BBY Q1 2026: China-sourced products fall to 30–35%, tariff costs eased
- Effective tariff mitigation: Management detailed that improved sourcing and vendor diversification have reduced China‐sourced product exposure from 55% to 30–35%, with mitigation efforts ensuring that the cost increases passed through are lower than the nominal tariff rates.
- Innovative digital and product initiatives: The call highlighted strong performance in digital channels, including early success with the Switch 2 preorders and digital storefront initiatives, which support Best Buy's omnichannel strategy and future revenue growth.
- Robust operational efficiencies: Leadership emphasized cost-saving measures across customer care, procurement, and supply chain operations that have contributed to lower SG&A costs and sustained operating margins, showcasing Best Buy's focus on operational effectiveness.
- Tariff Environment Uncertainty: The current tariff landscape remains highly fluid, with ongoing changes in rates and mitigation efforts creating uncertainty. This could translate into higher product costs that may not be fully passed through to consumers, thereby pressuring margins and complicating pricing strategies.
- Weak Comp Sales and Demand Distortion: There are concerns about reliance on pull‐forward demand—such as preorders that boost near-term numbers while potentially depressing future comps—and mixed same-store sales performance. This uncertainty in underlying consumer behavior could lead to future market share erosion.
- Best Buy Health Challenges: The restructuring charges and slower-than-anticipated progress in the Best Buy Health segment signal difficulties in scaling profitability. Persisting issues in this business could offset other operational and margin improvements.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -0.9% | Total revenue declined from $8,847 million in Q1 FY 2025 to $8,767 million in Q1 FY 2026. This slight drop is attributed to lower comparable sales in traditional categories and unfavorable foreign exchange effects, partially offset by growth in computing and mobile segments—a trend that built on the previous period’s performance. |
Domestic Segment Revenue | Approximately -0.9% (from $8,203 to $8,127 million) | The domestic segment revenue fell modestly from $8,203 million to $8,127 million, mirroring overall revenue challenges seen earlier. Declines in key product categories like appliances and home theater continued to impact sales despite some offsetting strength in select areas, a pattern consistent with past performance. |
International Segment Revenue | Approximately -0.6% (from $644 to $640 million) | International revenue dropped slightly from $644 million to $640 million, influenced by minor comparable sales declines and the impact of adverse foreign exchange rates, although revenue from new Best Buy Express locations helped cushion the decline, reflecting ongoing trends from prior periods. |
Net Earnings | Declined from $246 million to $202 million (-17.9%) | Net earnings decreased by $44 million, driven by a substantial rise in restructuring charges (increasing from $15 million to $109 million) and lower operating income. This reduction compounds earlier period pressures even as revenue declines remained modest. |
Operating Income | Declined from $312 million to $219 million (-29.8%) | Operating income fell by roughly $93 million due to higher restructuring expenses combined with decreased revenue contribution from key segments. These factors, which echo trends seen in the previous period, significantly compressed operational profitability. |
Cost of Sales | Decreased by about 0.96% (a drop of $65 million) | Cost of sales fell from $6,783 million to $6,718 million, in line with the modest revenue reduction and the absence of an extra sales period seen in prior cycles. This decline reflects ongoing adjustments in inventory management and pricing strategies. |
Gross Profit | Approximate gross margin maintained at 23% | Although gross profit in absolute terms may have declined, the gross profit margin held steady at about 23%. This stability was achieved by offsetting lower sales volumes with improved performance in services and rigorous cost controls similar to trends observed in earlier periods. |
Operating Cash Generation | Modest generation of $34 million in Q1 FY 2026 | Operating cash generation dropped to $34 million, reflecting timing differences in inventory purchases, lower increases in accounts payable, and higher restructuring charges. These factors build on the evolving cash flow dynamics noted in Q1 FY 2025, highlighting tighter liquidity from operations. |
Balance Sheet Liquidity | Solid profile with cash at $1,147 million, total assets at $14,128 million, and current liabilities reduced to $7,412 million | The balance sheet remains robust; while cash and cash equivalents, total assets, and current liabilities have adjusted, the overall liquidity profile is stable. Compared to previous period figures, the reduction in current liabilities indicates improved short-term financial management. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue ($USD Billions) | FY 2026 | $41.4 to $42.2 billion | $41.1 to $41.9 | lowered |
