Q1 2026 Best Buy Co Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Best Buy's first quarter fiscal 2026 earnings conference call.
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Speaker Change: I will now turn the conference call over to Mollie O'brien head of Investor Relations. Please go ahead.
Corie Barry: Thank you and good morning, everyone. Joining me on the call today are Corie, Barry our CEO, Matt Lewis, our CFO and Jason <unk>, our senior executive Vice president of customer offering and fulfillment.
Corie Barry: During the call today, we will be discussing both GAAP and non-GAAP financial measures.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release, which is available on our website investors stopped us by Dot com.
Corie Barry: Some of the statements we will make today are considered forward looking within the meaning of the private Securities Litigation Reform Act of 1995.
These statements May address the financial condition business initiatives growth plans investments and expected performance of the company.
And are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements.
Please refer to the company's current earnings release, and our most recent Form 10-K, and subsequent Form 10-Qs for more information on these risks and uncertainties.
Cory: The company undertakes no obligation update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call and now I will turn the call over to Cory.
Cory: Good morning, everyone and thank you for joining us it has certainly been an eventful start to the year I'm proud of how our teams have been navigating the environment and planning our business against the backdrop of dynamic macroeconomic factors.
Cory: We've employed a comb strategic and steadfast approach with their ultimate focus on our customers and the partnerships we have with our vendors against this backdrop, we executed well in Q1 and delivered better than expected profitability today.
Cory: Today, we are reporting first quarter revenue that was slightly below last year as expected and adjusted operating income rate that was flat year over year on revenue of $8 $8 billion. We delivered an adjusted operating income rate of three 8% and an adjusted earnings per share of $1.15.
Cory: From a product category perspective, we drove comparable sales growth in computing mobile phones and tablets. This growth was offset by declines in home theater appliances, and drones, resulting in a domestic comparable sales decline of <unk>, 7%, we delivered 6% comparable sales growth in the combined computing.
Cory: And tablet categories.
Cory: Our Omnichannel operations provided strong support for our Q1 online sales, which grew your year over year for the second consecutive quarter. They were nearly 32% of total domestic sales a slightly higher mix than last year, almost 60% of online purchases are delivered or available for pickup within one day and.
Cory: We drove our strongest on time ship to home delivery performance in three years.
Cory: For the most part customer behavior in Q1 did not change materially from the commentary we have shared for the past several quarters customers.
Cory: Continued to be deal focused and attracted to more predictable sales moments.
Cory: We believe the consumer has remained resilient while dealing with persistent inflation.
Cory: Mmhmm value focused and thoughtful about big ticket purchases. We also associate customer that is willing to spend on high price point products, when they need to or when there is technology innovation.
Cory: Additionally, we continued to see material year over year improvement in our domestic relationship net promoter score, which tracks consumers likelihood to recommend best buy during the quarter. We believe this is the direct result of our relentless focus on elevating our unique customer experience.
Speaker Change: I'm excited to discuss the progress we have made in Q1 on our fiscal 'twenty six strategic priorities, but first we must address the current tariff environment impacting our industry, our business and consumers overall.
Cory: Let me begin by saying there were some developments overnight that may have future impacts we are obviously not addressing these in our following prepared remarks as there remains a great deal of uncertainty.
Cory: As we stressed last quarter International trade is critically important for our business and industry. The consumer electronics supply chain is highly global technical and complex there had been a lot of developments since our March conference call.
Cory: While China remains the number one source for products. We sell we currently estimate the percentage of product Cogs. It represents is approximately 30% to 35% compared to the 55% metric. We shared in March. This is the result of vendors using production capabilities in multiple countries and lever.
Cory: Aging their ability to flex sourcing options as the environment evolves.
Cory: We estimate that the combination of the United States and Mexico are approximately 25% of product Cogs at this point.
Cory: The level of tariffs currently varies across our product categories, Let me provide a high level breakdown.
Cory: The consumer electronics products that are coming from Mexico, including televisions and major appliances are compliant with the U S. MCA trade agreement and are not subject to tariffs.
Cory: As it relates to China. There are currently two distinct tariff scenarios.
Cory: Categories that are subject to the section 232 semiconductor investigation, including computers mobile phones networking and monitors are currently subject to the 20% fentanyl tariffs roughly half our China Cogs falls into this scenario.
Cory: Second categories like major and small appliances gaming consoles furniture and accessories are subject to the 20% I don't know tariffs plus the recently instituted 10% baseline tariff.
Cory: Finally, consumer electronics products coming from countries, such as Vietnam, India, South Korea, and Taiwan are currently subject to 10% tariffs.
Cory: We have been actively employing many tactics in partnership with our vendors as we navigate the dynamic situation and work to mitigate the impacts of tariffs on our customers and business I would organize them into five main themes. These include one leveraging manufacturing flexibility.
Cory: Since 2018, many vendors, including our own exclusive brands have created new manufacturing locations that provide optionality.
Cory: Two negotiating cost, including consolidating volume into fewer partners for leverage in negotiations.
Cory: Three increasing country diversification, we influence many of our partners to start or continue building resiliency into their supply chains by ensuring they are at least two locations available to manufacture the same or similar products for distribution across the globe.
Cory: For adjusting Assortments, we review and modify assortments to ensure a wide range of customer needs and budgets are matched and rationalize where appropriate to consolidate volume and five as of last week, we adjust prices as tariff related inventory cost changes are implemented.
Cory: As a reminder, that's why only directly imports approximately 2% to 3% of our overall assortment.
Cory: Want to make the point that due to mitigation efforts by both vendors and buybacks by the increased product costs that are flowing to us are lower than the tariff rates.
Cory: And as of mid May we have already made the related price and promotional adjustments to our assortment.
Cory: I also want to stress that as always we are committed to offering competitive prices to our customers.
Cory: From an inventory perspective, we have continued with our long standing strategy of targeting roughly 60 days of forward supply at this point in time, we feel good about inventory levels overall and for back to school.
