UPDATE 3-Hhgregg cuts outlook after weak holidays

Tue Feb 8, 2011 12:16pm EST

* Q3 EPS $0.66 vs Street view $0.64

* Same-store sales down 6.2 pct

* Total sales up 30.6 pct to $653.7 mln, misses estimates

* Cuts full-year profit, sales outlook

* Shares down 6.7 pct (Adds analyst comment, updates shares)

By Dhanya Skariachan

NEW YORK, Feb 8 (Reuters) - U.S. electronics chain Hhgregg Inc (HGG.N) missed quarterly sales estimates on tepid demand for pricier televisions and appliances in the key holiday selling season, prompting it to slash its fiscal 2011 outlook.

The company, which saw sales at stores open at least a year fall 6.2 percent in its third quarter that ended Dec. 31, warned about weak demand in the current quarter as well, blaming bad weather for the lack of sales boost from last Sunday's Super Bowl football game.

Its shares were down 6.7 percent to $17.42 in early afternoon trading, making it one of the top percentage losers on the New York Stock Exchange.

"Through our fourth fiscal quarter to date, we have continued to see challenging top-line results due to industry headwinds along with experiencing the negative effects of inclement weather across our chain during our important Super Bowl selling season," Chief Financial Officer Jeremy Aguilar said.

Total sales in the fiscal third quarter, including recently opened stores, rose 30.6 percent to $653.7 million, but missed analysts' average forecast of $654.6 million.

"Indications of weaker sales at the chain lately, even if weather induced, are likely to further unnerve investors, already wary of softer top line trends," Oppenheimer analyst Brian Nagel said. He recently cut his rating on the chain to "perform" from "outperform."

Many holiday shoppers sought televisions with smaller screens and lower price tags rather than the bigger TVs with more features, thereby weighing on the company's margins. Gross profit margin fell to 29.6 percent from 30.5 percent.

"Industry sales from newer technologies like LED and 3D TV increased less than expected," Chief Executive Dennis May said in January, echoing comments from larger rival Best Buy Co Inc (BBY.N).

Best Buy, seen as a bellwether in consumer electronics, will report its latest results in March. It previously said that December same-store sales fell 4 percent [ID:nN07165678].

ROOM TO GROW

After starting out as a small operation in 1955, Hhgregg has stepped up expansion in recent years in a bid to fill the void left by bankrupt rival Circuit City Stores Inc CCTYQ.PK and to compete better with larger chains such as Best Buy.

Despite the sales weakness, Hhgregg said on Tuesday it remains on track to open 43 new stores in fiscal 2011.

The Indianapolis-based chain, which has also won praise from analysts for its highly trained sales force and family-friendly store format, has expanded rapidly in the Midwestern, Mid-Atlantic and Southeastern regions in a bid to become a national chain.

Oppenheimer's Nagel said he likes the longer-term prospects for the rapidly expanding retailer, but worried about some issues in the short term.

"We are increasingly concerned that still soft consumer demand for newer TV technologies and Hhgregg's lack of exposure to the strengthening mobile and tablet (computer) categories could limit the potential for better sales trends at the chain," he said.

For fiscal 2011, the company now sees net income of $1.10 a share to $1.15 a share, down from its prior outlook of $1.15 to $1.23 a share. It sees same-store sales falling 4 to 5 percent, worse than its prior outlook of a 1 to 3 percent decline.

The company, which had warned about the holiday sales weakness in January, said its third-quarter net income rose to $26.9 million, or 66 cents a share, from $22.7 million, or 57 cents a share, a year earlier. Analysts were expecting 64 cents a share, according to Thomson Reuters I/B/E/S. (Reporting by Dhanya Skariachan, editing by Gerald E. McCormick, Dave Zimmerman and Tim Dobbyn)

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