Best Buy’s H2 Outlook and the Impact of Tariff Uncertainty on Consumer Spending

Best Buy’s second-quarter fiscal 2026 results underscored a fragile recovery amid macroeconomic headwinds. The company reported a 1.6% increase in comparable sales, driven by strong demand for gaming consoles like the Nintendo Switch 2 and AI-powered laptops [1]. However, this optimism is tempered by persistent tariff risks, which have forced Best Buy to maintain cautious full-year guidance of $41.1 billion to $41.9 billion in revenue. The company’s reliance on China for 30–35% of product costs—down from 55% in March 2025—reflects progress in diversifying its supply chain, but lingering exposure to tariffs remains a critical vulnerability [2].

Supply Chain Resilience and Strategic Adjustments

Best Buy’s efforts to mitigate tariff impacts include pressuring vendors to shift manufacturing away from China and leveraging its omnichannel infrastructure. For instance, the company’s gross profit rate in the domestic segment dipped to 23.4% in Q2 FY26 due to lower product margins, but this was partially offset by growth in higher-margin services [3]. Additionally, Best Buy has tested new revenue streams, such as a third-party marketplace and a store-within-a-store partnership with Ikea, to reduce dependency on volatile product categories [4].

Despite these measures, the company has had to absorb some tariff costs through price increases, albeit at rates lower than the overall tariff burden. CEO Corie Barry acknowledged that consumers remain “deal-focused” and cautious about big-ticket purchases, a trend likely to persist as tariffs drive inflation [5].

Tariff Uncertainty and Consumer Behavior

The macroeconomic environment has been shaped by a surge in U.S. tariffs, which reached an average effective rate of 18.2% in August 2025—the highest since 1934 [6]. These tariffs have disproportionately affected lower-income households, with the 1st decile bearing a 3.5% income loss compared to -1.0% for the top decile [6]. For Best Buy, this means a shrinking pool of consumers willing to spend on electronics and appliances, particularly as tariffs push up prices for goods like gaming consoles and computing hardware.

Stock Valuation and Investor Sentiment

Best Buy’s stock valuation reflects mixed signals. While the company’s trailing P/E ratio stands at 18.12 (TTM), exceeding its 10-year average of 13.86 [7], analyst sentiment is divided. B of A Securities downgraded the stock to “Underperform” with a $60 price target, citing tariff-related costs and consumer spending slowdowns [8]. Conversely, the company’s adjusted diluted EPS of $1.28 in Q2 FY26—though down from $1.34 in the prior year—suggests operational resilience [3].

The stock’s 4% decline following the guidance announcement highlights investor skepticism about Best Buy’s ability to navigate tariff uncertainties. With 30–35% of product costs still tied to China and tariffs ranging from 20% to 30% on key categories, the risk of margin compression remains elevated [2].

Conclusion: A Calculated Investment

Best Buy’s H2 2025 outlook hinges on its capacity to balance supply chain diversification with pricing discipline. While its omnichannel strategy and new partnerships offer growth avenues, the company’s exposure to macroeconomic stress—particularly tariffs—poses a significant headwind. For investors, the stock’s valuation appears stretched relative to its earnings trajectory, especially given the downgrade from B of A and the broader economic risks. A wait-and-watch approach may be prudent until Best Buy demonstrates clearer progress in decoupling from China and stabilizing margins.

Source:
[1] Best Buy Reports Second Quarter Results [https://investors.bestbuy.com/News--Events/news/news-details/2025/Best-Buy-Reports-Second-Quarter-Results/default.aspx]
[2] Best Buy Maintains Annual Forecast on Tariff Worries [https://money.usnews.com/investing/news/articles/2025-08-28/best-buy-beats-quarterly-sales-estimates]
[3] Best Buy’s recovery remains fragile as tariffs add new challenges [https://www.emarketer.com/content/best-buy-q2-earnings-nintendo-switch-tariff-risks]
[4] Best Buy Posts Strong Q2 But Keeps Guidance Cautious as Tariffs Loom [https://sherwood.news/markets/best-buy-posts-strong-q2-but-keeps-guidance-cautious-as-tariffs-loom/]
[5] Best Buy Stock Falls as Guidance Reveals Doubts About Tariff Impacts [https://finance.yahoo.com/news/best-buy-stock-falls-as-guidance-reveals-doubts-about-tariff-impacts-173706731.html]
[6] State of U.S. Tariffs: August 7, 2025 [https://budgetlab.yale.edu/research/state-us-tariffs-august-7-2025]
[7] BBY (Best Buy Co) PE Ratio (TTM) [https://www.gurufocus.com/term/pettm/BBY]
[8] Best Buy Downgraded to Underperform by B of A [https://www.ainvest.com/news/buy-downgraded-underperform-securities-60-pt-2508/]