Higher memory chip prices set off consumer electronics demand ahead of Best Buy (BBY.US) sharp increase in performance guidelines

The Zhitong Finance App learned that Best Buy (BBY.US), a leader in the US consumer electronics retail industry, handed over a report card for the second quarter of FY2027 that “revenue, comparable sales and profit completely exceeded expectations”, and that the company's management raised its annual performance guidelines and comparable sales prospects. Against the backdrop of a surge in demand for memory chips and the continued sharp rise in consumer electronics-grade DRAM storage prices, American consumers seem to have begun to accelerate their purchases of consumer electronics ahead of schedule. Demand for computer, mobile devices, and TV replacement forms the main growth engine. Sales in emerging categories such as artificial intelligence glasses and collectible cards have more than doubled year-on-year, indicating that consumer electronics demand is entering a gradual, moderate recovery phase from a cyclical trough.

In terms of investors' most focused performance guidance, in the performance statement, the company's management drastically raised the annual revenue guide from US$41.2 billion to US$42.1 billion to US$42.3 billion to US$42.8 billion, sharply raised the comparable sales growth rate guide from a 1% decrease to an increase of 1.9% to 3.0%, and raised the adjusted earnings per share guide from US$6.30-6.60 to US$6.70-6.90.

Best Buy management also expects comparable sales to increase by 1% to 3% in the third quarter, with an adjusted operating margin of 4.1% to 4.2%; the adjusted operating margin guidance for the whole year was raised from 4.3% to 4.4% — 4.5%. The comprehensive revision of the guidelines shows that management believes that strong demand for consumer electronics does not mean that consumers “stock up before price increases” in the context of continued price increases for memory chips, and that computer and mobile device exchanges, expansion of emerging categories, and advertising and marketplace monetization are not single-quarter phenomena, but subsequent sustainability still depends on holiday season demand, transmission of tariff costs, and whether the international market can stabilize.

However, as far as Best Buy's stock price and basic outlook are concerned, the decline in sales in the international market, the year-on-year increase in inventory, and the management handover effective November 1 are still three tests that need to be overcome for further valuation repairs.

“Demand forethought” and consumer demand for switching restarted the growth engine, and Best Buy raised its full-year outlook

Best Buy's net revenue for the second quarter of fiscal year 2027 reached US$9.779 billion, up 3.6% year on year, higher than market expectations of US$9.59 billion; comparable sales increased 4.1%, far exceeding market expectations of 1.3%, and the best performance since the same period in 2022; adjusted earnings per share were US$1.47, up 14.8% from US$1.28 in the same period last year, and higher than market expectations of US$1.39.

While the results announced by Best Buy surpassed Wall Street expectations, it also unexpectedly raised its full-year earnings forecast. This is the latest sign that the consumer electronics retailer is recovering from a long period of sluggish sales.

The company currently expects full-year comparable sales to grow in the range of 1.9% to 3%, compared to the previous guidance of a 1% decline to 1% increase. The retailer also raised its revenue outlook. In the second quarter, comparable sales of stores that have been in business for at least 14 months increased by 4.1%, the best performance since the same period in 2022.

At 7:01 a.m. New York time, Best Buy shares rose 3% in pre-market trading. By the close of Wednesday, the stock had a cumulative increase of 31% since this year, significantly outperforming the S&P 500 index's 12% increase over the same period.

Demand for computers and mobile devices drove growth in the second quarter, and consumer electronics products such as televisions also contributed to growth. Among them, TV sales in the US increased by more than 10%. The company said sales in emerging categories, including artificial intelligence glasses and collectible cards, more than doubled compared to the same period last year.

After Best Buy announced its strong results, some analysts said that Best Buy's strong performance was partly due to “demand pull-forward (demand pull-forward)”, also known as “stocking up before price increases,” but it is not yet possible to assert that American consumers are already fully snapping up electronic products due to concerns about storage price increases. However, judging from management's forecast path, the company still expects comparable sales to increase by 1% to 3% in the third quarter and 1.9% to 3% for the whole year, indicating that management determines that demand is not just a one-time overdraft of consumer electronics demand in the coming quarter, but also the upgrading of artificial intelligence personal computers (AI PCs) and AI smartphones, as well as the replacement cycle of existing equipment and new products.

Under the AI infrastructure frenzy, unprecedented memory chip inflation can be described as a “short-term catalyst and long-term constraint” for consumer electronics: TrendForce expects traditional DRAM and NAND memory chips, which have already doubled in price, to rise again 13% to 18% month-on-month in the third quarter of 2026, and NAND Flash is expected to rise 10% to 15% month-on-month, and NAND Flash is expected to rise 10% to 15%. The reason still focuses on artificial intelligence data centers continuing to squeeze wafer production capacity; however, it also points out that the rise in terminal retail prices has already suppressed consumer spending and laptop shipments.

AI smart glasses and Marketplace broaden market growth, new leaders are about to take over

Continued sharp increases in the price of memory chips may prompt some price-sensitive consumers to switch machines early, benefiting Best Buy's revenue data and memory chip manufacturers such as SK Hynix, Samsung, and Micron in the short term, but as costs are transmitted to the average selling price (ASP), it may later turn into a decline in sales and pressure on retail profit margins; in the future, we should focus on observing Best Buy's actual sales volume, average sales price, promotion intensity, and inventory turnover.

CEO Corey Barry said in a pre-prepared performance conference address on Thursday: “We have seen growth in almost all of our major product categories, and the Best Buy advertising and Marketplace businesses have continued to perform strongly.”

The announcement of these optimistic results comes as the retailer is moving forward with a leadership transition. Barry will hand over management of the company to senior executive Jason Bonfiger on November 1. During her tenure, the company prioritized expanding business coverage and improving customer experience, while working to enhance Best Buy's retail, advertising, and technical capabilities.

According to more detailed financial data, GAAP profit growth was significantly higher than adjusted profit, in part because restructuring expenses recorded a rebound of 6 million US dollars in the current quarter, while restructuring expenses of US$114 million were calculated in the same period last year; as a result, adjusted earnings per share increased by 14.8%, which is more reflective of the improvement in basic operations compared to the 70% increase in GAAP earnings per share. At the same time, corporate gross margin increased from 23.2% to 23.9%. The US business also benefited from Marketplace, Best Buy advertising, and tariff refunds of approximately $34 million, but part of the increase was offset by a decline in product gross margin.

By region, Best Buy's US market revenue increased 4.3% year over year to US$9.070 billion, far exceeding the market's agreed expectations. Comparable sales increased 4.5%; international business revenue fell 4.2% to US$709 million, and comparable sales fell 1.8%, constituting a major shortcoming in the financial report. Online revenue in the US market was about US$3.0 billion, and comparable sales increased by 5.1%, accounting for 33.1% of US business revenue, indicating that e-commerce channels are still an important platform for the recovery in consumer electronics demand.

On the balance sheet side, the company's inventory at the end of the period unexpectedly increased 8.3% year over year to US$6.296 billion, which means that inventory turnover and promotion discipline during the holiday sales season still need to be closely observed; however, the company's operating cash flow in the first half of the year increased from US$783 million to US$1,296 million, and cash increased to US$2,255 million, and is expected to repurchase approximately US$300 million of shares throughout the year to support return on capital and earnings per share.