The paragraph is from the opening of Best Buy's First Quarter Fiscal 2026 Earnings Conference Call, where the operator introduces the event and notes that it is in a listen-only mode until a later Q&A session. Mollie O'Brien, Head of Investor Relations, then introduces the call, noting that it involves discussion of both GAAP and non-GAAP financial measures, with related documents available on their website. She mentions that some statements are forward-looking and subject to risks, referring to their earnings release and recent filings for details. The company has no obligation to update these forward-looking statements. Corie Barry, the CEO, is then introduced to continue the call.

The beginning of the year has been eventful, and the teams have successfully navigated challenging macroeconomic conditions with a focus on customers and vendor partnerships. In Q1, they achieved better than expected profitability, with revenue slightly below last year at $8.8 billion. They reported an adjusted operating income rate of 3.8% and earnings per share of $1.15. Despite a 0.7% domestic sales decline due to drops in categories like home theater and appliances, they saw 6% growth in computing and tablets. Online sales were strong, making up nearly 32% of domestic sales, with efficient delivery. Consumer behavior remained consistent with past quarters, staying deal-focused and value-oriented amid inflation, but still willing to spend on high-priced or innovative technology products.

The paragraph discusses the improvements in Best Buy's domestic relationship net promoter score, attributing it to their focus on enhancing customer experience. The company plans to update its Q1 fiscal 2026 strategic priorities but first addresses the current tariff environment's impact on the industry. Despite ongoing uncertainties, they emphasize the importance of international trade, noting significant changes in their supply chain since March, with China's contribution to product COGS dropping to 30-35% from 55% due to diversified sourcing. Currently, U.S. and Mexico account for about 25% of the product COGS, and products from Mexico, like TVs and appliances, are tariff-free under the USMCA agreement, while tariff scenarios vary for products from China.

The paragraph discusses the impact of tariffs, including a 20% fentanyl tariff and a 10% baseline tariff, on various product categories such as semiconductors, consumer electronics, and appliances, many of which are imported from China, Vietnam, India, South Korea, and Taiwan. It outlines strategies that the company, Best Buy, is employing to mitigate these impacts, which include leveraging manufacturing flexibility, negotiating costs by consolidating volume, increasing supply chain diversification, adjusting product assortments, and adjusting prices as necessary. The company also notes that only a small percentage of its overall products are directly imported, and thus, the increased costs due to tariffs are being effectively managed.

The company has made necessary price and promotional adjustments, aiming to maintain competitive pricing and manage inventory effectively, particularly for the back-to-school season. They express confidence in their inventory levels and credit their skilled teams and vendor partnerships for navigating volatile conditions. Despite uncertainties around tariffs and industry actions, they have adjusted their annual outlook, forecasting a comparable sales range from -1% to +1% and an operating income rate consistent with the previous year. The company assumes stable tariffs and consumer behavior for the rest of the year and will continue to adapt as necessary. They are focused on reinforcing their position as a leading omnichannel technology retailer and developing new profit streams for future growth.

The fiscal 2026 strategic priorities for the company include enhancing the omnichannel experience, launching new profit streams like Best Buy Marketplace and Best Buy Ads, and improving operational efficiency to support investments and offset challenges. A significant portion of domestic revenue is generated online, with many customers visiting digital platforms during their shopping journey. The company is launching a new AI-powered search experience to improve product discovery and decision-making. They've also introduced Best Buy storefronts for influencers and creators, with early uptake from over 400 creators and 60 launched storefronts, expected to boost traffic, engagement, and sales. Additionally, the company plans to update the shopping experience in all its physical stores this year.

Beginning in Q2, Best Buy is enhancing its in-store customer experience by expanding areas like home theater, tablets, and virtual reality, and preparing for the Switch 2 launch. The retailer is leveraging its unique position by opening stores at midnight on June 5th to accommodate the high demand for Switch 2, with 70% of customers opting for in-store pickup. Additional products will be available for non-pre-order customers. Best Buy is also investing in staff training and vendor partnerships to boost productivity in major categories, including appliances, computing, and home theater. Collaboration with Verizon and AT&T has led to increased mobile phone sales and improved technology integration.

For fiscal 2026, Best Buy is focused on enhancing profitability through launching a marketplace that offers flexible product assortments and supports both sellers and advertisers. This marketplace will align with Best Buy’s return policies and aims to increase operating income despite potential startup costs and revenue cannibalization. The initiative is expected to expand Best Buy's unit share and profit dollars, while also boosting the Best Buy Ads business with new advertisers and traffic. Recently, Best Buy has increased ad inventory and added 20 new vendors, and partnered with The Trade Desk to further develop its retail media network.

