Best Buy (NYSE: BBY) and Target (NYSE: TGT) navigate tariff winter as investors fear the worst
Best Buy (NYSE: BBY) and Target (NYSE: TGT) both just reported better-than-expected sales in their latest quarters, but fears of an impending tariff winter are casting a long shadow over what would normally be good news. Exactly how any of the trade measures recently enacted by President Donald Trump’s administration will affect prices and consumer demand remains to be seen, but a closer look suggests there may be a few silver linings.
Target perhaps best illustrated the dichotomy after a strong finish to 2024. The company warned of a small decline in February net sales related to “ongoing consumer uncertainty,” but then it reported record performance around Valentine’s Day. It went on to blame a sluggish top line so far this year on cold weather, before adding that the coming spring warmup should soon help solve that problem. That’s some mixed messaging, and it suggests all the worry over tariffs may be oversized.
Indeed, CEO Brian Cornell said on an earnings call that Target customers were showing “a willingness to splurge on newness,” and the company is expecting sales to grow 1% this year with a modest increase to operating margin. Target has already been moving to diversify its supply chain, with increasing focus on bringing facilities to Western Hemisphere geographies like Guatemala and Honduras.
“We have a much more diverse set of countries from which we produce,” Chief Commercial Officer Rick Gomez said. “And I think that’s just going to give us more flexibility and help us be more agile…we’re thinking through how we are going to navigate this while delivering the value that we’ve committed to deliver to the consumer.”
Best Buy notes resilience
Over at Best Buy, the picture is equally nuanced. The company reported a strong last quarter with customers focused on value, but resilient. CEO Corie Barry said people are still willing to spend on higher price products. When it comes to tariffs, about 20% of its inventory is sourced from Mexico—with even more coming from China—although the company only directly imports 2-3% of what it sells with third parties accounting for the lion’s share.
“We expect our vendors across our entire assortment will pass along some level of tariff costs to retailers, making price increases for American consumers highly likely,” Barry said, adding that a 10% tariff on goods from China could negatively impact comparable sales by 1%. Still, it’s not clear just who will actually bear the biggest hit in the delicate dance between manufacturers, wholesalers, retailers and end consumers.
“This isn’t a perfect linear conversation,” Barry continued. “It is a very difficult situation to answer precisely because it relies on everything from what will vendors absorb, to what will we think about trying to offset.” Some price increases will likely result, but she said the company planned to be competitive. With favorable product margins reported last quarter, there’s likely some room to adjust.
And then there’s always the possibility that tariffs could fall away as quickly as they first appeared. Target and Best Buy shares have declined 15% and 9.5%, respectively, over the past month amid all the noise, but the latter company staged a bit of a recovery on Thursday after fresh reports that some of the excise taxes on Mexico would again be delayed. With much of the downside already priced in, investors may be underestimating just how much room retailers and their customers have to maneuver. Best Buy and Target have both been predictably cautious in their outlooks for the coming year and are positioning for uncertainty, but a spring thaw isn’t out of the question.
