Electronics lovers, gamers, shoppers of all stripes -- your attention, please. High-tech big box retailer (and Motley Fool Stock Advisor recommendation) Best Buy (NYSE:BBY) reports earnings Tuesday.

Expectations, however, are muted at best. Analysts predict that Best Buy's earnings per diluted share will remain flat against the year-ago quarter at $0.30, despite sales growing by more than 10% year over year. When you think about it, though, that expectation is a bit curious. After all, the company itself predicted that it would grow earnings by "approximately 26%" in 2005. So far this year, Best Buy's earnings seem to have undershot that mark by a considerable margin -- falling 6% from last year's $0.76 H1 profits to just $0.71 year to date. So although flat earnings in Q3 would be an improvement over the company's H1 performance, it's nothing like the numbers that Best Buy was talking about back in September. Or is it?

Best Buy investors face a conundrum. If Wall Street is right, it appears that Best Buy needs to blow away the $1.16 hurdle that analysts have set it for Q4 (which would itself constitute just 13% growth). Similarly, the alternative would appear to be that analysts are off-base on Q3, and Best Buy will crush earnings estimates in both this and the next quarter.

Note the emphasis on "appear."

In attempting to reconcile analysts' forecasts against the company's own predictions and its performance to date, the primary factor is hidden from plain view. You see, as Best Buy explained in its earnings guidance last quarter, when predicting "26% growth," it's building in the fact that this year, it is expensing stock options; last year, it did not. To demonstrate, consider the firm's Q3 prediction: $0.28 to $0.32 per share. Compared with the $0.30 per share Best Buy earned last year, if the firm hits the midpoint of its estimate ($0.30) this quarter, this would equal flat growth. But if you consider that expensing stock options last year would have knocked its $0.30 per share in reported earnings down to $0.25, you'll see that $0.30 earned this quarter equals 20% year-over-year growth.


Similarly, last year's reported $0.76 profits become $0.53 once you expense options (ta-da! once more, as we transform $0.71 per share into 34% growth). And the $2.17 that analysts predict Best Buy will earn through the end of this year would equal the "approximately 26%" increase over last year's post-options-expensing $1.68. These post-option numbers are the ones you need to keep in mind when considering how well Best Buy meets, beats, or misses expectations Tuesday.

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Fool contributor Rich Smith has no position in the company above.