Stock shoppers, start your engines. Best Buy (NYSE:BBY) reports its fiscal Q1 2007 numbers tomorrow before market-open. After three straight quarters of either missing or just matching its earnings estimates, Best Buy has made investors nervous. Let's see if they're right to be.

What analysts say:

  • Buy, sell, or waffle? Twenty-seven analysts track Best Buy. Fourteen of them say to buy it; 12 say just hold, and one says sell.
  • Revenues. Sales are predicted to climb 12% year over year, to $6.8 billion.
  • Earnings. Profits, however, are expected to rise at just half that rate, to $0.36 per share.

What management says:
Best Buy's biggest news recently was its expansion into the Chinese market through a $180 million deal to acquire a majority interest, and make additional investments, in China's fourth-largest appliance and consumer electronics retailer, Jiangsu Five Star Appliance. Read all about the deal in management's press release, then read what it means to you in Rick Munarriz's write-up.

Prior to that deal, we hadn't heard much from this company since its fiscal Q4 and full-year 2006 earnings report. According to CEO Brad Anderson, both the quarter's and the year's results were "outstanding" and the company passed a "tipping point" in calendar year 2005. Best Buy therefore aims to make 2006 a year of capitalizing on whatever it is that's "tipped" by opening new stores and improving its sales of services and to businesses. (Fellow Fool Nate Parmelee describes why Best Buy is still the best.)

What management does:
Still not convinced? Take a look at Best Buy's margins:

Margins %

11/04

2/05

5/05

8/05

11/05

2/06

Gross

23.1

23.7

24.0

24.3

24.6

25

Op.

5.3

5.3

5.4

5.4

5.1

5.8

Net

3.3

3.6

3.7

3.8

3.6

3.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

Are these "Microsoft margins?" Big, fat, and chock-full of large double-digit numbers? No. But for a big-box retailer, mid-single-digit operating margins aren't too bad when you've got the revenue growth to make the most of them (as Best Buy does). More importantly, on each line above, Best Buy's margins today stand significantly higher than they appeared 18 months ago.

The Fool says:
David Gardner, co-lead analyst at Motley Fool Stock Advisor and the man who recommended Best Buy to our members more than two years ago, calls Best Buy an "Evergreen" -- an established company that dominates its industry niche and is unlikely to see its position usurped unless a new technology or innovation renders its business model obsolete.

And how will a Fool know when a company's business model is going the way of the dinosaur? Well for one thing, sales will slow, as whoever's "obsoleting" the king starts siphoning them away. For another, the company's margins will slip, as it engages in a price war with the underdog in an effort to keep its customers loyal. So far, we're seeing neither of those signs at Best Buy. So whichever color the company's ticker turns in the wake of tomorrow's news, Fools should remember: This company's true color will be ever green.

Competitors:

  • Blockbuster (NYSE:BBI)
  • Circuit City (NYSE:CC)
  • GameStop (NYSE:GME)
  • REX Stores (NYSE:RSC)
  • Sears Holdings (NASDAQ:SHLD)
  • Wal-Mart (NYSE:WMT)

GameStop is a Motley Fool Stock Advisor recommendation, while Wal-Mart is a Motley Fool Inside Value recommendation. Whatever your investing style, the Fool has a newsletter for you.

Fool contributor Rich Smith has no interest, short or long, in any company named above.