BBY - NYSE

Ladies and gentlemen, welcome to Best Buy Co., Inc.'s Fourth 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. At that time, if you have a question, you will need to press star 1 on your phone. If you choose to be taken out of the question queue, please press star 1 again. As a reminder, this call is being recorded for playback and will be available by approximately 1 p.m. Eastern Time today. If you need assistance on the call at any time, please press star 0, and an operator will assist you. I will now turn the conference call over to Mollie O'Brien, Head of Investor Relations.

Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO, Matthew M. Bilunas, our Chief Financial and Strategy Officer, and Jason J. Bonfig, our Chief Customer, Product and Fulfillment Officer. 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 used, 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-Ks and subsequent 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. I will now turn the call over to Corie.

Good morning, everyone, and thank you for joining us. Today, we are reporting better-than-expected profitability for the fourth quarter. On revenue of $13,800,000,000 we delivered an adjusted operating income rate of 5% and adjusted earnings per share of $2.61, both of which are slightly up to last year. Our Q4 comparable sales were down 0.8% versus last year, within our guidance range for the quarter. Our data sources show our market share was at least flat pointing to slightly softer consumer demand for our industry during the holiday quarter. Our holiday customer demand patterns were also different than modeled despite sales event timing that was very similar to last year's. We saw softer-than-expected sales in November and December. We then experienced strong sales in the last two weeks of December and the January week of the quarter. And sales were negatively impacted by weather-induced store closures during the last. We were prepared for a promotional holiday, and the environment was even a bit more than we factored heading into the quarter. I'm proud of how our team strategically pivoted throughout the quarter in terms of marketing, promotionality, and labor. From a product category perspective, we delivered our eighth consecutive quarter of positive comparable sales in computing, driven by laptops, desktops, and accessories. In mobile phones, we delivered our fourth consecutive quarter of growth driven by our expanded partnerships and in-store operating model improvements with large carriers. We grew our gaming category revenue, but at a much slower rate than the previous two quarters as expected. We also saw strong growth in newer and emerging categories, like AI glasses, 3D printers, collectibles and toys, health rings, and PC gaming handhelds. These positive growth categories were offset by declines in home theater and appliances. We are pleased with the progress we have made in our ads and marketplace and both delivered positive contributions to gross profit rate in the quarter. We are also pleased with our customer experience metrics. Our relationship NPS was up materially year over year and the highest it has been in 11 consecutive quarters. We delivered significant year-over-year gains across all five of our most attributes, including helpful, empathetic, meeting tech needs like no other company can, value and ease. As we exited the year, we saw continued Five Star customer satisfaction gains in associate availability, product availability, and store appearance. For our online customers, we reached our fastest-ever fulfillment speeds for our fourth quarter with 70% of online purchases fulfilled within two days. As I step back and look at the full year, I am proud of what we have accomplished. First, we returned to positive comps and stabilized our share position while navigating a complex and often evolving tariff environment. We successfully launched and scaled our U.S. digital marketplace, onboarding more vendors than originally expected, and drastically increasing our available SKU count for our customers. We grew Best Buy Co., Inc. ads, while almost doubling the number of ad partners compared to the prior year. We were able to both make the necessary investments in our marketplace and ads initiatives and expand our enterprise operating margin through a combination of disciplined expense management and efficiency optimization efforts. We leveraged the use of new technology in many areas to elevate customer experience and drive efficiencies, including faster online shipping and delivery speeds and better customer support capabilities. We further strengthened our in-store customer experience by partnering with multiple key vendors to expand their investment in immersive merchandising areas as well as expert labor. And we remain committed to being a best place to work and our most recent employee engagement survey improved year over year ahead of industry benchmarks and we continue to have industry-leading retail employee retention rates. Finally, we returned $1,100,000,000 to investors in the form of dividends and share repurchases. I'm incredibly grateful for the hard work, dedication, and resourcefulness of more than 80,000 employees to achieve these results. Moving forward to fiscal 2027, we are excited about the momentum in our business. We also expect to continue to navigate a mixed macro environment. For the year, we are guiding comparable sales growth in the range of down 1% to up 1%. I'll highlight some key assumptions. Consistent with the past several quarters, we continue to see a consumer who is still spending, but is value-focused and attracted to sales moments. Importantly, while customers continue to be thoughtful about big ticket purchases, they are willing to spend on high price point products when they need to, when there is technology innovation. We do expect consumers to spend a portion of their higher tax refunds at Best Buy Co., Inc. concentrated in the first quarter. From a product category perspective, we are planning for continued growth in computing driven by industry momentum from replacement cycles, the end of support for Windows 10, and innovation driven by AI. We expect continued growth in mobile phones from the new carrier labor models and system enhancements we have implemented over the past year. And we expect continued growth in our newer emerging categories that I referenced earlier like AI glasses, 3D printers, collectibles and toys, health rings, and PC gaming handhelds. And we see opportunities to improve the sales trends in home theater from expanded store experiences, increased expert labor, and our role as the national retail launch partner for an exciting new technology RGB, in the middle of the year. As you are aware, the significantly increased demand for memory components is driving cost inflation and supply uncertainty, particularly in computing. We are partnering with our vendors to mitigate impacts on the business. We are focused on five major navigation themes. One, we are bringing in as much inventory as we can. We are also providing our vendors with a longer forecast horizon to better plan allocations across commercial and consumer segments and collaborate more effectively with memory partners. Two, regarding terms, we want to ensure that business and operational terms are situated to make Best Buy Co., Inc. a preferred partner in the eyes of our vendors during a constrained environment. Three, we are using our ability in computing to specify configurations to hit price points that match consumer budgets. Four, we are narrowing assortments to improve in stock where there may be constraints. And five, we are focused on educating customers on why now is still a good time to buy. Their current device may not be performing optimally, we have quality options for every budget, and they can get a better device today on the same budget as their last purchase, which may have been years ago. We have a number of tools to highlight, including trade-in, financing, refurbished products, and easy upgrade with Geek Squad. As we think about the impact on our fiscal 2027 outlook, the high end of our comparable sales guide reflects a more neutral impact as higher prices are offset by lower unit sales. At the low end of the guide, inventory is more constrained across a number of categories. Now I will talk about our multiyear strategy, which is consistent. We will continue strengthening our position in retail as a leading omnichannel destination for technology, while at the same time, scaling new profit streams. Our priorities and resource allocation philosophy remain consistent as we build upon the momentum from fiscal 2026. These are, one, drive omnichannel experiences that resonate with our customers, two, scale Best Buy Co., Inc. ads and marketplace, and three, drive efficiencies and identify cost reductions that are crucial to help fund investment capacity and offset pressures in our business. Let me provide some key details on initiatives across stores, digital assets, and our services offerings. Last year, we provided multiple examples of store refreshes and upgrades we implemented in partnership with our vendors, including