Cory: I am grateful to our deeply tenured and talented teams for their skill and operating through volatile conditions and further deep partnerships with our vendors.
Cory: As we look to the rest of the year. There is still uncertainty related to tariff level timing and countries involved in addition to the potential actions of others in the industry as well as the potential reaction of American consumers. However.
Cory: However, based on the current tariff levels. We just articulated we are updating our annual outlook with our best view at this time.
Cory: We are lowering our full year comparable sales range to down 1% to up 1% and expect an adjusted operating income rate that is consistent with last year or approximately four 2%.
Cory: Our underlying working assumptions are that tariffs stay at the current levels for the rest of the year and there is no material change in consumer behavior from the trends we have seen in very recent quarters.
Cory: As you can imagine and based on our history, we will continue to scenario plan and adjust with agility as the situation evolves, Matt will provide more detail.
Cory: Now I would like to update you on the progress we are making on our strategic priorities. Our strategy is to continue to strengthen our position in retail as the leading omnichannel destination for technology, while at the same time building and scaling new profit streams that we believe will drive returns in the future.
Cory: As a reminder, our fiscal 'twenty six strategic priorities are as follows one drive omnichannel experience improvements that resonate with our customers to launch and scale incremental profit streams, including best buy marketplace and best buy ads.
Cory: Three drive operational effectiveness and efficiency to fund strategic investments and offset pressures of course. These priorities are intertwined and work together as a great customer experience drives the level of opportunity to generate incremental profit stream.
Cory: I will start with our digital experiences where nearly a third of our domestic revenue was transacted and roughly 60% of our overall purchasers visit at some point during their shopping journey.
Cory: We're on track to launch our innovative improved search experience across dotcom small view and our App. Later this year, we have already begun rolling the capability out to a small percentage of customers with plans for a full rollout by holiday. We are excited about this experience as we believe it will over time be a tool used by customers and employees.
Speaker Change: Please to solve real problems.
Cory: This new experience will have AI powered prompts to guide customers to more specific searches and natural conversational filtering for easier product discovery.
Cory: It will also have fewer higher quality matches that reflect customer intent and Richard product information to support confident buying decisions.
Cory: During Q1, we introduced bestbuy storefront, which allow influencers and creators to build their own branded digital storefronts and best buy dot com it.
Cory: It is early but we have been pleased with the interest thus far with more than 400 creators signed up and more than 60 storefronts already launched.
Cory: Overtime, we believe these will help drive increased traffic engagement and sales.
Cory: In our stores, we plan to touch every store this year with shopping experience updates.
Cory: Starting in Q2, we are adding vendor pads and home theater, expanding tablet and virtual reality departments and enhancing experiences for the upcoming switch to launch as expected. There was strong customer demand for this launch and preorder quantities sold out very quickly bestbuy is uniquely positioned for the switch to launch.
Cory: One of the only retailers opening their doors at midnight on June 5th for eager customers to pick up their consoles or grab another game.
Cory: I would note that 70% of preorder customers elected in store pickup underlining this important strength.
Cory: The midnight opening is not only for preorder customers to pick up their products. There will also be additional console games and accessories available for purchase.
Cory: We continue to focus on our unique in store customer experience and in partnership with our vendors. We have made investments in our certification and training strategy for merchandising customer engagement and selling for example in March we brought our major appliances associates together in person for rigorous training to further upscale in the appliances category.
Cory: Which we expect to drive even higher productivity and better experiences for our customers earlier. This month, we replicated this approach for computing and we'll do the same in July with the home theater category, ensuring that our teams are well prepared and knowledgeable across all major categories.
Of course, we have a long history of augmenting our labor expertise with vendor provided labor for example, starting last year, both Verizon and AT&T have increased their investments in store labor and have partnered with us to improve technology systems integration in hundreds of stores. As a result, we are driving increased phone sales and activations.
Cory: And delivered our first mobile phones comp sales growth in three years, we also feel even better positioned for future product launches.
Cory: Our second strategic priority for fiscal 'twenty six is focused on incremental profitability stream.
Cory: We believe our marketplace launch is even more important in this environment as it provides ultimate flexibility and product assortments price points vendors and skus. So we can offer customers the broadest and most relevant experience possible, particularly when combined with our upgraded search capability.
Cory: So sellers and advertisers will have an additional avenue to increase their reach and build their brands leveraging our qualified traffic.
Cory: We have seen strong interest from sellers and have already exceeded the cellar count goal, we set for the entire year, we expect to have at least 500 of them on boarded and ready for the initial midyear launch at launch customers will be able to return their products directly to sellers or in our stores and our customers will have the confidence of knowing all set.
Cory: We'll have a universal return window aligning with best buy policies.
Cory: We continue to expect market place to have a positive impact on our operating income rate for fiscal 'twenty six even after startup costs investments and estimated cannibalization of our first party products revenue.
Cory: Overtime, we expect marketplace to help drive profit dollars and unit share. In addition, it will provide opportunities for our best buy ads business through new advertisers and increased traffic.
Cory: We continue to see fiscal 'twenty six as a pivotal year for our best buy ads business. We've had a robust retail media network business for a long time in partnership with our vendors. We are proud of the business that we have built and we see opportunities for growth.
Cory: In Q1, we made material progress on our plan, we expanded the available inventory on our site by adding new AD slot placements on high volume pages to better meet the level of demand and added 20, new vendor advertisers. We went live with one of the largest demand site platform. The trade desk. This expand our share of the broader <unk>.
Cory: <unk> dollars to flow to best buy ads B, we're encouraged by the number of non endemic advertisers who are already advertising with us as a result.
Cory: We launched the capability called social plus in collaboration with meta social plus will allow advertisers to reach our customers more effectively on Facebook and Instagram.
