EPS of $0.87 decreased by 34.8% from previous year
Gross margin of 23.2%
Net income of 186.00M
""Today, we are very pleased to report better-than-expected results for the second quarter. On revenue of $9.4 billion, we delivered an adjusted operating income rate of 3.9% and adjusted earnings per share of $1.28. We delivered comparable sales growth of 1.6%, our highest in 3 years."" - Corie Sue Barry
Best Buy Co. Inc. (BBY) QQ2 2026 Earnings Analysis: Omnichannel Leadership, Switch 2 Surge, and Marketplace-driven Margin Expansion Into 2H26
Executive Summary
Best Buy reported solid QQ2 FY26 results with revenue of $9.438 billion and an adjusted operating income rate of 3.9%, beating expectations on the top line and delivering the highest quarterly comparable sales growth (1.6%) in three years. The quarter was driven by strength in gaming (notably Switch 2), computing, and mobile phones, alongside continued omnichannel execution (33% online share, 45% of online orders picked up in-store). Management reaffirmed full-year guidance and signaled that the mix-shift toward higher-value services and marketplace earnings will gradually offset near-term gross-margin pressure from a higher mix of lower-margin products.
Management framed QQ2 as another step in a multi-year transformation toward incremental profitability streams (Marketplace, Best Buy Ads) while modernizing the supply chain to drive efficiency and service levels. The company outlined a clear plan to scale marketplace capacity, expand ad-driven monetization, and leverage a data-driven sourcing model (targeting at least 70% of all orders through the new model pre-holiday and 100% by early 2026). While the tariff environment remains a risk, BBY reiterated that mitigation strategies (manufacturing flexibility, promotions, country diversification, and selective price actions) are contributing to cost discipline.
Looking ahead, BBY maintains guidance for FY26 with revenue of $41.1–$41.9 billion, comparable sales down 1% to up 1%, and an adjusted operating income rate near 4.2%. The company also provided an EPS target of $6.15–$6.30 and capex of roughly $700 million. The trajectory hinges on continued gaming and computing momentum, the ramp of the marketplace and ads engines, and the ability to manage promotional intensity and tariff headwinds, particularly into the back half of the year.
Key Performance Indicators
Revenue
9.44B
QoQ: 7.65% | YoY:1.61%
Gross Profit
2.19B
23.25% margin
QoQ: 7.08% | YoY:0.37%
Operating Income
251.00M
QoQ: 14.61% | YoY:-34.46%
Net Income
186.00M
QoQ: -7.92% | YoY:-36.08%
EPS
0.88
QoQ: -7.37% | YoY:-34.81%
Revenue Trend
Margin Analysis
Key Insights
Enterprise revenue: $9.438B, up 1.6% YoY; QoQ: +7.65%
Cost structure and SG&A:
- Selling, general, and administrative expenses: $1.829B
- Operating expenses: $1.829B (SG&A leveraged on higher sales)
- Interest expense: $(0.036)B; depreciation & amortization: $(0.211)B; EBITDA: $0.007B; EBITDARatio: 0.00074
Segment performance:
- Domestic revenue: $8.7B, +0.9% YoY; key drivers: gaming, computing, mobile phones; declines in home theater, appliances, tablets, drones
- International revenue: $0.740B, +11.3% YoY; drivers: comparable sales growth +7.6% and Canada Best Buy Express contributions; gross margin: domestic 23.4%, down 10 bps vs LY; international gross margin 21.8%, down 210 bps largely from product mix
Customer and digital metrics:
- Online penetration: 33% of domestic sales; YoY online growth accelerated for the third straight quarter
- Store pickup: 45% of online orders; improving customer satisfaction metrics and associate availability
- Back-half demand signals: back-to-school momentum strong; quarter-to-date comps in August were up low-single digits
Capital allocation and profitability trends:
- Shareholder returns: YTD dividends $403M and share repurchases $165M; total $568M; full-year expected buybacks around $300M
- Restructuring: $114M charges in Q2 FY26 as part of enterprise-wide efficiency initiatives
- Guidance: revenue guidance unchanged at $41.1–$41.9B; adj operating income rate ~4.2%; adj tax rate ~25%; capex ~ $700M; EPS $6.15–$6.30
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
9.44B
1.61%
7.65%
Gross Profit
2.19B
0.37%
7.08%
Operating Income
251.00M
-34.46%
14.61%
Net Income
186.00M
-36.08%
-7.92%
EPS
0.88
-34.81%
-7.37%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes and quotes from the QQ2 FY26 earnings call:
- Strategy and growth platforms:
• Corie Barry: We are maintaining the annual guidance we provided last quarter and we believe we are trending toward the higher end of our sales range. We continue to strengthen Best Buy as an omnichannel destination for technology while building new profit streams to drive future returns.
