Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's First Quarter Fiscal 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available by approximately 1:00 PM Eastern Time today. [Operator Instructions] I will now turn the conference call over to Mollie O'Brien, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO; Matt Bilunas, our CFO; and Jason Bonfig, our Senior Executive Vice President of Customer Offering and Fulfillment. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release, which is available on our website, investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments, and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current earnings release and our most recent Form 10-K and subsequent Form 10-Qs for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. And now, I will turn the call over to Corie.

Good morning, everyone, and thank you for joining us. It has certainly been an eventful start to the year. I'm proud of how our teams have been navigating the environment and planning our business against the backdrop of dynamic macroeconomic factors. They've employed a calm, strategic, and steadfast approach with their ultimate focus on our customers and the partnerships we have with our vendors. Against this backdrop, we executed well in Q1 and delivered better than expected profitability. Today, we are reporting first quarter revenue that was slightly below last year, as expected, and adjusted operating income rate that was flat year-over-year. On revenue of $8.8 billion, we delivered an adjusted operating income rate of 3.8% and an adjusted earnings per share of $1.15. From a product category perspective, we drove comparable sales growth in computing, mobile phones, and tablets. This growth was offset by declines in home theater, appliances, and drones, resulting in a domestic comparable sales decline of 0.7%. We delivered 6% comparable sales growth in the combined computing and tablet categories. Our omnichannel operations provided strong support for our Q1 online sales, which grew year-over-year for the second consecutive quarter. They were nearly 32% of total domestic sales, a slightly higher mix than last year. Almost 60% of online purchases are delivered or available for pickup within one day, and we drove our strongest on-time ship-to-home delivery performance in three years. For the most part, customer behavior in Q1 did not change materially from the commentary we have shared for the past several quarters. Customers continued to be deal-focused and attracted to more predictable sales moments. We believe the consumer has remained resilient while dealing with persistent inflation, making them value-focused and thoughtful about big ticket purchases. We also still see a customer that is willing to…

Good morning. Let me start with an overview of how the first quarter performed versus the expectations we shared with you last quarter. Enterprise comparable sales declined 0.7%, which was consistent with our outlook. Our adjusted operating income rate of 3.8% was approximately 40 basis points better than expected, which was primarily driven by favorable SG&A expense. The favorable SG&A was primarily the result of an indirect tax settlement and strong expense management. Our gross profit rate of 23.4% improved approximately 10 basis points versus last year, which was consistent with our outlook. I will now talk about the first quarter results versus last year. Enterprise revenue of $8.8 billion decreased 0.9% versus last year. Our adjusted operating income rate was flat to last year, with both gross profit and SG&A largely similar to last year as a percentage of revenue. While adjusted operating income dollars were flat to last year, our adjusted diluted earnings per share decreased 4% to $1.15. One of the drivers of this lower EPS was approximately $10 million of lower investment income, which was due to a lower average cash balance combined with lower short-term interest rates. By month, our enterprise comparable sales were down approximately 2.5% in February before increasing 0.5% in March and declining 0.4% in April. The shift of Easter improved March and negatively impacted April comparable sales by an estimated 250 basis points to 300 basis points. In our Domestic segment, revenue decreased 0.9% to $8.1 billion, driven by a comparable sales decline of 0.7%. International revenue of $640 million decreased 0.6% versus last year, which was driven by comparable sales decline of 0.7%. The revenue decrease also included a negative foreign currency impact of approximately 450 basis points, which was offset by revenue from Best Buy Express locations that opened…

Thank you. [Operator Instructions] Your first question comes from Scot Ciccarelli with Truist. Your line is open.

Good morning, guys. So, I think we all understand that the tariff scenario has been highly dynamic, but it does sound like you have a pretty significant difference in terms of your China sourcing versus, call it, three months ago. Can you just help us better understand that? Like is that just a function of -- is it vendors moving product around for you? Is it just better understanding where the products are coming from? Any more color on that? And then part two, just a housekeeping item, how big was the tax settlement in the SG&A? Thanks.

