Best Buy's Third Quarter Shows Momentum With Stronger Sales Performance

Best Buy Co., Inc. [BBY] delivered impressive third-quarter results in fiscal 2026, with both earnings and revenue climbing above Wall Street expectations while year-over-year gains continued to accelerate. The retailer’s strategic focus on enhancing its omnichannel presence, scaling revenue streams including its marketplace and advertising platforms, and optimizing operational efficiency has positioned the company to offset external headwinds and fund future growth initiatives. Following a robust Q3 performance and strengthened guidance for Q4, management has raised its full-year outlook. The stock responded positively, rising more than 5% in pre-market trading, and has gained 12.8% over the past six months compared to the industry’s 9.2% increase.

Q3 Financial Results Demonstrate Solid Execution

Best Buy’s earnings performance rose significantly, with adjusted earnings reaching $1.40 per share, surpassing the Zacks Consensus Estimate of $1.31 and climbing 11% from $1.26 in the year-ago quarter. Enterprise revenues of $9,672 million exceeded the consensus target of $9,576 million and rose 2.4% from $9,445 million a year earlier. Most notably, enterprise comparable sales jumped 2.7% year over year, with monthly performance showing particularly higher momentum in August (approximately 3%) and October (5%), though September growth moderated to 1%.

The company’s gross profit edged up 1.4% to $2,248 million, though gross margin contracted 30 basis points to 23.2%. More encouragingly, adjusted operating income climbed 10.5% to $388 million, with adjusted operating margin rising 30 basis points to 4%, primarily driven by better-than-expected expense management. Adjusted selling, general and administrative (SG&A) expenses increased only 0.7% year over year despite higher revenues, declining 30 basis points as a percentage of sales to 19.5%.

Domestic Operations Drive Growth

Domestic revenues of $8,878 million rose 2.1% year over year, underpinned by a 2.4% comparable sales increase that outperformed internal projections of 1.5%. Gaming, computing, and mobile phones emerged as the strongest merchandise drivers on a weighted basis, though home theater and appliances faced headwinds. The domestic segment’s online revenues reached $2.82 billion, up 3.5% on a comparable basis, representing 31.8% of total domestic revenues compared to 31.4% in the prior year.

Domestic adjusted operating income climbed 6.5% to $360 million, while the adjusted operating margin expanded 20 basis points to 4.1% of revenues. The domestic gross margin fell 30 basis points to 23.3%, primarily reflecting lower product margins offset partially by improved service category rates.

International Segment Accelerates

International revenues of $794 million surged 6.1% year over year, driven by a robust 6.3% comparable sales increase, significantly higher than the company’s initial projection of 2% growth. This outperformance was achieved despite headwinds from foreign exchange and included incremental revenue from Best Buy Express locations. International gross margin rose 30 basis points to 22.8%, benefiting from favorable supply-chain cost dynamics.

The international segment’s adjusted operating income jumped significantly to $28 million from $13 million in the year-ago quarter, with adjusted operating margin expanding 80 basis points to 3.5% of revenues.

Strategic Initiatives Driving New Revenue Streams

Best Buy continues to invest in technology infrastructure to capture growth opportunities. The company launched My Ads, a self-serve platform enabling marketplace sellers to access on-site programmatic buying, advanced reporting capabilities, and improved ad inventory. Expansion into agencies and demand-side platforms is attracting non-endemic category partners testing the platform in innovative ways. Financial services have emerged as a significant growth vertical, with PayPal, Klarna, and Capital One activating campaigns during the quarter.

The rollout of Meta’s latest AI glasses across more than 50 store locations with immersive showcase areas staffed by Meta experts is enabling customers to experience cutting-edge technology hands-on. Partnerships with premium brands such as Breville and Shark Ninja have expanded assortments for home cooking enthusiasts and modern health and beauty solutions.

Leveraging AI for Customer Experience and Efficiency

Best Buy is deploying AI across multiple business functions to streamline operations and enhance customer engagement. In customer support, AI-powered interactions have driven a 17% decrease in customer contacts while simultaneously improving customer experience scores through self-serve content and options. The company has implemented data-driven sourcing solutions to optimize fulfillment locations for more than 70% of online orders, resulting in faster delivery times, better on-time performance, and reduced operational costs.

Looking ahead, Best Buy plans to expand AI applications to product search, personalized recommendations, product content enhancement, conversational AI, and agentic commerce capabilities.

Capital Allocation and Shareholder Returns

Best Buy ended the quarter with cash and cash equivalents of $923 million, long-term debt of $1,155 million, and total equity of $2,653 million. The company returned $234 million to shareholders during the quarter, comprising $199 million in dividends and $35 million in share repurchases. Year-to-date shareholder returns totaled $802 million through $602 million in dividends and $200 million in buybacks. Management anticipates approximately $300 million in share repurchases during fiscal 2026, and the board has authorized a regular quarterly dividend of 95 cents per share, payable January 6, 2026.

Revised Full-Year Guidance Reflects Stronger Momentum

Best Buy has raised its full-year fiscal 2026 guidance, now projecting revenues between $41.65 and $41.95 billion compared to the prior outlook of $41.1 to $41.9 billion. The company expects comparable sales growth of 0.5% to 1.2%, improved from the earlier range of (1.0%) to 1.0%. Adjusted operating margin is maintained at approximately 4.2%, with adjusted effective income tax rate expected near 25.4%. Adjusted earnings per share guidance remains at $6.15 to $6.30, while capital expenditures are projected at approximately $700 million for the fiscal year. Fiscal 2026 gross profit rate is now expected to decline nearly 15 basis points year over year.

Q4 Outlook and Holiday Positioning

For the fourth quarter, Best Buy anticipates comparable sales growth between down 1% and up 1%, with adjusted operating margin of 4.8% to 4.9% compared to the prior year’s 4.9%. The company expects fourth-quarter gross margin to decline year over year due to higher promotional investments, though this should be offset by growth from its ads platform, online marketplace expansion, and enhanced profitability from services. SG&A expenses are expected to rise due to increased investments in advertising, technology, and employee compensation, though these are partially offset by lower Best Buy Health costs and reduced incentive compensation.

Best Buy has entered the holiday season with compelling product offerings including Nintendo Switch 2, gaming laptops, ASUS ROG Xbox gaming handhelds, OLED TVs, AI glasses from Ray-Ban and Oakley, 3D printers, and exclusive items such as limited-quantity Pokemon cards and JBL PartyBox speakers. The company maintains its position as the official NFL home entertainment retailer, with heightened holiday campaign visibility across NBC, Peacock, CBS, Fox, and Netflix. A comprehensive trade-in program aims to help customers transition to new technology throughout the holiday period.

Comparable Retail Landscape

Within the broader retail sector, several peer companies merit consideration. Genesco Inc. [GCO], a footwear and apparel retailer, carries a Zacks Rank #2 (Buy) rating and has delivered an average trailing four-quarter earnings surprise of 28.1%. Five Below [FIVE], a specialty value retailer, also holds a Zacks Rank of 2 with an average earnings surprise of 50.5% over the past four quarters and projected current-year sales growth of 16.2%. Ulta Beauty [ULTA], a lifestyle brand with a Zacks Rank of 2, has delivered an average trailing four-quarter earnings surprise of 16.3% with current-year sales growth expected at 6.8%.