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HH Gregg undeterred by near 9% comp decline

Appliance and consumer electronics retailer HH Gregg, reported second quarter result on Friday that weren't as bad as expected.

Sales declined 5% to $587 million as a 8.8% sames store sale decline more than offest additional volume resulting from the addition of 19 new stores during the prior 12 months. Profits declined to $3.8 million or 11 cents a share from a profit of $6 million or 16 cents a share the prior year. Despite the drop, the company's shares surged nearly 20% at one point on Friday as analysts had expected earnings per share of only 9 cents. The company also reported improved gross margins and affirmed its full year gudiance for earnings in the range of 90 cents to $1.05.

"While the video category remained challenging across the industry in our second fiscal quarter, we were pleased with the early progress of strategic initiatives designed to enhance store productivity. While we improved our video sales mix to focus on larger screen televisions which improved our gross margin rate, we were disappointed by the amount of overall market share of televisions we lost," said president and CEO Dennis May. "Over the next few quarters we will continue to refine our strategy to find the right mix between gross margin rate and market share. We continue to see positive results in our appliance business and are continuing to test new merchandise and tailor our assortment around products that leverage our consultative sales force, delivery and installation network and private-label credit offering."

The company is moving forward with changes to its merchandise mix that will involve the roll out of furniture and exercise equipment to all stores during the company's third quater, a move that could prove beneficial as the exercise equipment category expereinces peak sales during December and January. In addition, a select number of stores will receive an expanded offering of tablet and hand held consumer products.

Elaborating on the comp decline, the company said it was driven primarily by a decrease in net sales in the video and "other" categories, partially offset by increases in net sales in the appliance and computing and mobile phones categories. The video category comparable store sales decline was driven by a double digit decrease in unit demand partially offset by a single digit increase in average selling prices. The decrease in comparable store sales for the "other" category was primarily a result of double digit comparable store sales decreases in cameras, camcorders and small electronics, partially offset by growth in the mattress category. The appliance category increase in comparable store sales was driven by an increase in average selling price due to favorable mix shifts. The computing and mobile phones category was led by increased demand in the offering of tablet computers and mobile phones, partially offset by declines in notebook and netbook computers.

Gross margins improved to 29.6% from 28.6% due to an increase in gross profit margin rates in the video and appliance categories, partially offset by modest declines in the computing and mobile phone and other categories. The company said the increase in the video gross margin rate was largely due to a favorable mix of larger screen size LED models, which carry higher gross margin rates than smaller screen LCD models. The appliance category was favorably impacted by a continued mix shift to higher efficiency products which generate higher gross margin rates.

"Our balance sheet and liquidity remain strong, with inventory per store down 10%, no long-term debt and no borrowings under our revolving credit facility," said CFO Jeremy Aguilar. "This positions us well to execute on our strategic initiatives to drive additional traffic and increase sales productivity in our comparable store base. While the overall operating environment will likely remain volatile for the foreseeable future, we remain committed to improving shareholder value over the long-term and are reiterating our net income per diluted share guidance for fiscal 2013 of 90 cents to $1.05 per share."