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YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.15pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.29pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.02pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
negatively+4
challenges+3
challenge+3
hinder+2
volatility+2
Positive rising
best+12
alliances+2
integrity+2
advancement+1
progress+1
Risk Factors (Item 1A)
8,597 words
Item 1A. Risk Factors.
Described below are certain risks we believe apply to our business and the industry in which we operate. The risks are categorized using the following headings: external, strategic, operational, regulatory, compliance and legal, and financial and market. Each of the following risk factors should be carefully considered in conjunction with other information provided in this Annual Report on Form 10-K and in our other public disclosures. The risks described below highlight potential events, trends or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing and, consequently, the market value of our common stock and debt instruments. These risks could cause our future results to differ materially from historical results and from guidance we may provide regarding our expectations of future financial performance. The risks described below are not an exhaustive list of all the risks we face. There may be others that we have not identified or that we have deemed to be immaterial. All forward-looking statements made by us or on our behalf are qualified by the risks described below.
External Risks
Macroeconomic pressures may adversely affect consumer spending and our financial results.
To varying degrees, our products and services are sensitive to changes in macroeconomic conditions. Consumer demand for the products and services that we offer could be, or could continue to be, affected by a number of factors, including: real GDP growth, inflation, , consumer confidence, employment levels, effects of government , cost of living, uncertainty over the availability of government benefits, tax rates, availability of consumer financing, interest rates, housing market conditions, foreign currency exchange rates, the price of oil, gas and other commodities and other macroeconomic trends. Additionally, the impact of these factors could be compounded with respect to discretionary purchases of consumer electronics.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
impairments+10
restructuring+9
decline+1
closed+1
loss+1
Positive rising
best+20
advantage+2
favorable+1
able+1
strengthen+1
MD&A (Item 7)
8,016 words
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended February 1, 2025 , for discussion of the results of operations for the year ended February 1, 2025, compared to the year ended February 3, 2024, which is incorporated by reference herein.
Overview
We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life. We accomplish this by leveraging our combination of tech expertise and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes.
We have two reportable segments: Domestic and International. The Domestic segment is comprised of our operations in all states, districts and territories of the U.S. and our Buy Health business, and includes the brand names Buy, Buy Ads, Buy Business, Buy Essentials, Buy Health, Buy Marketplace, Geek Squad, Imagine That, Insignia, Lively, Jitterbug, My Buy, My Buy Memberships, Pacific Kitchen and Home, TechLiquidators and Yardbird; and the domain names bestbuy.com, lively.com, techliquidators.com and yardbird.com. Our International segment is comprised of all operations in Canada under the brand names Buy, Buy Ads, Buy Business, Buy Express, Buy Marketplace, Buy Mobile, Geek Squad, Insignia and TechLiquidators and the domain names bestbuy.ca and techliquidators.ca.
These macroeconomic conditions impact consumer behavior and spending in various ways, including:
• whether consumers make a purchase;
• how frequently consumers upgrade or replace their devices;
• consumers' choice of brand, model or price-point; and
• consumers' appetite for complementary services (for example, My Best Buy Plus™ or My Best Buy Total™ membership).
Any decrease in consumer demand due to macroeconomic conditions may negatively impact our financial results.
We are subject to specific pressures that may increase our product prices, including high consumer demand, inflation, governmental actions (e.g., tariffs) and supply chain disruptions. Additionally, price increases in the products we purchase for resale may require us to adjust our sales prices. Our ability to increase prices to offset these pressures might be limited, requiring us to absorb these increases within our margins. Increases in the cost of living may also put pressure on our ability to offer competitive compensation and other employer-provided benefits and may adversely affect our financial results. Any economic factors or circumstances resulting in higher costs for transportation, labor, insurance, healthcare or commodities can increase our operating, selling, general and administrative costs and otherwise materially adversely affect our financial results.
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Geopolitical pressures may adversely impact our supply chain, the cost of our products or revenues and financial results.
Geopolitical tensions, both domestic and international, including issues related to trade routes, political instability and divisiveness, the potential implementation of more restrictive trade policies, tariff increases and/or volatility, the realignment of alliances or the renegotiation of existing trade agreements could continue to have a material adverse impact on our business.
While we directly import approximately 1% to 3% of our overall assortment, our global supply chain for consumer electronics is heavily reliant on vendor imports from foreign countries (including products sourced from China, Mexico and Southeast Asia). Consequently, our financial results are highly sensitive to changes in trade policies, tariffs and cross-border logistics. The scope, timing, and implementation of these policies remains uncertain and may result in new or modified tariff regimes, additional regulatory requirements, or further trade friction with U.S. trading partners. The uncertainty caused by ongoing tariff volatility creates challenges for planning inventory, pricing and supply chain strategies, which could continue to impact our cost structure, supply chain stability and overall financial results.
Ongoing or emerging conflicts, including those in the Middle East, Ukraine and the South China Sea, may continue to impact fuel prices, inflation, the global supply chain, cybersecurity and other macroeconomic conditions, which may further adversely affect global economic growth, consumer confidence and demand for our products and services. For example, any further deterioration of relations between Taiwan and China, the resulting actions taken, the response of the international community and other factors affecting trade with China or political or economic conditions in Taiwan could disrupt the manufacturing and distribution of products or hardware components in the region, such as semiconductors and television panels sourced from Taiwan or the broader array of products sourced from China. Additionally, conflict in the Middle East, and the resulting disruption of transit through the Persian Gulf and the Strait of Hormuz, continues to disrupt global supply chain flows and impact fuel prices. Furthermore, these conflicts or other international policies and efforts may impact, or continue to impact, our critical international trade routes, such as the Panama Canal, the Red Sea and the Suez Canal. Such disruptions may increase shipping times or costs, which could adversely affect our operations and financial results.
Geopolitical tensions may provoke further retaliatory actions by our trading partners that may increase costs, disrupt our supply chain and/or impact our business operations. China maintains significant control over the majority of rare earth elements, which are essential elements in many electronic devices. Should China reinstate its export ban on rare earth elements or take other actions that restrict U.S. supply of these minerals, it would impact both the consumer electronics we sell and our business’s underlying technological infrastructure.
One or more of these factors could have a material adverse effect on our supply chain, the cost of our products or our revenues and financial results.
Catastrophic events could adversely affect our operating results.
Catastrophic events, including those driven or intensified by climate change, pose a growing risk to our operating results and financial performance. The frequency and severity of natural disasters or extreme weather events (such as storms, blizzards, extreme temperatures, earthquakes, hurricanes, floods, fires and droughts) are increasing in many of our key markets, particularly in our three largest states by total sales (California, Texas and Florida). We may experience other catastrophic events beyond natural disasters, including pandemics, civil unrest, power loss, telecommunications failures, software and hardware malfunctions, terrorism (including related cyber threats) and other acts of violence. Additionally, the locations where we do business could continue to be the subject of unrest and national attention, which impacts our ability to operate. The adverse effects of these events may be amplified should multiple events occur simultaneously, such as a natural disaster during a pandemic.
Such events may prevent our workforce and/or customers from reaching our stores and properties, disrupt segments of our supply chain and distribution network or impact critical third-party services. These disruptions may impact our ability to procure goods or services necessary for operating our business and may affect our information technology systems, limiting our ability to transact with customers and fulfill orders.
Catastrophic events could result in significant physical damage to, or closure of, our facilities. They may also necessitate preventative investments in our facilities and infrastructure. Moreover, insufficient infrastructure investment may increase the risk that large-scale disruptive events could impact our critical infrastructure, potentially having a material adverse impact on our operations and financial performance. As a consequence of these catastrophic events, we may experience interruptions to our operations or losses of property, equipment and/or inventory, which could adversely affect our revenue and profitability.
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Many of the products we sell are highly susceptible to technological advancement, product life-cycle fluctuations and changes in consumer preferences.
We operate in a highly and increasingly dynamic industry sector fueled by constant technological innovation, advancement and disruption, including the rapid integration of artificial intelligence (“AI”) into consumer products. These factors manifest in a variety of ways: the emergence of new products and categories, the rapid maturation of categories, cannibalization of categories, changing price points, and product replacement and upgrade cycles.
This rapid pace of change can be hard to predict and manage. If we fail to interpret, predict and react to these changes in a timely and effective manner, the consequences may include, but are not limited to:
• failure to offer, or inability to secure an adequate supply of, the products and services that our customers want;
• excess inventory, which may require heavy discounting, liquidation or storage;
• delays in adapting our merchandising, marketing or supply chain capabilities to accommodate changes in product trends; and
• damage to our brand and reputation.
Vendors may also fail to adequately invest in new technology, design, production or distribution facilities and may reduce their customer incentives, advertising and promotional activities or change their pricing policies.
These and other similar factors could have a material adverse impact on our revenue and profitability.
Strategic Risks
We face strong competition from multi-channel retailers, e-commerce businesses, technology service providers, traditional store-based retailers, vendors and mobile network carriers, which directly affects our revenue and profitability.
We constantly strive to offer consumers the best value in a highly competitive retail sector. We compete against many local, regional, national and international retailers (both online and brick and mortar), as well as against some of our vendors and mobile network carriers that are leveraging their own direct-to-customer channels to market and sell products.
