HP, Best Buy Consciously Waiting to Address Expected Impacts From List 4 of Section 301 Tariffs

HP’s forecast for its fiscal year 2019 ending Oct. 31 only factors in the expected financial impact to the company from the List 3 Section 301 tariffs currently in place, including the increase to 25 percent from 10 percent that took effect May 10, Chief Financial Officer Steve Fieler said on a fiscal Q2 earnings call May 23. “We have not included the impact from any future tariffs,” he said, referencing the List 4 duties proposed May 17 on the $300 billion in Chinese imports not previously tariffed. HP continues to operate “in a dynamic environment that includes ongoing industry component constraints as well as macroeconomic, geopolitical and tariff uncertainties,” CEO Dion Weisler said. “But we have a highly experienced team and know how to navigate through complex market conditions.”

The buzz surrounding the proposed List 4 tariffs is “an industrywide situation in the U.S. that has continued to be very dynamic,” Weisler said. “We don't speculate or comment on potential impacts until we know all the facts, and we're still hopeful” the U.S. and China will strike a trade deal that would avert List 4 from taking effect, he said.

Best Buy CEO Hubert Joly took a similar tack earlier the same day when he told investors it’s “premature” to speculate about List 4's potential impact on the retailer’s fiscal 2020 results. Though List 4, “as proposed,” contains “many consumer items, including many electronics,” it’s “unclear” whether the 25 percent tariffs on those products “will actually be implemented,” Joly said during a Q1 earnings call. Other List 4 unknowns are “what products will ultimately be included” and at what rate and on what effective date, Joly said. “One thing is, of course, certain,” he said. “The impact of tariffs at 25 percent will result in price increases and will be felt by U.S. consumers.” Currently, List 4 would slap 25 percent tariffs on virtually all consumer goods Best Buy offers for sale.

Joly repeated past assertions that Best Buy has minimal exposure to the List 3 tariffs because the products on the list are only 7 percent of the retailer’s annual cost of goods sold and are mostly accessories. Best Buy mitigated any impact from List 3 by rushing in shipments to beat the May 10 increase and by renegotiating terms with vendors, he said. It was Joly's last call as Best Buy CEO before relinquishing the helm next month to Chief Financial Officer Corie Barry. Barry in Q&A declined to estimate what Best Buy’s comparable exposure to List 4 might be if those tariffs were implemented as proposed. With the 10 percent List 3 tariffs, the company broke down its mitigation strategies “into a few buckets,” Barry said. “In some cases, we obviously had some worldwide vendors” that were able to absorb the higher costs across their international operations, she said.

Best Buy also knew of vendors that would "absorb costs as a way to retain some of the business” with the retailer, Barry said. Still other vendors were “already moving supply chains around,” and finding “other ways to bring things in” without involving China, she said. “At 10 percent for that List 3, you have a much greater ability to influence using this variety of methods.” As List 3 increased to 25 percent, “the discussion becomes quite different,” Barry said. "There’s a much lower likelihood you could absorb that as a vendor completely.” At 25 percent, “there will be higher prices for consumers,” she said.