The paragraph outlines Best Buy's strategy to enhance its advertising business by increasing partnerships with non-endemic advertisers and launching a new capability called Social+ in collaboration with Meta to reach customers on Facebook and Instagram. The company is expanding its advertiser base, including quick-serve restaurants, and has achieved successful campaign results. Best Buy has filled key leadership roles, opened a New York office, and anticipates growth in ad collections to improve gross profit rates by fiscal 2026, despite a neutral impact on operating income due to ongoing investments. The company focuses on cost reduction and efficiency improvements through technology and vendor partnerships, while discontinuing underperforming initiatives. Additionally, Best Buy plans to complete its source-to-pay technology deployment soon.

The company is enhancing transparency and cost optimization in its non-resale goods expenditure by automating purchasing processes. Its supply chain has improved efficiency by adopting a data-driven sourcing solution for shipping, reducing costs and improving order delivery times. The customer care operations have benefited from advanced AI technology and upgraded IVR systems, resulting in lower costs and higher customer satisfaction. The company is committed to adapting and investing strategically to maintain resilience in challenging times, aiming to thrive amid changes in the tariff environment. It prides itself on being a leader in offering cutting-edge technology, unique experiences, and expert services, while maintaining strong partnerships with vendors. The company anticipates growth in the computing sector as customers continue to replace and upgrade products.

The paragraph discusses Best Buy's strategic initiatives and anticipated growth areas. It highlights the company's expectations for increased sales driven by the end of Windows 10 support, AI innovation, and enhanced in-store experiences for mobile phones and gaming. The company is also expanding its presence with Ray-Ban Meta glasses and other wearable AI products. Best Buy emphasizes its unique market position enhanced by a refreshed brand, digital growth, and personalized customer experiences. It also underscores investments in employee training and support, which have led to high engagement and low turnover. The paragraph concludes with appreciation for employees and transitions to Matt Bilunas for a quarterly performance overview.

In the article's 12th paragraph, it is reported that the enterprise's comparable sales declined by 0.7%, aligning with expectations. Despite this, the adjusted operating income rate at 3.8% exceeded expectations by 40 basis points due to favorable SG&A expenses, resulting from an indirect tax settlement and strong expense management. Gross profit rates improved by 10 basis points, aligning with projections. First-quarter enterprise revenue was $8.8 billion, a 0.9% decrease from the previous year. While adjusted operating income remained constant, diluted earnings per share decreased by 4% to $1.15, partly due to a $10 million drop in investment income. Monthly sales varied, with February down 2.5%, March up 0.5%, and April down 0.4%, affected by Easter's timing. Domestically, revenue decreased by 0.9% to $8.1 billion, with a similar decline in international revenue, which was impacted by a negative foreign currency effect offset by new Best Buy Express locations in Canada. Domestic gross profit rate rose by 10 basis points, driven by improvements in the services category.

The paragraph discusses Best Buy's recent financial performance and future guidance. Despite challenges like rate pressure in the Best Buy Health business and reduced credit card profit-sharing, domestic SG&A decreased primarily due to a favorable tax settlement. The company incurred $109 million in restructuring charges related to Best Buy Health, while returning $302 million to shareholders through dividends and share repurchases. Best Buy has increased its quarterly dividend for 12 consecutive years. The fiscal 2026 financial guidance considers potential impacts from tariffs, estimating approximately a 1-point pressure on comparable sales if the China tariffs remain at 10%. The updated guidance reflects the current tariff landscape, acknowledging the potential for changes.

The paragraph outlines the updated financial guidance for fiscal 2026. The company projects revenues between $41.1 billion and $41.9 billion, with comparable sales ranging from a decrease of 1% to an increase of 1%. Adjusted operating income is expected to be around 4.2%, and adjusted effective income tax rate remains at approximately 25%. Adjusted diluted earnings per share is forecasted between $6.15 to $6.30, with capital expenditures at the low end of prior guidance at $700 million, and $300 million earmarked for share repurchases. The company anticipates a slightly unfavorable gross profit rate due to a higher mix of lower-margin categories, although growth in Best Buy Ads and the US marketplace rollout may counterbalance this. The services category is expected to favorably impact gross profit, while the credit card profit share is deemed neutral. Adjusted SG&A is projected to be slightly lower as a percentage of revenue compared to fiscal 2025.