Meta, Breville, SharkNinja, TCL, Hisense, and LG. We are expanding these experiences to yet more additional stores this year, demonstrating the value these are driving for our vendors and our customers. In addition, we are continuing to improve our stores' look and feel by using our square footage more strategically. For example, in approximately 70 stores, we will move computing to the center of the store. Consolidate space, and allocate open spaces to value-generating initiatives. Many of these open spaces will be filled with a much larger and more comprehensive assortment from Meta. In other stores, we are piloting either outlet sections or outdoor furniture from our Yardbird brand. In these cases, we are shifting from stand-alone locations to leveraging the space and traffic we already have. This year, we expect to have new domestic Best Buy Co., Inc. store growth for the first time in more than a decade. We plan to open six new stores to better meet demand in markets that have grown, including areas where we have not previously had a physical presence. We have created and tested a smaller store model that drives incremental revenue in these types of markets. Like the Bozeman store we opened last year, we expect to close only two Best Buy Co., Inc. stores as a result of our ongoing review of leases as they come up for renewal. We are pleased with the investments we have made in customer-facing labor over the past couple of years. We plan to keep our labor flat as a percentage of revenue, balancing the growth in dedicated specialized labor with more flexible and multipurpose resources. We expect the level of vendor-provided labor hours to grow again this year after growing 20% in the second half of last year. Together with our vendors, we provide in-person expert CE experiences for our customers that are unmatched in today's retail world. As you would expect, we are also focused on our digital experience. We have already begun to activate on ways to bring our products to life through AI platforms this year. First, we are partnering with OpenAI to give our customers a new way to explore and discover our products. We are among the early retailers to make it easier for our product catalog to be displayed on ChatGPT, creating a more seamless path to product inspiration. We are also an early ads partner and exploring more opportunities to enhance our shopping experience with OpenAI. In addition, we support Google on its new universal commerce protocol, a cross-industry standard that helps create a more seamless agentic shopping journey across the web. Using this universal commerce protocol, we are working with Google to build a new way for customers to purchase directly in AI mode in Google Search, and the Gemini app. We are also the first retail partner to launch a native checkout integration with Wizard, an AI-powered commerce platform. As agentic commerce matures, we want to serve our customers in new ways both on and off of platforms. That includes evolving bestbuy.com to be more agentic-friendly, and ensuring our site is ready for AI agents to browse and discover on behalf of our customers. Other fiscal 2027 online priorities include strengthening customer recognition and personalization, increasing app adoption and engagement, enhancing our new invite-only capability, and driving online conversion for categories like major appliances and TVs. Now I will discuss our services offerings, which have long been a key differentiator for Best Buy Co., Inc. To sustain our leadership, a priority for us this year is to reassess our Geek Squad services by simplifying our portfolio, while at the same time making our services accessible to more customers. The good news is we are making progress in simplifying our range of offerings with different price points to create customer choice. We are also planning to move beyond break-fix and product installation services to dive into experiential solutions that cater to a variety of evolving customer needs. Whether it is a simple product upgrade, or a full premium home installation, we will be there for our customers with speed, expertise, and convenience. We are continuing to prioritize our renowned Geek Squad agent support in home, in store, and virtually. At the same time, we are enhancing our digital and AI experiences. This dual approach allows customers to choose how they want to receive service, whether it is through direct interaction with an agent, or more autonomous digital solutions, empowering customers to get the support they need on their own terms. Our services are also instrumental to the growth of our Best Buy Co., Inc. business arm. Here, we focus on business segments like education, hospitality, builders, health care, and corporate enterprises. Product sales are concentrated in computing, home theater, and major appliances, and often paired with services, such as field installation and end-to-end product support services like device life cycle management. Our Best Buy Co., Inc. business team generated more than $1,100,000,000 in revenue in fiscal 2026, and we expect to generate a mid-single-digit sales growth rate again in fiscal 2027. Now I'd like to provide an update on our Best Buy Co., Inc. marketplace. First, we have been very pleased with the outcome and performance. Our customers are responding favorably too as sales ramped through the back half and represented approximately $300,000,000 in domestic GMV in the fourth quarter. Furthermore, our five-star ratings for third-party purchase experiences are consistent with that of first-party purchases. This outcome affirms that the team adopted the appropriate design principles to deliver a seamless customer experience regardless of whether the product is 1P or 3P. And customer return rates for marketplace items continue to be lower than our 1P return rates. These customers are taking advantage of the convenient return-to-store option for more than 80% of product returns. Top unit categories in Q4 included mobile phone accessories, computer accessories, movies, and small kitchen appliances, illustrating momentum and opportunity in what have traditionally been lower share categories for Best Buy Co., Inc. As a result, marketplace is driving unit market share growth. While we are still early in our journey, our 3P seller community remains highly motivated and excited by the initial performance. To date, we have enlisted over 1,100 sellers on Best Buy Co., Inc. marketplace, and over 90% of our sellers with an open storefront are experiencing sales in any given week. I would add that our store employees are equipped with the right tools to help customers get what they want even if we do not carry it ourselves, and are contributing to the marketplace GMV. Moving to Best Buy Co., Inc. ads. In fiscal 2026, our gross advertising collections were just over $900,000,000. This is up more than 7% versus last year. Today, these collections show up mostly as an offset to our cost of goods sold with a small amount flowing through revenue. In fiscal 2027, we anticipate growth of approximately 10%. By the end of fiscal 2026, we had 750 advertising partners, nearly doubling the count from last year. Most of this growth stemmed from marketplace third-party partners following our August launch. Additionally, our first-party partners are investing more, with an average annual investment up 16% year over year. Our on-site inventory mix was just over 40% last year, lower than many other retail media networks. On-site inventory drives a higher margin than off-site. So as we continue to create more on-site inventory and grow this mix, there is significant margin growth potential over time. Both ads and marketplace positively contributed to our gross profit rate in Q4 and we expect continued gross profit rate contribution this year. From an operating income rate perspective, expect a slight contribution this year due to ongoing investments in our technology stack, marketing, and headcount across our sales, operations, and technology teams. We expect fiscal 2027 to be the last major investment year, with more material operating income rate contribution coming in fiscal 2028 and fiscal 2029. In order to invest in initiatives like these that will bring long-term value and offset pressures in the business, our third long-standing business priority is crucial, and that is driving efficiencies and identifying cost reductions. There are many ways we realize these efficiencies: with technology and analytics, through ongoing vendor partnerships and vendor selection throughout the enterprise, and by modifying existing processes or customer offerings. In fiscal 2027, our key opportunity areas are supply chain, customer care, reverse logistics, and continued optimization of our health business. In summary, I'm pleased with the progress we made in fiscal 2026 and excited about what we expect to accomplish in fiscal 2027 as it relates to our multiyear strategy. We are deepening customer relationships and successfully strengthening our position in retail as a leading omnichannel destination for technology, while at the same time scaling new profit streams that we expect provide considerable benefit over time. I will now turn the call over to Matt.