Shoppers are increasingly price-conscious when making discretionary purchases. At the same time, online and multi-channel retailers are prioritizing fast, low-cost delivery options, including curbside pickup and guaranteed shipping times. Because our strategy is based on offering superior levels of customer service and a full range of complementary services, our cost structure may be higher than some of our competitors, creating additional margin pressure. Failure to manage these factors effectively while offering competitive delivery options could negatively impact our profit margins and the demand for our products.
Our ability to remain competitive also depends on effectively maintaining and growing our customer base and accurately forecasting their spending levels. An inability to drive traffic to physical and digital channels or to maintain brand relevance with target audiences could pose both an operational and financial risk. Additionally, failure to consistently meet customer expectations across stores, in-home services and online platforms could negatively impact our financial performance. Inability to quickly adapt to changes in customer behavior (e.g., AI-driven search, AI shopping bots) could have an adverse impact our financial results.
Competition is becoming increasingly diverse, including through the expansion of retail media networks, such as our retail media network, Best Buy Ads, which competes for brand marketing spend and advertiser attention. Additionally, as our Best Buy Marketplace platform expands, where third-party sellers can sell products on our platform, we face the added challenge of competing not only with external sellers but also with third-party sellers on our own platform.
Further, as our competitors develop and expand their strategic use of AI, our operations and profitability could be adversely impacted if we fail to execute or maintain our own focused AI strategy that drives technological advancement and innovation. Diverse competition may also arise from new entrants into the markets we serve, including unexpected players who could more aggressively leverage technologies such as AI and platform integrations. As these and related competitive factors evolve and progress, we may experience material adverse pressure on our revenue and profitability.
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If we fail to attract, retain and engage qualified employees, our operations and profitability may be negatively impacted. In addition, changes in market compensation rates could adversely affect our profitability.
Our performance is highly dependent on attracting, retaining and engaging appropriately qualified employees in our stores, service centers, distribution centers, field and corporate offices. Our strategy of offering high-quality services and assistance for our customers requires a highly trained and engaged workforce, which is reliant on the creation and maintenance of a positive culture that is attractive to all qualified employees and beneficial relationships between employees and the enterprise. The turnover rate in the retail sector is relatively high, creating an ongoing need to recruit and train new employees. Our ability to maintain sufficient numbers of qualified employees depends on a number of factors, such as employee engagement, our reputation, our ability to train and develop our employees, our ability to connect with and promote available talent pools, our development and maintenance of employee-desired policies and practices, unemployment rates, competition from other employers, availability of qualified personnel and our ability to offer appropriate compensation and benefit packages.
Additionally, increasingly prevalent legal and regulatory restrictions on the terms or enforceability of non-competition, employee non-solicitation, confidentiality and similar restrictive covenant clauses could make it more difficult to retain qualified personnel. Further, our policies and practices may be affected by, or require changes in response to, evolving legal and regulatory restrictions on policies related to employee engagement, which may further impact our ability to retain and engage qualified employees.
We operate in a competitive labor market, and there is a risk that market increases in compensation and employer-provided benefits could have a material adverse effect on our profitability. We may be subject to continued market pressure to increase employee hourly wage rates and employer-provided benefits, especially as the cost of living increases. In addition, prolonged external stressors (e.g., from violence, political unrest or customer behavior) may affect the mental wellbeing of employees and lead to fatigue, reduced engagement and/or attrition.
Failure to recruit or retain qualified employees may impair our efficiency and effectiveness and our ability to pursue growth opportunities. In addition, significant turnover of our executive team or other employees in key positions with specific knowledge relating to our operations and industry may negatively impact our operations and financial results and potentially have cascading effects on our employees.
Our focus on services exposes us to certain risks that could have a material adverse impact on our revenue, profitability and reputation.
We offer a full range of services that complement our product offerings, including consultation, delivery, health-related services, installation, memberships, repair, set-up, technical support and warranty-related services. The strategy and execution of our service offerings are subject to incremental risks, such as:
• a sustained increase in consumer desire to purchase product offerings online and through mobile applications, impacting our ability to sell ancillary services;
• unpredictable extended warranty failure rates and related expenses;
• margin pressure from membership offerings;
• pressure from lower-cost competitors that could erode the value proposition of our premium services;
• the continual need to maintain and upgrade the technology infrastructure supporting our services;
• increased labor expenses and challenges in forecasting staffing needs, as well as pressure on traditional labor models to meet evolving customer expectations;
• bad actors posing as Geek Squad and/or customer care;
• potential claims liability due to employees traveling in company vehicles and/or working in customer homes;
• errors or omissions in the fulfillment of services;
• customer devices in our possession and the related responsibility for the security of those devices and the privacy of the data they hold;
• the potential impact on in-home services of inclement weather, health and safety concerns and catastrophic events;
• growing dependence on third parties (e.g., reduced control over subcontractor regulatory compliance and adherence to our standards, liability for third parties working on our behalf); and
• non-compliance with new and existing laws and regulations applicable to these services.
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Our reliance on key vendors and mobile network carriers subjects us to various risks and uncertainties which could affect our revenue and profitability.
While we source products we sell from a wide variety of domestic and international vendors, a significant portion of our merchandise comes from a relatively small group of key suppliers. In fiscal 2026, our 20 largest suppliers accounted for approximately 80% of the merchandise we purchased, with five suppliers – Apple, Samsung, HP, LG and Sony – representing approximately 55% of total merchandise purchased. Our contracts with vendors generally do not require them to continue supplying us with merchandise. Our profitability depends on securing acceptable terms with our vendors for, among other things, the price of merchandise we purchase from them, funding for various forms of promotional programs, payment terms, allocations of merchandise, development of compelling assortments of products, data sharing terms, operation of vendor-focused shopping experiences within our stores and terms covering returns and factory warranties. While we believe we offer capabilities that these vendors value and depend upon to varying degrees, our vendors may be able to leverage their competitive advantages — for example, their own stores or online channels, their financial strength, the strength of their brands with customers or their relationships with other retailers — to our detriment. In addition, vendors may decide to limit or cease allowing us to offer certain categories, focus their marketing efforts on alternative channels or make unfavorable changes to our financial or other terms. Further, our flexibility to modify selling prices is limited due to digital technology that enables consumers to compare prices on a real-time basis, a challenge that is further amplified by the increasing use of AI-driven tools and shopping platforms.
Globally, the cost and availability of memory components have been, and may continue to be, affected by industry-wide supply constraints. While we work with vendors to adjust product and pricing strategies, these actions may not fully offset higher costs and inventory constraints, which may impact our margins and financial performance.
We are also dependent on a small number of mobile carriers to allow us to offer mobile devices with carrier connections. The competitive strategies utilized by mobile network carriers can have a material impact on our business, especially with ongoing consolidation in the mobile industry. For example, if carriers change the structure of contracts, upgrade terms, qualification requirements, monthly fee plans, cancellation fees or service levels, the volume of upgrades and new contracts we sign with customers may be reduced, adversely affecting our revenue and profitability. In addition, our carriers may also serve customers through their own stores, websites, mobile applications and call centers or through other competing retail channels.
Demand for the products and services we sell could decline if we fail to maintain positive brand perception and recognition.
We operate a portfolio of brands with a commitment to customer service and innovation. We believe that recognition and the reputation of our company and our brands are key to our success. Operational factors, such as failure to deliver high quality services, offer competitive pricing, or meet delivery promises could damage our reputation. As we grow certain areas of the business (including Best Buy Marketplace, where there is a risk that third-party sellers, products, partners and services may fail to meet customer expectations), our reputation may be negatively affected.
External factors, such as negative public remarks or accusations, heightened violence and crime in or around our stores, or our failure to meet enhanced, and sometimes conflicting, expectations on corporate response to sensitive topics (including the use of AI), could also be damaging. Further, these risks, along with others, may be compounded by a polarized political climate and social activism directed at companies.
Third parties may commit fraud (e.g., AI-driven fraud or impersonation of Geek Squad agents) while using our brand without our permission, possibly harming brand perception or reputation.
The ubiquity of social media means that customer feedback and other information about our company, which may include fictitious information, are shared with a broad audience in a manner that is easily accessible and rapidly disseminated. Damage to the perception or reputation of our brands could result in, among other things, declines in revenues and customer loyalty (including as a result of any boycotts), decreases in gift card and service plan sales, lower employee retention and productivity and vendor relationship issues, all of which could materially adversely affect our revenue and profitability.
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Failure to effectively identify, manage and execute enterprise-wide strategies could have a negative impact on our business.
