Best Buy (BBY)

Electronics retailer Best Buy (NYSE:BBY) met Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $8.77 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $41.5 billion at the midpoint. Its non-GAAP profit of $1.15 per share was 5% above analysts’ consensus estimates.

Company Overview

With humble beginnings as a stereo equipment seller, Best Buy (NYSE:BBY) now sells a broad selection of consumer electronics, appliances, and home office products.

After a long day, some of us want to just watch TV, play video games, listen to music, or scroll through our phones; electronics and gaming retailers sell the technology that makes this possible, plus more. Shoppers can find everything from surround-sound speakers to gaming controllers to home appliances in their stores. Competitive prices and helpful store associates that can talk through topics like the latest technology in gaming and installation keep customers coming back. This is a category that has moved rapidly online over the last few decades, so these electronics and gaming retailers have needed to be nimble and aggressive with their e-commerce and omnichannel investments.

Retailers offering consumer electronics and home appliances include Walmart (NYSE:WMT), Target (NYSE:TGT), and Amazon.com (NASDAQ:AMZN).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $41.45 billion in revenue over the past 12 months, Best Buy is larger than most consumer retail companies and benefits from economies of scale, enabling it to gain more leverage on its fixed costs than smaller competitors. This also gives it the flexibility to offer lower prices. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. To expand meaningfully, Best Buy likely needs to tweak its prices or enter new markets.

As you can see below, Best Buy struggled to increase demand as its $41.45 billion of sales for the trailing 12 months was close to its revenue six years ago (we compare to 2019 to normalize for COVID-19 impacts). This was mainly because it didn’t open many new stores and observed lower sales at existing, established locations.

This quarter, Best Buy’s $8.77 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection doesn't excite us and implies its newer products will not catalyze better top-line performance yet.

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Over the last two years, Best Buy has kept its store count flat while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Note that Best Buy reports its store count intermittently, so some data points are missing in the chart below.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Best Buy’s demand has been shrinking over the last two years as its same-store sales have averaged 3.7% annual declines. This performance isn’t ideal, and we’d be concerned if Best Buy starts opening new stores to artificially boost revenue growth.

In the latest quarter, Best Buy’s year on year same-store sales were flat. This performance was a well-appreciated turnaround from its historical levels, showing the business is improving.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Best Buy has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 22.4% gross margin over the last two years. Said differently, Best Buy had to pay a chunky $77.59 to its suppliers for every $100 in revenue.

In Q1, Best Buy produced a 23.4% gross profit margin, in line with the same quarter last year and analysts’ estimates. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Best Buy was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.3% was weak for a consumer retail business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Best Buy’s operating margin might fluctuated slightly but has generally stayed the same over the last year, which doesn’t help its cause.

This quarter, Best Buy generated an operating profit margin of 2.5%, down 1 percentage points year on year. Since Best Buy’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Best Buy has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 2.9% over the last two years, slightly better than the broader consumer retail sector.

Taking a step back, we can see that Best Buy’s margin was unchanged over the last year, showing it recently had a stable free cash flow profile.

Best Buy burned through $132 million of cash in Q1, equivalent to a negative 1.5% margin. The company’s cash burn increased meaningfully year on year and is a deviation from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Best Buy hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 34.8%, splendid for a consumer retail business.

Best Buy reported $1.15 billion of cash and $4.04 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.54 billion of EBITDA over the last 12 months, we view Best Buy’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $17 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Best Buy beat analysts’ EPS expectations this quarter. On the other hand, its EBITDA missed and it lowered its full-year revenue and EPS guidance. Overall, this quarter could have been better. The stock traded down 2.9% to $69.50 immediately after reporting.

Updated: June 23, 2025 at 10:23 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Best Buy.

Best Buy isn’t a terrible business, but it isn’t one of our picks. For starters, its revenue has declined over the last six years, and analysts don’t see anything changing over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its gross margins make it more challenging to reach positive operating profits compared to other consumer retail businesses. On top of that, its shrinking same-store sales tell us it will need to change its strategy to succeed.

Best Buy’s P/E ratio based on the next 12 months is 10.7x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $79.28 on the company (compared to the current share price of $66.37).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.