Good morning. Let me start with our fourth quarter performance compared to the expectations we shared last quarter. Enterprise comparable sales declined 0.8% and were on the lower end of our guidance range. Despite the softer sales, our adjusted operating income rate of 5% was better than planned and included slightly favorable rates for both gross profit and SG&A. I will now talk about our fourth quarter results versus last year. Enterprise revenue of $13,800,000,000 decreased 1% versus last year. Our adjusted operating income rate increased 10 basis points compared to last year, and our adjusted diluted earnings per share increased 1% to $2.61. By month, our enterprise comparable sales were down approximately 3% in November, before improving to 0.2% in December and up 0.4% in January. Our domestic segment revenue decreased 1.1% to $12,600,000,000 driven by a comparable sales decline of 0.8%. From a category standpoint, the largest contributors to comparable sales decline were home theater and appliances, which were partially offset by growth in computing and mobile phones. Our online revenue of $4,900,000,000 decreased 2.3% on a comparable basis and represented 39% of our domestic revenue. Our online comparable sales growth includes the net commission revenue earned from our third-party marketplace sellers. From an organic standpoint, the blended average sales price of our products was approximately flat to last year. International revenue of $1,200,000,000 increased 0.5% versus last year. The revenue increase was primarily driven by the favorable impact of foreign exchange rates, which was partially offset by a comparable sales decline of 1.3%. Our domestic gross profit rate of 20.9% was flat to last year. During the quarter, our gross profit rate benefited from increased collections from Best Buy Co., Inc. ads and growth in marketplace commissions. These items were offset by lower product margin rates, which were primarily driven by an unfavorable sales mix and increased promotions. Our international gross profit rate decreased 90 basis points to 20.5%. The lower gross profit rate was primarily due to lower product margin rates. Moving to SG&A, where our domestic adjusted SG&A decreased $36,000,000. This decrease was primarily driven by reduced compensation expenses, which included incentive compensation, and lower Best Buy Co., Inc. Health expenses. These items were partially offset by increased expenses related to marketplace and Best Buy Co., Inc. ads, including higher advertising and technology expenses. During fiscal 2026, total capital expenditures of $704,000,000 were essentially flat to fiscal 2025. During fiscal 2026, we returned $1,100,000,000 to shareholders through share repurchases and dividends. We remain committed to being a premium dividend payer and this morning announced that we are increasing our quarterly dividend to $0.96 per share, which is a 1% increase. This increase represents the thirteenth straight year we have raised our regular quarterly dividend. Moving on to our full year fiscal 2027 financial guidance, which is the following: revenue in the range of $41,200,000,000 to $42,100,000,000, comparable sales of down 1% to up 1%, an adjusted operating income rate of approximately 4.3% to 4.4%, an adjusted effective income tax rate of approximately 25.5%, adjusted diluted earnings per share of $6.30 to $6.60, capital expenditures of approximately $750,000,000, and lastly, we expect to spend approximately $300,000,000 on share repurchases. From a phasing standpoint, the repurchases are planned to occur primarily during the fourth quarter, resulting in our weighted average share count remaining near the levels at fiscal 2026 year-end. Next, I will cover some of the key working assumptions that support our guidance. Earlier, Corie provided context on our fiscal 2027 top line assumptions, so let me spend more time on the profitability outlook. We expect our gross profit rate to improve by approximately 30 basis points compared to the prior year due to growth from Best Buy Co., Inc. ads and our U.S. marketplace. Now moving to adjusted SG&A expectations, include the following puts and takes. SG&A is planned to increase in support of ads and marketplace, which includes advertising, technology, and employee compensation expense. We expect higher incentive compensation as we reset our performance target for the next year, with the high end of our guidance assuming an increase of $30,000,000 compared to fiscal 2026. Store payroll expenses are expected to increase at the high end of our revenue guidance, with minimal impacts from a rate perspective. Partially offsetting the previous items are expected to lower Best Buy Co., Inc. Health expenses. Lastly, the low end of our guidance reflects our plans to further reduce our variable expenses, including incentive compensation, to align with sales trends. Before I close, let me share a couple of comments specific to the first quarter. We expect our first quarter comparable sales growth to be approximately 1%. From a monthly phasing perspective, comparable sales were down approximately 1% in February and expected to increase in March and April. We expect our first quarter adjusted operating income rate to be approximately 3.9% with gross profit rate expansion being the primary driver of the 10 basis points of year-over-year improvement. I will now turn the call over to the operator for questions.

