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 said.
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 products.
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."