Best Buy cuts forecast, shares drop

Investing.com -- Shares of Best Buy (NYSE:BBY) tumbled more than 7% in pre-market trading on Tuesday after the electronics retailer reported disappointing third-quarter results and cut its full-year sales outlook, signaling weaker consumer demand ahead of the crucial holiday season.

The company’s comparable sales for the quarter declined 2.9%, underscoring softening demand in key categories such as appliances, home theater systems, and gaming. 

While Best Buy managed to grow sales in computing, tablets, and services, it wasn’t enough to offset the broader drop in revenue, which fell short of Wall Street expectations. 

Total (EPA:TTEF) revenue for the quarter came in at $9.45 billion, below analysts’ consensus estimate of $9.64 billion.

“During the second half of the quarter, a combination of the ongoing macro uncertainty, customers waiting for deals and sales events, and distraction during the run-up to the election, particularly in non-essential categories, led to softer-than-expected demand,” said Corie Barry, chief executive at Best Buy.

In its updated full-year guidance, Best Buy revised its comparable sales forecast to a decline of 2.5% to 3.5%, compared to its earlier projection of a 1.5% to 3.0% drop. 

Best Buy reported GAAP diluted earnings per share of $1.26, a 4% increase from the previous year. However, on a non-GAAP basis, EPS decreased by 2%, also landing at $1.26 but falling short of analysts’ estimates of $1.30. 

The company attributed the decline in part to higher advertising expenses and reduced profit-sharing revenue from its credit card programs.

Despite facing challenges, Best Buy reported a stronger gross profit margin, increasing it to 23.6% from 22.9%.

This gain was driven by strong performance in its services business and membership offerings. 

However, those positives were tempered by higher costs, particularly in international operations where the company has been expanding its Best Buy Express locations in Canada.

Online sales were another relative bright spot, slipping just 1% to $2.73 billion. E-commerce now represents 31.4% of Best Buy’s domestic revenue, up slightly from 30.6% a year ago.

Best Buy's updated guidance for FY25 non-GAAP diluted EPS is between $6.10 and $6.25, revised from the prior range of $6.10 to $6.35.

The company maintained its non-GAAP operating income rate guidance at 4.1% to 4.2%, reflecting slight expansion compared to FY24. Additionally, Best Buy expects a non-GAAP effective income tax rate of about 23.5%, slightly reduced from the previous guidance of 24%.

For the fourth quarter of FY25, Best Buy projects the non-GAAP operating income rate to be between 4.6% and 4.8%.

The retailer also reaffirmed plans to spend $500 million on share repurchases this year and announced a quarterly dividend of $0.94 per share.