Best Buy's sales forecast falls short as tariffs loom

Best Buy's sales forecast falls short as tariffs loom

Best Buy Co Inc blamed planned U.S. tariffs on Chinese imports and uncertainty about future consumer behavior for a lower annual sales forecast, becoming the latest company to air concerns about President Donald Trump's trade war with Beijing.

People wait in line to shop at Best Buy on during a sales event on Thanksgiving day in Westbury, Ne
FILE PHOTO: People wait in line to shop at Best Buy during a sales event on Thanksgiving day in Westbury, New York, U.S., November 22, 2018. REUTERS/Shannon Stapleton

REUTERS: Best Buy Co Inc blamed planned U.S. tariffs on Chinese imports and uncertainty about future consumer behavior for a lower annual sales forecast, becoming the latest company to air concerns about President Donald Trump's trade war with Beijing.

Best Buy's shares, which have lost more than 10per cent of their value so far this month, fell 9per cent to US$62.80 as the consumer electronics retailer's same-store sales outlook fell short of analysts' expectations even as it lifted its earnings forecast.

Strong July retail sales showed U.S. consumer demand so far has remained resilient to signs of a cooling economy and an escalating trade war between Washington and Beijing.

However, investors are increasingly focusing on how the sector will cope with new rounds of tariffs with retailers, such as Macy's Inc and Abercrombie & Fitch Co warning that their profits this year would take a hit.

Best Buy said it expected its full-year same-store sales to rise 0.7per cent to 1.7per cent, narrowing the range from a prior forecast of 0.5per cent to 2.5per cent and below the 2per cent growth target analysts had expected.

Last Friday, Trump said tariffs would rise to 15per cent from 10per cent on US$300 billion worth of Chinese imports, targeting some of Best Buy's best selling goods including smart watches, flat panel TVs, mobile phones and video game consoles. The levies are set to go into effect in two phases on Sept. 1. and Dec. 15.

Newly appointed Chief Executive Office Corie Barry said the company was still working out if and how to raise prices on products as it works with suppliers on new sourcing strategies.

"It's the most difficult place for us to make projections... We don't exactly have a precedent for the quantity of moving pieces that we have in place right now," Barry told analysts.

Barry estimated all the proposed and implemented tariffs affected about 60per cent of Best Buy's cost of goods sold but said the company was working on lowering that to 40per cent next year.

Best Buy's overall same-store sales rose 1.6per cent in the second quarter ended Aug. 3, missing analysts estimates of a 2.15per cent increase, according to IBES data from Refinitiv.

Earnings per share excluding one-off items came at US$1.08, beating analysts' estimates of 99 cents per share and prompted Best Buy to raise its annual adjusted profit forecast to US$5.60 to US$5.75 per share from previous US$5.45 to US$5.65US$.

The company's profit benefited from better expense control and more subscribers signing up for its high-margin services such as "Geek Squad", which provides general tech support and advice on setting up smart homes.

Revenue in the reported quarter rose 1.7per cent to US$9.54 billion, a touch below expectations of US$9.56 billion, largely due to lower demand for video game consoles, which the company said would also pressure its sales for the rest of the year.

The lower demand is largely due to consumers postponing their purchases in anticipation of the next versions of Sony Corp's PlayStation and Microsoft Corp's Xbox.

Best Buy also forecast third quarter same-store sales below estimates, but said tariffs would not have much of an impact on the quarter.

(Reporting by Uday Sampath in Bengaluru; Editing by Tomasz Janowski and Anil D'Silva)

Source: Reuters

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