hhgregg Reports Higher Fiscal Q3 Sales, Profits


hhgregg reported higher net sales and net earnings for its fiscal third quarter, ended Dec. 31, 2008.

Net sales were up 6.6 percent to $416.1 million, while net income was up 15.6 percent to $17.1 million. The company attributed the gains to opportunistic buys of excess TV inventory, and its tight rein on expenses, inventory and working capital.

But the company could not elude the weak majap marketplace, which impacted appliance volume and sent comp-store sales skidding 13.2 percent for the quarter.

In a conference call, chairman/CEO Jerry Throgmartin said the economic uncertainty and market volatility “is like nothing I've ever seen before,” and contributed to a significant drop in customer traffic during the period.

While Throgmartin does not foresee any “demonstrable improvement” in the current quarter, traffic patterns improved somewhat in January and early February, president/COO Dennis May said.

May noted that the company is “aggressively pursuing Circuit City's market share” in TV and other overlapping categories like notebook computers, which it entered two years ago, and video games, which it tested last year and will permanently add to the assortment.

Circuit City's liquidation is expected to have a modest, short-term impact on hhgregg's traffic and margins in the current quarter, May said, particularly with discounts deepening as the fire sales progress.

The store closings in November and December, combined with the falloff in consumer demand, resulted in a significant oversupply of TVs that led to “compelling buying opportunities” — as well as the weak operating results that manufacturers are now reporting, May said. However, inventory levels have since been corrected, he noted, and TV manufacturers “will be very focused on keeping inventories in line.”

May said hhgregg's relationships with its TV suppliers are better and more strategic than ever, as vendors increasingly rely on the commissioned-sales chain to explain and sell new and higher-margin technologies to consumers. “We're a significant part of the solution to their product mix,” he said. “Preserving their gross margins and average selling prices will be accomplished by selling technology and innovation” — including forthcoming LED and OLED TVs — “and that's not happening in the low-serve and self-serve environments.”

The company said it will also benefit from the glut of real estate stemming from the liquidations of Circuit City and other national chains. According to Throgmartin, landlords are showing more flexibility on lease terms and rental rates have dropped significantly from last year's untenable levels, which may have contributed to the rash of retail bankruptcies. This will provide new expansion opportunities for hhgregg, which could enter markets more quickly and cheaply by retrofitting existent boxes vacated by Linens 'n Things and other stores.

On the product front, the company sustained double-digit comp-store unit sales declines of major appliance products, particularly at entry-level and lower midprice points.

Pricier high-efficiency front-load laundry and three-door refrigeration also experienced comp-store unit sales decreases during the third quarter, although they were significantly less than the appliance category average and contributed to slightly higher average selling prices for the appliances category in total, the company said.

The comp-store sales decrease for the three-month period in the video category was primarily driven by the compression in average selling prices of flat-panel TVs slightly outpacing double-digit comp-store sales unit increases, the chain said.

— Additional reporting by Steve Smith


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