Best Buy CEO says Trump tariffs will drag down the retailer’s sales

Even as new tariffs on Mexico and China are poised to hit Best Buy harder than other retailers, the true extent of price increases consumers will face remains unclear.

“That is literally impossible for us to assess at this point,” CEO Corie Barry said in a call with media Tuesday morning. “This isn’t just an overnight change. This is a long process.”

The news, along with Best Buy’s earnings and guidance, has investors nervous: The Richfield-based company’s stock price fell 13%, the biggest drop across the S&P 500 on Tuesday.

About 60% of Best Buy’s products, by cost, come from China. Mexico is the retailer’s second-largest country of origin; J.P. Morgan estimates up to 20% of Best Buy products come from Mexico.

President Donald Trump’s tariffs on Chinese imports doubled to 20% on Tuesday and a 25% import tax on Mexican goods also took effect. Should those remain in place for an extended period, consumers will eventually see higher prices on a range of goods, especially electronics.

With an average of six weeks of inventory on hand, Best Buy would be well-served by a swift end to the escalating trade war, experts said.

“There is a hope that tariffs on Mexico may not be permanent, but given the noises coming from the White House in recent days it seems clear that a much stricter tariff regime will be put in place,” said Neil Saunders, managing director at GlobalData. “Best Buy will need to adjust prices accordingly if this is the case.”

Best Buy imports just a fraction of its products directly. However, vendors will be passing along some or all of their tariff costs to retailers, “making price increases for American consumers highly likely,” Barry told analysts Tuesday.

Best Buy is poised to benefit from a replacement-and-upgrade cycle this year as more Americans opt for new phones, laptops and tablets. Consumers are still splurging on big-ticket items despite increasing economic anxiety over a new wave of inflation.

But higher prices will reduce demand for Best Buy’s bread-and-butter offerings. Barry said just the initial tariffs on China imposed last month would bring down comparable sales 1% this year. Without tariffs, sales are expect to remain flat or grow up to 2%.

Company leaders didn’t specify what the Mexico tariffs, or the higher China tariffs, would mean for sales and profits.

“We’ve never seen this kind of breadth of tariffs, and this, of course, impacts the whole industry,” Barry said on the call with analysts. “So it’s not just a Best Buy question, it is a broader industry question. ”

The tariff woes come just as Best Buy posted its first comparable sales increase in several years.

Best Buy had a better-than-expected holiday quarter as the electronics retailer eked out a 0.5% sales gain and beat profit expectations.

For the quarter ended Feb. 1, the Richfield-based company reported $13.9 billion in revenue and $2.58 in adjusted earnings per share.

Analysts were looking for $2.39 per share and revenue of around $13.6 billion for the fourth fiscal quarter.

The company took down the book value of its Best Buy Health business by $475 million during the quarter, which resulted in a non-adjusted profit of $117 million, or 30 cents per share.

“The market is not scaling as fast as we originally forecast,” Barry told analysts about the charge.

For the full fiscal year, comparable sales declined 2.3%. Adjusted earnings per share were flat at $6.37.

The company’s stock price closed at $75.20 on Tuesday, the lowest close since May.