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h.h.gregg’s Q2 Income, Sales Were Off

INDIANAPOLIS — h.h.gregg said a precipitous drop in its TV business, and reduced revenue from mobile phones and notebook computers, led to sales and earnings declines in its fiscal second quarter.

Net income slipped 2 percent to $3.7 million for the three months, ended Sept. 30, while net sales dropped 3.3 percent to $568.3 million.

Comp-store sales fell 6.2 percent on a double-digit comp sales decline in TV caused by a strategic decision to offer fewer opening price point models. On an earnings call last Thursday, president/ CEO Dennis May said the retailer is reevaluating the balance of promotional and premium SKUs, but continues to focus on the upper end of the market, having executed a rare midyear video department reset that brought in more Ultra High-Definition, 240Hz, and 60-inch and larger models by tier-one manufacturers.

Elsewhere, computer and wireless comps fell 7.2 percent year over year despite strong, double-digit growth in tablets. The decline reflects a double-digit drop in laptop sales and a decision to cull the smartphone assortment in order to focus on core Apple and Samsung models. The move, said May, led to lower wireless sales but improved profitability.

Also reduced were the laptop, GPS and digital imaging assortments, in lieu of tablets, which May described as the hottest gift for the holiday season and a “real traffic driver.”

Meanwhile majap comps edged up 2.6 percent on flat unit volume but higher average selling prices (ASPs), representing the ninth consecutive quarterly comp increase. The category was restrained by weak room air sales amid a cool summer, May said, but remains the “backbone and key strength” of the company’s business model, and is expected to show renewed strength through the holiday selling season. The company will also begin tailoring its majap assortment to individual stores next year.

Home products, which include furniture, mattresses and fitness equipment, saw comps soar 69 percent with the chain-wide rollout exercise gear and additional furniture SKUs.

The trends are reflected in h.h.gregg’s evolving sales mix, as the retailer looks to emphasize growth categories and reduce its exposure to CE. Majaps represented 50 percent of the sales mix during the quarter, up from 46 percent last year, followed by CE at 36 percent, down from 42 percent; computing and wireless, flat at 9 percent; and home products, up from 3 percent to 5 percent.

“While pleased with our early efforts in reshaping our sales mix, our sales performance continues to demonstrate that this transition will take time as we introduce new products to offset the sales losses from the consumer electronics category,” May said in a statement.

Taking another page from Conn’s, which revitalized its business by focusing on furniture, h.h.gregg is also expanding its credit offering with rent-to- own and easy-credit programs designed to expand its customer base.

Looking ahead, May forecasted single- digit comp declines industrywide for video industry this quarter, but believes Ultra HD TV will help fuel the segment next year. The retailer is also limiting its expansion to one new store this fiscal year, for a total of 229 locations.