Q4 Preview: Will Best Buy's (BBY) Margins Take an Apple (AAPL) Hit?

Best Buy (NYSE: BBY) shares closed 1.15 percent lower Wednesday afternoon heading into the retailer's fourth-quarter 2012 results.

Expected out before the market opens Thursday, the Street is looking for Best Buy to report earnings of $2.16 per share on revs of $17.22 billion. The company reported EPS of $1.98 and revs of $16.3 billion reported in the same period last year.

Shares of Best Buy fell 8.2 percent in the quarter to $24.70 at the end of February. Shares are up 7.5 percent since the end of the quarter and just under 14 percent for the year. Over the last 52 weeks, Best Buy has traded within a range of $21.79 to $32.85.

Investors will likely be focused on sales of Apple (Nasdaq: AAPL) products, including the iPad and iPhone, as well as how Best Buy's e-Commerce operations are faring.

Data from Bloomberg has seven analysts with a Buy rating on Best Buy, 19 at Hold, and two with a Sell-equivalent call. The Street's average price target is $28, with a low of $21 and high of $36.

Implied volatility is at 44.7 percent, above the 22 percent historical volatility average calculated on a 5-session scale.

Analyst Commentary

• Goldman Sachs sees earnings of $2.15 per share for Best Buy. Goldman cited two main challenges for Best Buy into results: "(1) Price transparency directly impacts consumer electronics retailing, putting secular pressure on gross margin. (2) Electronics sales are lagging most other consumer segments, reflecting soft product cycles and, we think, some mix shift to online." The firm noted Microsoft's (Nasdaq: MSFT) Windows 8 might help PC sales later in the year, but the overall trend will continue.
  
  
• Deutsche Bank sees EPS of $2.17 into results with total comps down about 0.5 percent and operating margins about 10 basis points lower. Into results, Deutsche commented, "Our pricing analysis shows that BBY prices about 7% above Amazon on like for like televisions. However, the move by both Samsung and Sony to a unilateral pricing policy (UPP) on April 1, which sets prices for both terrestrial and on line retailers, will narrow that gap as BBY and AMZN will move to parity on higher end, larger televisions from those two vendors." This should be a positive for Best Buy.
  
  
• Wedbush sees results at the low-end of guidance. EPS should be $2.06, revs pf $17.1 billion, and total comps down 1.8 percent. The firm commented, 'We believe Best Buy continued to drive traffic through increased promotional activity and value pricing, keeping sales at acceptable levels, but sacrificing margin. Profitability was also likely hurt by a continuing mix shift towards lower margin Apple products."
  
  Overall, Wedbush is bearish on Best Buy's prospects to gain gaming market share and is concerned for the Company's big-box model.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Best Buy's past performance at Streetinsider's Best Buy's Income Statement.

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