Comparable Sales (%) | FY 2026 | Flat to up 2% | Down 1% to Up 1% | lowered |
Adjusted Operating Income Rate (%) | FY 2026 | 4.2% to 4.4% | 4.2% | lowered |
Adjusted Effective Income Tax Rate (%) | FY 2026 | Approximately 25% | 25% | no change |
Adjusted Diluted EPS ($USD) | FY 2026 | $6.20 to $6.60 | $6.15 to $6.30 | lowered |
Capital Expenditures ($USD Millions) | FY 2026 | Approximately $700 million to $750 million | $700 | lowered |
Share Repurchases ($USD Millions) | FY 2026 | Approximately $300 | $300 | no change |
Comparable Sales (%) | Q2 2026 | no prior guidance | Slightly down versus last year | no prior guidance |
Adjusted Operating Income Rate (%) | Q2 2026 | no prior guidance | 3.6% | no prior guidance |
Gross Profit Rate (%) | Q2 2026 | no prior guidance | Similar to last year's Q2 | no prior guidance |
SG&A ($USD) | Q2 2026 | no prior guidance | Increased SG&A expected to lower operating income rate | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Tariff Environment | Consistently discussed in Q4 2025, Q3 2025 (with Q2 2025 having no details) focusing on complex tariff structures, cost impacts, and mitigating strategies with vendor collaboration. | Q1 2026 featured detailed scenarios for different product categories, proactive mitigation (e.g. reduced reliance on China from 55% to about 30–35%), and identification of alternate manufacturing sources. | Recurring and evolving – The focus remains consistent, with an enhanced, proactive strategy in Q1 2026 that reflects improved mitigation efforts and diversification. |
Digital Transformation & Marketplace Initiatives | Addressed across Q2, Q3, and Q4 2025 with significant improvements in digital sales, app enhancements, personalization, and planned marketplace launches that integrate third-party sellers and Best Buy Ads. | Q1 2026 continues the momentum with an innovative AI-powered search experience, influencer storefronts, and further refinements in digital initiatives while gearing up for marketplace growth in fiscal 2026. | Steady enhancement with AI integration – The topic is consistently important, and Q1 2026 shows further evolution by leveraging AI-driven innovations to improve customer interaction and broaden digital revenue streams. |
Consumer Demand & Promotional Environment | Detailed in Q2, Q3, and Q4 2025; discussions highlighted deal-focused consumer behavior, category-specific performance variances, and heavy promotional activity during events like Black Friday. | Q1 2026 retained themes of resilient but value-focused consumer behavior with customers trading off between deals and premium innovations, underscoring continued sensitivity to pricing despite persistent inflation. | Consistent with nuanced shifts – While consumers remain deal-driven, Q1 2026 emphasizes resilience and selective spending (notably in computing), reflecting slight optimism amid ongoing price sensitivity. |
Product Category Performance | Across Q2–Q4 2025, computing and tablets consistently performed strongly; gaming experienced mixed results with some share gains; TVs and appliances faced challenges partly due to promotions and external pressures. | In Q1 2026, computing and tablets drove 6% growth while gaming and TVs, along with appliances, saw declines; however, innovation (e.g. AI enhancements, device upgrades) is expected to drive later category improvements. | Mixed performance with innovation drivers – Computing remains a strength, whereas gaming, TVs, and appliances continue to underperform; however, a focus on technological and AI enhancements hints at future recovery. |
Operational Efficiencies & Cost Management | Emphasized in Q2, Q3, and Q4 2025 with discussions on evolving labor models, AI-powered customer service, enhanced IVR systems, and cost-reduction measures through technology and process improvements. | Q1 2026 highlighted a revolution in customer care operations using conversational AI, upgraded IVR systems, and enhanced sourcing solutions that further reduce costs and improve service metrics. | Continued focus with increasing sophistication – Operational efficiency remains a key theme, with Q1 2026 showcasing further integration of AI and technology to drive cost management and process improvements. |
Membership Program Growth & Customer Engagement | In Q2, Q3, and Q4 2025, there was detailed coverage on membership growth (e.g. paid membership increases, retention, personalized app engagement) and its role in driving first-party data for advertising initiatives. | In Q1 2026, while specific growth numbers were not reiterated, improved domestic relationship NPS and record-high employee engagement were noted, suggesting overall healthy customer interaction, though membership details were less emphasized. | Steady with a shift in emphasis – Membership remains a foundational element; however, Q1 2026 focuses more on qualitative engagement metrics (like NPS) rather than detailed membership growth, possibly indicating maturity. |
