NEW YORK ( TheStreet) -- Best Buy ( BBY) set a cautious tone for its second-quarter earnings in May, blaming a lack of innovation in mobile technology and continued investments to keep its prices competitive to online and physical store rivals.
But there is reason to believe Best Buy could positively surprise Wall Street again with its earnings (it beat Wall Street's first-quarter estimates), primarily from a combination of low expectations, strong demand outside of the mobile technology category, and savings from its "Renew Blue" ongoing restructuring plan.
A stronger-than-expected quarter is likely to fuel bullishness on the stock, which my firm Belus Capital Advisors rates a hold, in front of a series of new product introductions from Apple (AAPL) next month, triggering fresh demand momentum going into the critical holiday shopping season.
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Best Buy is scheduled to issue second-quarter earnings on Tuesday ahead of the market open. Wall Street anticipates the retailer will deliver its fifth-consecutive quarter of falling gross profit margins due to investments in more competitive pricing and price deflation in mobile technology, such as tablets and smartphones. The company's guidance calls for comparable sales to have declined by a low-single digit percentage in the second quarter, which would follow a 1.9% drop in the first quarter, and would mark three consecutive quarters of waning sales at stores open longer than a year.
On the first-quarter earnings call in May, Best Buy Chief Financial Officer Sharon McCollam said, "As we look forward to the second and third quarters, we are expecting to see ongoing industry-wide sales declines in many of the consumer electronics categories in which we compete. We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly anticipated new product launches."
A likely area of weakness for Best Buy was in tablets, a category that CEO Hubert Joly characterized as having "crashed" in an interview with ReCode last month. According to research firm WitsView, shipments of LCDs for 7-inch to 8-inch tablets have declined 24% since November, underscoring the softening demand for devices that took off with the introduction of Apple's iPad and more recently cheaper alternatives from Lenovo.