Scott, I'll start on that China sourcing question. I'm actually going to just reiterate a few things to make sure that everyone got all the data points, because I do think they're pretty important. First, we said that China has come down to 30% to 35% compared to the 55% metric. And then just to reiterate, about half the China-sourced products are at the 30% tariffs, and then roughly half are at the 20% tariffs pending the 232 investigation. Then we said combination of US and Mexico at about 25% of COGS and that has zero tariffs across both of those. That leaves roughly 40% that are coming from other countries like Vietnam, India, South Korea and Taiwan, which are currently at 10%. As we noted, we only directly import 2% to 3%. And so really it's been about these mitigation efforts that are both coming from the vendors and Best Buy that are -- and that's what's making it happen so that the increased product costs that are flowing to us are actually lower than the overall tariff rates. Explicit to those mitigations, Scott, to your point, the first one is one of the most important, and that is more leveraging of manufacturing flexibility than we were seeing prior. Since 2018, many vendors, including ourselves, have created new manufacturing locations and you can flex some of those new locations up and perhaps flex down some of the locations that are in China, thereby changing that mix that you're seeing. And remember, these are global supply chain. So they're supplying to many different countries across the globe. And so, you're going to use potentially different locations to supply different countries depending on the tariff situation. Two, we also talked about increasing country diversification just writ large. Obviously, we try to…

Yes, Scott, into the tech settlement sizing. Our domestic SG&A was about $13 million lower than last year, and it's the only item we called out. So it's fair to assume that it's at least $13 million, if not a little higher than that.

Got it. Very helpful. Thanks, guys.

Thank you.

The next question comes from Mike Baker with DA Davidson. Your line is open.

Okay, great. Thanks. Can you talk about -- do you think you saw any pull-forward in demand? Some vendors and other retailers have talked about seeing some pull-forward in consumer electronics demand, although it doesn't seem to have shown up in your same-store sales, and related to that, any comment on market share, how you think you're holding up versus the market and versus other retailers? Thank you.

Sure. Yes, I mean, we started the quarter a little slower. February was a little lower than as we started the quarter and improved throughout the year. It's a little hard to look at the specific impact to a pull-forward, if you will, because of the shifting of the events for Easter. But likely there was a few weeks -- a couple of weeks there that were elevated because of the pull-forward, but not really hard to size you can appreciate because of the Easter shift.

I think there's one thing that's a little hard to judge in terms of Q1 consumer demand, and that is at the very end of April, you saw a lot of pre-orders come through for the Switch. Those are dollars that consumers feel like they've spent in consumer electronics, but you're not going to actually see those dollars flow through until Q2. So yes, we maybe have two weeks of pull-forward in a couple of categories, but also we have this kind of weird factor that consumers feel like they're spending money in consumer electronics, but yet, they're not actually -- we won't recognize that. They won't actually get the products until June, just to add on to Matt's comments. In terms of market share, I mean, we've said this multiple times. There isn't a great single source for everything we sell, especially in consumer electronics. And obviously, quarter-to-quarter within categories, you're going to see fluctuations depending on competitive actions and trade-off decisions. I think it's fair to say that we are going to make strategic pricing and promotional decisions depending on the environment. And in Q1, we talked about this going into the quarter. This is a quieter quarter for us from an events perspective. There are fewer launches and initiatives, which tend to be the places where we over-index in share. And so, I think in Q1, we maybe saw a little bit of share loss, but we have really good plans for the rest of the year, especially as we think about those launches and we think about the laundry list of things that I gave at the end of my prepared comments in terms of where we are investing and the timing on which we expect to see those returns. And so last year we gained share in computing, we expect to gain share again this year, same with gaming, where we saw share gains last year and really some record-high share levels for us. So, I think we have the right plans in place for the year, and we're a little less concerned about precisely in any given quarter exactly where that ends up.

Fair enough. If I could ask a follow-up. Last quarter, you did indicate that you thought there might be some changes in consumer behavior because of the tariffs. And even though I think you're mitigating a lot and not seeing a lot of price increases, there are -- I think you're saying some price increases, yet you're saying that you're not seeing any change in consumer behavior. So is the -- I guess, can you square those as the consumer not pulling back or we're not seeing any demand destruction from higher prices?

