BEST BUY CO INC

Best Buy Co., Inc. operates in the consumer electronics retail industry, with operations in the U.S. and Canada. The company's business is seasonal, with a large proportion of revenue and earnings generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season. The industry is characterized by constant technological innovation, advancement, and disruption, including the rapid integration of artificial intelligence into consumer products. Key structural forces shaping competition include the emergence of new products and categories, rapid maturation of categories, cannibalization of categories, changing price points, and product replacement and upgrade cycles. Best Buy operates an omnichannel platform that allows customers to come to the company online, visit its stores, or invite it into their homes.

Best Buy faces strong competition from multi-channel retailers, e-commerce businesses, technology service providers, traditional store-based retailers, vendors, and mobile network carriers. The company's primary competitors include retailers that offer products and services directly to customers. Best Buy's competitive advantages include its dedicated and knowledgeable people; its integrated online, retail, and in-home assets; its broad and curated product assortment; its strong vendor partnerships; its service and support offerings; its unique ability to showcase technology in distinct store formats; and its supply chain. The company believes its ability to help customers online, in its stores, and in their homes, and to connect technology product and solutions with customer needs, provide key competitive advantages. In fiscal 2026, the company's 20 largest suppliers accounted for approximately 80% of the merchandise it purchased, with five suppliers – Apple, Samsung, HP, LG and Sony – representing approximately 55% of total merchandise purchased.

Best Buy generates revenue through the sale of products and services across six revenue categories: Computing and Mobile Phones, Consumer Electronics, Appliances, Entertainment, Services, and Other. The company operates an omnichannel platform, generating revenue from both transactional product sales and recurring service income. Services revenue includes advertising, delivery, health-related services, installation, marketplace commissions, memberships, repair, set-up, technical support, and warranty-related services. The company's primary customer segments include retail consumers, commercial businesses, and health-related service users. Best Buy also operates a retail media network, Best Buy Ads, and a marketplace platform, Best Buy Marketplace, which generate commission and advertising revenue.

The Domestic segment, which includes operations in all states, districts, and territories of the U.S. and the Best Buy Health business, reported revenue of $38.278 billion ¹ in fiscal 2026. Within the Domestic segment, the Computing and Mobile Phones category generated $18.038 billion ² in revenue, representing 47% of segment revenue. Consumer Electronics generated $10.527 billion ³ (28% of segment revenue), Appliances generated $4.166 billion ⁴ (11%), Entertainment generated $2.811 billion ⁵ (7%), Services generated $2.466 billion ⁶ (6%), and Other generated $270 million ⁷ (1%). The Services category includes advertising, delivery, health-related services, installation, marketplace commissions, memberships, repair, set-up, technical support, and warranty-related services. The International segment, comprised of all operations in Canada, reported revenue of $3.413 billion ⁸ in fiscal 2026. Within the International segment, Computing and Mobile Phones generated $1.676 billion ⁹ (49% of segment revenue), Consumer Electronics generated $933 million ¹⁰ (27%), Appliances generated $303 million ¹¹ (9%), Entertainment generated $281 million ¹² (8%), Services generated $190 million ¹³ (6%), and Other generated $30 million ¹⁴ (1%).

The Domestic segment's revenue categories include Computing and Mobile Phones (computing, mobile phones, networking, tablets, and wearables), Consumer Electronics (digital imaging, health and fitness products, home theater, portable audio, and smart home), Appliances (large and small appliances), Entertainment (drones, gaming, toys, virtual reality, and other software), Services (advertising, delivery, health-related services, installation, marketplace commissions, memberships, repair, set-up, technical support, warranty-related services), and Other (baby, food and beverage, and outdoor living). The International segment has the same six revenue categories. The company's exclusive brand labels include Best Buy Essentials, Insignia, Lively, Rocketfish, and Yardbird. Best Buy also offers membership plans such as My Best Buy Plus and My Best Buy Total, which include benefits like technical support, price discounts, and product protection plans.

