Why Apple iPhones won’t be enough to save Best Buy earnings

Yahoo Finance's Brian Sozzi discusses expectations for a weak quarter at Best Buy.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: We've been shopping the retail earnings. Next up on our list, Best Buy gears up to report earnings before the bell tomorrow. Soz will have some reasons why investors might not be too excited about the results. We have a little teaser--

BRIAN SOZZI: A little teaser.

JULIE HYMAN: --at the top of the show.

BRIAN SOZZI: And I'll make this very quick here. A couple of reasons why this Bed Buy-- Best Buy-- Best Buy results may not be so great-- first up, seeing a lot of deflation in consumer electronics. You can just go over-- for very simple, easy-to-understand research, you just go over to Best Buy's website and see some of the deals they're now offering ahead of Black Friday. We're talking $500 75-inch TVs. To me, that strikes me as extremely promotional but underscores you're seeing a lot of deflation, not just in TVs, across the consumer electronics landscape.

Also, the company has too much inventory. Coming into the third quarter, Best Buy's inventory, I believe, is up 26%-- or, excuse me, 16% versus the second quarter of 2019. So they entered this quarter with a lot of inventory they had to move. That will likely impact the profit margins that Best Buy reports. And then also lastly, consumer spending on services and that stuff, we heard from Expedia CEO Peter Kern last week. People are back out on vacations, buying services, taking trips. They're traveling. They're paying more for those things. That means they are not necessarily in a Best Buy store buying printers, computers, and TVs.

Now, I actually dug a little bit further into this on that inventory issue with Best Buy with Sonos CEO Patrick Spence, who, of course, has products to sell in the Best Buy.

PATRICK SPENCE: The big box retailers are being a little more cautious in terms of the inventory that they're taking right now. But we feel like we're in a good position. I think they're getting more targeted on those products that are moving more quickly. And they're just-- they're being more mindful of that and kind of keeping an eye on it, which makes sense in this environment.

BRIAN SOZZI: And speaking of consumer electronics deflation, Patrick also saying this will be the first holiday season where Sonos has across the board promotions or discounts for its products. Yeah, not the norm for that higher end brand. Overall, my take is this-- ahead of those Best Buy earnings when they-- before they hit the wires, new iPhone ain't going to save this earnings day. There's certainly a new iPhone in the mix. Industry loves to see those iPhones drive sales for Best Buy. But as my character would suggest-- or I would suggest otherwise from what my character is doing. You're going to need a lot more than iPhones to move that earnings needle. Wow, it's just amazing artwork.

JULIE HYMAN: Super Soz.

BRAD SMITH: It's the most concerned superhero I've seen. The facial expression.

BRIAN SOZZI: Yeah, I take it. I miss seeing you guys. We need your characters back in this though.

JULIE HYMAN: Yeah, we could put on some capes.

BRAD SMITH: Yeah, I did that for Halloween this year. OK.