Please ensure Javascript is enabled for purposes of website accessibility

Will Best Buy Surprise Investors Tomorrow When It Reports Earnings?

By Tamara Walsh – Feb 26, 2014 at 4:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Best Buy will report its fourth-quarter results before the bell on Thursday, but investors may be in for an unpleasant surprise.

Best Buy (BBY 1.06%) could surprise investors when it reports fourth-quarter earnings tomorrow before the opening bell, though not in a good way. The big-box chain has struggled to find its footing lately in a retail landscape that's now dominated by online retailers such as (AMZN 0.58%). Moreover, if Best Buy's revenue results from the all-important holiday shopping season are any indication, it could be a rough year for the retailer.

From Best Buy to worst buy
The consumer electronics retailer release holiday sales figures last month that failed to impress. For the first two months of the quarter, Best Buy said same-store sales declined 0.8% because the company was forced to offer more holiday discounts in order to better compete with its rivals. For comparison, Wall Street was looking for a 2% rise in comparable sales in the period, according to TheStreet. "This investment in pricing did come with a higher-than-expected cost, and we now estimate our fourth quarter non-GAAP operating income rate will be 175 to 185 basis points lower than last year," said Hubert Joly, Best Buy's president and chief executive.

The challenging holiday season could also negatively affect Best Buy's full-year results, which the company reports tomorrow. That's because the holiday shopping season can account for as much as 40% of annual revenue for some retailers.

Moreover, Best Buy's upsetting holiday sales report highlights the competitive pricing environment that Best Buy faces as it attempts to defend its market share against Amazon. Keeping expenses low is easier for Amazon because, unlike Best Buy, the e-commerce giant doesn't bear the costs of operating large physical store locations. Nevertheless, Best Buy has done a good job of turning this weakness into strength lately.

Making every store count
As part of its Renew Blue turnaround efforts, Best Buy was able to use its physical storefronts as a defense against Amazon during the holidays. The retailer introduced its ship-from-store program at more than 400 Best Buy locations in the period, allowing online orders to be filled more quickly than ever before.

In fact, as my colleague Dan Moskowitz pointed out earlier this month, Best Buy actually delivered products faster than Amazon during the holidays. As a result, Best Buy was able to grow its comparable online sales as much as 23.5% during the holiday period. Still, beating analysts' estimates in Q4 won't be easy given the greater-than-expected investment in pricing the retailer deployed during the holiday quarter. As it stands, Wall Street is looking for quarterly earnings of $1.01, on revenue of $14.66 billion. This is significantly below analysts' prior profit guidance for earnings per share of $1.62 in the period.

Shares of Best Buy have fallen more than 36% so far this year, and investors could push the stock even lower if the company surprises to the downside in tomorrow's earnings announcement. Best Buy shares were priced around $25.57 in midday trading today.

Tamara Rutter owns shares of The Motley Fool recommends and owns shares of We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Best Buy Stock Quote
Best Buy
$82.09 (1.06%) $0.86
Amazon Stock Quote
$93.95 (0.58%) $0.54

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.