Wedbush Sees Short-Lived Q3 Hurrah For Best Buy

Best Buy Co Inc BBY is likely to beat third-quarter expectations in a short-lived hurrah on strong iPhone sales, an analyst said Wednesday.

But the consumer electronics retailer's long-term gross profit trend is a "recipe for disaster," according to Wedbush's Michael Pachter, who maintained an Underperform rating and $18 target on the company.

Minneapolis-based Best Buy is slated to post earnings Thursday and Pachter said iPhone-powered sales will be above Street views, while recent cost-cutting will boost earnings.

The company has delivered gross margins have narrowed in each of the past 14 quarters, while same-store sales have fallen consistently for the past four years.

Pachter sees much of the same story for 2015 and harbors doubts about turnaround plans.

"Management has made the best of a bad situation," Pachter said. Online competition, which Pachter said has a 10 percent price advantage over Best Buy, has hurt sales and eroded profits.

Same-store sales are likely to keep falling "indefinitely," while narrowing margins offset cost cutting.

Pachter expects third-quarter earnings from Best Buy of $0.30 per share, on revenue of $9.25 billion. The Street consensus calls for earnings of $0.25 per share on revenue of $9.11 billion.