So let me reiterate what we've been saying about the consumer from literally the last few quarters. That is, the consumer is remaining resilient, but we've been very clear to say they are making trade-offs in their spend, and their budget decisions based on higher prices across many areas of their lives. And I think while tariffs is perhaps an additional one, there's been a great deal of inflation up to this point. So this isn't just a conversation about tariffs. We've been very clear in saying consumers are making trade-offs, and we can see that within our categories. At the same time, we see a consumer who is seeking value and sales events, and they are willing to spend on higher price points when they need to or when they see compelling new technology. That also is remaining true for us. And so, what we're trying to do is take even in the last quarter, are we seeing relatively consistent behaviors? Yes. And there are some categories where if you take something like televisions where we can definitely see consumers trying to make some of those value trade-offs, but at the same time, we see this continued strength in computing and tablets where there's both need and innovation and they're willing to go ahead and spend in those areas.

Makes sense. I appreciate it. Thank you.

Thank you.

Thank you.

Your next question comes from Greg Melich with Evercore ISI. Your line is open.

Hi, thanks. I want to follow-up on one of the key areas of initiatives, the 3P growth, and the advertising. Where does that show up currently? Which segments does that show up in? And then I had a follow-up.

Yes, the incremental advertising that we were planning to drive through the ad initiative, some of which would show up in revenue, some of which would show up in gross margin. It kind of depends on the nature of the contract and nature of the arrangement that we've made. So, the answer is, it depends based on whether -- in larger part, whether it's somebody we already work with in terms of a vendor. If it's not endemic, in many cases, it can show up in revenue in addition to margin. But right now, most of that ad sales that comes through comes through in the margin category. Over time, we would expect to add more to the revenue side as we build out that initiative.

And for 3P, is that the same, how do we think about that?

Yes. 3P would be traditionally like other marketplaces where you would recognize the commission revenue and gross margin, and then we at some point may give like gross sales commentary like other folks do, but the gross -- the commissions that will show up in margin from the 3P sellers.

That's great. And I just -- my follow-up is on tariffs. Thanks for all the detail, that's super helpful. I guess it feels like the blended rate, if my algebra worked quickly, is in the mid to low teens from where we are today. Can we think about that price elasticity that you talked about earlier in March? Do you think that still holds given that sort of this -- if we land at this tariff rate in the low to mid-teens?

So, Greg, I want to reinforce something that I said in my prepared remarks. After I went through all the mitigation efforts that we're talking about, I actually made it a point to say that due to those mitigation efforts, both by vendors and by Best Buy, the increased product costs that are flowing to us are lower than the tariff rates. So while I know you're doing the blended math and I know that's a great place to start, then you have to assume because of that laundry list of mitigation things I'm talking about, there are other ways for us to try to mitigate some of those tariffs and collectively make sure that we are staying competitive for our customers. And so the elasticities that the team built, and they've done an amazing job building some models around this, are built on kind of these lower tariff levels that we would expect to flow through based on these ongoing mitigation efforts in partnership with our very wonderful vendor partners.

Yes, maybe just add on, Greg, we have -- we know a lot more since the last time we did this estimate, so we've taken another attempt at understanding the elasticities, which are quite frankly different by category, and so we have updated our assumptions based on those elasticities, so everything Corie said was exactly right. Those elasticities are based off of cost increases that aren't necessarily at the level of effective tariff rate that will be flowing through.

That's great. Good luck. And thanks for all the help.

Thanks, Greg.

Your next question comes from Simeon Gutman with Morgan Stanley. Your line is open.

Hi, this is Loren Eng on for Simeon. Our first question is, you sounded pretty positive on your categories, such as computing and tablets, mobile phones due to the replacement cycle or other maybe in-store initiatives. Can you bridge that positive sentiment versus your updated comp guidance of down 1% to positive 1%?

