Best Buy Co. (BBY), the world's largest consumer electronics store chain, is probably in a sweeter spot than most retailers. After all, even though Americans are buying less of many things, they are not skimping on cool gadgets.
There's no doubt that consumers have retrenched and ramped up savings in the last couple of years, and value is playing a bigger role in their purchases, admits CEO Brian Dunn. However, in a March earnings call Dunn noted that people have continued to buy mobile phones, notebooks and televisions. His key insight gleaned from these trends was that "value means more than just being sharp on price."
"Staying connected has become a non-negotiable for millions of people and some of the things we offer no longer fall under the category of discretionary purchases," says Dunn.
Dunn's insight has proved prescient. In the last two months, Apple (AAPL) sold more than 2 million iPads, beating expectations by a wide margin. The iPad and other Apple products are available at Best Buy. That success, and the launch of 3-D televisions in the past quarter, along with the excitement building up over World Cup soccer games, will likely boost Best Buy's earnings.
Analysts are expecting Best Buy to post earnings on Tuesday of 50 cents a share, up from 42 cents last year, and revenue growth of 8.4%, to $10.9 billion.
These expectations were bolstered by the Commerce Department's retail sales numbers for May. Overall, retail sales fell 1.2%, putting a damper on the stock market and shaking up economists' expectations for a consumer recovery. However, one bright spot was electronic and appliance stores, where sales rose 0.6%, even as department and clothing stores and hardware stores saw declines.
Best Buy may have been saved by the iPad, at least for this quarter. And more advances in popular products can only help the electronics retailer. For instance, the new iPhone4 will soon go on sale, which could boost Best Buy sales further in the coming months.
Take the first steps to building your portfolio.View Course »