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hhgregg To Move Into New Markets; Nat'l Plan Seen

6/15/2009 02:00:00 AM Eastern

hhgregg will move aggressively into new markets next year, setting the stage for an eventual nationwide expansion.

In multiple investor presentations last week, chairman/CEO Jerry Throgmartin and president/CEO-elect Dennis May said the time is ripe for a second national CE and appliance chain, albeit one that sells a more profitable mix of premium products through a highly trained sales force that can properly explain them.

“Expansion in the CE business has been in lower-margin self-serve and low-serve retail,” said May, who succeeds Throgmartin as CEO in August. “Manufacturers are struggling significantly with profitability, and they are extremely excited about us becoming a national retailer like the Circuit City of 10 or 15 years ago.”

To get there, the chain will follow its spoke-and-wheel strategy of establishing distribution centers in key regional markets that can serve satellite stores within a five- to nine-hour drive.

This year the company plans to open upward of 18 new locations, focusing on the coastal Carolinas and the new markets of Tampa, Fla., and Memphis, May told TWICE.

But the retailer will “ramp our growth rate up dramatically” in 2010, Throgmartin said, as it takes advantage of plentiful real estate, a talented labor pool and the marketplace vacuum left by Circuit City.

“Once in awhile you get a window of opportunity that you have to take advantage of because you don't know how many more will come along,” Throgmartin noted.

The company had another such window in 1999 when it nearly doubled in size by adding 14 former Sun TV & Appliance stores, he said. Throgmartin now envisions operating more than 400 stores in key markets across the country.

To sustain the expansion, the executives pointed to the company's proven business model, which has fueled new-store growth through internally generated cash flow and provided strong performance in a weak economy. Most recently, net sales increased 12.5 percent to $365 million for the fiscal fourth quarter, ended March 31, while net income increased 35 percent to nearly $13.9 million, thanks to tight expense controls and market share gains and opportunistic buys in the wake of Circuit City's liquidation, they said.

Nevertheless, same-store sales decreased 6.5 percent for the quarter, due mainly to a 20 percent decline in comp-store sales of major appliances.

For the full fiscal year, net sales rose 11.1 percent to $1.4 billion, net income increased 71 percent to $36.5 million and same-store sales slipped 8.3 percent.

For the balance of the current fiscal year the company is projecting net sales growth of 3 percent to 7 percent and same-store sales declines of 7 percent to 12 percent. Analysts attributed the projected declines to hhgregg's 30 percent mix of major appliances and difficult year-over-year comparisons for the first half.

Appliances and video account for 85 percent of hhgregg's business, compared with 44 percent for Best Buy, May noted, and the company also exceeds the No. 1 CE chain in close rate, inventory turns and sales per store, he said.

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