hhgregg Profits Flat
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowIndianapolis-based hhgregg Inc. (NYSE: HGG) is reporting a second quarter net income of $3.7 million, compared to $3.8 million for the same period a year earlier. Chief Executive Officer Dennis May says the company is continuing to roll out new products to offset consumer electronics losses. October 31, 2013
News Release
INDIANAPOLIS, Ind. – hhgregg, Inc. (NYSE: HGG): Comprised of net sales at stores in operation for at least 14 full months, including remodeled and relocated stores, as well as net sales for the Company’s e-commerce site.
hhgregg, Inc. (“hhgregg” or the “Company”) today reported net income of $3.7 million, or $0.12 per diluted share, for the three month period ended September 30, 2013, compared with net income of $3.8 million, or $0.11 per diluted share, for the comparable prior year period. For the six month period ended September 30, 2013, the Company reported net income of $2.4 million, or $0.08 per diluted share, compared with a net loss of $(1.9) million, or $(0.05) per diluted share for the comparable prior year period. The decrease in net income for the three month period ended September 30, 2013 was largely due to a comparable store sales decrease of 6.2 percent, partially offset by a decrease in SG&A as a percentage of net sales. The increase in net income for the six month period ended September 30, 2013 was largely the result of an increase in net sales due to the net addition of five stores during the past 12 months, a decrease in SG&A expense as a percentage of net sales and a decrease in net advertising as a percentage of net sales, partially offset by a decrease in gross profit as a percentage of net sales.
Dennis May, President and CEO commented, “Though we continue to see headwinds in our consumer electronics business, we are pleased with our ninth consecutive quarter of comparable store sales increases in the appliance category. Additionally, we are pleased with the completion of our sales floor reset and the progress made with our other initiatives aimed at the long term success of transforming our retail strategy. We have continued to make investments in our business, including the expansion of our consumer credit capabilities, with a seamless secondary credit option, and enhancements to our website. 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.”
Net sales for the three months ended September 30, 2013 decreased 3.3% to $568.3 million from $587.6 million in the comparable prior year period. The decrease in net sales for the three month period was primarily the result of a comparable store sales decrease of 6.2%. Net sales for the six months ended September 30, 2013 increased 1.5% to $1,093.2 million from $1,077.5 million in the comparable prior year period. The increase in net sales for the six month period was attributable to the net addition of five stores during the past 12 months partially offset by a comparable store sales decrease of 3.0%.
The decrease in comparable store sales for the three months ended September 30, 2013 was driven primarily by a decrease in comparable store sales in the consumer electronics and computing and wireless categories, partially offset by an increase in the appliance and home products categories. The appliance category increase in comparable store sales was driven by an increase in the average selling price. The home products category increase in comparable store sales was primarily a result of sales from the introduction of furniture and fitness equipment. The consumer electronics category comparable store sales decline was driven primarily by a double digit comparable store sales decrease in televisions, largely resulting from our strategy of offering fewer entry level models. The computing and wireless category decrease in comparable store sales was led by a decline in sales of mobile phones and notebook computers, partially offset by the continuing increased demand for tablets.
Gross profit margin, expressed as gross profit as a percentage of net sales, remained unchanged at 29.6% for the three months ended September 30, 2013 compared to the comparable prior year period, largely a result of a favorable product sales mix shift offset by modest gross margin rate declines within most of the categories.
SG&A expense, as a percentage of net sales, decreased 22 basis points for the three months ended September 30, 2013 compared to the prior year period. The decrease in SG&A as a percentage of net sales was largely a result of decreases in wage expense, employee benefit expense and bank and credit card fees as a percentage of net sales. The decrease was due primarily to continued cost cutting measures that were initially implemented throughout the second quarter of the prior fiscal year.
Net advertising expense, as a percentage of net sales, remained unchanged during the three months ended September 30, 2013 compared to the prior year period.
Depreciation expense, as a percentage of net sales, increased 16 basis points for the three months ended September 30, 2013 compared to the prior year period. The increase as a percentage of net sales was primarily due to the capital spend associated with the five new stores opened during the past 12 months and the deleveraging effect of the net sales decline.
Our effective income tax rate for the three months ended September 30, 2013 decreased to 39.3% from 39.8% in the comparable prior year period. The decrease in the effective income tax rate is the result of an unfavorable adjustment to state income taxes recognized in the second quarter of fiscal 2013. No such adjustment was made in the current year period.
Dennis May, President and Chief Executive Officer continued, “As we look forward, we are confident in our readiness and our ability to execute around our key investments made during the second quarter in preparation for the upcoming holiday season. These investments include the completion of the hiring and training of our associates, the reset of our sales floor which includes an expanded focus of premium TV's and an expanded furniture offering, deeper credit options over the prior year and the continuation of our marketing plans with our new advertising agency.”
Share Repurchase
During the second quarter ended September 30, 2013, the Company repurchased 795,806 shares of its common stock at a total cost of $13.9 million. The shares were repurchased under the Company’s $50 million share repurchase program that was authorized by the Company’s Board of Directors on May 16, 2013 and expires on May 22, 2014. As of September 30, 2013, the Company had available approximately $25.8 million authorized to repurchase shares of common stock under the current share repurchase program.
Guidance
The Company continues to expect net income per diluted share to be within a range of $0.75 to $0.90 for fiscal 2014.
Included in the Company’s guidance are the following annual assumptions:
Fiscal 2014 comparable store sales of negative 3.5% to negative 2.0% from our previous assumption of negative 2.5% to flat
Fiscal 2014 net sales change of negative 1.5% to flat from our previous assumption of an increase of 1.0% to 3.5%
One new store opening in fiscal 2014 from our previous assumption of five new store openings
Capital expenditures remain in the range of $28 million to $32 million
The impact of year to date share repurchase activity of 1.5 million shares at a cost of $24.2 million
Teleconference and Webcast
hhgregg will be conducting a conference call to discuss operating results for the three months ended September 30, 2013, on Thursday, October 31, 2013 at 9:00 a.m. (Eastern Time). Interested investors and other parties may listen to a simultaneous webcast of the confer