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Profits down, expansion outlook up at HH Gregg

Regional electronics chain HH Gregg indicated its full-year profit forecast could be in jeopardy following the release of second-quarter results and a 20% decline in profits.

Total sales at the company increased 44.8% to $480.9 million during the three-month period ended Sept. 30, however that increase was largely driven by the addition of 51 new stores during the past 12 months as comp-store sales decreased 1.5%. The company currently operates 169 units and is on track to open a total of 43 units this year.

 

The comp decline was driven by waning demand for appliances as a 3.9% decline in that category was partially offset by a 1.6% gain in the video category.

Profits declined 20.4% to $3.9 million and earnings per share decreased 23.1% to 10 cents, which prompted the company lower the bottom of its full-year guidance range by a nickel. Per share profits are now forecast in a range of $1.30 to $1.45 from $1.35 to $1.45.

“We were very pleased with our continued market share gains in both new and existing markets. Additionally, we have been pleased with our new store productivity which continues to run above 100%,” said Dennis May, HH Gregg president and CEO. “However, we continue to face a challenging macro-economic environment, which is negatively impacting our industry and continues to add volatility to our business. We entered the quarter on a strong note, with consumers responding very favorably to promotions and improving trends in the video category. As the quarter progressed, we saw a deceleration in both appliances and video sales. While the second quarter may be a reminder of the sensitive nature of the economic recovery and the consumer’s purchasing capacity, we continue to gain market share and remain excited about the company’s long-term growth prospects.”

Despite weak comps generated by its young store base and profit pressures, HH Gregg said the time to expand aggressively is now due to the availability of quality real estate at reasonable rates and its success in entering new markets. Accordingly, the company said it will open between 35 to 45 new stores during its upcoming fiscal year in markets such as Miami, Pittsburgh and western Pennsylvania and other undisclosed markets.

As for widening the guidance range for the full year profit forecast, CFO Jeremy Aguilar said, “while our visibility into the important holiday and Super Bowl selling seasons remains limited due to the significant volatility in our product categories and challenging macro-economic environment, we remain cautiously optimistic that the top-end of our guidance range is achievable. However, due to the headwinds in our industry, we believe it is appropriate to lower the bottom-end of our range to address the volatile industry trends we have been experiencing in our business.”