Q3 2025 Earnings Summary
- Expansion of store formats, including outlets and smaller stores like the new Bosman and Kansas City locations, allows Best Buy to reach new markets, meet customer demand for value, and operate profitably.
- Planned launch of a curated online marketplace in the U.S. targeting mid-next year, leveraging their trusted brand to offer a wider assortment and engage customers in deeper categories, driving incremental revenue streams.
- Strategic promotional activities and early start to the holiday season position Best Buy well to capture consumer demand, maintain market share in key categories like computing, TVs, and appliances, and improve price perception. ,
- Despite increased promotional efforts, Best Buy is struggling to stimulate consumer demand, particularly during periods between sales events, as customers remain deal-focused and less responsive to promotions.
- Potential tariffs on imports from China could significantly impact Best Buy's cost of goods sold, as approximately 60% of their COGS comes from China, and the company faces challenges diversifying its supply chain.
- Uncertainty surrounds Best Buy's new store formats and marketplace launch, as these initiatives are in early stages with limited consumer response data, posing execution risks and potential delays in realizing benefits.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -3% | Continued softness in consumer electronics demand—a pattern seen in prior periods—negatively impacted revenue, while high inflation and elevated interest rates further pressured discretionary spending. Some offset came from growth in services and extended membership offerings. |
Domestic Segment | -3% | Reflecting lower comparable sales in key product categories such as appliances and home theater, following declines observed in earlier quarters. Services and tablets provided partial offsets, but promotional activity continued to weigh on overall revenue. |
International Segment | -2% | The revenue decline was influenced by negative foreign currency exchange rates and comparable sales declines in gaming and computing. However, prior-period growth in mobile phones offered a partial counterbalance. |
Appliances (Domestic) | -9% | Driven by an ongoing decline in large appliances sales, consistent with the highly promotional environment noted in prior quarters. Consumer caution around big-ticket purchases also carried over to this period. |
Entertainment (Domestic) | -13% | Decrease largely attributable to lower gaming software and hardware sales, reversing the more stable hardware supply conditions that benefited the category in previous periods. |
Other (Domestic) | -22% | Although the “Other” category had experienced gains in previous quarters, it now faced diminished customer demand, contributing to a steeper decline YoY. Details on category mix and promotional drivers remain limited. |
Operating Income (EBIT) | -90% | Significantly lower operating income was driven by declining revenues, higher promotional intensity, and SG&A deleverage, despite gross margin improvements in services. Prior cost-control measures helped but were insufficient to offset the continued pressure from lower sales volumes. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2025 | $41.3B to $41.9B | $41.1B to $41.5B | lowered |
Comparable Sales Decline | FY 2025 | 1.5% to 3% | 2.5% to 3.5% | lowered |
Non-GAAP Operating Income Rate | FY 2025 | 4.1% to 4.2% | 4.1% to 4.2% | no change |
Non-GAAP Effective Income Tax Rate | FY 2025 | Approximately 24% | Approximately 23.5% | lowered |
Non-GAAP Diluted EPS | FY 2025 | $6.10 to $6.35 | $6.10 to $6.25 | lowered |
Non-GAAP SG&A Dollars | FY 2025 | Decline by ~2% | Decline by over $200 million | no change |
Gross Profit Rate | FY 2025 | no prior guidance | Expected to expand by ~40 bps | no prior guidance |
Comparable Sales | Q4 2025 | no prior guidance | Flat to a decline of 3% | no prior guidance |
Non-GAAP Operating Income Rate | Q4 2025 | no prior guidance | 4.6% to 4.8% | no prior guidance |
Gross Profit Rate | Q4 2025 | no prior guidance | Expected to improve versus last year but less than in Q3 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Comparable Sales Decline | Q3 2025 vs Q3 2024 | 1.5% to 3% | ~3.2% decline (from 9,756To 9,445) | Missed |
Non-GAAP Operating Income Rate | Q3 2025 | 4.1% to 4.2% | 0.37% (35÷ 9,445) | Missed |
SG&A Year-over-Year Change | Q3 2025 vs Q3 2024 | ~2% decline YoY | -0.37% decline (from 1,878To 1,871) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Membership program | Previously emphasized as a key loyalty and profitability driver. Showed significant member growth, higher engagement, and strong retention in Q2, Q1, and Q4. | Focus on driving engagement and share of wallet, with paid members spending more. Retention rates outperformed expectations but impact is moderating. | Consistent across all periods; continues to be a positive contributor to gross profit and loyalty efforts. |