We may pursue new strategic initiatives, including business relationships, acquisitions, and/or adding or expanding revenue streams, including Best Buy Ads and Best Buy Marketplace. Assessing the viability of new or existing strategies is typically subject to uncertainty, and the success of such strategies can be adversely affected by many factors, including, for example, our ability to:
• identify or appropriately evaluate the risks in our diligence assessments;
• define or communicate strategies to sufficiently mobilize and align resources in support of strategic priorities;
• manage aggressive launch schedules and simultaneous execution of strategies within our current capabilities, resources or risk appetite;
• ensure alignment and mobilization of resources across a diverse and distributed employee population;
• execute certain aspects of our strategy within state, local, federal and/or non-U.S. jurisdiction regulations;
• manage regulatory and other risks if we choose to enter new jurisdictions, including international jurisdictions;
• manage tax risks associated with new strategies and revenue streams, including tax compliance and the impact of unsettled and evolving tax laws and regulations;
• effectively manage specific risks associated with Best Buy Marketplace, including compliance with laws and regulations relating to anti-money laundering, bank account and accounting requirements and unsettled and evolving laws around liability exposure;
• curate and refine our product assortment or offerings to meet customer expectations;
• integrate aspects of potential strategies into our existing business, such as new product or service offerings or information technology systems;
• generate growth from new or emerging strategies;
• accurately predict customer demand, meet customer expectations or generate forecasted revenue or profitability;
• maintain appropriate internal controls over financial reporting;
• accurately forecast financial performance, given the potential for unforeseen changes in the business environment;
• modernize technology platforms to support strategic initiatives, operations, compliance, and retail demands;
• generate expected synergies, such as cost reductions and other benefits; and
• manage potential adverse impacts on relationships with employees, vendors and other key partners of our existing business.
If our new or emerging strategies are unsuccessful, our reputation could be negatively impacted. Additionally, liquidity and profitability could be materially adversely affected, and we may be required to recognize material impairments to goodwill and other assets acquired or elect to discontinue certain areas of the business. For example, we recorded impairment charges related to our decision to exit a component of our Best Buy Health business in fiscal 2026. Our strategies may also divert our financial resources and management’s attention from other important areas of our business.
Failure to effectively manage our infrastructure, real estate portfolio and market segmentation strategy may negatively impact our business.
Managing our real estate portfolio effectively is critical to our omnichannel strategy. Failure to identify and secure suitable store and other facility locations, negotiate appropriate terms related to our real estate portfolio, or respond appropriately to any unforeseen changes could impair our ability to compete successfully and maintain profitability. In addition, any of the following factors could impact our long-term real estate strategy:
• our ability to adjust store operating models to adapt to changing consumer patterns;
• the location and appropriate number of stores, supply chain and other facilities in our portfolio;
• the products and services we offer at each store;
• the local competitive positioning, trade area demographics and economic factors for each of our stores;
• the primary term lease commitment and long-term lease option coverage for each store; and
• our ability to meet the evolving physical upgrades and maintenance needs of stores, facilities, and supply chain infrastructure necessary to support any changes to our strategy.
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Operational Risks
Interruptions and other factors affecting our supply chain may adversely affect our business.
Our supply chain assets are a critical part of our operations, particularly considering industry trends and initiatives, such as ship-from-store and the emphasis on fast delivery when purchasing online. We depend on our vendors’ abilities to deliver products to us at the right location, at the right time and in the right quantities. We also depend on third parties for the operation of certain aspects of our supply chain network. The continuing growth of online purchases for delivery increases our exposure to these risks. The factors that could adversely affect our operations or cause interruptions to our delivery capabilities include, but are not limited to:
• our ability to maintain and upgrade the technology infrastructure supporting our retail and supply chain operations;
• the risk to our employees, customers and inventory arising from burglaries or robberies in transit, at our stores or at our other facilities;
• our third parties’ ability to meet our standards or commitments;
• our ability to meet growing supply chain capacity needs (e.g., fulfillment as a service, Best Buy Marketplace returns and recalls); and
• the consolidation, business failures and heightened political scrutiny associated with the transportation and distribution sectors.
These risks are compounded for small parcel home deliveries, as we are dependent on a relatively small number of carriers with the scope and capacity required by our business.
Additionally, global supply chain impacts, similar to previous disruptions in the Red Sea and Panama Canal, could lead to increases in transportation costs or hinder third parties’ abilities to meet our demand for product volumes and timing, including:
• unionization, labor strikes, slow-downs, competitive job markets and labor shortages impacting ports or any other aspect of our supply chain;
• geopolitical affairs, including tariffs and other measures that impact the price or availability of transporting our products;
• natural disasters and climate events; and
• diseases, pandemics, outbreaks and other health-related concerns.
It is important that we maintain optimal levels of inventory in each store and distribution center and respond rapidly to shifting demands. Any disruption to our supply chain network, including for any of the reasons above, could damage our revenue and profitability. If we fail to manage these risks effectively, we could experience a material adverse impact on our reputation, revenue and profitability.
We utilize third-party vendors for certain aspects of our operations, and any material disruption in our relationships or their services may have an adverse impact on our business.
We engage key third-party business partners to support various functions of our business, including delivery and installation, customer warranty, information technology, web hosting and cloud-based services, customer loyalty programs, promotional financing and customer loyalty credit cards, gift cards, technical support, transportation, insurance programs and human resource operations. A rising dependency on critical partners (e.g., software as a service (“SaaS”), advertising, shipping) may lead to limited leverage to manage cost escalation or contractual terms and could negatively impact our operations. Any material disruption in our relationships with key third-party business partners or any disruption in the services or systems provided or managed by third parties could impact our revenues and cost structure and hinder our operations, particularly if a disruption occurs during peak revenue periods.
We are subject to risks related to the products we sell, including those products sold on our Best Buy Marketplace platform and products under our exclusive brand labels (Best Buy Essentials, Insignia, Lively, Rocketfish and Yardbird brands) that could affect our operating results.
If the products we sell fail to meet, or are alleged to fail to meet, applicable safety standards or our customers’ expectations regarding safety and quality, we could be exposed to increased legal risk and damage to our reputation. Failure to take appropriate actions in relation to product-related issues (e.g., product recalls) could lead to violations of laws and regulations and leave us susceptible to government enforcement actions or private litigation. Recalls of products, particularly when combined with lack of available alternatives or difficulty in sourcing sufficient volumes of replacement products, could also have a material adverse impact on our revenue and profitability.
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Our ability to find qualified vendors who can supply products that meet our internal standards of quality and safety in a timely and efficient manner can be difficult, especially with respect to goods sourced from outside the U.S. Risks such as political or economic instability, cross-border trade restrictions or tariffs, merchandise quality issues, product safety concerns, work stoppages, human rights violations, port delays, foreign currency exchange rate fluctuations, transportation capacity and costs, inflation, civil unrest, natural disasters, outbreaks of pandemics and other factors relating to foreign trade are beyond our control. These and other related issues could have a material adverse impact on our financial results.
Because we have greater responsibility for products under our exclusive brand labels, recalls or safety issues involving these products may present heightened risks compared to branded goods, including:
• exposure and responsibility to consumers for warranty replacements and repairs as well as product liability claims (including bodily injury or death) and government-enforced actions, some of which may require us to take significant actions, such as recalling products;
• inventory obsolescence as we do not generally have return-to-vendor rights;
• disruptions in manufacturing or logistics due to inconsistent and unanticipated order patterns;
• our inability to develop long-term relationships with key manufacturers;
• claims by technology or other intellectual property owners if we inadvertentlyinfringe upon their patents or other intellectual property rights or if we fail to pay royalties owed on our exclusive brand products;
• inability to obtain or adequately protect patents and other intellectual property rights on our exclusive brand products or manufacturing processes; and
• failure to maintain consistent quality, availability and competitive pricing, which could have a material adverse impact on the demand for exclusive brand products and the profits we are able to generate from them.
Most of our exclusive brand products are manufactured by contract manufacturers in China, Mexico and Southeast Asia, which may limit our ability to do the following:
• seek recourse from manufacturers may be limited in foreign jurisdictions;
• conform in a timely manner to new rules or interpretations of developing and often-changing labor and environmental laws for the manufacturing of products in foreign countries; and
• source alternatives quickly enough to avoid interruptions in product supply due to disruptions, such as trade disputes or excessive tariffs.
Our expanding Best Buy Marketplace, including our existing Canadian platform and our recently launched U.S. platform, could present additional risks. Should the third-party products sold on our Best Buy Marketplace fail to meet quality, safety or regulatory standards, it could erode customer trust and damage our reputation. Moreover, unsettled laws regarding retailer responsibility for product liability and intellectual property claims related to third-party products sold on marketplace platforms compound our marketplace risk.
We rely heavily on our information technology systems for key business processes. Any failure or interruption in these systems could have a material adverse impact on our business.
The effective and efficient operation of our business is dependent on our information technology systems and those of our information technology service providers. We rely heavily on these information technology systems to manage all key aspects of our business, including demand forecasting, purchasing, supply chain management, transaction processing, fulfillment of products and services (including, for example, our urgent response and care center services provided by Best Buy Health), staff planning and deployment, financial management, reporting and forecasting and safeguarding critical and sensitive information.
Our information technology systems and those of our partners are subject to damage or interruption from several potential sources including:
• power outages, computer and telecommunications failures;
• catastrophic events (such as grid failures, fires, tornadoes, earthquakes and hurricanes);
• computer viruses, worms or other malicious computer programs;
• denial-of-service attacks, security incidents (through cyber-attacks and other malicious actions, including ransomware and social-engineering attacks);
• malicious attacks by foreign governments, criminals or other non-state actors;
• configuration or usage errors;
• unforeseen traffic levels;
• loss of inability to access or process critical data; and
• other technical difficulties or events outside of our control.