In fiscal 2026, Best Buy launched Best Buy Marketplace within its Domestic segment, which complements its existing product assortment with access to a broader range of products offered by marketplace sellers. The company also grew its retail media network, Best Buy Ads. During fiscal 2026, the company repurchased and retired 4.0 million ¹⁵ shares at a cost of $273 million ¹⁶. On February 28, 2022, the Board approved a $5.0 billion ¹⁷ share repurchase authorization, with $3.0 billion ¹⁸ remaining available as of January 31, 2026. On March 3, 2026, the Board approved a 1% increase in the regular quarterly cash dividend to $0.96 ¹⁹ per share. In fiscal 2026, the company recorded restructuring charges of $190 million ²⁰, primarily related to a labor and store optimization restructuring initiative and a restructuring initiative focused on optimizing its Best Buy Health business. Goodwill and intangible asset impairments of $171 million ²¹ were recorded related to Best Buy Health. On April 18, 2025, the company entered into a $1.25 billion ²² five-year senior unsecured revolving credit facility agreement, replacing the previous $1.25 billion ²³ facility.

In fiscal 2026, total revenue was $41.691 billion ²⁴, compared to $41.528 billion ²⁵ in fiscal 2025, representing a 0.4% increase. Comparable sales grew 0.5% ²⁶. Gross profit was $9.373 billion ²⁷, compared to $9.385 billion ²⁸ in the prior year. Gross profit as a percentage of revenue was 22.5% ²⁹, compared to 22.6% ³⁰ in fiscal 2025. SG&A expenses were $7.623 billion ³¹, compared to $7.651 billion ³² in the prior year. Operating income was $1.389 billion ³³, compared to $1.262 billion ³⁴ in fiscal 2025. Net earnings were $1.069 billion ³⁵, compared to $927 million ³⁶ in the prior year. Diluted EPS was $5.04 ³⁷, compared to $4.28 ³⁸ in fiscal 2025. The operating income rate increased to 3.3% ³⁹ from 3.0% ⁴⁰ in the prior year, primarily due to lower goodwill and intangible asset impairments, partially offset by higher restructuring charges.

Best Buy's fiscal 2027 priorities and resource allocation philosophy remain consistent, building upon the momentum from fiscal 2026. The company's priorities are: drive omni-channel experiences that resonate with customers, scale Best Buy Ads and Best Buy Marketplace, and drive efficiencies and identify cost reductions that are crucial to helping to fund investment capacity and offset pressure in the business. The company currently expects capital expenditures in fiscal 2027 of approximately $750 million ⁴¹. The company currently expects to increase its Domestic segment Best Buy store count by approximately 4 stores by the end of fiscal 2027.

A key growth vector is scaling Best Buy Ads, the company's retail media network. In fiscal 2027, the company anticipates continuing to grow Best Buy Ads through existing advertisers as well as other areas of opportunity, including advertising agencies and demand-side platforms. To support this growth, the company is investing in its technology capabilities, marketing, and headcount across its sales, operations, and technology teams. Another growth vector is scaling Best Buy Marketplace, which launched within the Domestic segment during fiscal 2026. The company believes this will complement its existing product assortment with access to a broader range of products offered by marketplace sellers, unlocking potential new commission and advertising revenue without requiring inventory investment. In fiscal 2027, the company plans to continue to expand its third-party seller count, while investing in technology, advertising, and its marketplace team to support future growth.

The company's fiscal 2027 priorities include driving efficiencies and identifying cost reductions that are crucial to helping to fund investment capacity and offset pressure in the business. The company will continue to prioritize its longstanding commitment to operational efficiency by identifying cost reductions and other savings to help fund investment capacity for new and existing initiatives and offset financial pressures facing the business. From a store labor perspective, the company will focus on enhancements and optimization, building on the significant operating model changes made in recent years that were designed to provide the experience customers expect in the most efficient way possible.

In fiscal 2027, the company's digital priorities include strengthening customer recognition and personalization, increasing customer adoption and engagement with the Best Buy App, and driving digital conversion for categories like major appliances and home theater. The company has already activated on ways to bring its products to life through artificial intelligence platforms, which will continue to grow during fiscal 2027. The company is also partnering with various platform providers to create a more seamless agentic shopping journey, making it easier for customers to both find and purchase directly from its product catalog. In its physical stores, the company is continuing to improve the customer experience while also using its space more effectively, often in partnership with its vendors.