• Corie Barry: In fiscal '26, our priorities include omnichannel experiences, incremental profitability streams (Marketplace and Ads), and ongoing efficiency to fund investments. We launched our Best Buy marketplace last week with 6x more products online than before, and the upgraded search is being rolled out by holiday.
- Product innovation and category momentum:
• Matthew Bilunas: Q2 revenue was $9.4B with comps +1.6%, driven by Switch 2 in gaming, plus continued strength in computing and mobile phones. Gaming and accessories and software underpin the gains beyond Switch 2.
• Jason Bonfig: Gaming is not just Switch 2; handheld gaming and other platforms also grew, and we expect continued gaming momentum into Q3 and Q4 with partnerships (e.g., Microsoft/ASUS) and new products.
- Marketplace, ads and AI initiatives:
• Corie Barry: Marketplace is a meaningful lever for later profitability, and Best Buy Ads delivered the largest campaign ever with AI That; Phase 2 will be holiday-driven with expansion into agencies, DSPs, and non-endemic relationships.
• Corie Barry: The marketplace should positively impact gross margin rate over time, despite startup costs and cannibalization, as the mix expands and ad collections scale.
- Supply chain and operational efficiency:
• Corie Barry: Our data-driven sourcing is moving 40% of “shift-to-home” orders through a more efficient model in Q2, targeting 70% pre-holiday and 100% by early 2026; FedEx is now the primary national parcel carrier with real-time tracking integration to reduce support costs and improve delivery speed.
• Corie Barry: We are automating distribution centers with AGVs to optimize warehouse flow and storage; this supports improved on-time delivery and cost savings.
- Tariffs and consumer environment:
• Corie Barry: Tariff mitigation remains a focus; Q2 results were in line with expectations and not material to results. We are not importing most of our goods directly (2–3%), rely on vendor strategies, and expect costs to be below tariff rates due to mitigation efforts.
- Outlook and guidance:
• Corie Barry: We see Q3 comp similar to Q2 and plan for an adj. operating income rate around flat to LY’s 3.7%; full-year revenue guide remains at $41.1–$41.9B with adj EPS $6.15–$6.30.
- Quotes reflect management confidence in Back-to-School push, new partnerships, and data-driven efficiency initiatives that underpin the growth narrative.
"Today, we are very pleased to report better-than-expected results for the second quarter. On revenue of $9.4 billion, we delivered an adjusted operating income rate of 3.9% and adjusted earnings per share of $1.28. We delivered comparable sales growth of 1.6%, our highest in 3 years."
— Corie Sue Barry
"We launched our Best Buy marketplace last week. We now have 6x more products available online for customers than we did before."
— Corie Sue Barry
Forward Guidance
Management’s FY26 guidance remains intact amid a dynamic tariff backdrop and evolving competitive environment. Key targets include:
- Revenue: $41.1B to $41.9B
- Comparable sales: down 1% to up 1%
- Adjusted operating income rate: about 4.2%
- Adjusted diluted EPS: $6.15 to $6.30
- Capital expenditures: approximately $700M
- Tax rate: ~25%
Key assumptions and considerations:
- Tariff headwinds are expected to persist, but mitigation (manufacturing flexibility, country diversification, pricing where necessary) should keep incremental cost pressure contained below the tariff rate. The company notes only 2–3% of goods are imported directly by Best Buy, underscoring its dependence on vendor sourcing and negotiation dynamics.
- The rollout of the U.S. Marketplace and the Best Buy Ads platform is expected to improve gross margin over time and provide incremental profitability to fund growth investments in technology and talent.
- Q3 consensus: comparable sales likely to be similar to Q2; Q4 guidance implications hinge on holiday demand, product availability (Switch 2 continuity and Xbox/PlayStation cycle timing), and the pace of marketplace/ad monetization.