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These risks may be made more salient or may be compounded by a variety of factors, including:
• delays in modernizing these services and technology platforms;
• increasing demand and expectation for data hygiene and availability, both from internal and external partners;
• criticality of our online interactions and sales;
• continued hybrid or full-time remote working arrangements for many employees;
• increasing use of SaaS, platform as a service and infrastructure as a service providers;
• leveraging of new AI technologies in key business processes; and
• use of AI by threat actors to engage in automated, targeted and coordinated attacks of systems.
While we have adopted, and continue to enhance, business continuity and disaster recovery plans and strategies, there is no guarantee that such plans and strategies will be effective, which in turn could interrupt the functionality of our information technology systems or those of third parties. For example, as threat actor use of adversarial AI technology increases, vulnerabilities may be identified and exploited at a more rapid pace, which will make maintaining our system integrity more challenging.
If we fail to secure these systems against attacks, or fail to effectively configure, upgrade and maintain our hardware, software, network, and system infrastructure and improve the efficiency, resiliency and capacity of our systems, it could cause system interruptions and delays and hinder our ability to accept and fulfill customer orders, provide customer service and/or perform other necessary business functions. Any interruption could have a material adverse impact on our revenue and operations, cause us to incur material costs and/or adversely affect our reputation.
Failure to prevent or effectively respond to a breach of the security or privacy of our customer, employee, vendor or company information could expose us to substantial costs and reputational damage, as well as litigation and enforcement actions.
Our business involves the collection, use, sharing and retention of personal information (including payment card information and protected health information) and confidential business information. We share personal and confidential information with suppliers and other third parties and use third-party technology and systems that process and transmit information for a variety of activities.
We have been the target of attempted cyber-attacks and other security threats, and we may be subject to breaches of our information technology systems. While we engage in significant cybersecurity and data-protection efforts, criminal activity (such as cyberattacks), lapses in our controls, impersonation of individuals with proper access controls, or the intentional or negligent actions of employees, business associates or third parties may undermine our cybersecurity and privacy measures. As a result, unauthorized parties may obtain access to our data systems and misappropriate company, employee, third-party or customer information, authorized parties may use or share personal information in an inappropriate manner, or bad actors may otherwise seek to extract financial gain based on access to, or possession of, company, employee, customer or vendor information. Furthermore, because the methods used to obtain unauthorized access change frequently and may not be immediately detected, and given the potentially disruptive nature of emerging technologies, we may be unable to anticipate such attacks or promptly and effectively respond to them.
The integration of AI into our operations introduces cybersecurity and privacy risks (including unauthorized or misuse of AI tools) and could lead to potential unauthorized access, use, acquisition, release, disclosure, alteration or destruction of personal or confidential information or challenge the stability of our platforms. Further, evolving consumer behaviors, such as shopping through AI-driven services, introduces growing complexity and heightened cybersecurity and privacy risks. These trends increase the complexity of bot mitigation strategies, requiring organizations to maintain robust cybersecurity controls while ensuring discoverability within agentic services and AI-powered search environments. This dual challenge amplifies our exposure to potential data privacy breaches, automated exploitation, and integrity risks in digital ecosystems.
Sensitive customer data may also be present on customer-owned devices entrusted to us for service and repair. Vulnerable code on products sold or serviced, including our exclusive brands, may also result in a compromise of customer privacy or security. If our efforts to protect against such compromises and reasonably ensure appropriate handling of customer data on devices we manufacture, sell or service are not effective, we may incur potential liability and damage to our customer relationships.
Increasing costs associated with information security and privacy, such as increased investment in technology and qualified staff, costs of compliance, costs resulting from fraud or criminal activity and costs of cyber and privacy insurance, could cause our business and results of operations to suffer materially. In addition, any compromise of our data security may materially increase the costs we incur to protect against such breaches and could subject us to additional legal risk. Any compromise of our customer information or other confidential information could have a material adverse impact on our reputation and/or our relationships with our customers and partners, which may in turn have a negative impact on our revenue and may expose us to material costs, penalties and claims.
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Additionally, newly applicable and potential new or significantly revised state, provincial and federal laws and regulations in the jurisdictions in which we do business are expanding (and may further expand) our obligations to protect and honor the privacy and security of personal information, imposing new restrictions on the collection, use, sharing and retention of data and requiring additional implementation resources, all of which create incremental risk arising from a potential breach or compliance failure. The proliferation of new and updated privacy laws and regulations, including the rise of extreme data minimization legislation, has the potential to limit our ability to collect, use or share personal information and thus hinder our strategic and marketing efforts (e.g., Best Buy Ads and Best Buy’s own efforts to communicate with consumers). We could be subject to heightened regulatory investigations, penalties and fines if a cybersecurity event or privacy violation is related to data or sensitive personal information that is regulated by laws such as, for example, the Health Insurance Portability and Accountability Act (HIPAA), the Personal Information Protection and Electronic Documents Act (PIPEDA), or the California Consumer Privacy Act (CCPA).
Regulatory, Compliance and Legal Risks
We are subject to statutory, regulatory and legal developments that could have a material adverse impact on our business.
Regulatory activity affecting the retail sector is dynamic, posing the potential risk of fines and additional operating costs associated with compliance. Additionally, defendingagainst lawsuits and other proceedings may involve significant expense and divert management’s attention and resources from other matters. Some of the most significant compliance and litigation risks we face include, but are not limited to:
• the difficulty of complying with sometimes conflicting statutes, regulations and executive orders in local, national and international jurisdictions;
• the potential for incremental costs related to compliance with new or existing environmental legislation or international agreements affecting greenhouse gas emissions, electronics recycling, water usage or product materials;
• the challenges of ensuring compliance with applicable product laws and regulations, including laws and regulations related to product safety, product transport and product disposal, as well as laws and regulations related to the products sold by us or by Best Buy Marketplace sellers and the products we contract to manufacture;
• increased legal and regulatory exposure resulting from new and expanding business areas (e.g., Best Buy Marketplace and Best Buy Ads), especially the potential impact of the unsettled legal landscape relating to third-party marketplaces and retail media networks;
• the impact of evolving regulations governing data privacy and security, including limitations on the collection, use or sharing of information, consumer rights to access, delete or limit/opt-out of the use of information, and litigation arising from new private rights of action;
• the potential lingering residual obligations due to the divestment of certain health-related services in fiscal 2026;
• the impact of other new or changing statutes and regulations that may require changes to our compliance programs and attendant costs of those programs;
• the challenges of ensuring compliance with applicable labor and employment laws, including: laws governing the organization of unions and related rules that affect the nature of labor relations, which are frequently modified by the National Labor Relations Board; laws that impact the relationship between the company and independent contractors and the classification of employees and independent contractors; laws regarding non-discrimination and related issues; and wage and hour laws, such as minimum wage, sick time scheduling, paid leave and non-compete covenants;
• the challenges arising from regulatory lags in addressing and adapting to rapid AI advancements;
• the impact of litigation and dispute resolution, including class-action lawsuits involving consumers, shareholders and labor and employment matters, mass arbitration, pricing claims, and potential changes to arbitration rules that could increase costs; and
• the impact of regulatory and legislative uncertainty, such as changing U.S., state or other countries’ tax laws and regulations or evolving interpretations of existing tax laws, shifting federal policies, and an increasingly fragmented patchwork of federal and state regulations.
Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to cybersecurity, corporate responsibility and sustainability matters.
We are subject to changing rules and regulations promulgated by several governmental and self-regulatory organizations, including the SEC, the New York Stock Exchange, the Financial Accounting Standards Board and various states. These rules and regulations continue to evolve, demanding increased attention and vigilance for compliance. In addition, regulators, customers, investors, employees and other stakeholders are increasingly focusing on cybersecurity, CR&S matters and related disclosures, with some expressing or pursuing opposing views with respect to related initiatives. We could face adverse financial or reputational impacts if we are perceived as misaligned with these differing perspectives or agendas. As a result of these changing rules, regulations and stakeholder expectations, there has been, and will likely continue to be, an increase in general and administrative expenses and an increase in management time and attention spent complying with or meeting such regulations and expectations.
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We may also communicate certain initiatives and goals regarding sustainability, responsible sourcing, social investments and other related matters in our SEC filings or in other public disclosures. These initiatives and goals within the scope of CR&S could be difficult and expensive to implement, the technologies needed to implement them may not be cost-effective and may not advance at a sufficient pace and we could be criticized for the accuracy, adequacy or completeness of the disclosures. Further, statements about our initiatives and goals and progress toward those goals may be based on measurement standards that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future. In addition, we could be criticized or face legal action, including shareholder suits, customer boycotts or governmental scrutiny, for the scope or nature of such initiatives or goals, or for any revisions to these goals. Any issues with our CR&S-related reporting, processes or goals, such as incomplete or inaccurate information, failure to achieve timely progress with respect to our goals, or misalignment with our stakeholders’ expectations, could negatively impact our reputation, business, financial performance or growth.
Our international activities are subject to many of the same risks as described above, as well as to risks associated with the legislative, judicial, regulatory, political, economic and cultural factors specific to the countries or regions in which we operate.
