Best Buy Q2 FY27 Earnings: Comparable Sales Growth Supports Higher Guidance

Best Buy (NYSE: BBY) reported Q2 FY27 revenue of $9.779 billion for the 13 weeks ended August 1, 2026, up about 3.6% from $9.438 billion, while diluted EPS increased 70% to $1.48 from $0.87. Enterprise comparable sales grew 4.1%, and adjusted diluted EPS rose 15% to $1.47. Domestic category growth and gross-margin gains drove the quarter, though international revenue declined and higher domestic expenses remained a partial offset.

Core Earnings Data

Profitability improved faster than revenue: consolidated gross margin expanded by 70 basis points, while adjusted operating margin increased by 40 basis points. The much larger increase in GAAP operating income partly reflected the comparison with $114 million of restructuring charges in Q2 FY26, versus a $6 million reduction to restructuring charges this quarter.

Adjusted operating income provides a cleaner view of underlying improvement because it excludes restructuring and other specified items. On that basis, earnings still grew faster than revenue, but the increase was considerably smaller than the GAAP result.

Business and Segment Performance

Domestic revenue increased 4.3% to $9.07 billion, primarily because comparable sales rose 4.5%. Computing and mobile phones delivered 6.8% comparable growth, consumer electronics grew 5.6%, and services increased 6.4%. Appliances were nearly flat at 0.2%, while entertainment declined 6.3%, including weakness in traditional gaming.

Management identified computing, home theater, and emerging categories such as AI glasses and trading cards as the largest weighted growth drivers. Domestic online comparable sales rose 5.1%, with online revenue reaching $3.00 billion, or 33.1% of domestic revenue compared with 32.8% a year earlier.

International performance moved in the opposite direction. Revenue fell 4.2% to $709 million, reflecting a 1.8% comparable-sales decline and unfavorable foreign-exchange effects. International adjusted operating income decreased to $13 million from $18 million, and its margin narrowed to 1.8% from 2.4%.

Marketplace and Ads Lift Margin but Also Add Costs

Domestic gross margin increased to 24.0% from 23.4%. Growth in Marketplace and Best Buy Ads contributed to the expansion, as did approximately $34 million of IEEPA tariff refunds, while lower product margin rates provided an offset.

Those initiatives also added expenses. Domestic adjusted SG&A rose to $1.776 billion from $1.682 billion, and the expense ratio increased to 19.6% from 19.3%. Best Buy cited higher compensation, including incentive compensation, increased Marketplace and Best Buy Ads spending, and higher advertising expense, partly offset by lower Best Buy Health expense.

The net result was still positive: domestic adjusted operating income rose to $404 million from $351 million, and adjusted operating margin expanded to 4.5% from 4.0%. The quarter therefore showed that higher-margin initiatives and tariff refunds outweighed both weaker product margins and associated operating investments.

Cash Flow and Balance Sheet

Cash-flow figures were provided for the first six months of FY27 rather than the quarter alone. Operating cash flow increased to $1.296 billion from $783 million. After $344 million of capital expenditures, approximate first-half free cash flow was $952 million, compared with about $442 million a year earlier.

The working-capital movements were sizable. Inventory used $1.079 billion of cash during the first half, versus $717 million previously, while accounts payable provided $1.259 billion compared with $693 million. Merchandise inventory stood at $6.296 billion on August 1, up from $5.816 billion a year earlier.

Cash and cash equivalents increased to $2.255 billion from $1.456 billion, while long-term debt was nearly unchanged at $1.158 billion. During Q2, Best Buy returned $239 million to shareholders through $203 million of dividends and $36 million of share repurchases.

Earnings Guidance

Best Buy raised all four of its principal FY27 operating targets, citing first-half performance and momentum entering the second half. The largest revision was to comparable-sales guidance, whose entire new range is above the upper end of the previous outlook.

For Q3 FY27, Best Buy expects comparable sales growth of 1.0% to 3.0% and an adjusted operating margin of 4.1% to 4.2%. The projected adjusted figures are non-GAAP measures, and the company did not provide GAAP reconciliations because it said the timing and effect of potential adjustments could not be predicted without unreasonable effort.

Risks Investors Need to Watch

• Underlying product-margin pressure: Total gross margin improved, but lower product margin rates remained a headwind. Marketplace, advertising revenue and tariff refunds must continue to offset that pressure for margins to hold.
• Higher operating expenses: Compensation, advertising and spending on Marketplace and Best Buy Ads pushed the domestic adjusted SG&A ratio higher despite revenue growth.
• International weakness: International revenue, comparable sales, adjusted operating income and operating margin all declined, with foreign exchange adding pressure.
• Inventory and working-capital requirements: Inventory increased year over year and absorbed more cash during the first half, although higher accounts payable and earnings supported overall operating cash flow.
• Uneven category demand: Growth in computing, home theater and emerging products contrasted with declining entertainment sales and weakness in traditional gaming.

Summary

Best Buy’s Q2 FY27 results combined domestic comparable-sales growth with improved gross and adjusted operating margins. Computing, consumer electronics, services, Marketplace and Best Buy Ads supported performance, while tariff refunds provided an additional margin benefit; international weakness, lower product margins and higher expenses limited some of that improvement. The raised FY27 outlook shifts attention to whether domestic demand and higher-margin initiatives can sustain growth while the company manages costs, inventory and weaker international operations.