Best Buy's better-than-expected performance in the 2nd Quarter came with it a warning about the potential knock-on effect on its business from the trade war with China.
The Trump Administration and the Chinese government have been escalating their tariffs war in recent weeks, which in turn could spell trouble for the Richfield-based retailer moving forward.
The company announced Thursday that its Q2 adjusted earnings was $1.08 per share, ahead of the $0.99 predicted, while its May-to-July sales grew by 1.6 percent.
This improved performance led Best Buy to raise the bottom level of how it expects to performance in the 2020 financial year, however it has also reduced the upper level of its guidance.
That's because of the ongoing trade tariff standoff between the U.S. and China, which is a major supplier for retailers like Best Buy. Last week, President Trump announced that $250 billion worth of Chinese imports would be taxed at 30 percent, up from 25 percent, starting Oct. 1.
As Reuters reports, those tariffs only impact about 7 percent of its cost of goods sold, but a planned 15 percent tax on a further $300 billion worth of Chinese imports would hit most of its product range, including cellphones and laptops.
The first tranche of these tariffs will impact smart watches, Bluetooth headphones, and flat-panel TVs, and goes into effect on Sunday.
"The updated FY20 guidance we are providing today narrows our prior top-line range and raises the bottom-line range," Best Buy CEO Corie Barry said. "This updated guidance factors in the following: (1) our best estimate of the impact of recent announcements regarding tariffs on goods from China, including the increase to 30% for List 3 and 15% for List 4; (2) our better-than-expected first half earnings; and (3) general uncertainty related to overall customer buying behavior in the back half of the year."