Cory: We are also expanding our engagement with new types of advertisers like quick serve restaurants. We are excited about the results we were able to drive for a major quick serve restaurant, who ran in April campaign, leveraging our first party gaming segments.
Cory: Lastly, we felt key leadership roles and opened our New York Office.
Cory: We continue to expect growth in AD collections to benefit our gross profit rate in fiscal 'twenty six from an operating income rate perspective, we expect more of a neutral impact due to the investments we are making we believe the actions we are taking in fiscal 'twenty six position us for future growth and rate expansion over the next number of years.
Cory: This brings us to our third strategic priority for fiscal 'twenty six it is imperative that we continue to focus on executing well what is within our control, which includes identifying cost reductions and driving efficiencies to help offset pressures in our business and fund investment capacity for new and existing initiatives.
Cory: There are many ways, we realize these efficiencies, they're often achieved with the help of technology and analytics through ongoing vendor partnerships and vendor selection throughout the enterprise and by modifying existing processes or customer offerings. Other times. They are the result of us moving on from initiatives that aren't generating the financial return we had additionally in <unk>.
Cory: Lee envision.
Cory: There are a few areas I would like to highlight within our procurement operations, we expect to complete the multi year deployment of our full source to pay technology capability in the second quarter.
Cory: We shared last quarter. This will give us expanded transparency into billions of dollars of goods not for resale spend in combination with the enhanced automation of our purchasing process. This paves the way for continuous cost optimization opportunities.
Cory: Within our supply chain operations, we recently replaced our prior rule based shipping process with a data driven sourcing solution that uses real time cost data to choose the most efficient fulfillment location. This helps us deliver orders on time and reduce shipping costs.
Cory: Within our customer care operations, our use of new conversational AI technology, our upgraded IV, our systems and other operational efficiencies have led to both better customer experience and cost savings in Q1, we saw record low levels of cost per customer contact and customer call transfer rates as well as record high levels.
Cory: Of customer satisfaction.
Cory: These results are driving reductions in annual call volume makes sense.
Cory: In summary, we continue to demonstrate our strong execution through adaptability strategic investments and operational strength during turbulent times, we expect to navigate the tariff environment and emerge not only as a vital company, but a vibrant one as the landscape stabilizes overtime. We are the trusted source for the latest and greatest new Tech.
Cory: As well as a broad range of assortment unique in store and digital experiences and the expert Geek squad services to help our customers.
Cory: We are also a true partner to our vendors often working with them from early in the product development cycle, all the way to launching products on our sales floor. There are many reasons. We are excited for the rest of the year from a product category perspective, we expect growth in computing, including tablets to continue to be driven by the customers need to replace and upgrade.
Cory: Alex We believe this will be helped by both the end of Windows 10 product support in October and ongoing innovation in the form of gradual improvement in AI use cases, and the release of new AI features in mobile phones, we expect benefits from our in store experience improvements with the carriers to deliver growth for the year.
Cory: In gaming, we expect the new launched an updated store experience to drive sales momentum for the year.
Cory: We are also excited to expand our in store experience and presence for rebound meta glasses. This technology in other wearable AI products, yet to be launched will transform the way people live and that site is the ultimate customer education destination in.
Cory: In addition, the launch of our marketplace and relentless focus on our online and in store customer experience will continue to underscore our unique position in the industry.
Cory: Also our refreshed brand is resonating more deeply with our customers and we are driving continuous customer experience improvements across the business.
Cory: Added to that our digital growth benefited from increased app adoption checkout conversions and recognizable customers, allowing us to better personalize their experiences in the future.
Cory: And finally, we continue to invest in our teams who are ready to truly help our customers enrich their lives through technology through more specialized knowledge unique in home expertise and robust support a recent engagement scores are the highest we have ever seen and our turnover remains the lowest we have seen in more than five years.
Cory: I am so deeply appreciative that they choose to work for best buy how they live our values and for the culture. They have created by bringing their unique experiences for themselves to work every day.
Matt: With that I will now turn the call over to Matt.
Matt: Good morning, let me start with an overview of how the first quarter performed versus the expectations. We shared with you last quarter.
Matt: Enterprise comparable sales declined <unk>, 7%, which was consistent with our outlook.
Matt: Our adjusted operating income rate of three 8% was approximately 40 basis points better than expected, which was primarily driven by favorable SG&A expense.
Matt: The favorable SG&A was primarily the result of an indirect tax settlement and strong expense management.
Matt: Our gross profit rate of 23, 4% improved approximately 10 basis points versus last year, which was consistent with our outlook.
Matt: I will now talk about the first quarter results versus last year.
Matt: Enterprise revenue of $8 8 billion decreased <unk>, 9% versus last year, our adjusted.
Matt: Operating income rate was flat to last year with both gross profit and SG&A largely similar to last year as a percentage of revenue.
Matt: While adjusted operating income dollars were flat to last year, our adjusted diluted earnings per share decreased 4% to $1.15.
Matt: What are the drivers of the slower EPS was approximately $10 million of lower investment income, which was due to a lower average cash balance combined with lower short term interest rates.
Matt: By month, our enterprise comparable sales were down approximately two 5% in February before increasing 5% in March and declining 4% in April.
Matt: The shift of Easter improved March negatively impacted April comparable sales by an estimated 250 to 300 basis points.
Matt: In our domestic segment revenue decreased <unk>, 9% to $8 1 billion driven.
Matt: Driven by a comparable sales decline of <unk>, 7% International.
Matt: Revenue of $640 million decreased <unk>, 6% versus last year, which was driven by a comparable sales decline of <unk>, 7%.
Matt: The revenue decrease also included a negative foreign currency impact of approximately $4 450 basis points.
Matt: Which was offset by revenue from Bestbuy Express locations that opened in Canada. After Q1 fiscal 'twenty five.
Matt: Our domestic gross profit rate increased 10 basis points to 23, 5%.
Matt: The higher gross profit rate was primarily driven by improvement within the services category, which includes our membership offerings.