We have wholly-owned legal entities registered in various foreign countries, including Bermuda, Canada, China, India, Luxembourg, the Republic of Mauritius, the United Kingdom and Vietnam. Additionally, most of our exclusive brand products are manufactured by contract manufacturers based in China, Mexico and Southeast Asia. During fiscal 2026, our International segment generated approximately 8% of our consolidated revenue. In addition to the risk factors identified throughout, our international operations could be impacted by additional risks, including:
• political conditions, diplomatic relationships and alliances and geopolitical events, including war and terrorism;
• economic conditions, including monetary and fiscal policies and tax rules, as well as foreign exchange rate risk;
• rules governing international trade and potential changes to trade policies or trade agreements and ownership of foreign entities;
• government-imposed travel restrictions or warnings and differing responses of governmental authorities to pandemics and other global events;
• cultural differences that we may be unable to anticipate or respond to appropriately;
• different rules or practices regarding employee relations, including the existence of works councils or unions;
• difficulties in enforcing intellectual property rights; and
• difficulties encountered in exerting appropriate management oversight to operations in remote locations.
These factors could significantly disrupt our international operations, impact our return on investment or necessitate adjustments to our international strategy, including modifying or exiting our operations in certain locations. As a result, we may experience material adverse effects to our revenue and profitability and could incur material impairments and other exit costs.
Financial and Market Risks
Failure to meet any financial performance guidance or other forward-looking statements we may provide to the public could result in a decline in our stock price.
We may provide public guidance on our expected financial results or other forward-looking information for future periods. When we provide guidance, we believe that this guidance provides investors and analysts with a better understanding of management’s expectations for the future and is useful to our existing and potential shareholders, but such guidance is comprised of forward-looking statements subject to the risks and uncertainties described in this report and in our other public filings and public statements. Our actual results may not be in line with guidance we have provided. We may not be able to accurately forecast our growth rate and profitability. We base our expense levels and investment plans on sales estimates. A significant portion of our expenses and investments are fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected. Our revenue growth may not be predictable or sustainable, and our percentage growth rates may decrease. Our revenue and profitability depend on the continued growth of demand for the products and services offered by us, and our business is affected by general economic and business conditions worldwide. If our financial results for a particular period do not meet any guidance we provide or the expectations of market participants, or if we reduce any guidance for future periods, the market price of our common stock may decline.
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Failure to effectively manage our costs could have a material adverse effect on our profitability.
As discussed above, our revenues are susceptible to volatility from various sources, which can lead to periods of flat or declining revenues. However, some of our operating costs are fixed and/or are subject to multi-year contracts. Some elements of our costs may be higher than our competitors’ because of, for example, our extended retail footprint and structure, our hourly pay structure, our differentiated service offerings or our level of customer service. Accordingly, our ongoing drive to reduce costs and increase efficiency represents a strategic imperative. Failure to successfully manage our costs could have a material adverse impact on our profitability and curtail our ability to fund our growth or other critical initiatives.
We are highly dependent on the cash flows and net earnings we generate during our fiscal fourth quarter, which includes the majority of the holiday shopping season.
A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season. In addition, the holiday shopping season also incorporates many other unpredictable factors, such as the level of competitive promotional activity, new product release activity and customer buying patterns, which makes it difficult to forecast and react to these factors quickly. Unexpected events or developments, such as pandemics, natural or man-made disasters, changes in consumer demand and spending, economic factors, product sourcing issues, AI developments, cyber-attacks, failure or interruption of management information systems, or disruptions in services or systems provided or managed by third-party vendors could significantly disrupt our operations, especially during the fiscal fourth quarter. As a result of these factors, our fiscal fourth quarter and annual results could be adversely affected.
Economic, regulatory and other developments could adversely affect our ability to offer attractive promotional financing to our customers and adversely affect the profits we generate from these programs.
In partnership with third parties, we offer promotional financing as well as credit cards issued by third-party banks that manage and directly extend credit to our customers. Customers choosing promotional financing can receive extended payment terms and low- or no-interest financing on qualifying purchases. We believe our financing programs generate incremental revenue from customers who prefer the financing terms to other available forms of payment or otherwise need access to financing in order to make purchases. Approximately 25% of our fiscal 2026 Domestic segment revenue was transacted using one of the company’s branded cards. In addition, we earn profit-share income and share in any losses from some of our banking partners based on the performance of the programs. Profit-sharing revenue from our credit card arrangement approximated 1.2% of Domestic segment revenue in fiscal 2026. The income or loss we earn in this regard is subject to numerous factors, including the volume and value of transactions, the terms of promotional financing offers, bad debt rates, credit card delinquency rates, interest rates, the regulatory and competitive environment and expenses of operating the program. Adverse changes to any of these factors could impair our ability to offer these programs to customers and reduce customer purchases and our ability to earn income from sharing in the profits of the programs.
Constraints in the banking and capital markets or our vendor credit terms may have a material adverse impact on our liquidity.
We need sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and finance business opportunities. Without sufficient liquidity, we could be forced to curtail our operations, or we may not be able to pursue business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and cash equivalents, short-term investments, credit facilities, other debt arrangements and trade payables. Our liquidity could be materially adversely impacted if our vendors reduce payment terms and/or impose tighter credit limits. If our sources of liquidity do not satisfy our requirements, we may need to seek additional financing. We typically hold material balances of cash, cash equivalents and/or short-term investments and are therefore reliant on banks and other financial institutions to safeguard and allow ready access to these assets. Our future liquidity will depend on a variety of factors, such as economic and market conditions, the regulatory environment and financial stability of banks and other financial institutions, the availability of credit, our credit ratings and our reputation with potential lenders. These factors could have a material adverse effect on our costs of borrowing and our ability to pursue business opportunities and threaten our ability to meet our obligations as they become due.
Changes in our credit ratings may limit our access to capital and materially increase our borrowing costs.
Any future downgrades to our credit ratings and outlook could negatively impact the perception of our credit risk and thus our access to capital markets, borrowing costs, vendor terms and lease terms. Our credit ratings are based upon information furnished by us or obtained by a rating agency from its own sources and are subject to revision, suspension or withdrawal by one or more rating agencies at any time. Rating agencies may change the ratings assigned to us due to developments that are beyond our control, including the introduction of new rating practices and methodologies.
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Best
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Best
Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2026, fiscal 2025 and fiscal 2024 ended on January 31, 2026, February 1, 2025, and February 3, 2024, respectively. Fiscal 2026 and fiscal 2025 each included 52 weeks. Fiscal 2024 included 53 weeks with the 53 rd week occurring in the fiscal fourth quarter. Unless otherwise noted, references to years within the MD&A section of this report relate to fiscal years, not calendar years. Our business, like that of many retailers, is seasonal. A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season.
Comparable Sales
Throughout this MD&A, we refer to comparable sales. Comparable sales is a metric used by management to evaluate the performance of our existing stores and digital offerings by measuring the change in net sales for a particular period over the comparable prior period of equivalent length.
Comparable sales includes revenue from stores operating for at least 14 full months; sales initiated on a website, app or virtual store; advertising revenue; commercial sales; credit card revenue; gift card breakage; marketplace commission revenue; and sales of merchandise to wholesalers and dealers. Revenue from acquisitions is included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition. Comparable sales excludes revenue from stores closed more than 14 days (including but not limited to relocated, remodeled, expanded and downsized stores, or stores impacted by natural disasters) until at least 14 full months after reopening; the impact of certain periodic warranty-related profit-share revenue; the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only); and the impact of the 53 rd week (applicable in 53-week fiscal years only). Comparable sales is based on our fiscal calendar and is not adjusted to align calendar weeks. All periods presented apply this methodology consistently.
Comparable online sales is a subset of comparable sales related to our digital offerings and includes sales initiated on a website, app or virtual store; advertising revenue and marketplace commission revenue.
We believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores and digital offerings versus the portion resulting from opening new stores or closing existing stores. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers’ methods.
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Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), as well as certain non-GAAP financial measures, such as consolidated adjusted selling, general and administrative expenses (“SG&A”), consolidated adjusted SG&A rate, consolidated adjusted operating income, consolidated adjusted operating income rate, consolidated adjusted effective tax rate and consolidated adjusted diluted earnings per share (“EPS”). We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, provide additional useful information for evaluating current period performance and assessing future performance. For these reasons, internal management reporting, including budgets, forecasts and financial targets used for short-term incentives are based on non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill and acquired intangible asset impairments, certain long-lived asset impairments, price-fixing settlements, gains and losses on disposals of subsidiaries and certain investments, amortization of definite-lived intangible assets associated with acquisitions, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors. We provide reconciliations of the most comparable financial measures presented in accordance with GAAP to presented non-GAAP financial measures that enable investors to understand the adjustments made in arriving at the non-GAAP financial measures and to evaluate performance using the same metrics as management. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures may be calculated differently from similarly titled measures used by other companies, thereby limiting their usefulness for comparative purposes.
In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also may use the term “constant currency,” which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.
Refer to the Non-GAAP Financial Measures section below for detailed reconciliations of items impacting consolidated adjusted SG&A, consolidated adjusted operating income, consolidated adjusted effective tax rate and consolidated adjusted diluted EPS in the presented periods.