We will now open for questions. At this time, if you would like to ask a question, press star, then the number 1 on your telephone keypad. To withdraw your question, simply press 1 again. Your first question comes from the line of Katharine Amanda McShane with Goldman Sachs. Please go ahead.

Hi. This is Grace on for Kate. Thank you so much for taking our question. We were wondering in the case that product prices do increase due to the higher memory pricing, what that could look like, and what do margins look like across the different computing categories, like good, better, and best? Thank you.

So overall for next year, our guide for gross profit is about 30 basis points increase year over year, which is primarily driven by both ads business and marketplace growing. The remaining parts of the gross profit rate are pretty neutral, even inclusive of the product margin rate. So for the year, product margin rate is going to be assumed to be pretty flat year over year. So within that context, there could be some categories, some pressure on margins because of memory cost. But overall, we would expect to be able to navigate based on the list of things that we talked about in our prepared remarks. The ability to manage some of that pressure that might exist. So overall, pretty neutral impact to product margin rates in total, but there could be unique areas within computing that might have some impact.

Your next question comes from the line of Scot Ciccarelli with Truist Securities. Please go ahead.

Good morning, guys. Hope you are well. Two questions. First, can you talk about what you saw in the fourth quarter in big screen TV sales, especially as a big competitor was really aggressive in that category from what we could tell. And then secondly, I guess, a bit more open-ended, how should we think about the growth opportunities around Meta and Google Glasses and any more details on how you are partnering with those vendors in that specific category? Thanks.

Okay. Thanks for the question. From a TV perspective, both revenue and units were below expectations in Q4 from an industry perspective. We are actually happy with the way that we showed up from a positioning perspective, but there just was a little bit more softness than expected. But we are excited and optimistic as we move into next year, and there is a new technology trend Corie mentioned, as we get into the middle of the year. With RGB technology across all of our major suppliers, we do think that is going to drive a lot of demand. It is going to drive a lot of interest in our store. It is really something that you need to see in person, and we will be there with our vendors to make sure that we put that on display in the best way possible. From a Meta perspective and just AI glasses in general, it is a significant growth trend for us. It does show up in gaming when we talk about it. We do think we have the best relationship with vendor partners, and our relationship with Meta is phenomenal. The way that they show up in our stores and the way we have been able to bring their new products to market, and then even locations that are even more of a showcase where the way that we were able to represent and partner with them on the display product and bring that to market. There are other things happening from an AI glass perspective. There is a lot of noise at CES and we expect that to be even more products not only from the partners that we already do, but probably also from new partners as this continues to be a growth category for us.