Computing category performance | Prior calls showed steady or improving performance, driven by AI innovation, CoPilot features, and the upcoming Windows 10 sunset. Laptops and tablets posted growth in Q2 and Q1, and Q4 2024 signaled early signs of a replacement cycle. | Laptops up 7%, with 50% of premium Windows laptops featuring AI. Windows 10 end-of-support in 2025 expected to sustain replacement cycles. | Recurring improvements; strong interest from AI and upgrade cycles expected to continue. |
High promotional environment | Q2 and Q1 highlighted similar margin pressure as Best Buy remained competitive in key categories. Q4 2024 promotions were in line with expectations but still impacted product margin rates. | Highly promotional conditions persisted, affecting margins; product margin rates face bigger pressure in Q4. | Ongoing challenge; remains a bearish factor on margins. |
Macroeconomic uncertainty | Inflation, housing market concerns, and election chatter influenced uneven spending in Q2 and Q1. Q4 2024 also noted slowing inflation and stagnant housing. | Cited elections and soft demand in September–October, with customers seeking value deals and showing uneven spending. | Recurring headwind; remains unpredictable and affects demand patterns. |
Online marketplace expansion | No mentions in Q2, Q1, or Q4 2024. | Announced a curated marketplace inspired by Canadian operations to broaden assortment, focusing on seamless integration with membership and Geek Squad. | New initiative; could expand product offerings and drive incremental online sales. |
Shorter holiday season | Not discussed in Q2 or Q1. Q4 2024 noted normal patterns but a December lull unrelated to a shorter season. | Shorter window between Thanksgiving and Christmas not expected to reduce total Q4 sales, but lulls between events may alter spending patterns. | Newly mentioned for Q3; potential to shift holiday sales timing, but not a major revenue constraint. |
Store format changes | Q2 2025 emphasized store refreshes rather than closures. Q1 and Q4 2024 highlighted 10–15 closures, testing smaller formats in Kansas City, and strategic store footprint optimization. | Continued closures of large stores and openings of smaller formats (e.g., 15,000 sq. ft.), focusing on isolated markets and efficient footprints. | Ongoing strategy; shifting to smaller stores for operational efficiency and market coverage. |
One-time SG&A benefit | Referenced only in Q2 2025 as a $10 million legal settlement benefit, explicitly noted as non-recurring. | No mention of any legal settlement or one-time SG&A benefit in Q3. | No longer mentioned after Q2; was a one-time benefit. |
Sales guidance revisions | In Q2, overall FY25 comps revised to -1.5% to -3% due to election and holiday uncertainties. Q1 maintained guidance of flat to -3%. Q4 2024 provided a range of -3% to flat for FY25. | Q4 comp sales guidance lowered to flat to -3%, citing soft demand and continued consumer unpredictability. | Repeatedly revised; reflects cautious outlook amid volatile consumer behavior. |
Market share stabilization | Prior calls showed wider share gains in computing/gaming but losses in appliances (Q2, Q1). Q4 2024 indicated they held share for ~70% of revenue. | Emphasized competitive pricing in computing, TVs, and appliances to hold share. Gains in laptops offset by declines in appliances and home theater. | Steady focus; share is stable or improving in some categories but challenged in others. |
Geek Squad staffing | In Q2, introduced AI-powered support, reduced cost per contact; in Q1, scaled down staff after membership changes; Q4 2024 focused on certifications and specialized labor. | Rolled out dedicated expert labor in computing, home theater, and major appliances across hundreds of stores; expanded outlet strategy with refurbished items. | Ongoing refinements; blending expertise and efficiency to adapt to evolving service demands. |
Potential major impact from innovations | Previous quarters noted early AI adoption (CoPilot laptops), likely higher ASPs, and improvement cycles, with Windows 10 support ending in October 2025. | Anticipates AI and the Windows 10 end-of-support to drive continued replacement cycles; AI already in half of premium Windows laptops. | Key growth driver; AI features and OS transitions expected to boost sales throughout the next year. |
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Q4 Guidance and Factors
Q: Explain Q4 comp outlook given strong start.