Business Strategy Update
Our multi-year strategy remains consistent, which is to strengthen our position in retail as a leading omnichannel destination for technology, while at the same time scaling new profit streams. Our fiscal 2027 priorities and resource allocation philosophy also remain consistent as we build upon the momentum from fiscal 2026. Those priorities are:
Drive omni-channel experiences that resonate with customers
Starting with our digital experiences, we have already activated on ways to bring our products to life through artificial intelligence (“AI”) platforms, which will continue to grow during fiscal 2027. We are also partnering with various platform providers to create a more seamless agentic shopping journey, making it easier for customers to both find and purchase directly from our product catalog. Other fiscal 2027 digital priorities include strengthening customer recognition and personalization, increasing customer adoption and engagement with the Best Buy App and driving digital conversion for categories like major appliances and home theater.
In our physical stores, we are continuing to improve the customer experience while also using our space more effectively – often in partnership with our vendors. From a store labor perspective, we will focus on enhancements and optimization, building on the significant operating model changes we have made in recent years that were designed to provide the experience our customers expect in the most efficient way possible.
Scaling Best Buy Ads and Best Buy Marketplace
In recent years, our retail media network, Best Buy Ads, has primarily served our merchandise vendors. In fiscal 2027, we anticipate continuing to grow Best Buy Ads through existing advertisers as well as other areas of opportunity, including advertising agencies and demand-side platforms. In order to support this growth, we are investing in our technology capabilities, marketing and headcount across our sales, operations and technology teams.
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During fiscal 2026, we launched Best Buy Marketplace within our Domestic segment, which we believe will complement our existing product assortment with access to a broader range of products offered by marketplace sellers. We believe this will unlock potential new commission and advertising revenue, without requiring inventory investment. In fiscal 2027, we plan to continue to expand our third-party seller count, while investing in technology, advertising and our marketplace team to support future growth.
Drive efficiencies and identify cost reductions that are crucial to helping to fund investment capacity and offset pressure in our business
In fiscal 2027, we will continue to prioritize our longstanding commitment to operational efficiency by identifying cost reductions and other savings to help fund investment capacity for new and existing initiatives and offset financial pressures facing our business.
Tariffs
During fiscal 2026, U.S. tariffs were imposed under the International Emergency Economic Powers Act (the “IEEPA”) that applied to certain imported private‑label branded and direct import products that we sold during the year or held in inventory as of the end of the fiscal year. While we directly import approximately 1% to 3% of our overall assortment, our supply chain is highly dependent on vendor imports, including product sourced from China, Mexico and Southeast Asia.
On February 20, 2026, the U.S. Supreme Court ruled that tariffs imposed under the IEEPA were unauthorized. The ruling did not address potential refunds. Following the ruling, various actions and proceedings have occurred involving U.S. trade authorities and the U.S. Court of International Trade relating to the administration, collection and potential refund of tariffs imposed under the IEEPA. The outcome of these actions, including the timing, process and ultimate recoverability of any refunds, remains uncertain.
In addition, subsequent to the U.S. Supreme Court’s ruling, the U.S. government has initiated further actions under existing trade authorities to evaluate foreign trade practices, which could result in the imposition of additional tariffs or other trade measures. We will continue to evaluate the potential effects of these developments on our financial position, results of operations and cash flows. For additional information regarding tariff‑related risks, see Item 1A, Risk Factors , in this Annual Report on Form 10‑K.
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Results of Operations
Consolidated Results
In fiscal 2026, our comparable sales returned to growth and we stabilized our market share position while navigating a complex and often evolving tariff situation. We launched and began to scale Best Buy Marketplace within our Domestic segment and grew our retail media network, Best Buy Ads. We believe we were able to both make investments in our strategic initiatives and expand our operating margin through a combination of disciplined expense management and efficiency optimization efforts.
Selected consolidated financial data was as follows ($ in millions, except per share amounts):
Revenue
Revenue % change
Comparable sales % change
Gross profit
Gross profit as a % of revenue (1)
SG&A as a % of revenue (1)
Restructuring charges
Goodwill and intangible asset impairments
Operating income
Operating income as a % of revenue
Net earnings
Diluted EPS
(1) Because retailers vary in how they record costs of operating their supply chain between cost of sales and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers' corresponding rates. For additional information regarding costs classified in cost of sales and SG&A, refer to Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.
In fiscal 2026, we generated $41.7 billion in revenue, compared to $41.5 billion in fiscal 2025, and our comparable sales grew 0.5%, primarily driven by comparable sales growth in computing and mobile phones, partially offset by comparable sales declines in home theater and appliances. The comparable sales growth was due to a mix of new technology innovation, our continued focus on omni-channel customer experience and strong vendor partnerships.
Restructuring charges in fiscal 2026 were primarily related to a labor and store optimization restructuring initiative that commenced in the second quarter of fiscal 2026 and a restructuring initiative focused on optimizing our Best Buy Health business that commenced in the first quarter of fiscal 2026. Refer to Note 2, Restructuring , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K for additional information.
Goodwill and intangible asset impairments in fiscal 2026 were related to Best Buy Health. A change in Best Buy Health’s customer base during the third quarter of fiscal 2026 resulted in an impairment review of all Best Buy Health assets. The impairments reflect downward revisions of our revenue growth rates and margin rates compared to previous projections, in part due to pressures in the Medicaid and Medicare Advantage markets. Refer to Note 3, Goodwill and Intangible Assets , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K for additional information.
Operating income rate increased in fiscal 2026, primarily due to lower goodwill and intangible asset impairments, partially offset by higher restructuring charges.
Diluted EPS increased in fiscal 2026, primarily due to higher net earnings driven by lower goodwill and intangible asset impairments, partially offset by higher restructuring charges.
In fiscal 2026, revenue changes were primarily driven by our International segment, and operating income rate changes were primarily driven by our Domestic segment. Gross profit rate and SG&A rate changes in fiscal 2026 were driven by both of our segments. For further discussion of our Domestic and International segments, see Segment Performance Summary , below.
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Store Summary
Stores open by segment were as follows:
January 31, 2026
February 1, 2025
February 3, 2024
Best Buy
Outlet Centers
Pacific Sales
Yardbird
Total Domestic stores
Canada Best Buy stores
Canada Best Buy Mobile stand-alone stores
Total International stores (1)
Total stores
(1) Excludes Best Buy Express stores leased by Bell Canada.
We continuously monitor store performance as part of a market-driven, omnichannel strategy. As we approach the expiration of leases, we evaluate various options for each location, including whether a store should remain open. We currently expect to increase our Domestic segment Best Buy store count by approximately 4 stores by the end of fiscal 2027.
In fiscal 2026, we closed select non-traditional Domestic and International store locations in conjunction with our restructuring initiative that commenced in the second quarter of fiscal 2026, with additional closures expected in fiscal 2027. See Note 2, Restructuring , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for additional information.
Income Tax Expense
Income tax expense decreased to $337 million in fiscal 2026 compared to $372 million in fiscal 2025. Our effective tax rate decreased to 24.0% in fiscal 2026 compared to 28.7% in fiscal 2025. The decreases were primarily due to the tax impacts of the restructuring charges and the associated exit of a component of our Best Buy Health business, as well as certain expenses that were not deductible in the prior year. The decrease in income tax expense was partially offset by the impact of increased pre-tax earnings. See Note 2, Restructuring , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for additional information.
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Segment Performance Summary
Domestic Segment
Selected financial data for the Domestic segment was as follows ($ in millions):
Revenue
Revenue % change
Comparable sales % change (1)
Gross profit
Gross profit as a % of revenue
Adjusted SG&A (2)
Adjusted SG&A as a % of revenue (3)
Adjusted operating income (2)
Adjusted operating income as a % of revenue (4)
Selected Online Revenue Data
Total online revenue
Online revenue as a % of total segment revenue
Comparable online sales % change (1)
(1) Comparable online sales are included in the comparable sales calculation.
(2) Represents segment Adjusted SG&A and segment Adjusted operating income as reported in accordance with Accounting Standards Codification ("ASC") 280, Segment Reporting .
(3) Adjusted SG&A as a % of revenue is calculated as Domestic segment Adjusted SG&A divided by Domestic segment Revenue.
(4) Adjusted operating income as a % of revenue is calculated as Domestic segment Adjusted operating income divided by Domestic segment Revenue.
Domestic segment revenue increased slightly in fiscal 2026, primarily driven by comparable sales growth in computing, gaming and mobile phones, mostly offset by comparable sales declines in home theater and appliances. Online revenue of $13.2 billion increased 1.3% on a comparable basis in fiscal 2026.
Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix
Comparable Sales
Computing and Mobile Phones
Consumer Electronics
Appliances
Entertainment
Services
Other
Total
Notable comparable sales changes by revenue category were as follows:
• Computing and Mobile Phones: The 5.7% comparable sales growth was driven primarily by laptops, mobile phones and desktops.
• Consumer Electronics: The 5.4% comparable sales decline was driven primarily by home theater.
• Appliances: The 8.9% comparable sales decline was driven primarily by large appliances.
