Why Best Buy Stock Tumbled on Thursday

Published in Stocks and Investing on Thursday, August 28th 2025 at 23:12 GMT by The Motley Fool
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Best Buy’s Shares Take a Hit: What Went Wrong?
— A comprehensive recap of the 28 August 2025 article “Why Best Buy stock tumbled on Thursday”

On Thursday, August 28 2025, Best Buy (ticker: BBY) saw its market value plunge more than 6 % in after‑hours trading. The move shocked investors who had been counting on the retailer to maintain its momentum as the holiday shopping season approached. The article on The Motley Fool, “Why Best Buy stock tumbled on Thursday,” breaks down the forces that pushed the share price lower, and it explains why the dip may be just a “stop‑gap” event rather than a long‑term crisis.

1. The Earnings Surprise

1.1 Q2 2025 Results Fell Short of Expectations

Best Buy released its second‑quarter earnings on Thursday. According to the company’s filing, revenue was $12.8 billion, down 1.7 % YoY, versus the $13.1 billion consensus estimate from analysts. Net income came in at $540 million, or $1.18 per share—below the $1.28 per share estimate. In other words, the company missed both top‑line and bottom‑line forecasts.

The decline was attributed to several headline items:

Item	Impact	Management Commentary
Higher cost of goods sold (COGS)	+2.4 % YoY	“We continued to see supply‑chain pressure, especially for high‑margin appliances and new smartphone models.”
Slower revenue growth in the US e‑commerce division	-4.1 % YoY	“Online sales were dampened by a slower transition of consumers back to in‑store visits.”
Inventory write‑downs on certain electronics categories	$120 million	“We adjusted our forecast for the next quarter to reflect higher write‑downs.”

The CFO noted that the company’s gross margin was 20.1 %, down from 21.3 % in the previous quarter—an indicator that the mix of products sold was less profitable than expected. The analyst community had been watching for a “margin squeeze” since the company announced its plan to lift prices in the first half of 2025.

1.2 Forward Guidance: A “Pessimistic” Outlook

In the “Management Discussion & Analysis” section, Best Buy’s CEO, Terry Lundberg, reiterated that the company’s sales guidance for the next fiscal year would be revised to $52 billion in revenue, below the previous estimate of $54 billion. The earnings per share (EPS) guidance was also lowered to $4.75 from the previously projected $5.15.

Lundberg stated that “the consumer tech landscape is highly competitive, and we must carefully manage inventory levels to avoid over‑stocking, especially in the rapidly evolving smartphone sector.” The comment was seen by investors as a direct admission that the company was facing tougher headwinds than before.

2. Macro‑Economic & Competitive Factors

2.1 Inflationary Pressures on Consumers

The article points out that the U.S. Consumer Price Index (CPI) rose 0.6 % in July, the highest level since March 2022. With rising inflation, consumers are tightening their belts, and Best Buy’s high‑end appliance segment (which includes refrigerators, washers, and dryers) saw a noticeable decline. The retailer’s “Buy Back” program—where it offers price‑matching against Amazon—was under scrutiny because it can erode margins.

2.2 Amazon and Other E‑commerce Rivals

The author cites research from Gartner indicating that Amazon’s share of the U.S. electronics e‑commerce market is now 36 %, up from 31 % in the previous year. Amazon’s aggressive price‑matching and faster shipping times (especially with its Amazon Prime membership) have siphoned off a share of Best Buy’s online traffic.

In addition, B&H Photo Video and Newegg have increased their presence in the high‑end camera and audio equipment categories—areas where Best Buy traditionally commanded a premium. These competitive pressures were highlighted as key reasons why the company’s e‑commerce segment struggled to keep up.

3. Investor Reaction and Analyst Coverage

3.1 Market Reaction

After the earnings announcement, Best Buy’s share price fell by $1.32 (6.2 %) to close at $21.10. In the following hours, the stock traded down an additional 1 % in after‑hours session, reflecting a persistent sell‑off. The decline was the largest single‑day drop for the retailer in the past six months.

3.2 Analyst Updates

Morgan Stanley downgraded Best Buy from “Buy” to “Hold,” citing the lower margin and the need for a “strategic review of the high‑margin product mix.”
Goldman Sachs noted that the “inventory write‑downs” could impact the company’s cash flow if the downturn continues.
J.P. Morgan issued a “Watch” rating, suggesting that the company may rebound as inventory levels normalize.

A few analysts, however, maintained a bullish stance, arguing that Best Buy’s physical retail network remains a strategic advantage in the “phygital” age (physical + digital).

4. What the Company Plans to Do

4.1 Cost‑Control Initiatives

The company announced a $1 billion savings program over the next two years. This includes:

Reducing operating expenses by streamlining supply‑chain logistics.
Closing under‑performing stores (approximately 25 in the Midwest).
Investing in AI‑driven inventory forecasting to avoid over‑stocking.

4.2 Accelerating the Omni‑Channel Experience

Best Buy is accelerating its “buy‑online‑pick‑up‑in‑store” (BOPIS) capabilities, hoping to reduce shipping costs and improve customer convenience. The company also announced a partnership with Apple to allow in‑store appointments for iPhone and MacBook repairs, a feature that could drive foot traffic.

4.3 Focus on High‑Margin Categories

While the retailer will continue to sell mainstream consumer electronics, management plans to increase focus on “premium” categories—like gaming consoles and home‑theatre systems—where the gross margin remains higher. The CEO added that the upcoming holiday season would see an “exponential boost” in these product lines.

5. The Bottom Line: Short‑Term Pain, Long‑Term Resilience?

The Motley Fool article concludes that while the share dip was painful, it may represent a temporary market overreaction. The core business of Best Buy—retail electronics—remains robust. The company’s brick‑and‑mortar footprint, combined with a diversified product mix, gives it a defensive advantage against pure e‑commerce competitors.

Investors are advised to monitor:

Inventory metrics (turnover ratios and write‑downs).
Gross margin trends (a key indicator of pricing power).
Holiday sales performance (often a good barometer for the retailer’s health).

If the company can successfully implement its cost‑control plan and revitalize its premium product lines, the market may reward Best Buy’s share price in the next quarter. Until then, the current dip should be viewed as a “buy‑the‑dip” opportunity rather than a catastrophic shift.