UPDATE 3-Hhgregg plans expansion despite fear of weak sales

Tue Jun 2, 2009 3:06pm EDT

* Q4 EPS 42 cents vs estimates of 41 cents

* Sees FY earnings below estimates

* Sees FY same store sales drop 7-12 pct

* Says exploring expansion of market base

* Shares fall as much as 13 pct (Adds analyst comments, updates stock movement)

By Nivedita Bhattacharjee

BANGALORE, June 2 (Reuters) - Regional electronics and appliance retailer hhgregg Inc (HGG.N) posted a 34 percent jump in quarterly profit, but forecast full-year earnings below market estimates, fearing weak sales.

However, the company, which currently operates in nine states in the U.S. Southeast and Midwest, said it is exploring expansion beyond its current markets.

"We're seeing a potential opportunity to accelerate new store growth as we are beginning to see an increase in the availability of quality store locations," Chief Executive Jerry Throgmartin said on a conference call with analysts.

Shares of the company, which had dropped to a low of $14.60 in early morning trade, recouped some of their early losses to trade down 7 percent at $15.60 Tuesday on the New York Stock Exchange.

Hhgregg grew 15 to 20 percent last year, said David Magee, analyst with Suntrust Robinson Humphrey, adding that the current real estate scenario will let the company afford sites that were probably beyond its reach some years ago.

"And if the environment betters, we might never see these deals again. So it makes a lot of strategic sense for hhgregg," he said.

But it will take some time for Indianapolis-based hhgregg to become a national player, said Magee, who has a "buy" rating on the stock.

The company, which plans to open 16 to 18 new stores, also said it ended the fourth quarter of fiscal 2009 with $21.5 million of cash, compared to $1.9 million in the prior year, and had no borrowings under its line of credit as of March.

But despite beating fourth-quarter estimates by a penny, the company said it is planning for soft consumer demand for the fiscal 2010.

While the last holiday season saw a big boost from rival Circuit City's bankruptcy, Chief Operating Officer Dennis May said he does not see as much opportunity this year.

"The exit of Circuit is a one-time event," he said.

The company sees full-year earnings between 85 cents to $1.00 a share.

Analysts were expecting the company to earn $1.07 a share, before items, according to Reuters Estimates.

"This would imply an expectation of a comparable store sales decline of 7 percent to 12 percent," the company said in a statement.

The company also said it was expecting a moderate compression in gross margins.

Hhgregg, which expects volatile customer traffic, said comparable sales for the first quarter might even fall below the full-year range.

For the fourth quarter ended May 31, hhgregg earned $13.9 million, or 42 cents a share, up from the $10.3 million, or 31 cents a share, in the year-ago quarter.

Net sales rose 12.5 percent to $364.9 million.

Comparable store sales fell 6.5 percent, led by a double-digit fall in its appliance category., (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Anil D'Silva)

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