Wall Street Analyst: Best Buy Earnings Preview

Best Buy (NYSE:BBY) will report its fiscal Q3:12 (November) results before market open on Tuesday, December 13, and host a conference call at 7:00am PT (877-941-0844, conf. ID: 4492696, or webcast at http://www.investors.bestbuy.com).

We expect Best Buy to report Q3 results in line with our revised estimates for revenue of $12.1 billion (from $12.6 billion prior) and for EPS of $0.50 (from $0.54 prior), compared to consensus for revenue of $12.1 billion and EPS of $0.51. The company did not provide quarterly guidance. We expect total comps in line with our revised comps of down 5.6% (from down 1.2% prior), with domestic down 7.0% and international down 2.0%. Domestically, we expect negative comps for Consumer Electronics (TV commoditization) and Entertainment (market share losses to lower-priced competitors) to outweigh positive growth for Computing and Mobile Phones (iPhone 4S) and Appliances.  We are also expecting a second straight quarter of international comps declines given macro uncertainty in Europe.

We expect Best Buy (NYSE:BBY) to reiterate FY: 12 guidance for revenue of $51.0 – 52.5 billion, comps of flat to -3%, and EPS of $3.10 – 3.45. We believe that Best Buy holds many competitive advantages in Computing and Mobile, despite a decline last quarter that was attributable to a lack of high-profile new launches that shifted into Q3 this year — Apple (NASDAQ:AAPL) iPhone 4S. Notwithstanding probable gains in Computing and Mobile, we are lowering our estimates as the company likely continued to lose market share to lower-priced big box and online competitors.

Expecting continued declines for many core products. We are expecting further declines in TVs, gaming, digital imaging, and physical media, which we believe will continue so long as Best Buy’s pricing remains comparatively high.

Best Buy’s strategy of focusing on premium products at higher price points, backed by a strong service offering, is becoming outdated due to comparison shopping and the changing perception of CE. Although Best Buy remains the best available physical location to view new items from a variety of product lines and manufacturers, it is not necessarily the least expensive place to buy them. Instore comparison shopping through smart phones makes the differences between Best Buy’s prices and those of its lower-priced competitors readily apparent.

Maintaining our NEUTRAL rating, but lowering our 12-month price target  to $25 from $27, reflecting a P/E multiple of 7x our FY:13 EPS estimate of $3.70.This multiple is below its historical 12–15x multiple primarily due to slowing growth.

Michael Pachter is an analyst at Wedbush Morgan.

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