Matt: This improvement was partially offset by rate pressure within our best buy health business and lower credit card profit sharing revenue.
Cory: Our international gross profit rate decreased 80 basis points to 22%.
Cory: Lower gross profit rate was primarily due to lower product margin rates and unfavorable supply chain costs.
Cory: Moving to SG&A, where our domestic adjusted SG&A decreased $13 million, which was primarily due to a favorable indirect tax settlement.
Cory: In addition, we incurred $109 million in restructuring charges. This quarter. Those charges are primarily associated with our restructuring initiative within our best buy health business.
Cory: During the quarter, we returned a total of $302 million to shareholders through dividends of $202 million and share repurchases of $100 million.
Cory: We've raised our quarterly dividend for 12 straight years remain committed to being a premium dividend payer.
Cory: Moving onto our full year fiscal 'twenty six financial guidance.
Cory: In March we made it clear that the guidance, we provided excluded any estimated impacts from recently announced tariffs.
Cory: At the same time, we provided a ballpark estimate of approximately one point of comparable sales pressure.
Cory: Two our guidance if the China tariffs that went into effect on February 4th remains the 10% level for the full year.
Corie Barry: As Cory stated a lot has changed since March <unk>.
Corie Barry: Or if rates have changed the sourcing exposure for many of our products has been changing.
Corie Barry: On the conversation with our vendors has also progressed as such.
Corie Barry: Stated guidance, we are providing today includes our best estimate of the range of financial impacts from tariffs.
Corie Barry: Within that guidance, our working assumption is that tariffs stay at the current levels for the rest of the year.
Cory: Clearly the trade policy discussions are ongoing and tariff rates could change, but anchoring our guidance to the current tariff rates felt most appropriate.
Cory: In addition, our guidance includes our best estimate for each of our revenue categories, which incorporates the trends we've seen year to date.
Cory: Our guidance also assumes that there's no material change in consumer behavior from the trends we have seen in recent quarters.
Cory: Our updated enterprise guidance for fiscal 2006 as the following revenue in the range of $41 one to $41 9 billion.
Cory: Comparable sales of down 1% to up 1%.
Cory: Adjusted operating income rate of approximately four 2%.
Cory: And adjusted effective income tax rate of approximately 25%, which is unchanged from our prior guidance.
Cory: Adjusted diluted earnings per share of $6 15 to $6 30.
Cory: Capital expenditures of approximately $700 million, which.
Cory: Resents the low end of our prior guidance range.
Cory: Lastly, we still expect to spend approximately $300 million on share repurchases.
Cory: Next I will cover some of the key working assumptions that support our guidance.
Cory: We expect our gross profit rate to be slightly unfavorable to last year with most of the primary components of our gross profit plant very similar to fiscal 'twenty five from a rate perspective.
Cory: There are a few items I would like to highlight.
Cory: First our product margin rates are now expected to be unfavorable compared to last year, which was largely driven by a higher portion of our sales mix coming from lower margin categories such as computing. In addition, our outlook reflects our plans to remain competitively priced.
Cory: Next growth from the best buy ads and the rollout of our U S marketplace is expected to benefit our gross profit rate.
Cory: We now expect our services categories, including membership the benefit our gross profit rate compared to the prior year.
Cory: Lastly, we still expect the profit share on a credit card arrangements to have a neutral impact in fiscal 'twenty six.
Cory: Now moving to our adjusted SG&A expectations.
Cory: As a percentage of revenue, we now expect our adjusted SG&A to be slightly lower than fiscal 'twenty five which includes the following puts and takes.
Cory: We continue to expect benefits from ongoing efficiencies and effectiveness work streams, including best buy health Indra.
Cory: Indirect tax settlement, we received in the first quarter lowered our full year SG&A compared to last year.
Cory: Partially offsetting these items, our SG&A increases in support of our best buy ads in marketplace initiatives, which includes advertising technology and employee compensation expense.
Cory: But the high end of our revenue guidance for store payroll expense and items like credit card processing fees are expected to increase with minimal impacts from a rate perspective.
Cory: Lastly at the high end of our guidance now reflects incentive compensation that was approximately flat to last year or the low end of our guidance reflects our plans to further reduce our variable expenses, including incentive compensation to align with sales trends.
Cory: Before I close let me share a couple of comments specific to the second quarter.
Cory: We expect our second quarter comparable sales to be slightly down versus last year and our adjusted operating income rate to be approximately three 6%.
Cory: Our gross profit rate as planned very similar to last years second quarter with increased SG&A is expected to be the primary driver of the lower operating income rate.
Cory: As a reminder, last year's second quarter SG&A included a favorable legal settlement and lower medical claims. The combination of these two items provided a benefit of approximately $20 million for last year's second quarter I will now turn the call over to the operator for questions.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star One again please.
Cory: Ladies and Sharon Speaker.
Cory: Speaker phone and that your phone is not on mute when called upon thank you.
Scot Ciccarelli: Your first question comes from Scot Ciccarelli with Truest Your line is open.
Scot Ciccarelli: Good morning, guys.
Speaker Change: So I think we all understand that the tire scenario has been highly dynamic, but it does sound like you have a pretty significant difference in terms of your China sourcing.
Scot Ciccarelli: Call it three months ago.
Scot Ciccarelli: Can you just help us better understand that like is that just a function of is.
Scot Ciccarelli: Is it vendors moving product around for you is it just better understanding where the costs are coming from any more color on that and then part two just a housekeeping item how big was the texoma in the SG&A. Thanks.
Speaker Change: Scott I'll start on the China sourcing question I'm asking is reiterate a few things to make sure that everyone got all the data points because I do think they are pretty important.
Speaker Change: First we said that China has come down to 30% to 35% compared to the 55% metric.
