UPDATE 3-Hhgregg results miss, cuts outlook on weak demand

Tue Nov 9, 2010 11:46am EST

* Q2 EPS $0.10 vs. Wall St estimate $0.16

* Sales rise to $480.9 mln, miss estimate of $493.8 mln

* Cuts FY EPS outlook to $1.30 to $1.45; Street est $1.43

* Consumers still incentive-driven while shopping

* Shares fall 9 percent (Adds CEO comments)

By Dhanya Skariachan

NEW YORK, Nov 9 (Reuters) - Hhgregg Inc (HGG.N) missed quarterly profit and sales expectations on tepid demand for high-margin products like appliances and said the picture was unclear for sales during the holiday and Super Bowl seasons.

The U.S. electronics chain lowered the bottom end of its full-year earnings outlook and noted "significant volatility" in demand for its products amid macroeconomic pressures. Its shares fell about 9 percent.

It expects full-year earnings of $1.30 to $1.45 a share, down from its prior outlook calling for a profit of $1.35 to $1.45 a share. Wall Street was looking for $1.43 a share.

Hhgregg, which has stepped up expansion in recent years to fill the void left by bankrupt rival Circuit City Stores Inc CCTYQ.PK and to compete better with mainstream players like Best Buy Co Inc (BBY.N), remains "cautiously optimistic" about meeting the top-end of its outlook.

On a conference call, CEO Dennis May said the latest second quarter proved to be more challenging than the company had initially expected and pointed out how consumers were still very price-sensitive and incentive-driven while shopping.

"When given special incentive to buy big ticket items such as houses, cars and appliances, plenty of consumers are taking advantage and buying such items. However, without stimulus to buy, customers are simply sitting back and waiting," May said.

May said the company saw sales weakening toward the back half of the quarter when the appliance stimulus ended and manufacturers scaled back production. The expiration of other stimulus programs also weighed on results.

"With the first-time home buyers' program expiring and the housing market remaining weak, it appears this market could remain challenging for the rest of the year," May said.

The company also warned about "moderate" average selling price pressure in the video business for the holidays as bargain-hungry shoppers continue to wait for prices of newer products like internet televisions and 3D TVs to fall. [ID:nN11209822]

In the second quarter, net income fell to $3.9 million, or 10 cents a share, from $4.9 million, or 13 cents a share, a year earlier.

Analysts on average were expecting a profit of 16 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose about 45 percent to $480.9 million, but missed the analysts' average forecast of $493.8 million.

Sales at stores open at least a year fell 1.5 percent, driven by a 3.9 percent decrease in the appliance category.

The company said that demand for appliances, sales of which are typically more profitable than other products it sells, were particularly weak in its new markets.

"Comps were light, driven by weakness in the appliance category. Furthermore, a mix away from this category was the primary driver of gross margin degradation," JPMorgan analyst Aaron Goldstein said in an early note.

Gross profit margin for the three months ended Sept. 30 fell to 30 percent from 30.8 percent. (Reporting by Dhanya Skariachan; additional reporting by Abhishek Takle in Bangalore, editing by Dave Zimmerman)