: -37.15% | YoY:-0.90%
QoQ: -29.78% | YoY:-0.44%
QoQ: 72.65% | YoY:-17.89%
QoQ: 72.73% | YoY:-16.67%
Key Insights
Revenue: $8.767B in Q1 FY2026, down 0.9% YoY; Gross profit: $2.049B, gross margin 23.37% (gross profit rate of 0.2337); Operating income: $219M, operating income margin ~2.20%; Adjusted operating income margin: 3.8% (vs. expectations +40 bps); Net income: $202M; Net income margin: 2.30%; EPS: $0.95 (diluted $0.95); Weighted average shares: ~212–213M; Cash from operations: $34M; Capital expenditures: $-166M; Free cash flow: $(132)M; Dividends paid: $202M; Share repurchases: $100M; Cash end of p...
Financial Highlights
Revenue: $8.767B in Q1 FY2026, down 0.9% YoY; Gross profit: $2.049B, gross margin 23.37% (gross profit rate of 0.2337); Operating income: $219M, operating income margin ~2.20%; Adjusted operating income margin: 3.8% (vs. expectations +40 bps); Net income: $202M; Net income margin: 2.30%; EPS: $0.95 (diluted $0.95); Weighted average shares: ~212–213M; Cash from operations: $34M; Capital expenditures: $-166M; Free cash flow: $(132)M; Dividends paid: $202M; Share repurchases: $100M; Cash end of period: $1.435B; Beginning cash: $1.868B; Net change in cash: $(433)M; Total debt: $4.051B; Net debt: $2.904B; Current assets: $7.585B; Current liabilities: $7.412B; Inventory: $5.194B; Cash conversion indicators: inventory ~60 days forward supply target maintained; Domestic revenue: $8.1B; International revenue: $0.64B; Domestic gross margin: ~23.5%; International gross margin: ~22.0%; Online sales share: ~32% of domestic revenue; Marketplace and Ads updates: launched with >400 creators storefronts; On-time ship-to-home: best in three years; Tariff environment: China COGS 30–35% of China COGS; US/Mexico ~25% of COGS; Mexico tariffs: 0; China categories split between 20% and 20%+10% tariffs; Currency exposure: limited direct import exposure; Outlook: 2026 revenue $41.1B–$41.9B; comp sales -1% to +1%; adjusted EPS $6.15–$6.30; capex ~$700M; buybacks ~$300M.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
8.77B |
-0.90% |
-37.15% |
| Gross Profit |
2.05B |
-0.44% |
-29.78% |
| Operating Income |
219.00M |
-33.03% |
0.92% |
| Net Income |
202.00M |
-17.89% |
72.65% |
| EPS |
0.95 |
-16.67% |
72.73% |
Management Commentary
Key management insights from the QQ1 2026 earnings call:
- Tariff environment and mitigations: Corie Barry outlined a multi-pronged tariff response, noting that China COGS now represents ~30–35% of total China COGS (vs 55% discussed earlier), with US+Mexico accounting for ~25% of product COGS. She emphasized five mitigation themes: manufacturing flexibility, cost negotiations, country diversification, assortment adjustments, and price actions. She stressed that price/inventory actions have already been implemented as of mid-May. Quotes: “We are updating our annual outlook with our best view at this time… lowering our full year comparable sales range to down 1% to up 1% and expect an adjusted operating income rate that is consistent with last year or approximately 4.2%.”
- Strategic priorities and execution: Corie highlighted three pillars: superior omnichannel experience, launch/scale of Best Buy Marketplace and Best Buy Ads, and driving operational efficiencies to fund investments. Notable progress includes a near-term mid-year Marketplace launch with >500 onboarded sellers and a capacity for universal return windows; a broader Ads program with Trade Desk integration and Social+ via Meta.
- Market demand and consumer behavior: The management described a resilient consumer who remains value-focused and willing to spend on high-ticket tech where compelling innovation exists; February softness followed by improvement, with Easter timing affecting March/April dynamics. They noted ongoing “value-seeking” behavior and a belief in continued category strength in computing/tablets, with mobile growth supported by in-store carrier partnerships.
- Margin trajectory and future benefits: The call stressed expected gross-margin uplift from Marketplace and Ads, offset by higher margin pressure from a greater mix of lower-margin categories (notably computing). The company anticipated more pronounced margin benefits in the back half of the year as Marketplace/Ads scale, even after initial investments and cannibalization.
- Cost controls and efficiency gains: The company cited ongoing procurement automation, improved shipping efficiency via data-driven sourcing, and AI-driven customer-care improvements as drivers of SG&A and cost-of-service reductions. “Record low levels of cost per customer contact and customer call transfer rates, as well as record-high levels of customer satisfaction” were highlighted as efficiency wins.
- Guidance and near-term outlook: Management reaffirmed updated guidance with a second-quarter outlook of slightly down comp sales and ~3.6% adjusted operating income rate; full-year guidance anchored on tariff assumptions remains sensitive to evolving policy.
“We are lowering our full year comparable sales range to down 1% to up 1% and expect an adjusted operating income rate that is consistent with last year or approximately 4.2%.”
— Corie Barry
“Marketplace to have a positive impact on our operating income rate for fiscal 2026, even after startup costs, investments, and estimated cannibalization of our first-party product revenue.”
— Corie Barry
Forward Guidance
Management guidance and near-term outlook:
- Full-year fiscal 2026 guidance: Revenue $41.1B–$41.9B; comparable sales down 1% to up 1%; adjusted operating income rate ~4.2%; adjusted diluted EPS $6.15–$6.30; capital expenditures around $700M; share repurchases about $300M.
- Quarterly trajectory: Second-quarter guidance contemplates comp sales slightly down vs. last year and an adjusted operating income rate of ~3.6%, with SG&A pressure as a primary driver and gross margin largely flat to prior-year levels.
- Tariff scenario: Guidance explicitly reflects current tariff levels with an assumed stay-at-current levels for the rest of the year; management warned tariff rates could change, requiring ongoing scenario planning.
- Growth catalysts and risk: Marketplace and Ads are central to expanding gross margin and operating income, despite upfront investments and cannibalization risk. The company expects the Marketplace to contribute to profitability over time and to enhance traffic and conversion via a more capable search experience. Investors should monitor: (1) tariff policy evolution and supplier diversification; (2) Marketplace adoption and seller onboarding pace; (3) ad revenue mix and margin progression; (4) consumer demand sensitivity to pricing/promotions; (5) progress in Best Buy Health and other services. Overall assessment: The guidance embeds a cautious but constructive view on earnings leverage from digital initiatives and services offset by macro and tariff uncertainty.