Shares of Best Buy (BBY 3.35%) plunged on Tuesday, following a robust earnings report with a side of worrisome management comments. The stock price dropped by as much as 15.9% in the morning session, recovering to a 13.2% loss by 1 p.m. ET.
The numbers are better than they look
In the fourth quarter of fiscal year 2025, Best Buy's sales fell 4.8% year over year to $13.9 billion. To be fair, this reporting period was a standard-sized quarter with 13 weeks, down from 14 weeks in the year-ago period. This amounts to a 7.1% shorter quarter, more than explaining the lower revenues.
Adjusted earnings shrank 5.1% over the same period, landing at $2.58 per diluted share. Again, this should have been a modest increase if the two reporting periods had been the same length.
The results also exceeded Wall Street's consensus targets. Your average analyst would have settled for earnings near $2.39 per share on top-line sales in the neighborhood of $13.7 billion. The analyst firms were well aware of the shorter reporting period.
The plot thickens: Price increases vs. tariffs
So far, so good -- but that's not the whole story.
Best Buy CFO Matt Bilunas said that customers are showing price-sensitive tendencies in this inflation-riddled economy, resulting in weak Q1 sales, followed by a fairly modest recovery in the second half of 2025. The low end of his full-year sales guidance was just below last year's total revenue. Earnings are expected to remain fairly flat compared to fiscal 2025. And these meek growth targets were calculated against the backdrop of "highly likely" price increases, based on the Trump administration's tariffs on Canadian, Mexican, and Chinese goods.
In other words, Best Buy expects to grow sales and earnings slower than inflation this year. The company imports a very small portion of its products, but the device builders often rely on tariff-encumbered materials and components.
