Best Buy Co., Inc. (BBY Quick QuoteBBY - Free Report) raised its fiscal 2027 outlook after a better-than-expected second quarter, shifting attention to whether its improving profit model can hold through the second half. Stronger sales trends are now being reinforced by newer earnings streams.

Marketplace and Best Buy Ads are contributing to gross-margin expansion, while core categories remain supportive. Memory inflation, tougher computing comparisons and higher operating investments still limit how much of that benefit may reach the bottom line.

BBY's Guidance Raise Resets FY27 Expectations

Best Buy lifted fiscal 2027 revenue guidance to $42.3-$42.8 billion from $41.2-$42.1 billion. Adjusted earnings guidance increased to $6.70-$6.90 per share from $6.30-$6.60.

The company also raised its adjusted operating income rate forecast to 4.4-4.5% from 4.3-4.4%. Comparable sales are now expected to increase 1.9-3%, versus the prior range of a 1% decline to 1% growth.

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Best Buy's Margin Story Leans on New Profit Streams

Domestic gross margin expanded 60 basis points to 24% in the second quarter. The improvement reflected Marketplace, Best Buy Ads and about $34 million of tariff refunds, partly offset by lower product margin rates.

Management expects the fiscal 2027 gross profit rate to improve about 30-40 basis points, led by Ads and Marketplace. The outlook assumes similar tariff refunds in the third quarter.

BBY's Marketplace and Ads Businesses Are Scaling

Domestic Marketplace gross merchandise value reached about $300 million in the second quarter. Best Buy raised its full-year Marketplace expectation to $1.3 billion after stronger-than-anticipated performance.

Best Buy Ads is expected to grow 10% in fiscal 2027 after roughly $900 million in collections last year. Walmart Inc. (WMT Quick QuoteWMT - Free Report) reported 38% global advertising growth and more than 50% marketplace net sales growth in its latest quarter. Target Corporation (TGT Quick QuoteTGT - Free Report) said non-merchandise sales rose more than 20%, reflecting strength in Roundel, Target Circle 360 and Target+.

Best Buy's Core Categories Support the Higher Outlook

Computing, home theater and emerging categories were the largest weighted contributors to domestic comparable sales growth. Computing recorded its 10th consecutive quarter of positive comparable sales growth, while domestic TV sales rose more than 10%.

Management expects phones, TVs and emerging categories to grow in the second half. Major appliances also returned to slight sales growth, although the recovery still depends on pricing, availability, delivery speed and installation.

BBY Still Has Cost and Comparison Risks

Industry-wide memory cost increases are raising computing prices. Computing average selling prices rose in the mid-teens in the second quarter while unit volumes fell in the high single digits, showing demand sensitivity to higher price points.

Computing growth is expected to slow as Best Buy laps two years of gains and a particularly strong prior-year third quarter. Annual adjusted SG&A is planned to increase about 20 basis points, which could absorb part of the gross-margin benefit.

BBY's Hold Signal Tempers the Upbeat Outlook

The bottom line is that Best Buy has raised the earnings bar as new profit streams scale and core category trends improve. The second-half test is whether Ads and Marketplace can keep supporting profitability while computing and operating costs become less favorable.

BBY currently carries a Zacks Rank #3 (Hold). It also has a Value Score of A, Growth Score of A, Momentum Score of A and VGM Score of A. Those favorable Style Scores reflect attractive characteristics across several investing styles, but they complement the Zacks Rank. With a Hold rank, the combined signal supports a measured near-term view. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.