Speaker Change: And then just to reiterate about half the China sourced products are at the 30% tariffs and then roughly half or at the 20% tariffs pending. The 232 investigation. Then we said the combination of U S and Mexico at about 25% of Cogs and that has zero tariffs across both of those that leaves roughly 40% that are coming from other countries.
Speaker Change: Like Vietnam, India, South Korea, and Taiwan, which are currently at 10%.
Speaker Change: As we noted we only directly and <unk>, 3% and so really it's been about these mitigation efforts that are both coming from the vendors and best buy are that are and thats whats, making it happen. So that the increased product costs that are flowing to us are actually lower than the overall tariff rates explicit to those mitigation.
Speaker Change: Got to your point.
Speaker Change: The first one is one of the most important and that is more leveraging of many of flat manufacturing flexibility than we were seeing prior since 2018, many vendors, including ourselves have created new manufacturing locations and you can flex some of those new locations up and perhaps perhaps flex down some of the locations that are in China there.
Speaker Change: By changing that mix that youre seeing and remember these are global supply chain. So they are supplying to many different countries across the globe and so you're going to use potentially different locations to supply different countries, depending on the tariff situation to we also talked about increasing country diversification just writ large obviously we.
Speaker Change: Try to influence our vendor partners, they're influenced themselves given the situation to continue building resiliency into the supply chain and ensuring there are at least two locations available to manufacture the same or similar products for distribution across the globe and so we're seeing even just some of the newer distributions come to market, which is helping.
Speaker Change: To create that diversification and then from there we get into the third mitigation strategy, which is negotiating cost where obviously, we're going to work with our vendor partners to absorb part of the tariff burden cost optimized products and our consolidated volume into fewer partners for leverage in negotiations.
Speaker Change: And then fourth adjusting assortments, so that too can change the mix right because you might adjust your assortment review it modify it to ensure we still have a wide range of customer needs and budgets.
Speaker Change: Youre going to maybe rationalize where you need to to consolidate that volume and that might also change your mix.
Speaker Change: And then finally as we talked about as a last resort adjusting prices.
Speaker Change: And I think I just want to reiterate one more time that the cost increase we see does not always automatically translate into customer price increases. We gave you our best view on what we think is translating right now based on what we can see in the market.
Scot Ciccarelli: Yes, Scott into the tax settlement sizing, our domestic SG&A was about $13 million lower than last year and that's the only item we called out so it's fair to assume that at least $30 million, if not a little higher than that.
Speaker Change: Got it very helpful. Thanks, guys.
Speaker Change: Thank you.
Mike Baker: The next question comes from Mike, Mike Baker with D. A Davidson your line is open.
Mike Baker: Okay, great. Thanks.
Speaker Change: Can you talk about what do you think you saw any pull forward in demand. So some vendors and other retailers have talked about seeing some pull forward in consumer electronics demand. Although it doesn't seem to have shown up in your same store sales and related to that I didn't comment on market share. How you think you're holding out versus the market and versus.
Speaker Change: As other retailers. Thank you.
Speaker Change: Sure, Yes, I mean, we started the quarter a little slower February was a little lower than as.
Speaker Change: As we started the quarter and improve throughout the year, it's a little hard to look at the specific impact too.
Speaker Change: Pull forward, if you will because of the shifting of the events for Easter, but likely there was a few weeks a couple of weeks there that were elevated because of the pull forward, but not really hard decided you can appreciate because of the Easter shift.
Speaker Change: I think Theres, one thing Thats, a little hard to judge in terms of Q1 consumer demand and that is at the very end of April you saw a lot of preorders come through for the switch those are dollars that consumers feel like they have spent in consumer electronics, but youre not going to actually see those dollars flow through until Q2. So yes, we maybe had two weeks of pull forward in a couple of categories.
Speaker Change: But also we had this kind of weird factor that consumers feel like theyre spending money in consumer electronics, but yet theyre not apps, we will recognize that they won't actually get the products until June just to add on to Matt's comments in terms of market share I mean, we've said this multiple times there isn't a great single source for everything we sell especially in consumer electronics and obviously.
Speaker Change: Quarter to quarter within categories, Youre going to see fluctuations, depending on competitive actions and trade off decisions I think it's fair to say that we are going to make strategic pricing and promotional decisions depending on the environment and in Q1, we talked about this going into the quarter isn't a quieter quarter for us from an events perspective, there are fewer.
Speaker Change: Launches and initiatives, which tend to be the places where we over index in share and so.
Speaker Change: I think in Q1, we maybe saw a little bit of share loss, but we have really good plans for the rest of the year, especially as we think about those launches and we think about the laundry list of things that I gave at the end of my prepared comments in terms of where we are investing and the timing on which we expect to see those returns and so last year. We gained share in computing, we expect to gain share again this year same with.
Speaker Change: Gaming, where we saw share gains last year and really some record high share levels for us. So we I think we have the right plans in place for the year and we're a little less concerned about precisely in any given quarter exactly where that ends up.
Speaker Change: Fair enough if I could ask a follow up.
Scot Ciccarelli: Last quarter, you did indicate that you thought there might be some changes in consumer behavior because of the tariffs and even though I think you're mitigating a lot and not seeing a lot of price increases there are I think you're saying some price increases yet you're saying that you're not seeing any change in consumer behavior. So.
Scot Ciccarelli: I guess can you square those as the consumer not pulling back or.
Scot Ciccarelli: Or are we not seeing any demand destruction from higher prices.
Scot Ciccarelli: So let me reiterate what we've been saying about the consumer from literally the last few quarters that is the consumer is remaining resilient, but we've been very clear to say they are making trade offs in their spend and their budget decisions based on higher prices across many areas of their lives and I think while tariffs.
Scot Ciccarelli: Perhaps an additional one theres been a great deal of inflation up to this point. So this isn't just a conversation about tariffs we have been very clear in saying consumers are making tradeoffs and we can see that within our categories. At the same time, we see a consumer who is seeking value and sales events and they are willing to spend on higher price points, when they need to or when they see compelling.