Scot, strategically, just to build on that a bit, I think the idea of AI for the consumer is kind of a long tail space where we will have a unique advantage. Some of that we have already been leaning into, which is think about, like, enhancing existing technology. That is like Copilot+; it is AI in computing. It is AI in phone. It is our ability to explain that and bring it to market. Some of it is what Jason is hitting on and what you asked about, that lifestyle tech example. There will be lots of different ways we will see that. Interactive gaming, we will see it in glasses. You are going to see probably some reinvigorated categories, things like smart home where it is actually just going to get a lot smarter. There is a lot more use cases that you are going to see for consumers. And then, ultimately, I think there is the question of what I would call always-on AI support. So what is right now OpenAI, connected TVs, talk about AirPods with cameras, kind of this idea of how do all these platforms start to show up actually in hardware and our experiences. And our goal is, and this is our sweet spot, as this technology comes to life, we want to be that key partner for our vendors to really help explain it to customers.

Thank you. Your next question comes from the line of Michael Lasser with UBS. Please go ahead.

Morning. Thank you so much for taking my question. Do you think you have appropriately embedded enough margin flexibility in your guidance in order to compete effectively in the year ahead? It seems like the industry just gets a little bit more competitive each day and 30 basis points of gross margin expansion may not be sufficient in order to drive the top line. Thank you.

I mean, I think we will obviously navigate the year as we know more. Michael, I think a couple points. Our space is always very competitive. If you think about just FY 2026, it was already a very promotional year. And on top of a high promotion year, we had a sales mix impact from the margin rates as well. I think, as you think about next year, we are certainly not expecting to not be promotional—probably a similar level of promotionality, but maybe in some quarters, a little less sales mix pressure potentially, which helps mitigate some of the potential product margin rates that might come with memory cost adjustments. So we will clearly navigate as best we can, but I think right now, we feel like we have appropriately built in the product rate pressure that we need to be competitive.

Two things I would add, Michael. We have made it very clear that we want to position ourselves to make sure we are driving particularly unit share. And I can see that happening for us as we come out of Q4. You can imagine we are trying to build in enough flexibility to be able to do that. Matt also hit on it in his prepared remarks. I did as well. This is where ads and marketplace are also very helpful to our model, especially on the gross profit side of things, because this is the fuel we are looking for to continue to be able to reinvest in the base business. So you have to remember, it is all those things put together that shows up in that gross profit expectation.

Understood. Thank you very much. And it seems like your message this morning is, listen, we expect 2026 to be a bit more challenging year because of these memory shortage challenges but you will navigate through it appropriately. Can you anchor the market to a longer-term expectation? Is 2026 just a transition year? The company can get back to positive same-store sales growth at the mid of whatever you would expect in the year after that? And what would be the key driver of that? Because presumably, if memory shortages are going to persist for an extended period of time, and the industry landscape is not going to get any easier. Thank you very much.

If we take a step back, this is an industry that, let us go pre-COVID, was, let us call it, flattish to up single digits pretty consistently. And what that relied on was also a pretty consistent kind of replacement behavior by consumers and a consistent innovation arm from our vendor partners. And as long as there was kind of the innovation and the replacement that really sustained a pretty decent growth trajectory for the industry, then our job was to continue to maintain our position, if not grow our share position, in that industry. Obviously, there have been lots of puts and takes over the last six years. Lots of pull forward. Now what we are getting back into is an interesting situation. You called out some of that kind of mixed macro that we had also called out, whether it is the ongoing situation or whether it is memory. On the flip side, though, we also are starting to see more innovation and more—I am going to call it—replacement behaviors, especially in computing and even mobile than we have seen in some time. So I think for our fiscal 2027, calendar 2026, what we are trying to do is put all of that together and say, for the coming year, here is what we see. And you are right. Some of that may persist. But the good news is there is also some of that innovation and that replacement behavior that is an interesting countervailing wind to some of the mixed macro impacts that we talked about. So I still believe over time, over the longer term, this is a great industry where, trust me, the world's biggest companies are innovating to bring new products to market, especially with AI coming to life the way that it is. I think it is just how do you navigate some of the challenges we see in front of us. And the last thing I would say is this is a team that has proven they are quite good at navigating in partnership with the vendors, if you just think about the year we went through. So I have a lot of confidence in our ability to do that.

The only thing I would add would be, on the guide for next year, clearly at the high end of our guide, we are factoring some level of memory cost impacting units, but we also potentially get the benefit on the ASP side too so that ASP potentially mitigates some of the unit declines on the higher end of any sort of outcome. And the low end, obviously, there could be a situation where you have more constraints just broadly within the computing industry that could bring it to the bottom of the guide. I would also say during the last couple years, we have seen that we have price points across computing in all of our areas. So to the extent that there are cost increases, what we have learned is that people come in with a budget, they look to buy a certain product. We always have something in a range of products that that customer wants. And so we are seeing some of that mitigate the potential impact of cost increases. We just proved it out over the last couple years with the tariff situation.

Thank you very much, and good luck.

Thank you.

Your next question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.

