Earnings Preview: Best Buy Co.

Best Buy Co (BBY) is expected to report Q2 earnings before market open Tuesday, September 16 with a conference call scheduled for 10:00 am ET.

Guidance

Analysts are looking for a profit of 57c on revenue of $9.73B. The consensus range is 48c to 62c for EPS, and revenue of $2.67B to $3.29B, according to First Call. In June, management, commenting that consumer spending is "difficult to predict," forecast FY09 EPS $3.25 to $3.40 vs. First Call consensus of $3.28, FY09 revenue $43B to $44B vs. First Call consensus of $44.77B and FY09 same-store sales up 1% to 3%. In a September 12 note to clients,

Analyst Views

UBS downgraded Best Buy to Neutral from Buy, citing concerns of excess inventory in the LCD TV supply chain, and cut its price target to $48 from $59. The firm believes excess inventory and weak demand could raise promotional expenses for consumer electronics retailers and weigh upon trends at Best Buy. However, UBS said relationships with Apple (AAPL) and others will help keep merchandise offerings at Best Buy fresh and more relevant for consumers than those of its competitors.

Also citing concerns about a possible oversupply of flat panel TVs, Piper Jaffray downgraded shares to Buy from Neutral on September 9. As a result, Piper believes Best Buy will announce a significant decline in TV prices soon, eventually creating gross margin erosion for the home theater segment in Q3 and Q4. At the same time, Piper notes that it expects Best Buy to report strong sales in Q2.

Deutsche Bank, which maintains a Hold rating on shares, thinks Best Buy's Q2 is in good shape with potential for upside but they remain concerned about the second half of 2008 given macro pressures. On September 15, Best Buy agreed to acquire Napster (NAPS) for approximately $121M, or $2.65 per share in cash.