Scot Ciccarelli: New technology that also is remaining true for us and so what we're trying to do is take even in the last quarter are we seeing relatively consistent behaviors, yes, and there are some categories, where if you take something like TV, where we can definitely see consumers trying to make some of those value trade off but at the same time, we see this continued strength in compute.
Scot Ciccarelli: <unk> and tablets, where there is both need and innovation and they are willing to go ahead and spend in those areas.
Speaker Change: Makes sense I appreciate it. Thank you. Thank you. Thank you.
Speaker Change: Your next question comes from Greg Melick with Evercore ISI. Your line is open.
Greg Melick: Hi, Thanks.
Greg Melick: I want to follow up on one of the key areas of initiatives. The three P growth on the advertising where does that show up currently which segments does that show up in and then I had a follow up.
Greg Melick: Yes.
Greg Melick: Incremental advertising that we were planning to drive through that initiative.
Greg Melick: Some of which would show up in revenue some of which would show up in gross margin.
Greg Melick: It depends on the nature of the contract in nature of the arrangement that we've made so.
Greg Melick: The answer is it depends.
Greg Melick: Just on weather and larger part of whether it's somebody we already work with in terms of a vendor if it's not endemic in many cases it can show up in revenue in addition to margin but.
Greg Melick: Right now most of that AD AD sales that comes through comes through in the margin category overtime, we would expect to add more to the revenue side as we build out that initiative.
Greg Melick: And for three P is at the same how do we think about that yes.
Greg Melick: Yes.
Greg Melick: I would be traditionally like other marketplaces, where you would recognize the commission revenue and gross margin and then we.
Greg Melick: At some point May give us gross sales commentary like other other folks do but the gross commissions that will show up in margin from the <unk> sellers.
Greg Melick: Great. Thanks, and just on my follow up is on tariffs. Thanks for all the detail that's super helpful.
Greg Melick: I guess it feels like the blended rate if my algebra worked quickly is in the.
Greg Melick: Mid to low teens from where we are today.
Greg Melick: Hi.
Greg Melick: Can we think about the price elasticity. If you talked about earlier in March do you think that still holds given that sort of.
Greg Melick: We landed this tariff rate in the low to mid teens.
Speaker Change: So Greg I want to reinforce something that I said in my prepared remarks. After I went through all the mitigation efforts that we're talking about I actually made it a point to say that due to those mitigation efforts both by vendors and buybacks by the increased product costs that are flowing to us are lower than the tariff rates. So while I know youre doing the <unk>.
Greg Melick: That math and I know, that's a great place to start than you have to assume because of that laundry list of mitigation things Im talking about there.
Greg Melick: There are other ways for us to try to mitigate some of those tariffs and collectively make sure that we are seeing competitive for our customers and so the elasticity is then that the team built and they've done an amazing job building. Some models around this are built on kind of these lower tariff levels that we would expect to flow through based.
Greg Melick: On these ongoing mitigation efforts and partnership.
Greg Melick: With our very wonderful vendor partners.
Greg Melick: And maybe just to add.
Scot Ciccarelli: Maybe just to add on Greg we have we know a lot more since the last time. We did this estimate so we've we've taken another attempt that understanding the elasticities, which are quite frankly different by category and so we have update our assumptions based on those lessons is bought everything Cory said was exactly right. Those lessees are based off of cost increases that arent necessarily.
Scot Ciccarelli: At the level of effective tariff rate that would be flowing through.
Speaker Change: That's great good luck and thanks for all the help.
Greg Melick: Thanks, Rick.
Speaker Change: Your next question comes from Simeon Gutman with Morgan Stanley. Your line is open.
Speaker Change: Hi, This is <unk> on for Simeon and our first question is you sounded pretty positive on your categories, such as computing and tablets mobile phones due to the replacement cycle or other maybe in store initiatives can you bridge that positive sentiment versus your updated comp guidance of down one to a positive 1%.
Speaker Change: Yes, I mean, we did a few things for our updated guidance range.
Greg Melick: First looked at the base level trends that we're seeing happening through Q1 and in some cases things like computing performed better mobile performed better than we expected in some other cases as it always does some other categories performed lower than our expectations. So we looked at those assumptions for the remaining part of the year as best we could made some adjustments and then what we did was we.
Greg Melick: We applied an updated view of what we believe the tariff impacts could be based on all the commentary that we've already given so there's clearly a range that we're providing for both the high and low in terms of the possible tariff impacts, but those two were also layered on to and not the same but similar concept to what we provided last.
Greg Melick: Three months ago, when we said about.
Greg Melick: One point of comp was for the 10% China tariffs.
Greg Melick: The same idea except that we've updated our information that now layer that into the guide overall.
Speaker Change: Okay, Great. That's helpful. And then a follow up is just on gross margins is there anything to call out from a cadence perspective, specifically when do you expect maybe benefits from the roll out of the U S marketplace to start taking shape and if you could maybe help size the opportunity of margin benefits from the marketplace. Thank you.
Speaker Change: Yes, we haven't sized the benefits from either the best buy ads initiative or marketplace. We have we have said and continue to believe that the benefits the rate should be helped in the back half of the year from both of those items.
Speaker Change: <unk> is actually an Oi help oi rate held for the full year.
Speaker Change: The ads business, while helping gross margin rate a bit it does have a bit of investment, which kind of makes the NOI impact for the year fairly neutral, but they both do help boost the gross profit rate more towards the backend beer and we haven't sized them, but they are they are helping to.
Speaker Change: Drive or offset some of the pressures that always exist as we move through the year.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Operator: Your next question comes from Peter Keith with Piper Sandler Your line is open.
Speaker Change: Hey, Thanks. Good morning, appreciate all the detail and maybe to follow up on the marketplace are you still on track for a mid year launch and then on the cannibalization angle.
Speaker Change: There any negative impact on comp this year that would be factored into the outlook.
