hhgregg Inc. (HGG) reported second-quarter ended September 30, 2011 operating results. Income from continuing operations for the quarter was $6.0 million or 16 cents per share, well above the Zacks Consensus Estimate of 6 cents.
Net income and earnings increased 54% and 60%,r espectively, from the year-ago quarter. The increase was primarily attributable to a jump in net sales that was due to the net addition of 35 stores during the past 12 months.
Quarter in Detail
hhgregg’s net sales rose 28.6% to $618.6 million in the reported quarter. This was due to a net addition of 35 stores during the past one year and a comparable store sales increase of 1.5%.
Same-store sales climbed on the back of growth in the appliance and the home office categories, partially offset by declines in the video and other categories. The appliance category was supported by the company’s initiatives to capture increased market share and outpace the marketplace in comparable store sales growth. Home office category boomed on the back of increased demand in notebook computers and the offering of tablets.
Gross margin, as a percentage ofnet sales, sunk 145 basis points to 28.6% in the quarter. The decline was caused by poor performance in the video category and increased promotional activity in the segment.
SG&A, as a percentage of net sales, plunged approximately 144 basis points in the quarter due to increased expense leverage arising from the company's overall increase in sales and strong opening performance from new store openings.
Net advertising expense based on net sales went down approximately 4 basis points in the reported quarter.
Cash Flow, Balance Sheet and Share Repurchase
The company ended the year with cash and cash equivalents of $2.1 million, while net cash provided by operating activities declined to $32.1 million compared with $59.4 million in the prior-year quarter. The decline was primarily attributable to higher working capital requirements. The company has no long-term debt.
The company repurchased 1,206,049 shares of its common stock at a total cost of $12.9 million during the quarter.
Guidance
Concurrent to the earnings release, management provided an outlook for fiscal 2012. For fiscal 2013, the company raised earnings estimate to the range of $1.26 -$1.41 a share compared with $1.20 – $1.35 announced previously. The Zacks Consensus Estimate for fiscal 2012 is $1.20, for fiscal 2013 it is $1.38. For the next quarter it is 74 cents.
Net sales for fiscal 2013 are expected to increase in the 20% -25% range, while comparable store sales are expected to be flat to positive 3%. The company expects to open between 20-25 new stores in fiscal year 2013.
hhgregg, Inc. operates as a specialty retailer of consumer electronics, home appliances, and related services and primarily competes with Best Buy Co. Inc. (BBY). hhgregg currently has a Zacks #3 Rank, which implies a short-term ‘Hold’ rating on the stock.
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