hhgregg Reports Higher Sales, Lower Comps - Twice

hhgregg Reports Higher Sales, Lower Comps

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Indianapolis - hhgregg reported higher sales but lower comp-store sales and lower adjusted net income for its fiscal year and fiscal fourth quarter, ended March 31.

Net income for the quarter was $53.6 million, compared with $14.6 million for the prior year's fourth quarter.

However, those results include $39.6 million of net income related to life insurance proceeds received from a key man life insurance policy net of severance paid to the estate of former executive chairman Jerry Throgmartin, who passed away on Jan. 22. The fiscal fourth quarter of 2012 also includes a $800,000 ($500,000 after-tax) charge related to impairment for two store locations.

Net income for the quarter, as adjusted for these two items, was $14.5 million, a 9.1 percent decrease when compared with the prior year period. The decrease in adjusted net income was the result of a decrease in gross margin rate and an increase in net advertising expense as a percentage of net sales, offset by an increase in net sales due to the net addition of 35 stores during the past 12 months.

Net income for the fiscal year was $81.4 million, compared with net income of $48.2 million for the prior fiscal year.

Excluding the items involved in the fiscal fourth quarter, adjusted net income for the year was $42.2 million, a 14.7 percent decrease in adjusted net income when compared with the prior year period. The decrease in adjusted net income was the result of a decrease in gross margin rate and an increase in net advertising expense as a percentage of net sales, offset by an increase in net sales due to the addition of 35 stores during the past 12 months.

Net sales for the quarter increased 21.1 percent to $613.8 million. Net sales for the fiscal year increased 20 percent to $2.5 billion. The increases in net sales for the fiscal fourth quarter and the fiscal year were primarily attributable to the net addition of 35 stores during the past 12 months, partially offset by decreases of 0.7 percent and 1.1 percent in comp-store sales, respectively, the retailer said.

The decreases in comp-store sales for the video category in the quarter were due primarily to a double-digit decline in average selling prices. The decreases in the comp-store sales for the video category for the fiscal year were due primarily to a double-digit decline in average selling prices partially offset by increased unit demand.

The increases in comp-store sales within the appliance category for the three- and 12-month periods were due to an increase in both unit demand and average selling prices, driven largely "by our initiatives to capture market share and outpace the marketplace in comparable store sales growth," the retailer said.

The increases in the computing and mobile phone category were driven by increased demand in notebook computers and the additional offering of tablets and mobile phones in fiscal 2012. The decrease in the other category was due primarily to comp-store sales decreases in small electronics, cameras and camcorders, offset by strong double-digit growth in mattresses.

Gross profit margin decreased in the quarter to 30.5 percent, from 31.5 percent for the comparable prior-year period, and decreased in the fiscal year to 28.9 percent, from 30.3 percent for the prior year. The decreases in gross profit margin for the three- and 12-month periods were largely due to gross profit margin pressure within the video category, which is primarily the result of increased promotional activity in the category.

Dennis May, president/CEO, commented: "Our fourth-quarter results were driven by solid market share gains in the appliance and home office categories, offset by continued headwinds in the video category. Through the launch of a number of strategic initiatives earlier this year, we continue to strengthen our positioning in appliances, expand our assortments in home office products and build our mobile business. We remain pleased with our progress in these key areas and believe recent investments in our multichannel platforms and our unparalleled customer service better position us in a changing retail environment."

He added, "Looking ahead, we believe there is a significant opportunity utilizing additional initiatives to continue growing the appliance business while strengthening our home office, computing and mobile offerings. We are encouraged by recent strength in larger-size televisions and believe we are positioned well to take advantage of this trend."

Separately, the retailer's board elected

Gregg W. Throgmartin as a director of to fill a vacant seat on the board. Throgmartin currently serves as executive VP and COO of hhgregg. The board also appointed Michael L. Smith, a current director, as chairman. Smith formerly served as executive VP and chief financial officer at Anthem Blue Cross and Blue Shield.

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