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H.H. Gregg Opens Its Books

H.H. Gregg offered an unprecedented glimpse into its inner workings last month with the first-ever public release of its quarterly results and an attendant conference call for analysts and investors, and changed its name to Gregg Appliances.

Among the highlights: The multiregional brown-and-white goods chain will double its flat-panel TV assortment to 80 SKUs this year; will open its second and third Fine Lines concept stores for super-premium majaps; will expand into the Charlotte, N.C., market with three stores and a regional distribution center; and is currently testing the bedding category in Alabama.

The new transparency by this once closely held family business follows its buyout in January by a partnership comprised of Freeman Spogli & Co., a private investment firm, and the retailer’s management team, led by chairman Jerry Throgmartin.

The $300 million recapitalization was crafted to fund Gregg’s aggressive expansion plans and allow family members to cash out their equity in the privately held business without taking the company public.

In last month’s announcement, the company — whose new corporate moniker is Gregg Appliances — said net sales for the three months ended Dec. 31, 2004, increased 5.8 percent to $254.2 million, while same-store sales slid 2.7 percent. The chain attributed the comp-store decline to a severe snowstorm that hit its Midwest trading areas just days before Christmas. The storm significantly reduced sales and forced several stores to close, offsetting strong digital TV results during the period and costing the company an estimated $4 million to $5 million in lost revenue.

Net income edged up 1.7 percent to $14.6 million during the quarter, and an inventory balance of $130.4 million by the end of the period represented a 4.3-percent decline year-over-year on a per-store basis. Chief financial officer Mike Stout noted in the conference call that inventory levels had further declined to $77 million by the end of February, 2005.

Gross margins remained stable across all merchandise categories, but gross profit decreased 1.4 percent as a percentage of net sales due to the timing of co-op ad dollars received during the period.

In the conference call, Throgmartin noted that the four new Gregg stores which opened during the quarter — three in the Atlanta area and one in Huntsville, Ala. — are performing on plan, and that eight to 10 new stores are planned for the current fiscal year. They include the three Charlotte stores; a relocated Bowling Green, Ky., unit that will double in size to 30,000 square feet; and the two new Fine Lines locations.

Gregg launched its first Fine Lines majap store near company headquarters, here, in November. The 18,000-square-foot concept shop targets high-end builders, remodelers, kitchen designers and their customers by showcasing such super-premium brands as Ariston, Bosch, Best by Broan, Gaggenau, Jade, Jenn-Air Pro-Style, Kitchenaid Pro Line, Thermador and U-Line within homelike vignettes (see TWICE, Dec. 6, 2004, p. 52). Throgmartin said the company is “very pleased” with the store’s preliminary results.

Gregg currently operates 58 stores in Ohio, Indiana, Georgia, Tennessee, Kentucky and Alabama.

On the product front, president/CEO Dennis May noted that digital video products including flat-panel TV “continue to drive business” — and gross margins — as consumers migrate to 42-inch and 50-inch displays, with particular growth expected in LCD. To that end, Gregg will double its flat-panel SKUs to 80 this fall, he said, while gradually reducing its CRT analog offering.

Still, white goods remain Gregg’s core business, Throgmartin stressed, even though “it continues to be a competitive category as others continue to promote these products, particularly in the lower end.”

To sustain margins, “We continue to feature our premium, feature-rich assortment, and so our average selling prices continue to increase, consistent with our differentiated, high-serve business model,” he said.

Elsewhere, Gregg will begin outsourcing its extended service plan program for consumer electronics by the end of the summer, and has begun an “orderly transition” to a new IT platform. Throgmartin said the company is taking a “very risk-averse approach” to the MIS upgrade, which it will build “module by module” over the next three to four years, and described the project as a “very high priority for the company.”