Yes. I mean, we did a few things for our updated guidance range. We first looked at the base level trends that we're seeing happening throughout the Q1, and in some cases, things like computing performed better, mobile performed better than we expected. In some other cases, as it always does, some of the categories performed a little lower than our expectations. So we looked at those assumptions for the remaining part of the year as best we could, made some adjustments. And then what we did was, we applied an updated view of what we believe the tariff impacts could be based on all the commentary that we've already given. So there's clearly a range that we're providing for both a high and low in terms of the possible tariff impacts, but those two were also layered on to and not the same, but similar concept to what we provided last -- three months ago, when we said about 1 point of comp was for the 10% China tariffs. It's the same idea, except that we've updated our information and now layered that into the guide overall.

Okay, great. That's helpful. And then our follow-up is just on gross margins. Is there anything to call out from a cadence perspective, specifically, when do you expect maybe benefits from the rollout of the US marketplace to start taking shape? And if you could maybe help size the opportunity of margin benefits from the marketplace? Thank you.

Yes, we haven't sized the benefits from either the Best Buy Ads initiative or marketplace. We have said and continue to believe that the benefits of the rate should be helped in the back half of the year from both of those items. Marketplace is actually an OI help -- OI rate help for the full year. The Ads business while helping gross margin rate a bit, it does have a bit of investment, which kind of makes the OI impact for the year fairly neutral, but they both do help boost the gross profit rate more towards the back half of the year and we haven't sized them, but they are helping to drive -- offset some of the pressures that always exist as we move through the year.

Great. Thank you.

Thank you.

Your next question comes from Peter Keith with Piper Sandler. Your line is open.

Thanks. Good morning. Appreciate all the detail. Maybe to follow up on the Marketplace, are you still on track for a mid-year launch? And then on the cannibalization angle, is there any negative impact on comp this year that would be factored into the outlook?

Yes, we still are on pace for a mid-year launch, and I think we were pretty explicit when we talked about it that even after the investments that we're making and the cannibalization, we still saw this as accretive overall, both at a gross profit level and at an operating income level. So I think the team is -- and we have some knowledge from Canada, so we have some pretty good background knowledge on how to estimate that, and the team has tried to take that into account.

Okay. Fair enough. And Corie, certainly the Switch 2 coming should be a nice benefit. Just to the best of your visibility right now, are there other products or innovation launches that are coming in the upcoming months that you've got your eye on that you're excited about?

Yes, thanks for the question. I'll take that one. I think there's a lot of areas that we're excited about in total. You hit on one in the Switch and the excitement around gaming, and that the pre-order sold out very quickly and we're very excited about the midnight openings, but there's other innovation that happens in a lot of other categories. Computing in particular continues to be a category where we see growth and a lot of innovation and upgrade continuing. The AI benefits and features that continue to roll out are something we're excited about just the sheer amount of customers that upgraded early in the pandemic now have an opportunity to come back into the market and actually get some great new products across Windows 11, and obviously, the benefit associated with Windows 10 not being supported as we move past October, as well as Mac customers. There's millions of Mac customers that are still on older technology and haven't upgraded to the MCHIP yet and all the benefits associated with that product as they continue to refresh and upgrade those models as well. In addition to that, when you look across other categories, TVs, there's additional technology in mini LED, anti-glare screens, things that are really going to show interest and really solve true pain points for customers. And then Corie hit on it, but we're very excited about what we're seeing in the mixed in AR space. It is a growing category for us. It's an area where there's a tremendous amount of interest from customers and just new value propositions, new features and benefits, and people starting to get used to wearables that actually can do a lot of things in regards to AI, making your life easier, and actually having some entertainment value as well.

A couple of more things I would just add. Lastly, on the handheld gaming space, where I think you're going to see a lot of innovation, Switch kind of launching that, but we kind of see a few more things coming in the back half of the year. And also in the computing gaming space, computing isn't just about the productivity side, and certainly for kids like mine, the high-end gaming computers are really -- we're seeing a lot of success in that space, that includes the monitors that go with that are continuing to innovate. So I think we continue to remain pretty excited about that space as well.

Great. Thank you very much.

Your next question comes from Steven Zaccone with Citi. Your line is open.

