Best Buy Set to Report First Quarterly Results Since List 3 Tariffs Increased to 25%
Many eyes will turn toward Best Buy Thursday morning when it reports quarterly earnings for the first time since the Trump administration hiked the List 3 Section 301 tariffs to 25 percent May 10 on $200 billion worth of Chinese goods (see 1905090018). Analysts will watch to see whether Best Buy revises its fiscal 2020 forecast, and if so by how much, knowing that the big-box retailer previously said its guidance assumed the duties would stay at 10 percent (see 1902270021).
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Of perhaps keener interest will be Best Buy’s reaction to the administration’s proposal to impose new 25 percent tariffs on $300 billion in Chinese imports not previously dutied (see 1905140025). List 4 as currently proposed includes levies on virtually all types of articles Best Buy sells, from smartphones to laptops, from smart speakers to TVs. CTA said the impact on the consumer tech industry would be “massive.”
Best Buy’s fiscal 2020 outlook is for total revenue to rise slightly to a range between $42.9 billion and $43.9 billion on same-store sales increases between 0.5 percent and 2.5 percent. Best Buy finished fiscal 2019 with same-store sales up 4.8 percent. Analysts' consensus expects Q1 revenue to increase slightly to $9.14 billion from $9.11 billion in the year-earlier quarter. Thursday’s earnings call will be the last for CEO Hubert Joly before relinquishing the helm to Chief Financial Officer Corie Barry in mid-June (see 1904150003)
The retailer didn’t respond to emails seeking comment on the proposed List 4 tariffs, including whether it plans to send executives to testify against them at public hearings that begin June 17. Best Buy successfully lobbied last year for the removal of flat-panel TVs from the List 1 duties when it argued that a 25 percent tariff would cause “significant disruption to the U.S. economy.” Requests to appear at the upcoming hearings are due June 10, with written comments due June 17 and post-hearing rebuttal comments due a week after the hearings end.
Hiking the List 3 tariffs rejuvenated talk inside CTA for challenging the duties in court, said people with knowledge of association developments. Only days before the increase, the policy talk inside CTA was about strategies to lobby Congress for removing the tariffs once a U.S.-China trade deal was in the bag, they said.
The List 4 proposal brought new urgency to the litigation chatter, we’re told. At least one holdout on the eight-member CTA executive board opposes taking the administration to court until after President Donald Trump meets with Chinese President Xi Jinping at the G20 summit June 28-29 in Osaka, Japan, said a CTA member insider. The comments and hearings schedule suggests the administration would not be in a position to put List 4 into effect until after Trump returns from Osaka.
CTA hired Akin Gump last fall to draft a complaint challenging the Office of U.S. Trade Representative’s broad authority under the 1974 Trade Act to impose retaliatory tariffs against China without launching a new Section 301 investigation (see 1810290019). CTA tried shopping the complaint around to other trade associations for financial and legal backing but got no takers, we’re told.
With the hike in the List 3 duties to 25 percent came the renewal of litigious-sounding CTA rhetoric calling the tariffs “questionably legal,” after months of restraint while the U.S. and China tried to negotiate a trade deal. CTA has kept silent on its next legislative or judicial moves, other than to say it’s “reviewing all options.”
The U.S.-China trade war caused a fivefold increase in tariffs on tech product imports from 2017 to 2018, said CompTIA Tuesday. “Should a 25-percent tariff rate apply to all tech product imports the costs could run into the tens of billions of dollars.” CompTIA encourages the U.S. and China to “reach a deal that protects American innovation and intellectual property,” it said.