Best Buy Combats Tariff Blues As Consumer Caution Grows

Losing Confidence

In its Q2 FY’20 earnings report, Best Buy CFO Matt Bilunas noted that the firm had updated its FY’20 guidance by lowering its top-line range and raising its bottom-line.

Bilunas attributed the narrower ranges in large part to tariff-related effects from Chinese imports, as well as “general uncertainty related to overall customer buying behavior in the back half of the year.”

For FY’20, Best Buy foresees comparable sales growth, for instance, of 0.7% to 1.7%, which compares to prior guidance of 0.5% to 2.5%.

Moody’s Analytics economists Steven Cochrane and Katrina Ell recently noted that it is “through the retail channel where the additional tariffs hurt the U.S. economy more than China.” They noted that “tariffs cause prices to rise on an array of consumer goods in the U.S., resulting in higher inflation and weakened consumer confidence.”

Indeed, the Conference Board’s Consumer Confidence Index fell to 125.1 in September – far more than most market expectations – from a downwardly revised 134.2 in the prior month.

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Lynn Franco, the Conference Board’s senior director of economic indicators, said that the “escalation in trade and tariff tensions in late August appears to have rattled consumers.”

She added that while confidence “could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers’ confidence in the expansion.”  

With consumer spending the main driver of U.S. economic growth, reduced confidence that leads to lower spending would likely spur a rise in recession risks, which Moody’s places at “about even odds” in the next 12 to 18 months.

Among its more recent actions, the U.S. had increased tariffs on US$300bn worth of goods imported from China to 15% from 10% in two stages, with the first batch made effective September 1, and the second slated for December 15.President Donald Trump said the delay of those items to mid-December was meant to mitigate any potential impact on U.S. customers during the upcoming Christmas shopping season. 

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DISCLOSURE: AUTHOR SECURITY HOLDING: NO POSITIONS

The author does not hold any positions in the financial instruments referenced in the materials provided.

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