Best Buy (BBY)

Electronics retailer Best Buy (NYSE:BBY) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 1.6% year on year to $9.44 billion. The company expects the full year’s revenue to be around $41.5 billion, close to analysts’ estimates. Its non-GAAP profit of $1.28 per share was 4.5% 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).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $41.6 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 $41.6 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 reported modest year-on-year revenue growth of 1.6% but beat Wall Street’s estimates by 2.3%.

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 accelerate its 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 is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Best Buy’s demand has been shrinking over the last two years as its same-store sales have averaged 2.7% 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 same-store sales rose 1.6% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

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 $77.58 to its suppliers for every $100 in revenue.

Best Buy’s gross profit margin came in at 23.2% this quarter, in line with the same quarter last year but missing analysts’ estimates by 1%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Best Buy was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.1% 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 decreased by 1.3 percentage points over the last year. Best Buy’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Best Buy generated an operating margin profit margin of 2.7%, down 1.5 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.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Best Buy’s EPS grew at an unimpressive 1.5% compounded annual growth rate over the last six years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q2, Best Buy reported adjusted EPS of $1.28, down from $1.34 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.5%. Over the next 12 months, Wall Street expects Best Buy’s full-year EPS of $6.27 to grow 1.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

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 3.2% over the last two years, slightly better than the broader consumer retail sector.

Best Buy’s free cash flow clocked in at $574 million in Q2, equivalent to a 6.1% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 31.9%, splendid for a consumer retail business.

Best Buy reported $1.46 billion of cash and $4.08 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 $2.51 billion of EBITDA over the last 12 months, we view Best Buy’s 1.0× net-debt-to-EBITDA ratio as safe. We also see its $9 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.

We enjoyed seeing Best Buy beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its EBITDA missed and its gross margin fell slightly short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 1.3% to $74.50 immediately after reporting.

Updated: November 11, 2025 at 9:34 PM EST

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 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 11.9x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $81.71 on the company (compared to the current share price of $78.25).