The company's long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment-grade credit metrics. The company currently expects capital expenditures in fiscal 2027 of approximately $750 million ⁴². On February 28, 2022, the Board approved a $5.0 billion ⁴³ share repurchase authorization, with $3.0 billion ⁴⁴ remaining available as of January 31, 2026. On March 3, 2026, the Board approved a 1% increase in the regular quarterly cash dividend to $0.96 ⁴⁵ per share.

The company faces headwinds from macroeconomic pressures that may adversely affect consumer spending and its financial results. Consumer demand for the company's products and services could be affected by factors including real GDP growth, inflation, recession, consumer confidence, employment levels, cost of living, tax rates, availability of consumer financing, interest rates, housing market conditions, and foreign currency exchange rates. The company is subject to specific pressures that may increase its product prices, including high consumer demand, inflation, governmental actions (e.g., tariffs), and supply chain disruptions. Geopolitical pressures, including issues related to trade routes, political instability, the potential implementation of more restrictive trade policies, tariff increases and/or volatility, could continue to have a material adverse impact on the business. While the company directly imports approximately 1% to 3% of its overall assortment, its global supply chain for consumer electronics is heavily reliant on vendor imports from foreign countries (including products sourced from China, Mexico, and Southeast Asia).

The company faces constraints from the highly competitive retail sector, where it competes against many local, regional, national, and international retailers (both online and brick and mortar), as well as against some of its vendors and mobile network carriers. Shoppers are increasingly price-conscious when making discretionary purchases, and online and multi-channel retailers are prioritizing fast, low-cost delivery options. Because the company's strategy is based on offering superior levels of customer service and a full range of complementary services, its cost structure may be higher than some of its competitors, creating additional margin pressure. The company also faces risks related to its reliance on key vendors and mobile network carriers, as a significant portion of its merchandise comes from a relatively small group of key suppliers. In fiscal 2026, the company's 20 largest suppliers accounted for approximately 80% of the merchandise it purchased, with five suppliers – Apple, Samsung, HP, LG and Sony – representing approximately 55% of total merchandise purchased.

Best Buy faces material risks from macroeconomic pressures that could adversely affect consumer spending, including inflation, recession, and changes in consumer confidence, which directly impact demand for discretionary consumer electronics. The company is highly sensitive to geopolitical pressures and trade policies, as its global supply chain is heavily reliant on vendor imports from foreign countries, including China, Mexico, and Southeast Asia, and the company directly imports approximately 1% to 3% of its overall assortment. A significant concentration risk exists with key vendors, as the company's 20 largest suppliers accounted for approximately 80% of merchandise purchased in fiscal 2026, with five suppliers – Apple, Samsung, HP, LG and Sony – representing approximately 55% of total merchandise purchased, and the company generally does not have long-term written contracts with these vendors. The company's focus on services exposes it to risks including unpredictable extended warranty failure rates, margin pressure from membership offerings, and potential claims liability from in-home services. Additionally, the company's Best Buy Health reporting unit, with a goodwill carrying value of $298 million ⁴⁶ as of January 31, 2026, is subject to greater uncertainty due to macro-economic conditions, the regulatory environment, and government funding programs, and the company recorded a goodwill impairment of $118 million ⁴⁷ in fiscal 2026 related to this unit.

Management's message emphasizes that in fiscal 2026, the company's comparable sales returned to growth and it stabilized its market share position while navigating a complex and often evolving tariff situation. The company launched and began to scale Best Buy Marketplace within its Domestic segment and grew its retail media network, Best Buy Ads. Management believes the company was able to both make investments in its strategic initiatives and expand its operating margin through a combination of disciplined expense management and efficiency optimization efforts. The company's multi-year strategy remains consistent, which is to strengthen its position in retail as a leading omnichannel destination for technology, while at the same time scaling new profit streams. The fiscal 2027 priorities are: drive omni-channel experiences that resonate with customers, scale Best Buy Ads and Best Buy Marketplace, and drive efficiencies and identify cost reductions that are crucial to helping to fund investment capacity and offset pressure in the business.