Updated form 8:56 a.m. EST

Shares of

Best Buy

(BBY) - Get Report

caught a bid Wednesday after the electronics retailer's third-quarter results beat estimates. Strong fourth-quarter guidance set it up as a solid holiday performer.

The Minnesota-based company posted net income for the quarter up 22% to $148 million, or 45 cents a share, compared with $122 million, or 37 cents a share, a year ago. The results beat Wall Street's consensus estimate by a penny.

For the fourth quarter, Best Buy anticipates EPS of $1.56 to $1.66, up from $1.42 in the same quarter last year. Analysts expect $1.62, according to Thomson First Call. Its shares were recently up $2.80, or 5%, to $58.84.

"We plan to maintain our market share and drive bottom-line profits in the fourth quarter, which is shaping up to be more promotional than last year," the company said.

The discounting that has wreaked havoc on recent sales results across the retail spectrum caused a decline in Best Buy's gross margins, but that was more than offset by an increase in average ticket sales and a 30-basis-point drop in the company's selling costs. The company attributed this to recent infrastructure initiatives like outsourcing and investments in distribution systems.

Rick Weinhart, a retail analyst with Harris Nesbitt, said he was mainly encouraged that Best Buy left its sales targets intact going into a holiday season that has been widely viewed as disappointing, forecasting a same-store sales gain of 3% to 5% for December.

"Today's results bolster the viewpoint that they're such a well-run company and there hasn't been a tremendous loss in momentum, except a little bit on the sales line that is macro-related," Weinhart said (he does not own a position in Best Buy, and his firm has no banking relationship with the company).

In a season marked by weakness in apparel-spending and a lack of hot new items, consumer electronics remains a focus for spending. Craig Johnson, president of Customer Growth Partners, said Best Buy sits at the nexus of two big trends in retailing.

"People are moving to consumer durable products that have something of an investment value oriented towards their home," he said, That's boosting sales for digital televisions and other electronics products. "Also, within the recreation arena, anything associated with entertainment keeps rising as a share of discretionary spending.

"Best Buy is hitting both these trends," Johnson added. "Plus, they're a very well-run company that is not trying to be all things to all people. They're concentrated on dominating their area."

The company's revenue in the quarter ended Nov. 27 rose 20% to $6.65 billion. In a conference call with analysts following the release, management held up its same-store sales gain of 3.2% as a sign Best Buy continues to steal market share from its competitors.

Circuit City's

(CC) - Get Report

same-store sales fell 4.3% in the quarter.

The company cited strength in sales of digital televisions, MP3 players, digital cameras, notebooks and appliances, while it saw softness in music and movie sales.

It expects earnings of $2.80 to $2.90 a share and revenue of $27.5 billion for 2005. The consensus estimates call for EPS of $2.94 a share on sales of $27.54 billion.

Looking forward, the company said it is working to nail down expansion plans for the Chinese market. Also, it highlighted opportunities in its service business, including its Geek Squad program that provides technicians to help customers solve technical issues.

Best Buy vice chairman Allen Lenzmeier said services could help the company differentiate itself from discounters encroaching on the electronics space, like

Wal-Mart

(WMT) - Get Report

, and it could be a multibillion dollar opportunity for the company.

"We haven't even scratched the surface of possibilities that lie in our services business," Lenzmeier said.