The paragraph discusses Best Buy's financial expectations and strategies for the fiscal year, focusing on efficiencies, tax settlements, and expenses related to Best Buy Health, Ads, and marketplace initiatives. It mentions an increase in SG&A to support advertising, technology, and employee compensation. The company expects minor impacts on store payroll and credit card processing fees based on revenue guidance. Incentive compensation is anticipated to remain flat, although plans exist to reduce variable expenses if sales trends warrant it. For the second quarter, comparable sales are expected to slightly decline, with an operating income rate of about 3.6%. The gross profit rate should resemble last year's, but increased SG&A costs will likely lower the operating income rate. Last year's SG&A was positively impacted by a legal settlement and lower medical claims, adding approximately $20 million in benefits. The paragraph concludes with a transition to a Q&A session.

In the paragraph, Corie Barry discusses how Best Buy is navigating product sourcing amid tariff challenges, particularly with imports from China, which have decreased from 55% to 30-35%. She explains that half of the China-sourced products face 30% tariffs, while the other half face 20% tariffs due to an ongoing investigation. Best Buy is sourcing 25% of its cost of goods sold (COGS) from the US and Mexico, which carry no tariffs, and 40% from countries like Vietnam, India, South Korea, and Taiwan, subject to 10% tariffs. Barry emphasizes mitigation strategies, including leveraging manufacturing flexibility and establishing new manufacturing locations outside China, to manage increased product costs effectively.

The paragraph discusses strategies for increasing supply chain resilience and managing costs. It highlights efforts to diversify supply chains by encouraging vendors to manufacture products in multiple locations. Cost mitigation strategies include negotiating costs with vendor partners, optimizing products, and consolidating volume for better negotiation leverage. Adjusting assortments is another approach, ensuring a wide range of customer needs are met while potentially consolidating volume. As a last resort, prices may be adjusted, but this doesn't automatically mean customer price increases. Matt Bilunas notes a decrease in domestic SG&A by about $13 million compared to the previous year. The conversation then shifts to Mike Baker from DA Davidson, asking if there's been any pull-forward in demand.

In the paragraph, Matt Bilunas and Corie Barry discuss the challenges in assessing consumer electronics demand due to factors like event timing shifts, such as Easter, and pre-orders for products like the Switch, which affect when revenue is recognized. While there was some advancement in consumer spending, it's difficult to quantify due to these factors. They also note the lack of a comprehensive source for market share data in consumer electronics and mention that market fluctuations can occur due to competitive actions and strategic pricing and promotional decisions. The company saw a slow start to the quarter but improvement throughout.

The paragraph discusses a quieter business quarter with fewer events and launches, which led to a slight market share decline in Q1. However, the company remains optimistic about regaining share, particularly in computing and gaming, citing strong plans and investments for the year. Despite potential effects of tariffs and inflation, consumer behavior remains resilient, although consumers are making spending trade-offs due to broader price increases. Overall, the company expresses confidence in its strategy and plans for the future.

The paragraph discusses consumer behavior and corporate initiatives. Consumers are seeking value in sales but are willing to spend on higher-priced items and new technology, particularly in computing and tablets, despite trying to make value trade-offs in other categories like televisions. The conversation shifts to questions from analysts, focusing on incremental advertising and 3P growth initiatives. Matt Bilunas explains that advertising revenue primarily affects gross margin depending on the contracts, while 3P growth strategies will show up similarly, with potential to impact both revenue and margin as these initiatives develop.

In the paragraph, Corie Barry addresses Greg Melich's question about the impact of tariffs on pricing. She explains that, despite the blended tariff rate appearing to be in the mid to low teens, mitigation efforts by Best Buy and its vendors are helping to keep product cost increases lower than the tariff rates. Consequently, their pricing models and elasticity assumptions are based on these lower cost increases, allowing Best Buy to remain competitive for customers. Barry appreciates the efforts of her team and vendor partners in developing strategies to manage the tariff impacts effectively.

In the paragraph, Matt Bilunas and others discuss updates to their business assumptions and financial guidance. They've revised their estimates based on a better understanding of category-specific elasticities and recent performance trends, particularly noting that categories like computing and mobile phones have performed better than expected. The updated guidance range for comparable sales is set between down 1% to positive 1%, incorporating potential tariff impacts from China. They mention having a better grasp of these impacts compared to three months ago, due to a deeper analysis of cost increases and tariff rates.

The paragraph discusses updates related to the US marketplace rollout and its expected impact on gross margins. Loren Eng inquires about potential benefits from the marketplace and Best Buy Ads initiatives. Matt Bilunas responds that while they haven't quantified these benefits, they anticipate positive effects on the gross profit rate in the latter half of the year. The marketplace is expected to enhance operating income (OI) for the full year, and while the Ads business will improve the gross margin rate slightly, its overall impact on operating income for the year will be neutral due to investments. Corie Barry confirms the marketplace is on track for a mid-year launch and believes it will be beneficial despite any cannibalization, positively affecting both gross profit and operating income.

