August 5, 2010 / 11:20 AM / 7 years ago

UPDATE 4-Hhgregg beats, aims to become national chain

* Q1 EPS 7 cents vs Street view 2 cents

* Sales rise 53.3 pct to $436 mln, topping estimates

* Says aiming to become national electronics chain

* Shares up 6.6 pct

(Adds more analyst reaction, CEO interview comments)

By Dhanya Skariachan

NEW YORK, Aug 5 (Reuters) - U.S. appliance and electronics chain hhgregg Inc HGG.N blew past quarterly profit and sales expectations, helped by strength in appliances and new stores, and said it plans to keep expanding into new markets.

The retailer, which already runs 157 stores in the Midwestern, Mid-Atlantic and Southeastern regions of the United States, recently confirmed its plans to enter Pittsburgh and is on track to enter the Washington, D.C., market this fall.

It is hoping to create more than 600 jobs in that market next quarter and stay “aggressive” on the hiring front as it ramps up expansion, Chief Executive Dennis May told Reuters.

Net income in the fiscal first quarter ended June 30 rose to $2.7 million, or 7 cents a share, from $1.5 million, or 4 cents a share, a year earlier.

Analysts on average were expecting 2 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 53.3 percent to $436.0 million, topping analysts’ forecast for $397.5 million. Sales at stores open at least a year rose 6.3 percent.

After starting out as a small operation in 1955, the company 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 mainstream players like Best Buy Co Inc (BBY.N).

In an interview, May said that attractive rents, especially in key markets in the Mid-Atlantic region, are among the boons of a weak economy.

“Though we look at the macro economy with a high degree of concern, that macro economy also has helped create the opportunities that make accelerated expansion so compelling and attractive,” May said.

On Thursday, the company pointed out that it had gained market share in its existing markets. And some analysts said it could be a decent rival to the industry goliaths.

“We continue to view hhgregg as one of the best positioned quality growth names in our space,” Credit Suisse analyst Gary Balter said, adding that the retailer “was best-positioned to capture the incremental consumer interest in new and higher-end technology which also provides a level of pricing protection.”

BB&T Capital Markets’ Anthony Chukumba praised hhgregg’s highly trained sales force and family-friendly store format, but said it is still too small to threaten the larger players.

    Chukumba has a “hold” rating on its shares.

    “They are clearly getting Best Buy, Wal-Mart’s attention, but they are still not big enough for Best Buy or Wal-Mart (Stores Inc (WMT.N)) to be too worried about them,” Chukumba said, adding that that will clearly change when the smaller retailer expands further.


    In addition to a good boost from newer stores, the company got help in the first quarter from state appliance rebate programs in Alabama, Florida, Georgia, Kentucky, North Carolina, Ohio and South Carolina.

    Hhgregg, which is more skewed towards larger appliances than bigger rivals, benefited a lot more than Best Buy from the rebates, Chukumba said.

    The company, which does not typically update its year outlook after its first quarter, said it hopes to revise that outlook at the end of the second quarter, citing the strong first-quarter results and sales trends in July.

    “We have seen improved traffic in both our appliance and video categories, which has continued into the second fiscal quarter,” May said in a statement.

    In May, hhgregg forecast full-year earnings of $1.35 to $1.45 a share on sales growth of 40 percent to 45 percent. It forecast same-store sales would range between flat and a rise of 2 percent.

    The company’s shares were up 8.1 percent at $23.03. Since touching a year high in June, the shares have fallen by more than a quarter on concerns about consumer spending and unsteady demand for electronics. (Reporting by Dhanya Skariachan, editing by Gerald E. McCormick and Dave Zimmerman)

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