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Tickers in this Article: HGG, BBY, CONN, AAPL
On January 16, 2009, after failing to find a buyer for its remaining 567 U.S. stores, CircuitCity officially threw in the towel and announced it would liquidate its electronics retailing operations. The move quickly sent competitors scrambling for the void that Circuit City will leave, with Best Buy (NYSE:BBY) circling the wagons on soon-to-be vacant store locations and Hhgregg (NYSE:HGG) offering to accept Circuit City gift cards and honor outstanding warranties on products bought at rival locations.

Recent Industry Results
Before the surviving rivals divide CircuitCity's business they will have to withstand the heavy discounting that is occurring as CircuitCity liquidates its existing inventory, which comes at a difficult time as they are also weathering a severe drop in consumer spending due to the current recession. Best Buy is holding up well - its most recent earnings release detailed that same-store sales stayed positive up 4.2% as sales of Apple (Nasdaq:AAPL) iPods and other popular electronics hold up. Total sales grew 12% to $9.8 billion. Quarterly earnings fell 13% but management expects comps to remain positive for its entire fiscal year as total sales growth should expand in the double digits. It also held its full-year earnings guidance range steady at $3.25 to $3.40 per share. (Explore the controversies surrounding companies commenting on their forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?)

Hhgregg announced third-quarter results last Thursday that saw total sales increase 6.6% to $416.1 million despite a same-store sale drop of 13.2% as appliance comps fell a dismal 21.9% but were offset by a more modest 6.9% fall in the video category as flat-panel television sales held up relatively well. But "improved buying opportunities in a couple of key merchandise categories" pushed gross margins higher and overall expense controls while pushing sales in existing stores and opening new locations contributed to a 16% increase in diluted earnings.

Hhgregg expects comp trends to remain difficult for its full year, with an overall decline of 8% to 10%. However, it is calling for total sales growth of 9% to 12% and increased the lower end of its earnings guidance range by 5 cents, with the current range now 85 cents to 95 cents. That places the forward P/E multiple at under 12, versus under 9 for Best Buy. (Learn how to find and analyze ratios with our Investment Ratios Tutorial.)

Bottom Line
Those are pretty reasonable earnings multiples for the industry leaders, especially considering bottom line trends will only improve once consumers start spending again. Hhgregg's lower sales base should allow it to benefit greatly from CircuitCity's demise, but it will do little to dent Best Buy's industry dominance. At current market capitalization levels, Best Buy is roughly 40 times larger than Hhgregg.

From an investment perspective, Hhgregg may have the most to gain, but it's hard to argue against Best Buy given its lower valuation and clout with consumers and suppliers alike, which should help it easily survive a protracted industry downturn. Regional rival Conn's (Nasdaq:CONN) is also an appealing option, though requires getting a handle on its in-house credit operations that offers financing options to its customer base.

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