The Trump administration's tariffs on three key trading partners are likely to hit Best Buy (BBY) the hardest among hardline retailers, while potentially leading to deteriorating demand in the home-improvement space, Wedbush Securities said Monday.

On Friday, President Donald Trump reportedly issued a fresh threat to impose tariffs on Canadian dairy and lumber products, just a day after issuing temporary exemptions for various goods coming into the US from Mexico and Canada. The White House recently doubled its levy on imports from China, which announced its own retaliatory duties on the US.

Electronics retailer Best Buy has the most exposure to increased tariffs, while there is potential for a "considerable amount of demand destruction" due to the discretionary nature of most electronics purchases, according to Wedbush. The retailer estimated that a 10% incremental tariff from China would be a 1% headwind on fiscal 2025 sales, the brokerage said.

Best Buy expects its vendors to "pass along some level of tariff costs to retailers, making price increases for American consumers highly likely," Chief Executive Corie Barry said on an earnings conference call last week. Wedbush estimated that if the company passes through these costs on a gross profit neutral basis, it would equate to a roughly 500-basis-point annualized sales lift.

"However, we do not expect all the incremental cost to be absorbed by (Best Buy), and we expect more than all the pricing boost to be overwhelmed by demand destruction," Wedbush analysts Seth Basham and Matthew McCartney said in a note to clients. "Ultimately, we estimate a (3% to 5%) net negative impact on annualized sales from currently enacted tariffs."

The brokerage expects home-improvement retailers Home Depot (HD) and Lowe's (LOW) to use their respective scale to counter as much of the tariff impacts as possible, but high pressure on consumers' purchasing power could delay projects and big-ticket spending. Lowe's is more at risk compared with Home Depot due to its higher do-it-yourself exposure, according to the brokerage.

It will be "very difficult" for Floor & Decor (FND) to maintain gross margins as it expects to in an environment with 20%-plus Chinese tariffs given the weaker financial position of consumers currently versus in 2018, the analysts said. The company is still "materially exposed" to Chinese sourcing, even though the country accounted for about 18% of products sold last year versus 25% in fiscal 2023, according to the note.

"Given a likely challenged environment, there is downside risk to (Home Depot's) guidance based on a flat to up slightly home improvement retail industry in 2025 and (Lowe's) view of a flat relevant market with comps flat to up 1%," Wedbush said.