Great. Good morning. Thanks very much for taking my question. I wanted to focus on the updated comp guidance. The tariffs obviously are creating complex environment, but as you look over the course of the year, you are facing some tougher comparisons because the computing business started to see improvement last year. Can you just help us understand the drivers to kind of comp the comp in the back half of the year? Given your commentary about pricing happening in mid-May, is there also an expectation that maybe pricing is a little bit more of a helper to comps as we think over the course of the year?

Yes. Thanks for the question, Steve. We outlined many of these at the beginning of the year as well and reiterated some of those here today. I think one of the things -- yes, comp for the computing gets a little tougher as the year progresses, but the items that Jason just mentioned, if you think about the opportunity as Windows 10 becomes unsupported in October. You think about also the need to upgrade millions of Macs out there as well for the new -- to leverage the new AI technology. There is, we believe, a very strong continued opportunity in the computing space, not to mention what Corie also mentioned, computing gaming desktops hasn't actually -- wasn't quite as strong last year as it's starting this year and we believe will continue as well. Mobile phones is positively comped, which hasn't happened for a while and we expect the experience changes, working with our vendors and expertise within that category to continue to help grow and boost sales as the year progresses. And then gaming, while maybe not getting to full growth this year, the pressure that we've seen will be lessened as you progress into Q2 with the Switch launch and as you get closer into holidays with continued possible growth and -- or less declines in that category as well. And then a lot of the store experience changes that we are rolling out this year, Meta glasses being one of them, different types of vendor product highlights within our store, all those things build towards, we believe, a growing comp situation as we progress through the year and that support the high-end of the guide. The low end of the guide, obviously, it could suggest that we don't see much of a difference in the back half of the year than we've seen in Q1 and Q2. Obviously, we're planning for a range of outcomes. Hard to know exactly if ASPs are a help given the tariff situation, we'll know more as the year progresses, but that obviously is a possibility in some cases, the elasticities are lower. We just have to see that transpire a little bit more before that -- we would note that uncertainty.

Okay. Thanks for that detail. And then to follow up, it's a bit of a near-term question. But since you've adjusted pricing and you've kind of caught this commentary in mid-May, have you seen any changes in consumer behavior or maybe from a competitive environment, have you seen any changes from some of your competition on pricing and promotions?

Not really. Memorial Day was competitive, it's always competitive. And we've said right now, you've got a value-seeking consumer, which means I think in those key drive times, we're definitely seeing even more competitive stance, both I would argue from us and from the competition. The last thing that I would add to build on what Matt had said. I mean, we started talking about unit growth in notebooks in Q4 of fiscal 2024. And we're still seeing nice growth in that space. Even in Q1, we talked about 6% growth in the notebooks and tablets area. So I think not only are we looking at, to your point, just this very near term, customers seem like they continue to behave the way we would expect. But also just generally on the comp to comp question, we're continuing to see this demand curve around, particularly some of the computing and tablets and mobile spaces. And you're just heading into a Win 10 upgrade and some more material advancements, I think, in terms of AI use cases. So the indicators at least feel like, and the guide would imply, we kind of feel like we're seeing some consistent behaviors from the consumer.

Okay. Thanks for the detail.

The next question comes from Brian Nagel with Oppenheimer. Your line is open.

Hi, good morning. Thanks for taking my questions. So [indiscernible] tariffs. I appreciate all the detail you've given. I mean, recognizing, look, it's very fluid and what's happening against a probably already sluggish consumer backdrop. But as the tariff rates continue to seriously unfold, I mean, philosophically, is Best Buy more focused on sales or really maintaining that gross margin rate and potentially sacrificing sales?

Yes. I'm just kidding. I mean, I think like always the balance, Brian, for any retailer, certainly for us, is navigating this environment in a way that stimulates consumer demand. Both us and our vendor partners have massive vested interest in ensuring as many customers get as much gear as possible at the best prices. And then, of course, like we always do, we're going to continue to work both internally here and closely with our vendor partners to optimize both pricing and promotionality, both during those key drive times and always. So, I think the -- and I think you saw some of it in Q1, like we are constantly working to try to balance those two factors. But I don't think at any given point in time, there's never a clear -- I always tease my team, there is no or answer, there is always an and answer. And this is definitely one of those places.

