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hhgregg’s Q2 Profits Soar 54%

Indianapolis – Higher sales and lower relative costs helped hhgregg
drive a 53.8 percent increase in second-quarter net income, to $6 million.

Net sales for the three months, ended Sept. 30, rose 28.6
percent to $618.6 million due to the net addition of 35 new stores over the
trailing 12 months, while comp-store sales edged up 1.5 percent on strength in
major appliances and computers. The comp gains were partially offset by
declines in video, where increased sales promotions drove traffic but squeezed
gross margins.

President/CEO Dennis May said the solid results show that the
company’s strategic initiatives, including a new e-commerce site, the rollout
of tablets, an added emphasis on majaps and continued new store expansion,
began to gain traction in the quarter.

Broken out by category, video comps fell 4 percent, reducing
it from 44 percent to 42 percent of the sales mix, as average selling prices
(ASPs) fell by the double digits and were only slightly offset by increased
unit volume.

Majap comps increased 7 percent, raising the category from
39 percent to 40 percent of the mix, due to increased demand, higher prices and
initiatives to increase market share and outpace industry growth, the company

Home office comps increased 23.9 percent, reflecting greater
demand for notebooks and the introduction of tablets, which raised the
category’s share of the sales mix from 6 percent to 8 percent.

Comps for the catchall “other” category, which includes
audio, personal electronics, furniture and mattresses, fell 8.7 percent,
lowering its share of the mix from 11 percent to 10 percent, due to
double-digit comp declines in camcorders and small electronics that were only partially
offset by growth in mattresses.

Expenses, including occupancy costs and wage and advertising
expenses, declined as a percentage of net sales due to the comp store gains and
strong grand-opening performances by the 24 new stores that opened in Chicago
and Miami during the quarter.

The company also enjoyed a reduction in its effective income
tax rate, from 39.3 percent to 38.4 percent, due to federal tax credits under
the Hiring Incentives to Restore Employment Act.

Gross profit margin fell 145 basis points from 30 percent to
28.6 percent quarter over quarter due to increased sales promotions,
particularly in video, and a higher mix of traditionally lower-margin computer

Looking ahead, hhgregg said it is on track to open a total
of 35 new stores during its current fiscal year which ends in March 2012, and
plans to add 20 to 25 more stores over the following 12 months. The balance
will be used to backfill Chicago, although the company will also enter the new
markets of St. Louis, Milwaukee and other locations in Illinois.

The company currently operates 204 stores in 16 states.

Commented May, “We remain committed to growing our store
base over the longer-term. Over the past three years we have been able to take
advantage of the soft real-estate market in areas such as Chicago,
Philadelphia, Miami and Washington D.C. We have been very pleased with the
consumer’s acceptance of our model in new and existing markets and remain
excited about our future market expansions in achieving our long-term goal of
becoming a national retailer.”