Best Buy Co., Inc. reported strong first-quarter earnings Thursday, a sign that consumers are still turning to the Richfield-based retailer and that the current level of tariffs on Chinese-made goods haven't eaten into profits.
Yet a potential new wave of tariffs threatened by the Trump administration is casting a long shadow over the U.S. economy, with consumer electronics particularly vulnerable.
Best Buy left its full-year forecast unchanged, but uncertainty about price increases and the road ahead pushed down the retailer's stock price despite better-than-expected results. Shares ended the day down nearly 5%, at $65.82.
"We think it's premature to speculate on further tariffs as it's unclear whether they will be implemented, what products would ultimately be included, at what rate and when," Best Buy Chief Executive Hubert Joly said during a call with investors.
But, he underscored, unequivocally: "The impact of tariffs at 25% will result in price increases and will be felt by U.S. consumers."
Best Buy reported that it earned 98 cents per share for the three months ended May 4, which was 11 cents higher than analysts were expecting. Adjusted for one-time events, Best Buy earned $1.02 per share, 15 cents higher than expected.
Sales across domestic and international operations were flat, at $9.1 billion, while comparable sales among stores open at least a year rose 1.1%, at the high end of its guidance.
The previous round of tariffs put a 10% hit on Chinese-made steel and aluminum. For Best Buy, the nation's largest consumer electronics chain, that mostly affected washing machines and some accessories. The company, along with most other retailers, passed it along to consumers in higher prices.
President Donald Trump is still contemplating details of the latest salvo, which puts a 25% import tax on 4,000 items that cover nearly every type of consumer product, including toys, coffeemakers, smartphones, video game consoles, bikes and furniture.
In the ultracompetitive consumer-electronics marketplace, where most items aren't essentials, it may be difficult for Best Buy to heap hefty price hikes onto consumers and depend on brand loyalty to maintain sales.
Best Buy officials estimated that the current tariffs, enacted last March, affect about 7%, or $2.3 billion, of the total cost of goods sold.
The company said it has been able to minimize the effect so far by buying some products ahead of the tariff's implementation, working with vendors to absorb some of the cost and passing it on to consumers.
Best Buy officials on Thursday said there were too many unknowns about the next wave to try to measure the future effect on the business. The company's full-year earnings guidance takes into account stronger-than-expected first-quarter profits as well as the current level of tariffs.
It expects sales to grow a half-percent to 2.5% this year, and earnings per share of $5.45 to $5.65.
Chief Financial Officer Corie Barry, who takes over as CEO on June 11, said a 10% tariff allows manufacturers more wiggle room.
At 25%, "there is a much lower likelihood that you can absorb that as a vendor, completely," she said. "You have to think differently about how quickly you can move your supply and distribution. And it takes longer in the consumer electronics space."
She and Joly said the devil will be in the details. The company is in active talks with the Trump administration, Joly said.
"This is an unfolding process. We've never believed the negotiating process with China would be linear," he said. "By nature I'm optimistic, and we're mobilizing to support the efforts of the administration. They care deeply about the growth of the economy."
During the quarter, executives said the biggest sales gains came in appliances — with gains likely coming from the Sears bankruptcy — wearables and tablets.
Neil Saunders, of GlobalData Retail, said solid sales growth shows Best Buy is holding its own against the competition, but faces inherent risks as a purveyor of others' gadgetry.
"Given its reliance on technology companies to develop compelling products, Best Buy's future performance will always, at least in part, be subject to factors outside of its control," Saunders said. "On this front we do not believe the outlook is good."
To that end, Best Buy officials said they continue to seek diversification by expanding the company's home tech support services and products to address an aging population.
The retailer reported early rewards from GreatCall, its largest-ever acquisition. The addition of the business — which provides services and devices for older adults — helped offset the comparative decline associated with last year's closure of 12 large-format Best Buy stores and 105 Best Buy Mobile stores.
Best Buy's digital strategy also is paying off. Best Buy said U.S. online sales increased 14.5% to $1.3 billion, which represented 15.4% of total U.S. revenue for the quarter. As Target also reported, shoppers increasingly are choosing to pick up their online orders themselves, which saves costs. At Best Buy, in-store pickup now represents 40% of online revenue and continues to grow.
Meanwhile, the leadership changeover is underway, though Barry won't move into Joly's office for a few more weeks.
On Thursday, Joly's last meeting with analysts, the France native ended the hourlong call reiterating his full confidence in Barry, who has been with the company for two decades.
"I'm clearly passing the baton — which is a French word — to Corie and her team with a very happy and a full heart and with the strong conviction that the right team is in place for this pivotal moment in Best Buy's history," said Joly. "I very much look forward to watching Corie and her team do their magic."
Jackie Crosby • 612-673-7335 Twitter: @JackieCrosby