I got it. That's fair. And then my second question, you've done a great job of even with sales weak, maintaining or improving operating margin. So the question out there is, could you maybe describe better where you're seeing the efficiencies? And then looking out over any late at time and to the extent that sales restrengthen, will these efficiencies hold, or will there be expenses that will have to come back into the model?

Yes. I mean we -- it's safe to say, we are always looking for efficiencies even in a normal year, which there hasn't been really normal year for a while, but we're always looking for ways to improve our costs. And I think we've outlined a few of those things. We've really [Technical Difficulty] revolutionized our customer care operations in terms of using lot of data to make that process easier through conversational AI and upgrading our IVR systems. Corie talked about the procurement operation, which gives us a lot more visibility to the goods not-for-sale spend and that will continue to pay off as we -- this year and into the years to come. Supply chain operations has done a lot of things to improve and drive efficiencies. We talked a little bit about the rule-based shipping process and data-driven solutions that we're employing there. There's also a lot of large product transformation, meaning where are we storing the product, how are we flowing the product in through adjusting those things, you can find continued opportunities. And we've even used automated vehicles in some of our places to invest in leading technology to actually drive cost out as well. So, there always will be continued opportunities for us to look for cost to help make sure we can invest in the right places and offset any pressures that inevitably come in any given year.

Got it. I appreciate it. Thank you.

Thank you.

Your next question comes from Jonathan Matuszewski with Jefferies. Your line is open.

Great. Thanks so much. My first question is on pricing. I imagine the approach varies across different SKUs and categories. Is there a way to think about the overall blended price hike that's embedded in the current comp guidance, whether it's mid-single digits, higher or lower? Thanks.

Yes, we're probably obviously is we're not going to give a specific number there too. We'll continue to learn as the year progresses. It's safe to say we obviously ultimately set our pricing. As a reminder, we only bring in 2% to 3% of the goods for sale for our COGS, I want to make the point that only a portion of and we talked about here today of the tariff rate increases that blends out to something lower only come through in the form of cost increases. And if we get to the point where we do raise prices, they are not that same effect of tariff freight, generally speaking. So we are providing that providing that information, but do feel comfortable that at the end of the day, we are always going to be competitively priced regardless of the cost, and we'll find ways to help offset that through other means.

Jonathan, I would just add that this is such an incredibly fluid situation that also us trying to snap the line at any given point in time is almost impossible, because all those mitigation efforts that I outlined, those are going on day in and day out by the teams as we make those trade-off decisions. So it is not a static number, it is one that we are constantly working.

Understood. And my follow-up is on Best Buy Health. It sounds like you continue to pursue actions aimed at improving the profitability of that business. As you've taken a closer look at it, how do you think about its role in the enterprise versus other alternatives?

Yes. I mean, let's step a second back to the strategy of the health business is enabling care at home for everyone. And that fundamental belief system for us remains. And as you think about the business that we have called active aging or our lively business or even just some of the care at home business, these remain very viable business models for the future. Now the part that has been harder and taken longer to develop than we initially thought is some of the very discrete in-home health that we are providing in partnership with some of the healthcare industry. And that's really been made more complex twofold. One, by the adoption of hospital-at-home solutions at scale just being slower because partially the health-at-home waiver has been caught up in a lot of the administration's budgeting conversations, and it's been inconsistent in terms of how long that waiver will be in place. And two, some of the healthcare providers have just faced their own financial struggles over the past few years. And so we've been working to optimize that part of the healthcare business at Best Buy, but the remaining parts remain very viable. And I think all of us would agree, we absolutely see a future where more of your healthcare is taken into your own hands using technology and technology devices. You can already see it across our assortment and across how people are choosing to take care of their own health, and we will continue to lean into that part of the strategy. And I think with that, we have reached time, and that's the last question today. Thank you everyone for joining us, and we look forward to sharing our Q2 results in August. Have a great summer.

This concludes today's conference call. Thank you for joining. You may now disconnect.