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Best Buy weighing price strategies ahead of new tariffs

Best Buy Co. Inc. is still evaluating its pricing strategies for the next calendar year as it prepares for the impact of additional tariffs on Chinese imports, the retailer's CEO Corie Barry said on an Aug. 29 earnings call with analysts.

"To get precise around exactly where it's going to result in price increases, where the promotional environment will land because we're always going to stay price competitive and how that actually shows up next year is still going to take us some work from here," Barry said.

Best Buy shares sank 9% to $62.80 in afternoon trading on Aug. 29 after the retailer narrowed its fiscal 2020 revenue guidance and missed second quarter targets for sales and same-store sales growth. The new guidance, which also includes higher non-GAAP EPS expectations for the year, reflects the impact of newly announced increases in tariffs on imports from China and duties on new batches of goods.

U.S. President Donald Trump on Aug. 23 raised existing tariffs on $250 billion worth of Chinese imports to 30% from 25% effective Oct. 1 and raised impending tariffs to 15% from 10% on an additional $300 billion worth of Chinese imports expected to be implemented on Sept. 1 and Dec. 15.

The 15% tariffs slated for Sept. 1 will target some of Best Buy's top products including televisions, smartwatches and headphones. Computers, mobile phones and gaming consoles will be covered by the Dec. 15 tariffs, according to Barry.

The uncertainty surrounding consumer's spending in the second half of the year and Best Buy's performance in the first six months of fiscal 2020 also contributed to the changed outlook, executives said.

"It is difficult to factor in the uncertainty related to overall customer buying behavior. It is hard to predict how at the macro level consumers will react to higher prices resulting from tariffs," Barry said.

To offset the tariffs, Barry said the retailer is employing several strategies, including stockpiling ahead of the tariffs, assessing its vendor and SKU assortment, evaluating promotional and pricing strategies, making sourcing changes and collaborating with vendors, many of whom are in the process of moving their production out of China.

Executives are not expecting a major hit from the tariffs in the third quarter, and although the retailer's buying process for the holiday season is well underway, Best Buy's President and COO Michael Mohan said its plans are "very, very fluid."

Mohan said some of the products are on their way or already in the U.S., some other items have been sourced from factories outside the U.S and some may not see price increases.