• Entertainment: The 6.8% comparable sales growth was driven primarily by gaming, partially offset by a comparable sales decline in drones.
• Services: The 1.0% comparable sales growth was driven primarily by Best Buy Marketplace and Best Buy Ads, partially offset by a comparable sales decline in our Best Buy Health service offerings.
Domestic segment gross profit rate remained effectively unchanged in fiscal 2026, primarily due to lower product margin rates, mostly offset by rate improvement within the services category and growth in Best Buy Ads.
Domestic segment adjusted SG&A decreased slightly in fiscal 2026, primarily due to lower Best Buy Health expenses, lower depreciation and favorable fiscal 2026 indirect tax resolutions, mostly offset by increased expenses in support of our Best Buy Ads and Best Buy Marketplace initiatives, including higher advertising and employee compensation expenses.
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Domestic segment adjusted operating income rate increased slightly in fiscal 2026, primarily due to a favorable adjusted SG&A rate.
International Segment
Selected financial data for the International segment was as follows ($ in millions):
Revenue
Revenue % change
Comparable sales % change
Gross profit
Gross profit as a % of revenue
Adjusted SG&A (1)
Adjusted SG&A as a % of revenue (2)
Adjusted operating income (1)
Adjusted operating income as a % of revenue (3)
(1) Represents segment Adjusted SG&A and segment Adjusted operating income in accordance with ASC 280, Segment Reporting .
(2) Adjusted SG&A as a % of revenue is calculated as International segment Adjusted SG&A divided by International segment Revenue.
(3) Adjusted operating income as a % of revenue is calculated as International segment Adjusted operating income divided by International segment Revenue.
International segment revenue increased in fiscal 2026, primarily driven by revenue from Best Buy Express locations excluded from comparable sales and comparable sales growth primarily driven by computing and mobile phones, partially offset by the negative impact of foreign exchange rates.
International segment revenue mix percentages and comparable sales percentage changes by revenue category were as follows:
Revenue Mix
Comparable Sales
Computing and Mobile Phones
Consumer Electronics
Appliances
Entertainment
Services
Other
Total
Notable comparable sales changes by revenue category were as follows:
• Computing and Mobile Phones: The 5.5% comparable sales growth was driven primarily by computing and mobile phones.
• Consumer Electronics: The 0.1% comparable sales decline was driven primarily by home theater and smart home, partially offset by comparable sales growth in digital imaging and health and fitness.
• Appliances: The 5.1% comparable sales decline was driven by small and large appliances.
• Entertainment: The 0.6% comparable sales decline was driven primarily by virtual reality and drones, partially offset by comparable sales growth in gaming.
• Services: The 5.2% comparable sales growth was driven primarily by growth in marketplace and our membership programs.
International segment gross profit rate decreased in fiscal 2026, primarily due to lower product margin rates and unfavorable supply chain costs, partially offset by marketplace growth.
International segment adjusted SG&A decreased in fiscal 2026, primarily due to lower employee compensation expense, including incentive compensation, and the favorable impact of foreign exchange rates.
International segment adjusted operating income rate increased in fiscal 2026, primarily due to increased leverage from higher sales volumes, which resulted in a favorable adjusted SG&A rate, partially offset by an unfavorable gross profit rate.
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Non-GAAP Financial Measures
Reconciliations of consolidated SG&A, consolidated operating income, consolidated effective tax rate and consolidated diluted EPS (GAAP financial measures) to consolidated adjusted SG&A, consolidated adjusted operating income, consolidated adjusted effective tax rate and consolidated adjusted diluted EPS (non-GAAP financial measures), respectively, were as follows ($ in millions, except per share amounts):
% of revenue
Intangible asset amortization (1)
Long-lived asset impairment (2)
Adjusted SG&A
% of revenue
Operating income
% of revenue
Intangible asset amortization (1)
Long-lived asset impairment (2)
Restructuring charges (3)
Goodwill and intangible asset impairments (2)
Adjusted operating income
% of revenue
Effective tax rate
Intangible asset amortization (1)
Long-lived asset impairment (2)
Restructuring charges (3)
Goodwill and intangible asset impairments (2)
Adjusted effective tax rate
Diluted EPS
Intangible asset amortization (1)
Long-lived asset impairment (2)
Restructuring charges (3)
Goodwill and intangible asset impairments (2)
(Gain) loss on disposal of subsidiaries (4)
Loss on investments, net
Income tax impact of non-GAAP adjustments (5)
Adjusted diluted EPS
For additional information regarding the nature of charges discussed below, refer to Note 1, Summary of Significant Accounting Policies ; Note 2, Restructuring ; Note 3, Goodwill and Intangible Assets ; Note 4, Fair Value Measurements ; and Note 10, Income Taxes , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.
(1) Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology assets.
(2) Represents charges incurred related to Best Buy Health, comprised of non-cash impairments of goodwill, intangible assets and certain long-lived assets.
(3) Charges in fiscal 2026 primarily related to a labor and store optimization restructuring initiative that commenced in the second quarter of fiscal 2026 and a restructuring initiative within the company's Best Buy Health business that commenced in the first quarter of fiscal 2026. Charges in fiscal 2024 primarily related to an enterprise-wide restructuring initiative that commenced in the fourth quarter of fiscal 2024.
(4) Primarily represents charges incurred related to the exit of a component of our Best Buy Health business in fiscal 2026 and the disposal of a Mexico subsidiary in fiscal 2024.
(5) The non-GAAP adjustments primarily relate to the U.S. As such, the income tax on a portion of the U.S. non-GAAP adjustments is calculated using the statutory tax rate of 24.5%. There is no income tax for a portion of the U.S. non-GAAP adjustments, as there is no tax benefit on the expenses in the calculation of GAAP income tax expense.
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Liquidity and Capital Resources
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, dividends, credit facilities, short-term borrowing arrangements and working capital management. We modify our approach to managing these variables as changes in our operating environment arise. For example, capital expenditures and share repurchases are a component of our cash flow and capital management strategy, which, to a large extent, we can adjust in response to economic and other changes in our business environment.
Cash and cash equivalents were as follows ($ in millions):
January 31, 2026
February 1, 2025
Cash and cash equivalents
The increase in cash and cash equivalents in fiscal 2026 was primarily driven by positive operating cash flows from earnings. The increase was partially offset by dividend payments, capital expenditures and share repurchases.
Our cash deposits held at financial institutions may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit. We limit exposure relating to financial instruments by diversifying the financial instruments among various counterparties, which consist primarily of major financial institutions.
Cash Flows
Cash flows were as follows ($ in millions):
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash, cash equivalents and restricted cash
Operating Activities
The decrease in cash provided by operating activities in fiscal 2026 was primarily driven by cash outflows from accounts payable due to the timing of inventory purchases and payments. The decrease was partially offset by lower income tax payments and an increase in net earnings adjusted for non-cash items.
Investing Activities
The increase in cash used in investing activities in fiscal 2026 was primarily driven by the disposal of a component of our Best Buy Health business.
Financing Activities
The decrease in cash used in financing activities in fiscal 2026 was primarily driven by lower share repurchases.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents, our credit facilities, other debt arrangements and trade payables are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, share repurchases, dividends and strategic initiatives, including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.
On April 18, 2025, we entered into a $1.25 billion five-year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the “Previous Facility”), which was entered into April 2023 and scheduled to expire in April 2028, but was terminated on April 18, 2025. The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in April 2030. There were no borrowings outstanding under the Five-Year Facility Agreement as of January 31, 2026, or under the Previous Facility as of February 1, 2025.
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The Five-Year Facility Agreement contains a covenant that requires the company to maintain a maximum quarterly cash flow leverage ratio. The Five-Year Facility Agreement contains customary default provisions, including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants. As of January 31, 2026, we were in compliance with all covenants. If an event of default were to occur with respect to any of our other debt, it would likely constitute an event of default under the Five-Year Facility Agreement as well.
Our credit ratings and outlook as of March 16, 2026, remained unchanged from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025, and are summarized below.
Rating Agency
Rating
Outlook
S&P Global
BBB+
Stable
Moody's
Stable
Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Factors that can affect our credit ratings include, but are not limited to, changes in our operating performance; the economic environment, regulatory and political environment; conditions in the retail and consumer electronics industries; our competitive standing within the industries we operate; our financial position; and changes in our business strategy. If changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs.
Restricted Cash
Our liquidity is also affected by restricted cash balances that are primarily restricted to cover product protection plans provided under our membership offerings and self-insurance liabilities. Restricted cash, which is included in Other current assets on our Consolidated Balance Sheets, was $285 million and $290 million as of January 31, 2026, and February 1, 2025, respectively. The decrease in restricted cash was primarily due to releases of product protection reserves based on claims and purchasing behaviors of customers participating in our membership offerings.
Capital Expenditures
Capital expenditures were as follows ($ in millions):
E-commerce and information technology
Store-related projects (1)
Supply chain
Total capital expenditures
(1) Store-related projects are primarily comprised of store remodels and various merchandising projects.
We currently expect capital expenditures in fiscal 2027 of approximately $750 million.