A: Management forecasts a flat to down 3% comp for Q4, despite a 5% increase in the first three weeks, due to factors like a shorter holiday season, changes in promotional timing, and calendar shifts. They noted the first three weeks account for only about 20% of Q4 sales and anticipate potential low points between sales events, especially in December. -
Tariff Impact and Sourcing
Q: What's your exposure to China and Mexico tariffs?
A: They confirmed that about 60% of their cost of goods sold comes from China, consistent with prior periods. While they directly import only 2%-3% of products, with most controlled manufacturing moved out of China, tariffs remain complex and could lead to higher prices for customers. They are collaborating with vendors on mitigation strategies, but diversification is challenging due to complex supply chains. -
Profit Improvement in Services
Q: Are recent service improvements sustainable next year?
A: This year's gross profit expansion in services and membership was driven by program changes and cost reductions, benefits that will likely normalize next year. However, the warranty business is strong, with increasing attach rates potentially driving continued improvements. They expect services to remain healthy but not at this year's growth level. -
Promotional Environment
Q: How is the promotional environment affecting sales?
A: The company anticipates a highly promotional Q4, similar to the rest of the year, due to value-seeking consumers. They've invested in price and feel well-positioned but note inconsistencies in promotion effectiveness. Overall, promotions have improved price perception and sales during key periods. -
Membership Renewals and Guidance
Q: Any update on membership renewals and wide Q4 OI guidance?
A: Membership retention rates are outperforming internal expectations for both Total and Plus tiers, with paid members showing higher engagement and spend. While not disclosing specific rates, they are pleased with the metrics. The wide Q4 operating income guidance reflects potential SG&A deleverage at varying comp levels. -
Laptop Sales and AI
Q: What's driving laptop sales and AI's impact?
A: Laptops achieved a 7% comp increase, the highest since April 2021. While AI features are expanding, with 50% of premium Windows laptops including AI capabilities, current sales are mainly driven by the upgrade and replacement cycle. Interest in AI is expected to grow, particularly with Windows 10 support ending in October 2025. -
Mobile Phones Performance
Q: How are mobile phones and AI models performing?
A: Mobile phone trends improved slightly in Q3 over Q2 but remain down year-over-year. The impact of AI-optimized models like the iPhone 16 is not fully realized, as much innovation is forthcoming. There's rising customer interest in phones evolving into virtual assistants and a shift towards purchasing unlocked premium phones. -
New Store Formats
Q: How are new store formats performing?
A: They are exploring new store formats, including expanding outlets and opening smaller stores in markets like Bosman and Kansas City. Early community response has been positive, but it's too soon for performance insights. They aim to serve markets effectively by adapting store sizes and formats. -
Marketplace Opportunity
Q: What's the opportunity with the upcoming marketplace?
A: Best Buy plans to launch a curated marketplace to offer deeper assortments tailored to their customers. This strategy leverages increased digital shopping behaviors and allows them to meet customer needs without stocking every item in-store. They are focused on integrating the marketplace seamlessly with in-store and digital experiences. -
Best Buy Express Profitability
Q: How profitable is Best Buy Express internationally?
A: Currently, Best Buy Express contributes neutral profitability due to ramp-up costs, but they expect improved earnings next year as the locations mature and sales increase.