Speaker Change: Yes, we still are on pace for a mid year launch and I think we were pretty explicit when we talked about it that even after the investments that we're making and the cannibalization. We still saw this as accretive overall, both at a gross profit level and at an operating income level. So I think the team is and we have some knowledge from Canada. So we have some pretty good <unk>.
Speaker Change: Ground knowledge on how to estimate that and the team have tried to take that into account.
Speaker Change: Okay fair enough and.
Corie Barry: And Cory certainly the switch to coming it should be a nice benefit just to the best of your visibility right now or are there other.
Speaker Change: Products, our innovation launches that are coming in the upcoming months that you've got your eye on that or just you're excited about.
Speaker Change: Yeah.
Speaker Change: Yes. Thanks for the question I'll take that one I think theres a lot of areas that we're excited about in total you hit on one in the switch and the excitement around gaming.
Speaker Change: And that the preorders sold out very quickly and we're very excited about the midnight openings, but theres other innovation that happens in a lot of other categories.
Speaker Change: Computing in particular continues to be a category, where we see growth and a lot of integrated innovation and upgraded continuing the AI benefits and features that continue to rollout or something we're excited about just the sheer amount of customers that upgraded early in the pandemic now have an opportunity to come back into the market in <unk>.
Speaker Change: Get some great new products across.
Speaker Change: Windows 11, and obviously the benefit associated with Windows tend not being supported as we move past October as well as a matter of customers theres millions of customers that are still on older technology and have an upgraded to the M chip yet and all the benefits associated with that product as they continue to refresh and upgrade those models as well in addition to that.
Speaker Change: As look across other categories Tvs Theres additional technology in mini led.
Speaker Change: <unk> screens things that are really going to show interest in really solve through pain points for customers and then corie I hit on it but we're very excited about what we're seeing in the mixed in aerospace is a growing category for us it's an area, where there's a tremendous amount of interest from customers and just new value propositions, new new features and benefits and people starting to get.
Speaker Change: You're still wearables that actually can do a lot of things in regards to AI, and making our life easier and actually having some entertainment value as well a couple of more things I would just add.
Speaker Change: Lastly, on the handheld gaming space, where I think youre going to see a lot of.
Speaker Change: Innovation switch kind of launching that but we kind of see a few more things coming in the back half of the year.
Speaker Change: And also in the computing gaming space computing isn't just about the productivity side and certainly for our kids like mine.
Speaker Change: High end gaming computers are really we're seeing a lot of success in that space that includes the monitors that go with that that are continuing to innovate. So I think we continue to remain pretty excited about that space as well.
Speaker Change: Great. Thank you very much.
Speaker Change: Your next question comes from Stephens, a cone with Citi. Your line is open.
Speaker Change: Great. Good morning, Thanks, very much for taking my question.
Speaker Change: I wanted to focus on the updated comp guidance.
Speaker Change: The tariffs, obviously, creating complex environment, but as you look over the course of the year you are facing some tougher comparisons because the computing business start to see improvement last year can you just help us understand the drivers to kind of comp the comp in the back half of the year given your commentary about pricing happening in mid may.
Speaker Change: Is there also an expectation that maybe pricing a little bit more of a helper to comps as we think over the course of the year.
Speaker Change: Thanks for the question Steve.
Speaker Change: We outlined many of these at the beginning of the year as well and reiterate some of those here today I think one of the things, yes comp for the computing gets a little tougher as the year progresses, but the items that Jason just mentioned if you think about the opportunity as Windows 10 becomes unsupported in October do you think about also the need.
Speaker Change: To upgrade millions of.
Speaker Change: Max out there as well.
Speaker Change: The new it to leverage the new AI technology. There is we believe a very strong continued opportunity in the computing space not to mention what Corey also mentioned computing gaming desktops has it actually.
Speaker Change: It wasn't quite as strong last year as it starting this year and we believe we will continue as well.
Speaker Change: Mobile phones.
Speaker Change: Positively comped, which hasnt happened for a while and we expect the experience changes working with our vendors and expertise with within that category to continue to help grow and boost sales as the year progresses, and then gaming, while maybe not getting to full growth this year.
Speaker Change: The pressure that we've seen will be lessened as you as we progress into Q2 with the switch launch and as you get closer into holidays with continued possible growth in or less less declines in that category as well and then a lot of the store experience changes that we.
Speaker Change: That we are rolling out this year medical offices being one of them different types of vendor product highlights within our store all of those things build towards we believe are growing.
Speaker Change: Comp situation as we progress through the year and that support the high end of the guide to learn of the guide obviously it could suggest that we don't see much of a difference in the back half of the year than we've seen in Q1 and Q2, obviously, we're planning for a range of outcomes.
Speaker Change: Hard to know exactly if asps are a help given given the tariff situation, we'll know more.
Speaker Change: As the year progresses, but that obviously is a possibility in some cases the elasticities are lower.
Speaker Change: Have to see that transpire, a little bit more before we would note that uncertainty.
Speaker Change: Okay. Thanks for that detail and then to follow up it's a bit of a near term question, but since you've adjusted pricing and you've kind of cut. This commentary in mid May have you seen any changes in consumer behavior or maybe from a competitive environment have you seen any changes from us from the competition on pricing and promotions.
Speaker Change: Not really memorial day was competitive it's always competitive and we've said right now you've got a value seeking consumer which means I think in those key drive times, we're definitely seeing even more competitive stance. Both I would argue from us and from the competition. The last thing that I would add to build on what Matt had said I mean, we started talking about unit growth and no.
Speaker Change: Books in Q4 of fiscal 2004.
Speaker Change: And we're still seeing nice growth in that space, even in Q1, we talked about 6% growth in notebooks and tablets area. So I think not only are we looking at to your point just this very near term customers seem like they continue to behave the way we would expect.
