Pre-market surge! Profitability strategy proves effective in offsetting weak sales Best Buy(BBY.US)Q4 earnings surpass expectations

Best Buy (BBY.US) announced better-than-expected holiday shopping season profits, causing its stock price to rise accordingly. Q4 total revenue declined 1.0% year-over-year to $13.8 billion, slightly below expectations. Adjusted operating profit accounted for 5.0% of sales, up from 4.9% in the same period last year. Adjusted earnings per share were $2.61, surpassing market expectations of $2.47 and last year’s $2.58. After the earnings release, the retailer’s stock surged up to 15% in pre-market trading; as of press time, the gain narrowed to 11%. Year-to-date, the stock has fallen 8%.

Domestic revenue in the U.S. decreased 1.1% to $12.6 billion, mainly due to a 0.8% decline in same-store sales. From a product sales perspective, home theater and appliances were the main factors contributing to the weighted decline in same-store sales. These were partially offset by growth in the computer and mobile phone segments. Best Buy stated that its data shows the overall market share remained at least stable, indicating consumer demand for the industry was slightly soft during the holiday season. International revenue grew 0.5% to $1.24 billion, mainly benefiting from favorable exchange rates, but was partially offset by a 1.3% decline in comparable sales.

The company successfully cut costs, including reducing expenses in its Best Buy Health division in the U.S. Fourth-quarter cost of sales was $10.93 billion, down from $11.03 billion in the same period last year.

Best Buy’s gross margin in the U.S. remained flat at 20.9% of sales, slightly above the market consensus of 20.8%. The margin growth was driven by increases in advertising and e-commerce platform sales, but these gains were largely offset by a decline in product gross margins.

Best Buy’s annual revenue has declined over the past three fiscal years. Over the last four years, the company has attributed the slowdown to increased price sensitivity among U.S. consumers, a slowdown in the real estate market, and reduced technological innovation. These factors have led some consumers to delay purchasing tech products, especially large items like new refrigerators. Additionally, since many consumer electronics rely on imports, rising tariffs have increased costs for Best Buy.

However, the company’s revenue guidance for this year is in line with expectations, giving investors confidence that the electronics retailer will not decline further. Looking ahead, Best Buy expects fiscal 2027 revenue to be between $41.2 billion and $42.1 billion (midpoint $41.465 billion), roughly in line with the market consensus of $42 billion; adjusted diluted EPS is forecasted to be $6.30 to $6.60 (midpoint $6.45), close to the expected $6.65. Best Buy also projects same-store sales (a metric measuring sales at stores open at least 14 months, both online and offline) will decline by 1% to grow by 1%.

CEO Corey Berry stated in a press release that, despite weak demand for consumer electronics during the gift-giving season, internal data shows Best Buy’s market share “at least remained stable” in the industry.

Best Buy aims to build on a solid performance foundation by 2025, with the release of Nintendo Switch 2 and a strong upgrade cycle boosting results. Analysts note that the stock’s rise reflects better-than-expected sales and profits.

CFO Matt Bilunas said in a statement that the company is “excited about the current business momentum.” However, he added that leadership “expects to continue navigating a mixed macro environment.”

Best Buy has shifted focus toward higher-margin businesses, including selling advertising and increasing product sales through its third-party marketplace launched in August. Berry stated in the company’s press release that the number of advertising partners has nearly doubled compared to last year, and the retailer has significantly expanded its product variety in the market.