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hhgregg Posts Double-Digit Gains

2/08/2010 02:00:00 AM Eastern

An aggressive store build-out and reduced operating expenses helped hhgregg's profits grow nearly 33 percent to $22.7 million, while net sales rose 20.3 percent to $500.4 million during its fiscal third quarter ended Dec. 31.

But president/CEO Dennis May warned that continued industry-wide shortages in LED and 52-inch LCD TVs could crimp earnings for the current quarter.

Indeed, the company attributed flat third-quarter comp sales to tight supplies of advanced TVs, a higher mix of smaller-sized models, and lower averaging selling prices.

In a conference call, May said TV manufacturer inventories were clean after Christmas, giving vendors little incentive to lower LED pricing or provide instant rebate promotions. Had they done so, “LED would have been a bigger part of our sales,” he said.

The company's business was buoyed instead by a rebound in the appliance category, where comps grew 7.5 percent during the quarter, and by double-digit comp growth in computers and related accessories and services.

Gross profit margin slipped from 31.4 percent to 30.5 percent due to lower TV and majap margins, coupled with a higher sales mix of lower margin categories like notebook computers.

May said the TV shortages were compounded by a unusually early new-model transition cycle, but that an influx of wireless IP and 3D TVs beginning in early spring will help improve the company's video business in the back-half of the fiscal year.

Nevertheless, the company still faces challenges from the macro-economy, noted chairman Jerry Throgmartin, and must continue to navigate a volatile retail market.

May said the company was particularly pleased with its successful third-quarter entry into the Tampa, Memphis and Richmond markets with 10 new stores, bringing the total store count to 127, and will continue its saturation strategy of simultaneous, multi-store openings when it enters the Baltimore, Philadelphia and Washington, D.C. areas later this year.

Plans to open 40 to 45 new stores in the Mid-Atlantic region in 2010 are ahead of schedule, and a new central distribution center to support them will open next month. More than half of the new locations will open this spring, with the vast majority of the remaining stores expected to open prior to the 2010 holiday selling season.