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Gregg Reports Q3 Double-Digit Sales Increases

2/26/2007 02:00:00 AM Eastern

Gregg Appliances, operators of the hhgregg chain based here, reported double-digit sales gain for its fiscal third quarter, ended Dec. 31, 2006, but lower net income vs. the previous year's third quarter.

Gregg Appliances reported a 19.2 percent increase in total sales for the fiscal third quarter as sales increased to $335.1 million compared with $281.2 million for the comparable prior-year period.

This increase in sales was attributable to the addition of seven stores during the past 12 months and a 5.6 percent comp-store sales gain for the third quarter.

Net income in its fiscal third quarter was $10.9 million compared with net income of $22.6 million for the comparable prior-year period. The prior-year included a $27.9 million pretax gain associated with the company entering into an agreement with a third party to transfer the product service obligations for previously sold extended service plans.

The current year earnings were primarily attributable to improved product mix, an increase in select core product margins, the leveraging effect of sales growth across many expense categories and productivity gains in labor, the retailer said.

Comp-store sales performance was driven by gains in video, major appliances and bedding, the company reported. Specifically, video sales grew by the low double digits, fueled by flat-panel television sales growth that outpaced the volume declines in rear projection and tube TV. Flat panel now represents about 70 percent of Gregg's video sales, the company said, with microdisplay sets comprising most of the balance.

Despite the turbulence in the majap market, the category was "fairly stable" for the company during the quarter, CEO Jerry Throgmartin said during a conference call. "We didn't see any major peaks or valleys," and the chain actually gained share on a unit basis thanks to a well-trained sales team that traded up customers and helped improve the merchandise mix. "There's a lot of product innovation out there, and if you have a sales force that can explain it to the consumer, you can do well," he said.

President Dennis May also credited the sales force — and nimble merchandising — for Gregg's ability to withstand the profit-punishing promotional environment that characterized CE last quarter. "Consumers will step up and buy a richer product mix thanks to our directed sales force," he said. "They worked closely with our merchandising team to maximize sales opportunities and profits. We are very agile. We had the right inventory at the right time."

Throgmartin said the strategy, dubbed plan-to-sell execution, "showed the benefits of a direct-sales force, especially in a volatile and ever-changing video environment. We're training our salespeople to sell larger units with better margins."

Looking ahead, May said LCD will continue to be the dominant flat-panel format and will enjoy the strongest growth thanks to larger screen sizes, the advent of 120Hz refresh rates, and a wider selection from a bigger supplier base. Despite price declines, the consumer will continue to typically spend between $2,000 and $2,500 on a flat-panel display, he said, reaping greater performance, screen size and features sets as retails progressively fall.

The company plans to open three new stores during the current quarter, plus a small distribution center in Birmingham, Ala., that will support locations in that state. It lowered its comp sales forecast for the current quarter from gains in the mid- to high-single digits to mid-single digits due to this month's winter storms.

Gregg Appliances is a specialty retailer of consumer electronics, home appliances, bedding and related services and operates under the hhgregg and Fine Lines brands in 76 retail stores in Alabama, Georgia, Indiana, Kentucky, North Carolina, Ohio, South Carolina and Tennessee. — Additional reporting by Alan Wolf

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