Best Buy Earnings: Despite Solid Quarter, Shares Slide Amid Uncertainty Surrounding Tariff Impact

Key Morningstar Metrics for Best Buy

• Fair Value Estimate: $87.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Best Buy’s Earnings

We don’t plan to alter our $87 fair value estimate on narrow moat Best Buy BBY significantly after the firm posted solid fiscal 2025 fourth quarter results. Demand proved better than expected as companywide comparable sales expanded 0.5%, outpacing our forecast for a 1% decline. Domestic comparable sales eked out a 0.2% gain, underpinned by 6.5% growth in computing and mobile phone sales, along with a 10% uptick in services revenue. But consistent with recent quarters, demand in the appliances and entertainment categories remained under pressure as sales declined by a low-double-digit percentage. Profits held up better than we anticipated, primarily due to an improvement in gross margin from its domestic services business. As such, the firm’s operating margin declined just 10 basis points to 4.9%, coming in slightly ahead of our 4.7% forecast.

While guidance for fiscal 2026 looked healthy at first glance – the retailer is calling for comparable sales growth of 0%-2% (in line with our 1.5% estimate) and operating margin of 4.2%-4.4% (ahead of our 3.8% estimate) – management noted that the outlook doesn’t consider the impact of tariffs. With tariffs officially enacted, we surmise that uncertainty surrounding how consumers will respond to higher prices and how Best Buy’s gross margins will hold up amid a rising cost of sales environment (about 60% of the firm’s cost of goods sold originate in China, and Mexico serves as another key exporter) prompted the shares to slide 13% on March 4. While the situation remains fluid, we already lowered our gross margin forecast for fiscal 2026 by 50-basis points last quarter in wake of the tariff threat, which is consistent with the pressure seen in 2016-18. As such, we do not plan on making any material changes to our near-term forecast for the time being.