Hi, good morning. So my first question, I guess, shorter-term in nature. Just as we look at fiscal Q1. I want to make sure I heard this correctly. So you said comps were down 1% in February, but you are planning for a plus 1% for the full fiscal quarter. What underpins that expected acceleration here through the balance of the quarter?

Yeah. Thank you. We are expecting the full quarter to be about a 1% comp for Q1. In the quarter, we expect to see continued growth in computing, in gaming, in mobile phones. We also expect to see improved trends within the TV based on the vendor pads that we have added in the specialty labor and just making sure we are priced in the right spot. From a phasing perspective, like I said, we are seeing February down approximately 1%. There are a few unique things that impact the monthly phasing. First, we are, as Corie talked about in prepared remarks, expecting the benefit of tax refund spending. More of that is weighted towards the month of March and April for us than it is February. Secondly, there are actually a couple of more material phone launches timing shift from February to March. Those actually have a pretty significant impact to a certain single month's comp. So that phasing can account for a lot of that start to the quarter. And we expect other more important launches to kind of hit in the back half of the quarter as well. So that really kind of accounts for the majority of the phasing between February, March, and April.

That is very helpful. I appreciate it. Then my second question, I think you mentioned tariffs. This is in response to Michael's question previously. I just want to hit harder on tariffs. Where are we right now as far as dealing with tariffs, mitigation efforts? How does anything with tariffs and what Best Buy Co., Inc. is doing to deal with them affect or impact the guidance you laid out for the current fiscal year?

Brian, thanks for the question. I am just going to start with it, and I always start this way, but I think it is important. Our number one focus is always our customers and meeting their budgets wherever they are. And our approach has then been to deliver the right assortments to match the customer needs and the budgets while we partner with our vendors to make sure that there is a good outcome for all of us. And I have to say I am really proud of the way the team has been navigating. I think right now where we are, the recent Supreme Court ruling led to a lower effective tariff rate for our products at this point. And at this point, we have not modeled major impacts to our year based on that. I think there is still a lot, a lot of moving pieces, and there is still a lot to be figured out. But I think what is important here, and you can see it even in our results, we gave a lot of the reasons why our industry is a bit different. Things like, this is a really highly promotional category. It is relatively low frequency, so it is not like you are comparing prices week on week on week. It is an always changing assortment with different components and features. Innovation tends to drive price points up, while older price points kind of decline. It is a global supply chain, so vendors are making decisions across the entire globe. And we have this immense depth of product at all the different price points. So whatever your budget is, when you come in, we are going to have something for you. And so while there have been lots of moving pieces at the total company level, we are not seeing our ASP—has actually been relatively flat is what we saw in Q4. And so I think what that means too is customers are able to find what matches their budget, and we continue to work with our vendor partners to do that. So we know there will continue to be some changes in the space.

I think the team has done a really nice job working with our vendor partners to make sure we show up for our customers.

I appreciate it. Thank you for all the detail.

You bet. Thank you.

Your next question comes from the line of Steven

Hey. Good morning. Thanks very much for taking my questions. First one I wanted to ask was just how should we be thinking about the same-store sales cadence for the year? Would we expect every quarter to kind of be within the range? And then you gave the commentary on the memory impact, which is very helpful. Is there a cadence to be mindful of when it comes to ASPs and unit volumes just given the disruption?

Yeah. I think, broadly, if I look at the year, clearly talking about about a 1% comp for Q1. We clearly have not guided the rest of the quarters. But if you think about where maybe the more opportunity for us on a comp is probably in Q1 and Q4, some of our stronger quarters last year were in Q2 and Q3, so that might be a space where you might see a little bit of a little bit lower comp than maybe Q1 and Q4 as we are looking at it today. I think in terms of the memory, I think we are already starting to see some costs, some prices go up because of the memory in some small parts of categories. So it has begun a little bit. Imagine that continues to kind of roll through as we move into the future, into the upcoming quarters. Hard to say exactly at what pace does it change ASPs, but we are seeing signs that some spots are actually starting to increase.

Okay. Thanks. The follow-up I had was you have given a lot of detail on the marketplace and Best Buy Co., Inc. ads. Thanks for that. As we think about the opportunity for the contribution to EBIT margin in next year and the out year, can this be a material driver that the business can get back closer to a 5% operating margin in time?

Yeah. I mean, I think as we think about past this year, clearly, we believe strongly in these two initiatives and we were talking about how this year is still an investment year for both of those two different areas. But they are scaling pretty materially, and they are beginning to—you are seeing signs of it—adding to the gross profit rate. It is just taking a bit of SG&A investment the last year and then FY 2027 to kind of build into the different new areas to scale it. As we look beyond this year, we do expect both of them to not only add operating dollars to the bottom line, but also help us generate a better rate as we look forward. Now exactly how much, and where and when we get to that type of OI rate in total, cannot really say at this point, but we do believe it will be a great contributor to our ability to expand our operating rate in the future. And we will keep focused on scaling those two things in the right, responsible way and then continue to invest as we see fit to unlock that growth in the future years.

Okay. Thanks for the detail.

Your next question comes from the line of Steven Paul Forbes with Guggenheim. Please go ahead.

