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Best Buy Expects Strong Holiday Quarter, But Dollar Tree Struggles With Tariff Impacts

Best Buy Expects Strong Holiday Quarter, But Dollar Tree Struggles With Tariff Impacts

The U.S.-China trade war and its associated tariffs are hanging over virtually all retailers’ heads this holiday season, but different retailers are responding to the pressure in different ways. For instance, Best Buy has forecast a strong holiday quarter despite the price hikes caused by trade policy, while Dollar Tree believes the trade war will weigh significantly on sales.

Best Buy’s Q3 2020 results actually topped Wall Street estimates despite the impact of tariffs on some electronics, with revenue reaching $8.96 billion on 2% comparable sales growth. The largest growth areas were appliances, headphones, tablets, services and computing, which offset declines in the gaming and home theater categories.

The retailer expects this momentum to carry into Q4 and the holiday season, leading to projected comparable sales growth of 1.0% to 2.0%, compared to prior guidance of 0.7% to 1.7%. Offerings such as free next-day delivery (even without a membership) and one-hour in-store pickup are expected to drive traffic and sales.

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The outlook takes both implemented and planned tariffs on Chinese goods into account; the company has been working with vendors to reduce their impact. As much as 60% of Best Buy’s cost of goods sold are subject to tariffs, but that number could drop to approximately 40% in 2020.

In comparison, Dollar Tree expects tariffs to add $19 million to its costs of goods for Q4 2019. Projected net sales for Q4 2019 will range from $6.33 billion to $6.44 billion on low single-digit comparable sales increases. The discount retailer’s results are also being impacted by other factors, including:

  • Additional pressure on merchandise margin, based on lower-margin consumables growing faster than originally forecasted;
  • Payroll cost pressure in distribution centers; and
  • Increased run rates for repairs and maintenance, utilities and depreciation.

The company’s most recent quarterly results were disappointing as well. Consolidated net sales increased 3.7% to $5.75 billion in Q3 on a 2.5% increase in same-store sales, but analysts had expected sales of $6.41 billion. Between the weak results and lowered outlook, the retailer’s share price fell 15% the morning of Nov. 26, according to CNBC.

However, Dollar Tree is working to overcome its recent challenges. The company has completed more than 1,150 Family Dollar H2 renovations and nearly 200 Dollar Tree re-banners; launched more than 1,000 Dollar Tree Snack Zones; and started testing Dollar Tree Plus!, a line of products that cost more than $1, earlier this year.

“Fiscal 2019 has been a unique year as the result of several factors: the material acceleration in our Family Dollar store optimization initiatives, the consolidation of our two store support centers into southeast Virginia, the global helium shortage and the continued uncertainty regarding trade and the related tariffs,” said Gary Philbin, President and CEO of Dollar General in a statement. “I am proud of our team’s efforts and the sales execution through this environment.”

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