Tariffs Cloud Best Buy’s Outlook Despite Q1 EPS Beat

Best Buy reported fiscal Q1 results that modestly beat Wall Street’s EPS expectations but fell short on revenue and came with a reduced full-year outlook as tariffs take center stage in shaping the retailer’s profitability trajectory. Shares fell roughly 3% in premarket trading Thursday as investors digested a weaker guide and cautious commentary from management, who cited import tariffs and soft demand in key categories like appliances and home theater systems as notable headwinds.

For the quarter ended May 3, Best Buy posted adjusted earnings per share of $1.15, beating the $1.09 consensus. Revenue came in slightly below estimates at $8.77 billion versus $8.81 billion expected, and net income declined 18% year-over-year to $202 million, or $0.95 per share. Comparable sales fell 0.7% domestically and internationally, reflecting broad-based consumer caution and weak performance in several large-ticket discretionary categories.

The headline risk in this report, however, was the guidance revision. Management now expects FY26 comparable sales to be in a range of -1% to +1%, down from a prior forecast of flat to +2%. Adjusted EPS is now expected between $6.15 and $6.30, lowered from a previous range of $6.20 to $6.60. Total revenue is guided to fall between $41.1 billion and $41.9 billion, compared to the previous forecast of $41.4 billion to $42.2 billion. CFO Matt Bilunas cited tariffs as the key reason for the cut, stating the company’s assumptions are based on current tariff levels remaining in place for the rest of the fiscal year.

Tariffs, particularly those affecting imports from China, are clearly taking a toll. On the company’s call, CEO Corie Barry said goods from China now make up roughly 30–35% of Best Buy’s cost of goods sold (COGS), down from 55% in March. About 25% of products now come from the U.S. or Mexico, which are largely tariff-exempt, while the remainder originates from countries such as Vietnam, India, and South Korea—some of which still face a 10% tariff. Barry emphasized that raising prices remains a “last resort,” noting that Best Buy has tried to mitigate pressure through cost negotiations, shifting sourcing strategies, and adjusting product mix.

In the domestic segment, revenue declined 0.9% to $8.13 billion, driven by the aforementioned 0.7% drop in comparable sales. Category performance was mixed: computing, mobile phones, and tablets were bright spots, while home theater, appliances, and drones underperformed. Online revenue grew 2.1% year-over-year and now makes up 31.7% of total domestic revenue. Gross profit margin ticked up to 23.5% from 23.4%, thanks largely to improvements in services and membership programs. However, that was partially offset by continued weakness in the Best Buy Health business.

International results reflected similar dynamics. Revenue of $640 million fell 0.6% year-over-year due to FX headwinds and a 0.7% comp decline. Gross margin contracted to 22.0% from 22.8% amid lower product margins and unfavorable supply chain costs. While overall SG&A expenses decreased slightly due to favorable currency impact, international operations remain a drag on the company’s bottom line.

Despite the external challenges, Barry maintained an upbeat tone on Best Buy’s longer-term positioning. She reaffirmed strategic priorities including scaling newer profit streams like Best Buy Marketplace and Best Buy Ads, enhancing omnichannel capabilities, and boosting operational efficiency to fund investments. “We remain focused on FY26 priorities,” she said. “We executed well in Q1 and delivered in-line revenue and better-than-expected adjusted operating income.”

A bright spot for the coming quarters could be the highly anticipated Nintendo Switch 2 launch. Barry noted that preorders had sold out quickly, indicating strong demand and potentially offering a boost to the gaming category, which was not highlighted in Q1’s performance breakdown.

Best Buy also announced a quarterly dividend of $0.95 per share, payable July 10, and confirmed it had returned $302 million to shareholders in Q1 through dividends and buybacks. The company still plans to repurchase roughly $300 million in stock during FY26.

Looking ahead, the company expects Q2 comparable sales to be “slightly down” versus the prior year and guides for a 3.6% adjusted operating income rate, down from 4.2% in Q1. The uncertainty around tariffs looms large over the second half of the year, especially after a federal trade court ruling invalidated some of the Trump-era levies. While that decision could ultimately ease some pressure, Barry said the company continues to scenario-plan and adjust “with agility” as policy evolves.

For now, the stock remains under pressure, down nearly 17% year-to-date, underperforming a flat S&P 500. While Q1 results showed resilience, the trimmed forecast and rising import costs underscore the difficult balancing act Best Buy faces in protecting margins amid ongoing macro and trade policy volatility.