Corie, maybe just following up on Michael's comment from before. You mentioned average sales price flat, I think, in 2025. Then you also talked about configuration changes in conjunction with the vendors to meet certain price points. If it is not enough, maybe could you just baseline the outlook for average sales price for the company as a whole in 2026? And if you can maybe just talk about computing in particular as we marry together all these elasticity concerns.

Do not I wish I had the perfect organic forecast for you. To be clear, ASPs were flat in Q4. They were actually kind of down a bit in some of the other quarters, up a bit, but that was a Q4 quote. In terms of what we see going forward, we are not going to guide based on organic because, again, the goal here is have as many different price point opportunities available for the customer. That is true across our assortment, whether it is television—back to the earlier question where we continue to play really strongly in large screen—whether that is computing, whether that is mobile phones. The goal here is to have as many price points as possible and then have customers opt into what they want. So it is not even as easy as, alright, if all the SKUs go up X percent, that is probably not how it is going to work because the customer might come in with a budget and they are not going to look at a certain SKU. They are just going to look at how do I fulfill that budget. And so what we are focused on is less about exactly how much does the ASP per item go up. What we are focused on is how do we work with the vendor partners to make sure we have as many different price point items available with the right and best configurations possible so people can opt into what is most important to them.

That is helpful clarity. And then just, I guess, the second question around vendor support. You mentioned vendor-sponsored labor hours up, I believe, 20%, and I think there are some concerns out there around just promotional support. So I do not know if we can just talk about the various sort of components of vendor support and if there are any factors where you anticipate change, promotional support maybe being one of focus for investors?

Yes. So thanks for the question. There are a couple of things. Our vendors continue to make more investments in Best Buy Co., Inc. That is in physical experiences in our store. There was a long list of vendors that continue to contribute and want to grow that presence. There has also been a significant uptick in the amount of vendor labor that is supported, and that does not even include the training that they do throughout the year with our labor in total. From a promotionality perspective, we are not seeing a dramatic change there. I think there is one adjustment that you see naturally happen, and you are probably seeing it in computing first, which is price increases are not the first thing that happens. The first thing that happens is promotions are pulled back a little bit, and that is not that there is less of an impact or less of a funding of promotions. That is that there is less promotions. And in computing, you have actually seen less pure cost increases and more of a general slight pullback in promotions from computing vendors, which is the first thing they will do under this memory situation. The second thing is that the cost changes will come through. That is really the only area where we have seen any difference, and it is not a difference in level of support to Best Buy Co., Inc. It is actually an industry difference in level of promotional aggressiveness in a particular category. And just to be clear, the 20% reference was 20% growth in labor in the second part of last year. We would expect vendor-provided labor to grow this year as well, but that 20% reference was specific to the back half of last year.

Appreciate that. Thank you.

Thank you.

Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Hey. Good morning, guys. I am going to ask questions in one. So first, the positive comp trends in the first quarter, can you talk about the complexion? Is there any difference from the way the year ended? Then if you can merge that into thinking about the comp outlook for fiscal 2027 in totality. And then Matt, I know you mentioned promotionality. When we saw you in December, you talked about reserving the right to be more promotional if need be. So can you talk about how that tone progressed through Q4 and then the position you enter fiscal 2027? Thank you.

Sure. Yeah. So as we enter Q1, we do expect Q1 to see growth in areas that are pretty consistent to what we had been seeing. Places like computing and gaming, we have not quite lapped Switch launched in Q2 of last year. Mobile phones we would expect to be a growth area for us as we look here into Q1. We do expect improved TV trends. That would be something that we would carry through the remainder of the year as well. And then, like I said, we have some ED timing shifts between the months here in Q1 between the—from the mobile phone launch and other product launches. So those carry as you get into the latter part of the year. Continue to expect computing to grow at the high end of that guide. At the low end, it would assume a level of constraints that we cannot foresee at the moment. That is supported by continued end of support for Windows 10 and improved use cases for AI and just general replacement cycle continued need. The growth in mobile phones will continue to be fueled this year through the new carrier labor models and system enhancements that we have implemented last year. Interesting as you look into this year too, there are a lot of newer emerging categories that we have talked about like AI glasses, 3D printers, collectibles, toys, health rings. Those are all small individually, but collectively, they are about—they are even more—they are about a half a point or more of our growth next year. They will add up to something that is very nice that could support our business. And like I said, improved TV trends as the year progresses. Like Corie mentioned earlier, we have not contemplated any changes related to the tariff news that we have had. But I think, again, building on continued momentum, we do expect GTA in the back half of the year to help us in the back half. The other thing I would note is gaming, I would expect to see gaming growth in Q1. We will be lapping that Switch launch in the mid part of the year. So you would see a little bit of a difference in sequence growth there for the gaming category.

As it relates to promotionality, we have been pretty clear and pretty consistent. Customers have been drawn to key value events. And what we have also been clear about is we will lean into those places in partnership with our vendors and make sure that we are competitive. And so I think to Matt's point and when you heard him laugh, we know that these key moments, whether it is holiday, whether it is Fourth of July, whether it is Super Bowl, those are the moments where customers are really in the marketplace, and we are going to lean into those. But we have lots of tools also in our arsenal to lean into those. We have done a nice job really working hard on our more strategically personalized promotional levers as we can see signals now that we use to try to reengage customers back into the brand. Those have been very effective. And so I think what we are trying to do is make sure that when the customer is in the marketplace for good value, we are there, and we are competitive, and we are using other tools like trade-in and refurbished product and outlets and financing to make sure that we have the very best values there for them. And it seems to be resonating.

