Welcome to Best Buy's first quarter fiscal 2026 earnings conference call, where participants are initially in listen-only mode with instructions for Q&A. The call features updates from the head of investor relations and key executives, including discussions on GAAP and non-GAAP financial measures, forward-looking statements, and potential risks and uncertainties affecting the company's financial condition and performance.

Despite facing dynamic macroeconomic conditions, the company reported a first quarter revenue of $8.8 billion, with an adjusted operating income rate of 3.8% and adjusted earnings per share of $1.15. While experiencing growth in computing, mobile phones, and tablets sales, there were declines in home theater appliances and drones. Online sales grew year-over-year, accounting for nearly 32% of total domestic sales. Customers remained focused on deals and were thoughtful about big-ticket purchases amidst persistent inflation. The company also highlighted improvements in its domestic relationship Net Promoter score, attributing this to a focus on enhancing the customer experience. The dialogue also addressed the impact of the current tariff environment on the industry, business, and consumers, noting recent developments that may have future implications.

The retailer discusses the evolving importance of international trade, particularly highlighting changes in sourcing from China and the impact of tariffs. They outline strategies to mitigate these impacts, including leveraging manufacturing flexibility, negotiating costs, increasing country diversification, adjusting assortments, and adjusting prices. Additionally, they update their annual outlook based on current tariff levels and discuss progress on strategic priorities focusing on omnichannel experience improvements, launching new profit streams, and driving operational efficiency.

Best Buy is launching an AI-powered search experience on its website and app, aiming to improve customer shopping journeys. Additionally, the company is introducing Best Buy Storefronts for influencers, updating in-store experiences, and focusing on vendor partnerships to drive sales and customer engagement. Notably, Best Buy is preparing for the Switch to launch with midnight openings and has seen success in increasing mobile phone sales through enhanced vendor collaborations.

The focus is on boosting profitability via a marketplace launch, offering flexible product assortments and price points. With an aim to onboard at least 500 sellers by mid-year, the initiative includes improved search capabilities and universal return policies, aligning with company policies. Expected to positively impact operating income, the marketplace will also drive profit and unit share over time, presenting new advertising opportunities.

In fiscal 26, significant progress has been made in expanding the retail media network business, including adding new ad slot placements, partnering with major demand platforms, and launching Social Plus with Meta. Efforts also focus on cost reductions and efficiencies through technology, analytics, and process modifications, aiming for future growth and rate expansion.

In 2025, Best Buy anticipates growth in computing and gaming sectors driven by product upgrades and AI advancements. The company is enhancing in-store and digital experiences, expanding its presence in wearable AI products, and launching a marketplace. Increased app adoption and customer engagement further strengthen its position, while investments in specialized staff support its mission to enrich lives through technology.

In the first quarter, the enterprise comparable sales declined as expected, while the adjusted operating income rate saw a slight improvement due to favorable SGNA expense, mainly from an indirect tax settlement and strong expense management. Gross profit rate improved by approximately 10 basis points compared to the previous year, driven by enhancements in the services category, partially offset by pressures in the Best Buy health business. Revenue decreased across both domestic and international segments, with the latter also affected by negative foreign currency impacts. Restructuring charges, primarily associated with Best Buy health, were incurred, and significant shareholder returns were made through dividends and share repurchases.

The dialogue outlines Best Buy's updated financial guidance for the fiscal year 2025, taking into account the impacts of recent tariffs, changes in sourcing exposure, and vendor conversations. The company projects revenue in the range of $40.9 to $41.9 billion, comparable sales fluctuating between a 1% decrease and a 1% increase, and an adjusted operating income rate of around a specified percentage. Key assumptions include a slightly unfavorable gross profit rate compared to the previous year, influenced by sales mix shifts toward lower-margin categories and competitive pricing strategies. The guidance also factors in the benefits from the Best Buy ads and the US marketplace rollout, as well as expenses related to initiatives like advertising, technology, and employee compensation. Additionally, the second quarter is expected to see a slight decline in comparable sales and an operating income rate of approximately a specified percentage, with increased SG&A expenses primarily driving the lower operating income rate.

The dialogue discusses significant shifts in China sourcing, with a reduction from 55% to 30-35% due to mitigation efforts including vendor and manufacturing flexibility, country diversification, cost negotiations, assortment adjustments, and price adjustments. It also addresses the impact of tariffs on product costs and the strategies employed to minimize cost increases for customers, highlighting the complexities of global supply chains and tariff situations.

The company experienced a slower start to the quarter in February, with demand potentially pulled forward due to events like Easter. Preorders for the Switch at the end of April contributed to perceived spending in consumer electronics, though actual sales will be recognized in Q2. Market share fluctuates quarter-to-quarter based on competitive actions and strategic pricing decisions.

Despite experiencing a quieter Q1 with fewer launches and initiatives, the company anticipates regaining market share later in the year due to planned investments and launches. While noting some share loss in Q1, confidence is expressed in regaining share in computing and gaming sectors. Despite concerns over potential changes in consumer behavior due to tariffs and inflation, consumers are observed to remain resilient, making budgetary trade-offs but still spending on higher price points for necessary or innovative technologies. The company highlights the balance between consumers seeking value and their willingness to invest in areas like computing and tablets.

The company discusses how increased advertising initiatives can impact revenue and gross margin, depending on contract nature. They also address the effects of tariffs, detailing mitigation efforts and their impact on product costs and price elasticity.

Despite positive sentiments toward computing and mobile categories, the company adjusts its comp guidance due to varying category performances and updated tariff impacts. Gross margin benefits from the rollout of the US marketplace and the ads business are expected to take shape in the back half of the year, offsetting existing pressures.

The company is on track for a mid-year marketplace launch, expecting it to be accretive despite cannibalization. Upcoming innovations include gaming products like the Switch, advancements in computing with AI benefits, upgrades in TVs with LED and anti-glare screens, developments in VR and AR, and innovations in the handheld and computing gaming spaces.

The company discusses the challenges of tougher comparisons in the computing business due to improvements seen last year, emphasizing opportunities from the discontinuation of Windows 10 support and the need for Mac upgrades. They highlight the strong potential in computing, gaming, mobile phones, and gaming sectors, driven by strategic vendor collaborations and store experience enhancements. Despite the competitive pricing environment, particularly around key sales periods like Memorial Day, the company observes consistent consumer demand, especially in notebooks and tablets, anticipating further growth fueled by advancements in AI use cases.

The discussion focuses on Best Buy's approach to balancing sales and gross margin rates amidst fluctuating tariffs and a sluggish consumer backdrop. The company emphasizes maintaining consumer demand and optimizing pricing and promotions with vendor partners. Additionally, Best Buy highlights ongoing efforts to improve operational efficiencies through innovations in customer care, procurement, supply chain operations, and the adoption of leading technologies, aiming to sustain margin improvements regardless of sales performance.

The dialogue discusses the complexity and fluidity of pricing strategies in response to tariff rate increases, emphasizing the challenge of providing a specific price hike percentage. It highlights the company's commitment to competitive pricing and the ongoing efforts to mitigate cost increases through various strategies.

The enterprise remains committed to enabling care at home, recognizing the viability of active aging and home health businesses. Challenges include slower adoption of hospital-at-home solutions due to administrative and budgetary issues, and financial struggles faced by healthcare providers. Despite these, there's a clear future in leveraging technology for personal healthcare, a strategy the company will continue to pursue.