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Tickers in this Article: BBY, HGG, SHLD, TGT, WMT
Consumer electronics titan Best Buy (NYSE:BBY) is proving it can remain impressively profitable in what is proving to be one of the most difficult consumer retailing environments in many decades. There is still downside risk to the firm's results going forward, but investors inclined to position their portfolios to discretionary spending should take a further look at the stock's merits, though there are still options for those with a more defensive bias.

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First-Quarter Recap
Total sales improved 12% to $10.1 billion on new domestic store openings and new stores overseas, including Best Buy Europe. Store expansion growth was offset by negative same-store sales, which fell 4.9% in the U.S. and 13.9% overseas. In addition to Europe, Best Buy operates in Canada, China and Mexico, and is working on opening a store in Turkey. Management attributed the domestic same-store sales decline to a fall "in customer traffic and an essentially flat average ticket and reflected decreases in gaming, digital cameras, appliances and movies, partially offset by gains in notebook computers, mobile phones and repair services." International difficulties stemmed from "continued weakness in the Chinese economy" and a low double-digit decline in Canada, while a strong U.S. dollar also deflated results from overseas.

Competitive Landscape
Despite the challenging comps, Best Buy estimated it picked up about 200 basis points of domestic market share. The clearest benefit was the demise of Circuit City, which benefits all players selling electronics. Rivals also reported more severe same-store sales declines, with Sears (Nasdaq:SHLD) posting a 7.4% fall and hhgregg (NYSE:HGG) a 6.5% drop. Best Buy detailed that domestic consumer electronic revenue fell in the low double digits during its first quarter.

First-quarter earnings fell a penny to 42 cents per diluted share when stripping out one-time items. This was ahead of analyst projections, but Best Buy held its full-year guidance steady and expects earnings between $2.50 and $2.90. That places the forward P/E at just over 13, which is down slightly as a strong recent stock run over $40 per share has moderated to a current price of just over $36.

Bottom Line
The shares may still be slightly ahead of themselves; they are up about 30% so far this year while the market struggles to remain in positive territory. Best Buy is demonstrating that it can easily stay profitable in a terrible environment for retailing overall. Based on current year guidance, return on equity will again exceed 20%.

More conservative investors may want to stick with Wal-Mart (NYSE:WMT), which is trading at a similar forward P/E multiple and has ambitions to increase its emphasis on electronics. The same goes for Target (NYSE:TGT), which also sells electronics but is more focused on consumer staples and thus has more downside protection should the economy continue to scrape along at the bottom of the business cycle. (To learn more, check out Analyzing Retail Stocks.)

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