Best Buy Earnings Preview

Best Buy (NYSE:BBY) will report its fiscal Q1 2012 (ending May) results before market open on Tuesday, June 14, with a conference call at 7:00am PT (877-941-6009 passcode 4446363 or at the Investor Relations page of www.BestBuy.com).

We expect Best Buy to report Q1 results in-line with our estimates for revenue of $10.8 billion and EPS of $0.37, compared to consensus for revenue of $10.7 billion and EPS of $0.33. The company did not provide quarterly guidance. We expect total comps in-line with our -4.2% estimate(domestic -5.0%, international -2.0%). Domestically, negative comps for consumer electronics (TV commoditization) and entertainment (market share losses to lowerpriced competitors) should offset stabilizing home office comps (mobile phones), and appliances and services growth. China will drive international growth.

Expecting Best Buy to reiterate realistic FY:12 guidance for revenue of $51.0 – 52.5 billion, comps of flat to -3%, and EPS of $3.30 – 3.55. At the midpoint, guidance implies limited revenue growth (+3%) and flat profitability.

We continue to believe that Best Buy’s (NYSE:BBY) business strategy of carrying the biggest and best items at premium price points in big retail stores is beginning to age as we see a shift to comparison and online shopping. We expect meaningful long-term sales growth to remain elusive due to its reluctance to lower prices and the continued migration to online shopping.

We are not optimistic that Best Buy (NYSE:BBY) can gain significant video game market share against leading specialty retailer GameStop (NYSE:GME). Best Buy has ramped up its used game business and added pre-order kiosks in all of its stores. However, Best Buy’s recent games promotions (E3, midnight sales, and a free Xbox 360 with a laptop purchase of $700 or greater by students) have fallen flat, as gamers appear to prefer GameStop’s PowerUp Rewards, convenience, and selection.

Its five-year plan to have 600 – 800 Best Buy Mobile (NYSE:BBY) stand-alone stores is still relatively modest compared to its competitors’ current footprints (over 8,000 carrier-owned stores and 4,000 RadioShack locations).

Michael Pachter is an analyst at Wedbush Morgan.