What happened

Shares of Best Buy (BBY -1.35%) were slipping today after a warning about tariffs overshadowed a solid first-quarter earnings report. As a result, the stock was down 5.1% as of 11:05 a.m. EDT.

So what

The electronics retailer said comparable sales rose 1.1% in the quarter, reaching the high end of its previous guidance. Overall revenue increased slightly by 0.4% to $9.14 billion, just ahead of estimates of $9.13 billion. 

A man looking at a phone being shown to him by a female employee in an electronic store.

Image source: Best Buy.

Profitability ramped up as gross margin in its domestic segment, which makes up more than 90% of revenue, increased by 40 basis points to 23.7%. This boost was driven by its recent acquisition of GreatCall, a provider of smartphones and connected health devices for seniors. Selling, general, and administrative margins were flat in the quarter at 19.8%, and operating margin excluding a restructuring charge a year ago improved from 3.3% to 3.8%.

Adjusted earnings per share jumped from $0.82 to $1.02, with the help of share buybacks, and easily topped expectations of $0.86.

Outgoing CEO Hubert Joly called it a "strong quarter and a good start to the year," but incoming CEO and current CFO Corrie Barry cooled off investor enthusiasm, noting the "impact associated with the recent increase in tariffs on goods imported from China," referring to the group of goods that just saw import taxes go up from 10% to 25%. On the conference call, Joly added that higher tariffs "will result in price increases and will be felt by U.S. consumers." 

Now what

Best Buy's comments on tariffs track with those of other retailers that have warned that they would lead to higher prices and urged the Trump administration to back off from a threat to impose tariffs on the remaining $325 billion of goods imported from China that aren't currently taxed. Among the categories that recently saw higher tariffs are electronics and appliances, segments that make up much of Best Buy's inventory.

Despite the better-than-expected quarter, Best Buy maintained its guidance for the year, calling for comparable sales growth of 0.5% to 2.5% and adjusted earnings per share of $5.45-$5.65. While it's hard for investors to complain about that outlook, today's sell-off is understandable given the increasing trade tensions.