The paragraph discusses the excitement around upcoming product innovations and launches in various technology categories. Jason Bonfig highlights the quick sell-out of pre-orders for the Switch 2 and expresses enthusiasm for growth and innovation in computing, with AI advancements and opportunities for customers to upgrade to Windows 11 and new Mac technologies. Additionally, advancements in TV technology like mini LED and anti-glare screens are expected to address customer needs. There is also excitement about growth in the augmented reality (AR) and mixed reality space.

The paragraph discusses the increasing interest in wearable technology and handheld gaming, highlighting innovations in the gaming space, particularly with the launch of the Nintendo Switch and advancements in high-end gaming computers and monitors. Corie Barry expresses excitement about these developments. Steven Zaccone from Citi asks about updated comparable sales guidance amidst a complex environment created by tariffs and challenges in the computing business. He inquires if pricing changes expected in mid-May could positively impact comparable sales over the year. Matt Bilunas acknowledges the question, noting that they had addressed similar points earlier in the year and reiterated them in the discussion.

The paragraph discusses various opportunities and challenges in the computing and gaming markets. With the upcoming end of support for Windows 10 and the need for Mac upgrades to utilize new AI technologies, there is a strong potential for growth in the computing sector. Computing gaming desktops and mobile phones are expected to see improved sales over the year. Although gaming might not achieve full growth, a reduction in pressure is anticipated with the launch of the Switch and upcoming holiday season. Store experience enhancements, such as showcasing Meta glasses and vendor products, are also expected to contribute to growth. The overall outlook presents a range of outcomes, influenced by factors such as ASPs and tariffs, with continued monitoring required.

In this paragraph, Corie Barry discusses the competitive environment and consumer behavior following a pricing adjustment in May. She notes that Memorial Day was competitive, which is typical, and mentions that consumers are currently value-seeking. Despite this, both the company and its competition are showing competitive pricing and promotions. Barry also highlights growth in the notebooks and tablets sector, noting a 6% increase in Q1 and anticipating continued demand driven by upcoming advancements like the Windows 10 upgrade and AI use cases. Overall, consumer behavior seems consistent with expectations, even in a challenging backdrop. Brian Nagel from Oppenheimer then acknowledges the complexity and fluidity of the situation in light of tariffs and a sluggish consumer environment.

The paragraph discusses how Best Buy is navigating the balance between sales and maintaining gross margins in the context of evolving tariff rates. Corie Barry emphasizes the importance of stimulating consumer demand while collaborating with vendor partners to offer the best prices, ensuring both sales and margin interests are aligned. The company is focused on optimizing pricing and promotional efforts continuously. Brian Nagel acknowledges Best Buy's success in maintaining or improving operating margins despite weak sales, and inquires about the efficiencies achieved and their sustainability if sales improve. Matt Bilunas responds that Best Buy continually seeks cost efficiencies and highlights improvements in customer care operations through data-driven methods like conversational AI and upgraded systems.

The paragraph discusses strategies to improve procurement and supply chain operations, offering better visibility into non-sale expenditures and driving efficiencies through rule-based shipping and data-driven solutions. These measures include product storage transformation and the use of automated vehicles to reduce costs. Corie Barry emphasizes ongoing efforts to find cost-saving opportunities to reinvest in key areas and manage yearly financial pressures. The conversation then shifts to pricing strategies with Jonathan Matuszewski and Matt Bilunas indicating that while specific pricing guidance is not provided, price setting considers various factors and generally does not directly transfer tariff-related cost increases to consumers.

The paragraph discusses the fluid nature of pricing strategies for a business, emphasizing ongoing efforts to stay competitively priced despite fluctuating costs. Corie Barry highlights the dynamic and constant nature of these efforts. The conversation then shifts to Best Buy Health's strategy, which focuses on enabling home care. While active aging and the lively business models are promising, challenges have arisen in developing in-home health solutions, especially due to slow adoption of hospital-at-home solutions and financial difficulties faced by healthcare providers. The inconsistency of the health-at-home waiver further complicates the situation.

The paragraph discusses Best Buy's efforts to optimize its healthcare business, emphasizing the increasing role of technology in personal healthcare management. The company plans to continue focusing on this strategy, reflecting current consumer behaviors towards self-managed healthcare. The discussion ends with a note of gratitude to participants and an announcement that the Q2 results will be shared in August. The conference call then concludes.

This summary was generated with AI and may contain some inaccuracies.