The recent imposition of tariffs by the Trump administration on three significant trading partners is expected to have a pronounced negative effect on Best Buy, the leading electronics retailer amongst hardline competitors. This situation could potentially lead to a decline in demand within the home-improvement sector, as analyzed by Wedbush Securities. Last Friday, reports surfaced of President Donald Trump threatening to impose new tariffs on dairy and lumber products from Canada, shortly after he provided temporary exemptions for various goods originating from Mexico and Canada.
Furthermore, the White House has recently increased its tariff on imports from China, prompting that nation to announce its own retaliatory tariffs against U.S. goods. With Best Buy being particularly vulnerable to such tariff hikes, it is anticipated that a significant “demand destruction” could occur due to the discretionary nature of electronic purchases.
Wedbush estimated that an additional 10% tariff from China could result in a 1% reduction in fiscal 2025 sales for the retailer. Best Buy’s Chief Executive, Corie Barry, communicated during a recent earnings call that vendors are likely to pass along some of the tariff costs to retailers, implying that American consumers will face inevitable price increases.
According to Wedbush, if Best Buy manages to pass these costs on a gross profit neutral basis, it would contribute approximately a 500-basis-point lift to annualized sales. However, analysts Seth Basham and Matthew McCartney cautioned that the company may not be able to absorb all the extra costs, forecasting that the negative impact on annual sales could range from 3% to 5%, driven by this ongoing demand destruction. In parallel, Wedbush anticipates that major home-improvement retailers such as Home Depot and Lowe's will employ their respective market scales to mitigate tariff impacts effectively.
However, given the increasing pressure on consumers' purchasing power, there is a risk that spending on big-ticket items may decline, possibly delaying home improvement projects. Notably, Lowe’s appears more vulnerable than Home Depot due to its greater dependence on do-it-yourself sales. The analysts also expressed concerns regarding Floor & Decor’s ability to maintain gross margins amidst 20%-plus tariffs from China, especially considering the current financial challenges facing consumers, contrasting with the stronger positions seen in 2018.
The company's reliance on Chinese sourcing remains significant, with around 18% of products sold last year attributed to China, down from 25% in fiscal 2023. In conclusion, the challenging market landscape indicates potential downside risks to Home Depot's sales guidance considering a stagnating home improvement retail industry expected in 2025, coupled with Lowe’s anticipation of a flat market with comparable sales growth between 0% and 1%..