- Monitoring points for investors: (1) pace of marketplace adoption and gross profit contribution, (2) ad revenue growth and its impact on gross margin, (3) tariff pass-through versus mitigations, (4) supply-chain cost savings from automation and new sourcing model, (5) consumer demand trajectory amid macro uncertainties.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
BBY Focus
23.25%
N/A
N/A
N/A
TGT
30.10%
6.42%
8.26%
13.50%
LOW
33.50%
14.60%
-17.30%
14.33%
KSS
37.90%
4.45%
1.72%
8.50%
GPS
42.60%
7.88%
7.10%
9.90%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
BBY trades on a narrative of durable omnichannel leadership and the potential for margin expansion through scalable Marketplace and Ad revenue, supported by ongoing efficiency programs and supply-chain modernization. The QQ2 print demonstrates disciplined revenue growth (+1.6% YoY), but gross margin pressures persist due to product mix. The company’s emphasis on high-growth initiatives (Marketplace, Ads, and AI-driven experiences) and compelling gaming/compute upgrade cycles could unlock higher profitability in 2H26 and beyond. The key ambiguity remains tariff-related cost dynamics and the speed at which Marketplace/Ads monetization translates into stable, elevated operating margins. Investors should monitor cadence and profitability of Marketplace, ad collections growth, Windows 11 transition adoption, Switch 2 lifecycle, and the effectiveness of the 70% / 100% sourcing-model rollout prior to holiday season. Overall, BBY presents a two-stage thesis: (1) near-term resilience and mid-cycle upside from gaming and computing upgrades, and (2) longer-term margin and growth acceleration driven by marketplace/ads and improved efficiency.
Key Investment Factors
Growth Potential
Growth is anchored in three pillars: (a) marketplace and ads monetization expanding product availability and traffic monetization; (b) gaming and computing upgrade cycles (Switch 2 momentum, Windows 11 migration, AI-enabled devices) driving higher ticket and mix; (c) omnichannel leadership coupled with vendor partnerships (IKEA pilot, Verizons/AT&T carrier model) that deepen in-store and online engagement and cross-sell opportunities.
Profitability Risk
Key risks include: (a) tariff volatility and potential cost growth outpacing mitigations, (b) slower-than-expected uptake of Marketplace/Ads as profit drivers, (c) competitive intensity from online incumbents and CE-only retailers, (d) reliance on tech innovation cycles (Switch 2, Windows 11, AI-enabled devices) to sustain hardware demand, (e) macro consumer weakness affecting big-ticket electronics demand.
Financial Position
Capital allocation remains constructive with $568M returned to shareholders YTD (dividends $403M, buybacks $165M) and capex guidance of ~$700M. The company is positioned to fund its strategic initiatives (Marketplace, Ads, AI-enabled search and experiences) while maintaining a stable profitability trajectory. Management notes a restructuring charge of $114M in Q2 to support efficiency gains and long-term margin expansion, with an adjusted operating income rate guided near 4.2% for FY26.
SWOT Analysis
Strengths
Leading omnichannel technology retailer with integrated services (Geek Squad) and broad, immersive experiences
Strong vendor partnerships and large live-assperience footprint that attract brand investment (e.g., IKEA, Meta/Ai Glasses, Verizon/AT&T operating model)
Growing marketplace and ads platforms with potential to uplift gross margins and drive incremental profit dollars
Healthy online share (~33%) and robust store-fulfillment capabilities (45% online-pickups); high customer engagement (NPS improvements)
Structured cost-reduction initiatives and supply-chain modernization (70%/100% rollout target for new order-fulfillment model)
Weaknesses
Near-term gross margin pressure from higher mix of lower-margin categories (gaming, computing), despite mix benefits elsewhere
Reliance on hardware upgrade cycles and consumer electronics demand, which can be cyclical
Tariff exposure and pass-through complexity with mixed vendor absorption impacting profitability
International revenue remains a relatively smaller portion of sales with higher margin volatility
Opportunities
Scale Marketplace and Best Buy Ads to broaden profit pools and fund customer-experience investments
Expand AI-enabled search and personalized experiences to improve conversion and basket size
Leverage partnerships (IKEA, carrier teams, Meta) to accelerate in-store experiences and category leadership
Windows 11 upgrade cycle and AI-enabled devices providing a longer tail of upgrade demand in computing
Threats
Tariff volatility and potential price increases that could compress margins if not offset by mitigations
Competitive pressure from e-commerce incumbents and discount retailers with aggressive pricing
Supply-chain disruptions or delays impacting product availability during peak seasons
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