New Store Formats Expansion | Q2 2025 saw the launch of Best Buy Express in Canada; Q3 2025 and Q4 2025 discussed new small-format stores, outlet expansion, and strategic closures to optimize footprint. | Q1 2026 did not specifically mention new store format expansion, instead focusing on enhancements to existing store experiences (e.g. adding vendor pads, expanding departments). | Less prominent in Q1 2026 – While an important topic in previous periods, it is notably absent from Q1 discussions, suggesting a temporary shift of focus away from physical store format changes toward digital and AI initiatives. |
AI-inspired Product Innovation | Addressed across Q2–Q4 2025 with introductions like CoPilot Plus laptops, early AI-enabled devices, and early integration of AI in operations and customer service. | Q1 2026 further emphasizes AI across initiatives with an advanced AI-powered search experience, integration in computing upgrades, and expansion into wearable and mixed-reality products. | Increasing emphasis – AI is a recurring and growing theme, with Q1 2026 showcasing more advanced applications and broader integration into product innovations, indicating strong future impact. |
Best Buy Health Segment Performance | Mentioned in Q4 2025 with a large goodwill impairment and margin pressure; not discussed in Q2 or Q3 2025, suggesting limited focus. | Q1 2026 detailed restructuring charges, ongoing margin pressures, and slower-than-expected development in parts of the Health segment, particularly in in-home health services. | Emerging challenge – While not consistently a focus in earlier periods, recent discussions in Q4 and Q1 highlight ongoing restructuring and challenges that could have a significant impact on future performance. |
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Tariff Sourcing
Q: What’s driving China mix change?
A: Management explained that vendors shifted production locations, reducing China’s share from 55% to 30–35%, while a favorable SG&A tax settlement of about $13M helped lower expenses, easing tariff pressure. -
Tariff Elasticity
Q: What is effective tariff elasticity now?
A: They stressed that multiple mitigation efforts—such as manufacturing flexibility and supplier negotiations—have resulted in effective cost increases that are lower than the headline tariff rates, keeping prices competitive. -
Comp Guidance Update
Q: How do positive trends relate to comp?
A: Management linked solid performance in computing and mobile to a cautious annual comparable sales range of -1% to +1%, balancing pricing adjustments and seasonality with updated tariff impacts. -
Comp Guidance Drivers
Q: What factors drive back-half comp expectations?
A: They noted that improved replacement cycles in computing, better mobile performance, and upcoming product launches like Switch 2 should offset tougher comparisons later in the year, though tariff uncertainties remain. -
Margin Benefits
Q: When will marketplace boost margins?
A: Management expects benefits from the U.S. Marketplace to materialize in the back half of the year, with advertising initiatives gradually enhancing gross margins while investments balance overall impact. -
Cost Efficiencies
Q: Where are operating efficiencies coming from?
A: The team highlighted cost reductions from upgraded procurement systems, a data-driven supply chain, and improved customer care through AI and automation, which should help sustain margin performance. -
Tariff Strategy Focus
Q: Focus on growth or preserving margins amid tariffs?
A: They emphasized balancing competitive pricing to drive demand with efforts to absorb costs through vendor negotiations, ensuring tariffs don’t fully pass through to customer prices. -
Market Demand
Q: Is pull-forward demand affecting market share?
A: While a brief pull-forward was observed—partly due to seasonal shifts—management expects market share to hold and even improve later, especially in computing and gaming categories. -
Consumer Behavior
Q: Have pricing changes altered consumer behavior?
A: Despite recent pricing adjustments and promotions, consumers remain resilient and value-focused, maintaining solid spending in key segments like notebooks and tablets. -
3P Growth
Q: Where are 3P and ad revenues reflected?
A: They clarified that commission revenue from third-party sales and advertising primarily improves margins, though some items may also be reflected as revenue depending on contract specifics. -
Marketplace Impact
Q: Is the marketplace launch on track?
A: Management confirmed that the U.S. Marketplace is set for a midyear launch, and despite some cannibalization of first-party sales, the initiative is expected to be accretive to both gross profit and operating income. -
Price Hike
Q: What is the blended price hike level?
A: They declined to commit to a specific percentage, noting that the blended increase remains fluid due to ongoing tariff mitigations and does not directly mirror the headline tariff rates. -
Health Strategy
Q: What is Best Buy Health’s future role?
A: Management reaffirmed its commitment to enabling at-home care, acknowledging challenges in scaling hospital-at-home services while remaining optimistic about the broader health technology strategy. -
Innovation Launches
Q: Any new innovations beyond Switch 2?
A: They expressed enthusiasm about multiple forthcoming innovations—including upgrades in computing, mini LED TVs, AR wearables, and advanced gaming solutions—to sustain technological leadership.
Research analysts covering BEST BUY CO.