Debt and Capital
As of January 31, 2026, we had $500 million of principal amount of notes due October 1, 2028 (“2028 Notes”) and $650 million of principal amount of notes due October 1, 2030 ("2030 Notes"). Refer to Note 7, Debt , in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K for additional information about our outstanding debt.
Share Repurchases and Dividends
We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors (“Board”). The payment of cash dividends is also subject to customary legal and contractual restrictions. Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment-grade credit metrics. Our share repurchase plans are evaluated on an ongoing basis, considering factors such as our financial condition and cash flows, our economic outlook, the impact of tax laws, our liquidity needs, our stock price, and the health and stability of global markets. The timing and amount of future repurchases may vary depending on such factors.
On February 28, 2022, our Board approved a $5.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under this authorization.
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Share repurchase and dividend activity were as follows ($ and shares in millions, except per share amounts):
Total cost of shares repurchased
Average price per share
Total number of shares repurchased
Regular quarterly cash dividend per share
Cash dividends declared and paid
The total cost of shares repurchased decreased in fiscal 2026 due to decreases in the volume of repurchases and the average price per share.
Cash dividends declared and paid decreased in fiscal 2026, due to fewer shares outstanding, partially offset by an increase in the regular quarterly cash dividend per share.
Off-Balance-Sheet Arrangements and Contractual Obligations
We do not have outstanding off-balance-sheet arrangements. Contractual obligations as of January 31, 2026, were as follows ($ in millions):
Payments Due by Period
Contractual Obligations
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Purchase obligations (1)
Operating lease obligations (2)
Long-term debt obligations (3)
Interest payments (4)
Finance lease obligations
Total
For additional information regarding the nature of contractual obligations discussed below, refer to Note 5, Derivative Instruments ; Note 6, Leases ; Note 7, Debt ; and Note 12, Contingencies and Commitments , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.
(1) Purchase obligations primarily include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include agreements that are cancelable without penalty. Additionally, although they do not contain legally binding purchase commitments, we include open purchase orders in the table above. Substantially all open purchase orders are fulfilled within 30 days.
(2) Operating lease obligations exclude payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would increase total operating lease obligations by $0.8 billion as of January 31, 2026. Operating lease obligations also exclude $22 million of legally binding fixed costs for leases signed but not yet commenced.
(3) Long-term debt obligations represent principal amounts only and exclude interest rate swap valuation adjustments.
(4) Interest payments related to our 2028 Notes and 2030 Notes include the variable interest rate payments included in our interest rate swaps.
Additionally, we have $1.25 billion in undrawn capacity on our Five-Year Facility Agreement as of January 31, 2026, which, if drawn upon, would be included in either short-term or long-term debt on our Consolidated Balance Sheets.
Critical Accounting Estimates
The preparation of our financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated financial statements are prepared. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K. We have not made any material changes to our accounting policies or methodologies during the past three fiscal years. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results. These estimates require our most difficult, subjective or complex judgments and generally incorporate significant uncertainty.
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Vendor Allowances
Description
We receive funds from our merchandise vendors through a variety of programs and arrangements, primarily in the form of purchases-based or sales-based volumes and for product advertising and placement. We recognize vendor allowances based on purchases and sales as a reduction of cost of sales when the associated inventory is sold. Vendor allowances for advertising and placement are recognized as a reduction of cost of sales ratably over the corresponding performance period. Funds that are determined to be a reimbursement of specific, incremental and identifiable costs incurred to sell a vendor's products are recorded as an offset to the related expense within SG&A when incurred.
Judgments and uncertainties involved in the estimate
Due to the quantity and diverse nature of our vendor agreements, estimates are made to determine the amount of funding to be recognized in earnings or deferred as an offset to inventory. These estimates require a detailed analysis of complex factors, including proper classification of the type of funding received and the methodology to estimate the portion of purchases-based funding that should be recognized in cost of sales in each period, which considers factors such as inventory-turn by product category and actual sell-through of inventory.
Effect if actual results differ from assumptions
A 10% change in our vendor funding deferral as of January 31, 2026, would have affected net earnings by approximately $45 million in fiscal 2026. The level of vendor funding deferral has remained relatively stable over the last three fiscal years.
Goodwill
Description
Goodwill is evaluated for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. The impairment test involves a comparison of the fair value of each reporting unit with its carrying value. Fair value reflects our estimate of the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction.
We have goodwill in two reporting units – Best Buy Domestic (comprising our core U.S. Best Buy business) and Best Buy Health – with carrying values of $492 million and $298 million, respectively, as of January 31, 2026.
Judgments and uncertainties involved in the estimate
Determining the fair value of a reporting unit requires complex analysis and judgment. We use a combination of discounted cash flow (“DCF”) analysis and market data, such as revenue multiples and quoted market prices, for observable comparable companies. DCF analysis requires detailed forecasts of cash flow drivers, such as revenue growth rates, margin rates and capital investments, and estimates of weighted-average cost of capital rates. These estimates incorporate many uncertain factors, such as the effectiveness of our strategy, changes in customer behavior, technological changes, competitor actions, regulatory changes and macroeconomic trends.
Effects if actual results differ from assumptions
For our Best Buy Domestic reporting unit, fair value is primarily derived from market data and exceeded carrying value by a substantial margin in fiscal 2026, fiscal 2025 and fiscal 2024. Barring a fundamental, material deterioration of macroeconomic factors, we believe the risk of future goodwill impairment within our Best Buy Domestic reporting unit is remote.
In the third quarter of fiscal 2026, we recorded a goodwill impairment of $118 million within the Domestic segment for the
Best Buy Health reporting unit. A change in Best Buy Health’s customer base during the third quarter resulted in an impairment review of all Best Buy Health assets. The fair value of Best Buy Health was estimated primarily based on DCF analysis. The impairment reflects downward revisions of our revenue growth rates and margin rates compared to previous projections, in part due to pressures in the Medicaid and Medicare Advantage markets. No further impairment was identified in the fourth quarter of fiscal 2026.
Our Best Buy Health reporting unit is subject to a greater level of uncertainty compared to our Best Buy Domestic reporting unit, since it operates in a more uncertain environment. Factors that drive this uncertainty include macro-economic conditions, the regulatory environment, government funding programs, competitor actions, technology changes and other trends in the health and care sectors. Changes in any of these factors could lead to further lowering our expectations, which could result in further goodwill impairment.
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Inventory Markdown
Description
We value our inventory at the lower of cost or net realizable value through the establishment of inventory markdown adjustments. Markdown adjustments reflect the excess of cost over the net recovery we expect to realize from the ultimate sale or other disposal of inventory and establish a new cost basis. No adjustment is recorded for inventory that we expect to return to our vendors for full credit.
Judgments and uncertainties involved in the estimate
Markdown adjustments involve uncertainty because the calculations require management to make assumptions and to apply judgment about the expected revenue and incremental costs we will generate for selling current inventory. Such estimates include the evaluation of historical recovery rates, as well as factors such as product type and condition, forecasted consumer demand, product lifecycles, promotional environment, regulatory actions, vendor return rights and the expected sales channel of ultimate disposition. We also apply judgment in the assumptions about other components of net realizable value, such as vendor allowances and selling costs.
Effect if actual results differ from assumptions
A 10% change in our markdown adjustment as of January 31, 2026, would have affected net earnings by approximately $9 million in fiscal 2026. The level of markdown adjustments has remained relatively stable over the last three fiscal years.
Tax Contingencies
Description
Our income tax returns are routinely examined by domestic and foreign tax authorities. Taxing authorities audit our tax filing positions, including the timing and amount of income and deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various taxing authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provisions in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits.
Judgments and uncertainties involved in the estimate
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and apply judgment to estimate the exposures associated with our various tax filing positions. Such assumptions can include complex and uncertain external factors, such as changes in tax law, interpretations of tax law and the timing of such changes, and uncertain internal factors such as taxable earnings by jurisdiction, the magnitude and timing of certain transactions and capital spending.
Effect if actual results differ from assumptions
To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may reduce our effective income tax rate in the period of resolution.
Service Revenue
Description
We sell membership plans that include access to benefits such as technical support, price discounts on certain products and services and product protection plans. We allocate the transaction price to all performance obligations identified in the contract based on their relative fair value. For performance obligations provided over the term of the contract, we typically recognize revenue on a usage basis, an input method of measuring progress over the related contract term. This method involves the estimation of expected usage patterns, primarily derived from historical information.
Judgments and uncertainties involved in the estimate
Estimates involve complex calculations and judgment, for example, in estimating the relative standalone selling price for bundled performance obligations; the appropriate recognition methodology for each performance obligation; and, for those based on usage, the expected pattern of consumption across a large portfolio of customers. When insufficient reliable and relevant history is available to estimate usage, we generally recognize revenue ratably over the life of the contract until such history has accumulated.
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Effect if actual results differ from assumptions
A 10% change in the amount of services membership deferred revenue as of January 31, 2026, would have affected net earnings by approximately $42 million in fiscal 2026. The level of services membership deferred revenue has remained relatively stable over the last three fiscal years.
New Accounting Pronouncements
For a description of applicable new or recently issued accounting pronouncements, including our assessment of the impact on our financial statements, see Note 1, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.
