Best Buy a Retail Health Read

Best Buy's (BBY Quote) fiscal fourth-quarter earnings report Wednesday will provide a much-needed checkup on the health of the retail sector.

The consumer electronics giant's earnings report will include results for the vital month of December, as well as January and February. That makes Best Buy one of the first major retailers to report results for the first two months of the calendar year; most other retailers close their fiscal year at the end of January.

Furthermore, if Best Buy comments on its fiscal first quarter, which includes March, it will offer a peek into the retail landscape for the first three months of 2007. In other words, it is an important "tell" for the group, which has been subject to concerns that the subprime lending debacle and ongoing housing downturn will hurt consumer spending.

According to Thomson Financial, Best Buy is expected to ring up $12.67 billion in sales in the first quarter, up from $10.7 billion a year earlier. We already know that Best Buy had a good holiday season; the company reported same-store sales growth of 7% for December, with total sales growth of 15%.

Merrill Lynch's Danielle Fox says Best Buy, along with competitor Circuit City (CC Quote), was "extensively promotional" in January and February. She expects the heavy promotional activity to boost sales, particularly of TVs and computers, but compromise margins. Both Best Buy and Circuit City saw their margins hurt by this issue in their fiscal third quarters.