Best Buy (BBY, Financial) saw its stock drop by 6% after reporting its first earnings miss in five years for Q3. The miss was attributed to a larger-than-expected same-store sales decline of 2.9%, compared to the anticipated 1% drop. Despite noticing improving customer demand recently, BBY lowered its FY25 financial targets.
- BBY's adjusted EPS was $1.26, slightly below expectations, due to heightened promotional activity that failed to boost demand significantly. While promotions had previously helped improve sales trends, they were less effective in Q3.
- Customer demand weakened in September and October, leading to a 3.2% year-over-year decrease in total revenue to $9.45 billion, missing analyst estimates. The decline was attributed to macroeconomic uncertainty, customer hesitation, and election-related distractions.
- Appliances, home theater, and gaming categories showed notable weakness, raising concerns about market share loss. For instance, Costco (COST, Financial) reported double-digit e-commerce growth in appliances, possibly attracting customers with inclusive services that BBY charges separately for.
- Computing, tablets, and services showed strength, with a combined 5.2% comp in Q3 and a 7.0% increase in laptop sales. Discussions on AI PCs were limited, but management noted early-stage advancements that could boost PC demand in the future.
- BBY revised its FY25 guidance, projecting EPS of $6.10-6.25 and revenues of $41.1-41.5 billion, down from previous estimates. The same-store sales growth outlook was also reduced to negative 2.5-3.5% from negative 1.5-3.0%.
Aside from gains in computing and tablets, Q3 offered few positives. Inflationary pressures hindered trend improvements seen in Q2. Target (TGT, Financial) experienced a similar situation, lowering its FY25 outlook due to declining consumer demand for discretionary items.
BBY remains optimistic about a broad upgrade cycle in computing and mobile phones, driven by AI features. However, slow growth in other categories may challenge BBY's ability to overcome its ongoing year-over-year sales decline in the near term.
