Earlier this morning, Best Buy Co Inc (NYSE: BBY) let investors and analysts know that even it was not immune to a slowdown in consumer spending. The company reported a nearly 18% drop in Q1 income, reporting Q1 EPS of 39c (vs. Reuters consensus of 50c) and Q1 revenue of $7.93B (vs. Reuters consensus of $7.83B). As a result, the company cut its fiscal-year earnings forecast, and now sees FY08 EPS of $2.95-$3.15 (vs. Reuters consensus of $3.16), down from April's forecast of $3.10-$3.25 per share. Shares of the retailer fell 5% from Monday's closing price of $48.01 to open at $45.61.

Best Buy's disappointing earnings may not be a good sign for retail competitors like Tweeter Home Entertainment Group Inc (NASDAQ: TWTR) - Tweeter filed for bankruptcy last week - and Circuit City Stores Inc (NYSE: CC). Analysts believe the companies are likely to face pressure this year from falling prices of flat-screen TVs and increased competition from other retailers like Wal-Mart Stores Inc (NYSE: WMT) and Costco Wholesale Corporation (NASDAQ: COST) that are increasing their consumer electronics offerings. This morning, following Best Buy's earnings report, Circuit City shares dropped 2.6%; the company is scheduled to report its own earnings Wednesday morning.

Despite a challenging environment, analysts believe Best Buy remains the best-positioned in the consumer electronics segment. Executives, too, are optomistic about the second half of the year, expecting "materially better sales" in home theater and digital imaging, as well as with the company's Geek Squad service. Executives expect flat panels, notebooks and gaming will remain "very appealing." Additionally, the company is planning to expand Apple Inc's (NASDAQ: AAPL) store-within-a-store concept, and anticipates to have just under 300 of these by the end of the year.

While Best Buy's performance and expansion have helped it in this area until now, let's hope that CEO Brad Anderson's comment that the company's strategy is consistent with the long-term results the company hopes to achieve, even if Q1 results may not have shown it, holds true.