NEW YORK ( TheStreet) -- Best Buy ( BBY)may have been one of the biggest winners on Black Friday, but the shopping frenzy on Thanksgiving weekend probably didn't fix the company's core issues. "All Best Buy can be credited with is planning the day well," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm. "In 2010, Best Buy didn't promote aggressively and lost market share to rivals like Wal-Mart ( WMT), Target ( TGT) and Amazon ( AMZN). This year they did. It doesn't change the fact that they have major margin issues and problems." Best Buy has been trying to shake its image as Amazon's showroom -- a place where shoppers go to test and play with merchandise and then go online to actually make the purchase. This year, Best Buy took more of a price-leadership role over the Black Friday weekend, especially on the television front, with some deals even better than Amazon's, Credit Suisse analyst Gary Balter noted following the shopping weekend. The electronics retailer also offered unique in-store only promotions, forcing shoppers to visit the stores, and offered special deals through Facebook and Shopkick and opened its doors at midnight on Black Friday this year versus 5 a.m. in years past, which appeared to have been a key strategic move. Best Buy is scheduled to report fiscal third-quarter earnings on Tuesday. Analysts are calling for a profit of 51 cents a share on revenue of $12.14 billion. Best Buy's sales have declined for five consecutive quarters and the company cut its profit outlook in September. The company continues to face margin pressure even with significant cost-cutting measures. While analysts are predicting a rebound in domestic same-store sales, with buy side analysts forecasting at least a 1% increase at this point, this is mostly due to heavy promotions, which should continue to limit growth to the bottom line. J.P. Morgan analyst Christopher Horvers predicted domestic margins will be down 25 basis points year over year in the quarter. "If there is any downside risk to estimates in the third quarter, it will more likely be on this line item," he wrote in a note. "Best Buy has rallied since the start of the improvement in data earlier this fall. With the bar now much higher, we are reluctant at these levels to hold the trade long into the print," Horvers wrote. "With sales in the key TV and PC category likely to remain uneven and considering our longer-term concerns regarding product cycle commoditization/convergence, market share shifts and box issues, we believe there is little to hold onto besides valuation. In fact, we believe Best Buy should continue to trade at a lower relative valuation versus the group and the market."
Still, Janney Capital Markets analyst David Strasser said Best Buy is moving on the right track. He called out several announcements that have increased his confidence in the company, including its plans to reduce square footage by over 10% in the next three to five years; restructuring its international business to focus on return on investment capital; its ownership of Best Buy Mobile in the U.S.; and its use of free cash flow to aggressively repurchase shares. - Reported by Jeanine Poggi in New York.
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