Speaker Change: But also just generally on the comp the comp question, we're continuing to see this demand curve around particularly some of the computing and tablets and mobile spaces.
Speaker Change: And Youre just heading into a win 10 upgrade and some more material advancements I think in terms of AI use cases, so the indicators at least feel like in the guide would imply we can I feel like we're seeing some consistent behavior from the consumer.
Speaker Change: Okay. Thanks for the detail.
Speaker Change: The next question comes from Brian Nagel with Oppenheimer. Your line is open.
Brian Nagel: Hi, good morning, Thanks for taking my questions.
Speaker Change: Good morning, Josh I appreciate all the detail, you've given and recognizing it's very fluid and it's happening against a probably a very sluggish consumer backdrop, but.
Speaker Change: As the tariff rates continue socially unfold I mean philosophically as best buy more thus far more focused on sales or really maintaining that gross margin rate potentially sacrifice himself.
Speaker Change: Yeah, I'm just kidding.
Speaker Change: Like always the balance the balance Brian for any retailer certainly for US is navigating this environment in a way that stimulates consumer demand, both us and our vendor partners have massive vested interest in ensuring as many customers get as much Gary as possible at the best prices and then of course.
Speaker Change: We're like we always do we're going to continue to work both internally here and closely with our vendor partners to optimize both pricing and promotional witty bolstering the key drive times and always so I think that.
Speaker Change: And I think you saw some of it in Q1 like we are constantly working to try to balance those two factors, but I don't think at any given point in time.
Speaker Change: Theres never a clear I always tease my team there is no or answer there is always in and answer and this is definitely one of those places.
Speaker Change: Got it that's fair and then my second question is you've done a great job of even with sales week.
Speaker Change: Maintaining or improving operating margins. So the question Eric.
Speaker Change: Maybe describe better where.
Speaker Change: Where youre seeing the efficiencies and then looking out over any length of time to the extent that sales re strengthen will these efficiencies hold or will there be expenses will have to come back into the model.
Speaker Change: Yes.
Speaker Change: Safe to say, we're always looking for efficiencies even in a normal year, which there hasn't been really a normal year for awhile, but we're always looking for ways to improve our costs.
Speaker Change: I think we've outlined a few of those things we've really.
Speaker Change: Revolutionize our customer care operations in terms of using data to make that process easier through conversational AI and upgrading our ABR systems.
Speaker Change: Corey you talked about the procurement operation, which gives us a lot more visibility to the goods not for sale spend and that will continue to pay off as we this year and into the years to come.
Speaker Change: Supply chain operations has done a lot of things to to to improve and drive efficiencies that we talked a little about the rule based shipping process and data driven solutions that we're employing there. There's also a lot of large product transformation meeting, where we storing the product how are we flowing their product and through adjusting those things you can find continued opportunities.
Speaker Change: We've even use automated vehicles.
Speaker Change: All of our places to invest in leading technology to actually drive cost out as well so.
Speaker Change: There always will be continued opportunities for us to look for cost to help make sure. We can invest in the right places and offset any pressures that inevitably come through in any given year.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you.
Jonathan Matuszewski: Your next question comes from Jonathan Matuszewski with Jefferies. Your line is open.
Jonathan Matuszewski: Great. Thanks, So much my first question is on pricing I imagine the approach varies across different skus and categories is there a way to think about the overall blended price hike that's embedded in the current comp guidance, whether it's mid single digit higher lower.
Speaker Change: Yes.
Speaker Change: Probably obviously is we're not going to give a specific number there too we will continue to learn as the year progresses.
Speaker Change: We all obviously ultimately set our pricing.
Speaker Change: Later, we only bring in 2% to 3% of the goods.
Speaker Change: Per sale for our Cogs.
Speaker Change: I wanted to make the point that apparently a portion of it and we talked about here today of the tariff rate increases.
Speaker Change: <unk> out to something lower only come through in the form of cost increases and if we get to the point, where we do raise prices. They are not that same effective tariff rate generally speaking, so we aren't providing that and providing that information, but do feel comfortable that at the end of the day, we are always going to be competitively priced regardless of the cost and we will find ways to help.
Speaker Change: To offset that through through.
Speaker Change: Through through them through other means Jonathan I would just add that this is such an incredibly fluid situation that also I was trying to snap the line at any given point in time is almost impossible because all of those mitigation efforts that I outlined those are going on day in and day out by the teams as we make those trade off decisions. So it is not a static number.
Speaker Change: Is one that we are constantly working.
Speaker Change: Understood and my follow up is on best buy health. It sounds like you continue to pursue actions aimed at improving the profitability of that business.
Speaker Change: As you've taken a closer look at it how do you think about its role in the enterprise versus the other alternatives.
Speaker Change: Yeah, I mean, let's step a second back to the strategy of the health business is enabling care at home for everyone and that fundamental belief system for us remains.
Speaker Change: And as you think about the business that we have called active aging are lively business or even just some of the care at home business. These remain very viable business models for the future now the part that has been harder and taking longer to develop than we initially thought and some of the very discrete in home health.
Speaker Change: We are providing in partnership with some of the health care industry and Thats really been made more complex two fold one by the adoption of hospital at home solutions at scale, just being slower because partially the health at home lever has been caught up in a lot of the administrations budgeting conversations than it's been.
Speaker Change: Inconsistent in terms of how long that waiver will be in place.
Speaker Change: And two with some of the health care providers have just face their own financial struggles over the past few years and so we've been working to optimize that part of the health care business at best buy but the remaining parts remain very viable and I think all of US would agree we absolutely see a future where more of your health care is taken into your own hands use.
Speaker Change: <unk> technology and technology devices, you can already see it across our assortment and our cross sell people are choosing to take care of their own health and we will continue to lean into that part of the strategy.
Speaker Change: And I think with that we have reached time and Thats. The last question today. Thank you everyone for joining us and we look forward to sharing our Q2 results in August have a great summer.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: [noise].