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Best Buy earnings: What to expect

Yahoo Finance's Brian Sozzi breaks down a few things to watch ahead of Best Buy earnings results.

Video Transcript

[MUSIC PLAYING]

BRAD SMITH: Welcome back, everyone. We've been breaking down retail earnings all morning. Let's turn our attention now to Best Buy. Shares of the company down 17% year-to-date, and that's ahead of their earnings report. That's coming on August 30. Brian Sozzi wants to preview that report, and that's where we find his take today. In which aisle of Best Buy though?

BRIAN SOZZI: Well, they have a lot of washing machines--

BRAD SMITH: They do have.

BRIAN SOZZI: --as you could say, right, Brad. Yes, that's what you noted in break, and correctly, I would say. So what inspired me for this take? It's really quite simple. We saw weak electronics sales. Walmart called that out, weak electronics sales at Walmart US and Sam's Club.

Now, we also heard some of that similar commentary at Target. So you're putting the pieces to the get-- together here. And I went back to just engage with Best Buy's warning, profit and sales warning that they dropped on the markets ahead in late July, calling for a 13% same-store sales decline for the second quarter, also warned for profits on the back half of the year. So like a Target, like a Walmart, they got the bad news out there.

But I keep coming up against this. You know, and I had that graphic up there now talking about some things I'm looking for in this earnings report. And I would be surprised-- I'm not-- I wouldn't be surprised if we see another bad quarter from Best Buy, not unlike the vibe we're getting from Target here, where the Street knew the bad news, Brad, but it's just a shockingly bad quarter from Best Buy, now, again, because those bad results and discounting in the industry.

But also, too, Best Buy ended the second quarter with inventory levels just simply too high. And I think investors need to be prepared for ugly. And then secondarily, does that outlook get lowered again?

Now, Target didn't go that route. They struck an upbeat tone for the back half of the year. But just given the weakness in the industry, Best Buy might have to lower that outlook again. And then last but not least, another retailer probably with too high inventory levels going into the back half of the year.

BRAD SMITH: Yeah, and on things that have extremely deflationary annexation to them. And we think about the replenishment rate that we've talked about with grills, yeah, releverage that replenishment rate and talk about some of the refrigerators that are in store. The refrigerator replenishment rate is probably far worse than the grill replenishment rate as well.

And so thinking through all of those different categories that Best Buy has, all the way from the refrigerators and washing machines that, of course, are a little bit more tech savvy now and friendly in that manner, but now you also go into some of the other categories of the store where there is more of this idea that going into a promotional season, even when you have to compete against Target and Walmart and some of the other retailers that are going to be marking down televisions or marking down all of the home speaker systems, that's going to be a critical period promotionally for a Best Buy as well. And that could impact margins.

BRIAN SOZZI: And I'll quickly mention this, potentially two positive things here. Best Buy said this morning they're going to start selling hearing aids, maybe they see a bum's rush into the stores because a lot of hearing aid sells, and a foldable iPhone. You put those two together, maybe Best Buy comes out with a magical end to the year.

But here's my take, folks, on Best Buy as we look forward to their earnings in just a couple days. Love Best Buy's stores and website, but probably not the quarter. There is me with all my Best Buy shopping bags. That's where I have bought all 11 of my Sonos speakers. So Patrick Spence, CEO of Sonos, you are very welcome, my man.

BRAD SMITH: As a lifetime drummer, I'm also looking forward to those over-the-counter hearing aids as well. Guys, coming up