PCs Made It to Retailer's Christmas Party - TheStreet

Though digital entertainment products were the top draw at electronics stores this Christmas, signs are emerging that there was also strength in an unexpected category: personal computers.

After several quarters of declining sales, electronics chain and turnaround favorite

Circuit City

(CC) - Get Report

said PC sales growth was slightly positive in December on a

same-store sales basis. Circuit City's comments came just as

Compaq

(CPQ)

surprised investors by saying it expects to make money in the fourth quarter and some Wall Street analysts upgraded their outlooks for PC makers.

The upturn in the notoriously slow-growth and low-margin product line helped Circuit City report a 10% increase in comparable-store sales in December, compared with a year ago. At the same time, Circuit City said it expects fourth-quarter earnings of 72 cents to 76 cents a share, compared with analyst expectations of 71 cents, according to Thomson Financial/First Call.

Still, the main driver of growth at Circuit City and its larger rival

Best Buy

(BBY) - Get Report

, which is scheduled to report December sales on Jan. 9, is home entertainment products such as video game systems and DVD players and software.

"Best Buy and Circuit City have essentially learned from

McDonald's

," says Donald Trott, an analyst at Jefferies. "And what did McDonald's do? It realized that the highest-margin product was the soda, so to get people to buy more soda they created the value meal." Similarly, electronics chains have started to bundle computer hardware with higher-margin accessories such as software, he says. (Trott has a buy recommendation on Circuit City, and his firm does not have a banking relationship with the company.)

The positive news from Circuit City sent shares in the sector up Monday. Circuit City was up lately $2.43, or 8.8%, at $29.89, while Best Buy was up $1.87 at $75.75. Meanwhile, shares in

RadioShack

(RSH)

, which reported Monday that same-store sales in December declined 2%, were up lately $1.89, or 6.4%, at $31.52.

RadioShack said, however, that computer sales fell 50%, though the company had previously said it was moving away from personal computers to focus on electronics accessories.