Great. Thank you.

Your next question comes from the line of Unknown Analyst with Wells Fargo. Please go ahead.

Hey. Good morning. So with the SG&A moving parts around vendor labor as well as investments, could you update us on your leverage point in 2027? And then as the investment cadence dials back in 2028, how does that impact your leverage point and incremental margins going forward?

Yeah. I mean, I think what you have seen us be able to do as sales, broadly speaking, move from positive to negative, we have been able to adjust our SG&A in a responsive way to kind of mitigate the impact of wire rate to continue to lever on a relatively big fixed cost base that we have. And so you see us in those situations, we responsibly—now we will always measure and look at customer experience to make sure we are not doing anything that is damaging—but we will scale back. First thing that scales back is incentive compensation as you move down on the scale of sales performance and ROI performance. You remove a level of incentive compensation within the year, and that is certainly representative in our guide. So at the bottom end of our guide, we will probably remove about $100,000,000 of incentive compensation at the minus 1% sales guide. We also will responsibly move down in terms of store labor, marketing, and other variable expenses to make sure that we are putting in the right amount of SG&A to support the sales outlook that we see. So those are a couple of examples, and then you see other changes to supply chain cost. If .com comes up and down, it can impact your parcel cost and bad debt expense. So there are things that just naturally flex down, and then there are things that you just responsibly move down because you are trying to match what you see in terms of demand. And you have seen us be able to manage our sales when sales do go down in a pretty responsible way and to deliver an operating income outcome that is actually as good in many cases as what it would have been at a higher end of sales.

Got it. And then on the appliance category, you have had some challenges there. Curious any thoughts on the game plan for fiscal 2027 to return to share gain? And how should we think about the glide path towards returning to positive comps?

Yep. Thank you for the question. Appliances continues to be a tough environment. Obviously, home sales and remodels are down. So the vast majority of the market continues to be duress and replacement of something that has, you know, broken. It also has been very promotional, not necessarily promotional that has led to an increase in business. So we are watching very carefully with our vendor partners around what promotions are actually doing to drive the business in total. Because the market is shifting to more duress and has been duress for a very high percentage, we are focused on a couple of things. Investments from our vendor partners in more specialty-specific labor to appliances, which we think will be helpful in investing in that experience. Investing in the ability for customers to take an appliance with them if they would like to do that, which is something that customers are showing more interest in doing in particular stores. And then we are really, really focused on delivery speed because it is around something broke, I need to have it replaced in a relatively short amount of time, and making sure we have that core set of SKUs that customers are able to get as quickly as possible, and we are able to actually get it to them as fast, if not faster than our competitors. And those are really the areas that teams are focused on as we move into next year just based on where the market is. And then when it flips, obviously, we will be very focused on the other part of the market, which is more experience driven, more bundle, more, you know, upgrading, but we will make sure that we serve both those segments of customers and be very, very focused in the first part of the year on that speed component.

Got it. Thanks for the time.

Thank you.

Your next question comes from the line of Jonathan Matuszewski with Jefferies. Please go ahead.

Great. Good morning, Corie and Matt. Two questions. First one, you are in top-to-top meetings with vendors frequently. Do your supplier conversations reveal plans to slow the pace of innovation and product launches in 2026, given the memory chip shortage distraction? And my second question, there is conjecture that recent computing and smartphone category performance could be aided by a pull-forward in demand with consumer awareness of potentially higher prices ahead. Are you seeing any evidence that would support a thesis of pull-forward? Thank you.

Great questions. On the first one, we are not seeing from our vendor partners that would slow down innovation. In fact, when you have something like we have in front of us with memory, there is actually a large push to try to find other things that are very valuable from a feature and benefit perspective to customers that will continue to drive the growth in the individual category. So looking at actually other parts of technology in computing, it could be size of screen, quality of screen, some of the AI features, but really other things that will drive interest into the category and make up for some of the pressure that we are going to see from a memory perspective in total. So there is absolutely nothing that would indicate that. And then as far as the pull-forward, where possible, we will pull in inventory. But from a demand perspective, we have actually seen continued stability and growth. We talked about computing. We have grown for the last eight quarters, and in mobile phones, we have grown for the last four quarters. There is not anything that is indicating that customers are actually trying to pull forward. It is actually just demand into categories that we are actually seeing customers want to upgrade.

There is one more thing that I would want to add to that before closing the call. And that is the concept of rising memory or component cost or shortages is not something that is new to the industry. It is something that we have dealt with in peaks many times over the last 25 years. So to reinforce some of what Jason said, our vendor partners are really excellent at pivoting and thinking differently. And by the way, there is no vendor partner out there that does not want to also drive consumer demand and continue to make sure their products are front and leading. And so this is not a brand-new space. It is just, you know, one more, I think, set of features that we need to work through with our vendor partners. And with that, I think that was our last question. We thank you for joining us this morning, and we look forward to updating you on our results and our progress on our next call in May.

Thank you, everyone.