Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT): Best Buy Co., Inc. (BBY) Has a Lot to Prove Tomorrow

It’s hard to get excited about Best Buy Co., Inc. (NYSE:BBY)‘s upcoming quarterly report.

Wall Street sees declining revenue and earnings when the troubled consumer electronics retailer posts its fiscal second-quarter results tomorrow morning.

Analysts see Best Buy Co., Inc. (NYSE:BBY) earning $0.12 a share, less than half as much as it did a year earlier. Revenue is expected to post a 13% slide to $9.1 billion.

As one of three potentially problematic reports out of the retail space tomorrow morning, the real reason Best Buy Co., Inc. (NYSE:BBY) stands out is because the stock has done so well despite the cascading fundamentals. Investors have been treated to a 156% pop so far in 2013, and that has to be stinging shorts that may have nailed the faltering financials.

To be fair, there are some good explanations for the retreats on both ends of the income statement at Best Buy Co., Inc. (NYSE:BBY).

A good reason for the 13% drop in sales — accelerating from the 10% year-over-year decline in its prior period — is that Best Buy did close dozens of underperforming stores during the same quarter a year earlier. It also unloaded its 50% stake in Best Buy Europe in April.

The sharper stumble on the bottom line is the result of margin-munching initiatives meant to make Best Buy more competitive to Amazon.com, Inc. (NASDAQ:AMZN)‘s showrooming challenge.

It was a year ago tomorrow that Best Buy Co., Inc. (NYSE:BBY) tapped Hubert Joly as its new CEO, and the first anniversary of that announcement will probably be noted during the call (even though the French Joly didn’t start at the company until his visa was secured two weeks later).

His Renew Blue strategy has started to bear fruit as he has successfully grown online sales, improved the public’s perception of the chain, and made the most of excess selling space by striking deals with Samsung and Microsoft Corporation (NASDAQ:MSFT) for “store within a store” additions.

Best Buy Co., Inc. (NYSE:BBY) posted a comparable 16% uptick in online sales in its most recent quarter. That’s still well short of the 22% growth that analysts see out of Amazon.com, Inc. (NASDAQ:AMZN) this year, but investors are comforted to see accelerating growth. There’s a price to be paid there. You don’t sell more to savvy online shoppers who can price the competition in a single click, and that helps explain why gross margins have been sliding. Shopping at Best Buy or BestBuy.com is a better deal for shoppers than it was a year ago, and that’s why the market’s cool with earnings going the wrong way.