Best Buy (BBY, Financial) surpassed Q4 2025 earnings and revenue expectations, marking its first positive comparable sales since Q3 2022, driven by a recovery in PCs and tablets. However, the company's Q1 2026 guidance predicts a return to negative comps, with a "slightly down versus last year" forecast. The FY26 EPS outlook also fell short of expectations based on the guidance midpoint.

The guidance does not account for potential tariff impacts, presenting a "best case scenario." Notably, tariffs on Chinese imports have doubled to 20% from 10%. Approximately 60% of Best Buy's cost of sales involves China, leading to higher prices for PCs, laptops, phones, and other devices as manufacturers pass on these increased costs.

• Tariffs coincide with a recovery in computing and mobile phone categories, which constitute about 44% of Best Buy's total sales. In Q4, domestic comparable sales for computing and tablets rose 9% as the upgrade cycle accelerated. This momentum may be challenged as higher prices emerge amid ongoing inflation and high interest rates.
• Enterprise-level comps increased by 0.5%, ending a streak of year-over-year declines. While computing showed strength, appliances, gaming, and home theater remained weak. However, improvements were seen in TVs and headphones.
• Consumer hesitancy around big-ticket purchases persists, expected to continue in FY26. However, new product innovations drive consumer purchases. Best Buy's FY26 comp guidance of flat to +2% is weighted towards the second half of the year, with new product launches like AI PCs.
• Best Buy focuses on its high-margin services business, such as installation and repair, positively impacting margins and earnings. In Q4, domestic gross margin increased by 50 bps year-over-year to 20.9%.

Despite a strong Q4 performance, mainly driven by PC and laptop sales, Best Buy's weak outlook and tariff concerns are overshadowing its quarterly success.