3 Reasons Why Today's Best Buy Rally Won't Last

By Markets Fool.com

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Shares ofBest Buy (NYSE: BBY)moved nicely higher on Thursday morning after the company posted better-than-expected quarterly results. The last major consumer electronics superstore standing also put out encouraging guidance.

The market was generally pleased with the report, but it's not perfect. Let's take a look at some of the things that should concern investors buying into today's rally.

1. Comps weren't as great as you might think

A big takeaway from the report is that Best Buy's comps rose 1.8%. The press release points out that the increase compares favorably to the 3.1% decline in the industry categories tracked byNPD Group's Weekly Retail Tracking Service.

The disparity is substantial, but it's not a perfect match. NPD Group's data doesn't track the categories accounting for 37% of Best Buy's revenue, including mobile phones and appliances, which are holding up better than traditional consumer electronics.

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We also can't forget that Best Buy includes online sales in its store-level comps, and that figure is now divided into fewer stores after net closures over the past year. Best Buy argues that online sales are often for orders picked up at stores or originating at its stores -- and that's fair -- but if you remove online sales, comps would actually be slightly negative for the period.

2. Guidance isn't so hot

Best Buy's enterprise revenue target for the seasonally significant holiday quarter is $13.4 billion to $13.6 billion, less than the $13.623 billion the company rang up a year earlier and the $14.2 billion it served up the holiday quarter before that. Analysts were expecting $13.7 billion.

The news gets better on the bottom line, with Best Buy's profit outlook calling for earnings per share of $1.62 to $1.67. It earned an adjusted profit of $1.53 a share during last year's fiscal fourth quarter, but it had a higher effective tax rate. The share count was also substantially higher. Best Buy has been buying back stock aggressively --a great thing for investors, but it does inflate net income on a per-share basis.

3. The future is still hazy

Best Buy is holding up in this otherwise challenging climate, and that's a feat worthy of applause. Things will only get harder over time, however. Digital delivery is already eating into Best Buy's gaming and media businesses.

Online shopping is another real threat. Best Buy's online shopping business is growing and now accounts for more than 10% of its sales, but Best Buy will never have the cost advantages of a true online endeavor that doesn't have physical stores to maintain.

Some of the categories helping Best Buy these days may also be vulnerable in the future. Wireless carriers are doing a better job of reaching out to customers directly for their upgrade needs. Appliance sales have been strong at Best Buy, but that will likely change when interest rates inevitably move higher and cool the real estate market.

Celebrate Best Buy's strong open on Thursday if you must, but don't forget that this is a chain with more things that can go wrong than right in the coming quarters.

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