Best Buy(US:BBY) Benzinga·2025-11-24 06:00Core Viewpoint - Best Buy Co. Inc. is facing a critical test as it prepares to report its third-quarter fiscal 2026 earnings, focusing on whether its high-margin advertising business can offset profitability pressures from lower-margin hardware sales [1] Group 1: Sales Performance and Expectations - Management and analysts expect the company to maintain positive sales momentum from the second quarter, which was its best performance in three years [2] - CFO Matt Bilunas has guided for third-quarter comparable sales growth to mirror the previous quarter's 1.6%, indicating a trend towards the higher end of the full-year revenue guidance of $41.1 billion to $41.9 billion [3] Group 2: Market Dynamics and Challenges - The primary growth drivers include a "replacement cycle" in computing due to aging laptops and demand for the new "Switch 2" gaming console [4] - However, the sales mix is shifting towards lower-margin hardware, which negatively impacts gross profit rates compared to service-heavy revenue [4] Group 3: Profitability Outlook - Management expects the adjusted operating income rate to remain flat year-over-year at approximately 3.7% [5] - Recent gross margin declines have been noted, with the current rate at 23.2% [6] Group 4: Advertising Business Potential - Analysts suggest that Best Buy's retail media network, "Best Buy Ads," is an underappreciated asset, with potential profits estimated at $250 million in 2025, which could help mitigate hardware margin erosion [6] Group 5: Investor Sentiment and Stock Performance - A consensus price target of $85.32 suggests a ~16% upside, contingent on the growth of the high-margin ad business to offset hardware costs [7] - The stock closed at $76.45, up 3.62% on the last trading day, but has declined by 14.62% over the past year and 11.28% year-to-date [7]