hhgregg Q3 Profits Fall 16.5%

By Alan Wolf -- TWICE, 2/8/2012

Indianapolis - Holiday TV promotions and increased ad spending took a toll on hhgregg's profits in its fiscal third quarter.

Net income for the multiregional CE, majap and furniture chain fell 16.5 percent to $22.5 million for the three months, ended Dec. 31, while the addition of 35 new stores over the trailing 12 months boosted net sales nearly 27 percent to $829.5 million.

Comp-store sales increased 3.9 percent during the quarter on strength in major appliances and home office, which partially offset declines in video, camcorders and personal electronics.

Majap comps rose 6.8 percent on increased demand and higher average selling prices (ASPs), which the company attributed to initiatives designed to grow market share and outpace the industry in comp store sales growth. The category comprised 30 percent of hhgregg's total sales at the end of the quarter.

Comp sales of home office products, comprised mainly of computers, mobile phones and tablets, rose 91.4 percent during the period. The category represented 11 percent of total sales, up from 6 percent last year.

Video, the company's largest category with 46 percent of sales, saw comps fall 4.8 percent due to a mid-single digit decrease in ASPs, partially offset by increased unit demand.

The company also reported a 7 percent decline in its catch-all "other" category, comprised of audio, personal electronics, furniture and accessories, and mattresses. The decrease was primarily driven by double-digit comp declines in camcorders and small electronics, partially offset by strong double-digit growth in mattresses.

Gross profit margin fell 8.1 percent to 27.2 percent during the quarter due largely to increased TV promotions and the sales gains in home office, a category that carries a lower gross profit margin than the company average.

"While pleased with our overall comparable store sales increase of 3.9 percent and market share gains during the third fiscal quarter, we were disappointed with the macro trends across the video category," president/CEO Dennis May said in a statement.

He added that the majap and home office initiatives spurred "significant" market share gains in both categories and continue to boost revenue and gross margin dollars per store.

The company currently operates 208 stores across 16 states.