HHGregg, Inc. (HGG)

HGG 
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hhgregg (HGG)

Q3 2013 Earnings Call

January 31, 2013 9:00 am ET

Executives

Andy Giesler - Vice President of Finance

Dennis L. May - Chief Executive Officer, President and Director

Jeremy J. Aguilar - Chief Financial Officer, Principal Accounting Officer and Corporate Secretary

Analysts

David S. Strasser - Janney Montgomery Scott LLC, Research Division

Peter J. Keith - Piper Jaffray Companies, Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

David A. Schick - Stifel, Nicolaus & Co., Inc., Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

N. Richard Nelson - Stephens Inc., Research Division

Michael Lasser - UBS Investment Bank, Research Division

Anthony C. Chukumba - BB&T Capital Markets, Research Division

R. Scott Tilghman - B. Riley & Co., LLC, Research Division

Daniel T. Binder - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good day, and welcome to the hhgregg Third Quarter 2013 earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Andy Giesler, Vice President of Finance. Please go ahead, sir.

Andy Giesler

Good morning, everyone, and thank you for joining us. Joining me on the call this morning with prepared comments is Dennis May, our President and Chief Executive Officer; and Jeremy Aguilar, our Chief Financial Officer.

During today's call, Dennis will discuss the current state of our business and update you on our initiatives, and Jeremy will discuss our third fiscal quarter operating results and discuss our guidance. At the end of our prepared remarks, we will have until 10:00 a.m. Eastern Time to answer your questions. [Operator Instructions]

Let me take a moment to reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. During this call, we will make forward-looking statements, which are subject to significant risks and uncertainties, which include the future operating and financial performance of the company.

The company believe that the expectations reflected in its forward-looking statements are reasonable and can give no assurance that such expectations or any of its forward-looking statements will prove to be correct.

We refer you to today's earnings release and the MD&A and risk factor section of our Form 10-K, which was filed on May 23, 2012, and our Form 10-Q filed on November 2, 2012 for additional discussions of these risks and uncertainties.

With that, I'd like to turn the call over to Dennis.

Dennis L. May

Thanks, Andy, and good morning, everyone. Thank you for joining us today. I'd like to begin by recognizing our dedicated employees and extend a special thanks to all of our associates who worked so hard through the holiday season. It's your hard work and dedication that differentiates hhgregg and ensures our customers receive a superior shopping experience.

During the quarter, the video industry saw significant top line pressure as overall demand in the category remain challenged.

In addition to the video industry headwinds, we also made strategic decisions to focus on higher-margin, larger screen sizes while offering fewer entry-level price point screen sizes. As planned, the strategy drove higher gross margins in our video category but did negatively impact our video comps and market share in the promotional portion of the category.

In addition to our strategy shift, the industry saw an expanded distribution of larger screen television to the mass channel and warehouse clubs. We will continue to refine our strategy to both maximize our margins in the category while continuing to drive an appropriate level of traffic with more promotional offerings.

With the continued growth of our appliance business and the introduction of new categories, such as furniture and fitness equipment, we continue to reposition our overall brand and go-to-market strategy to place less reliance on the video category as a whole.

In the past, hhgregg has been seen as a consumer electronics company that sells appliances. Today, appliance is our largest product category, representing 42% of our business during the first 9 months of fiscal 2013.

As we continue to grow our market share in appliances and introduce new product categories, we see the hhgregg of the future as a home product store that also sells consumer electronics.

We do not expect trends in the video industry to materially improve in the near future. And we expect CE will gradually represent a smaller and smaller part of our overall sales mix. We expect to give more color around the evolution of our brand repositioning in our next earnings call when we discuss our fiscal 2014 initiatives.

During fiscal 2013, growing market share in the appliance category was our top initiative, and we continue to believe there is significant room for long-term growth in this category.

This quarter marks the sixth consecutive quarter of comparable store sales growth in the appliance category. We have consistently outpaced the industry in appliance comparable store sales growth, gaining market share in each of these quarters.

While we have been pleased with our investments in the category, we still believe there is significant opportunity for us to continue to gain share in this growing category moving forward. We believe we have opportunities to give appliances even more share of voice in our ads, improve our cooking displays and grow our sales of appliances to the builder channel. We also believe that this year's investments in branding and store management, along with an industry that should benefit from a more robust housing market, gives us continued runway for additional market share gains and category growth.

We will continue to highlight to the customer why hhgregg is the must-shop appliance retailer.

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