HHGregg, Inc. (HGG)

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Hhgregg Inc. (HGG)

F3Q09 Earnings Call

February 5, 2009 9:00 am ET


Jerry Throgmartin – Chairman, Chief Executive Officer

Dennis May – President, Chief Operating Officer

Don Van der Wiel – Chief Financial Officer

Andy Giesler – Director of Investor Relations


Rick Nelson – Stephens Inc.

Mitchell Kaiser – Piper Jaffrey

Brad Thomas – KeyBanc

Brian Nagel – UBS

Gary Balter – Credit Suisse

David Magee – SunTrust Robinson Humphrey

Michael Lasser – Barclays



Welcome to Hhgregg's third quarter earnings conference call for fiscal 2009. (Operator instructions) I will now turn the conference over to Andy Giesler, Director of Investor Relations for Hhgregg. Please go ahead.

Andy Giesler

With me today are Jerry Throgmartin, our Chairman and Chief Executive Officer, Dennis May, our President and Chief Operating Officer and Don Van der Wiel, our Chief Financial Officer.

During today's call, Jerry will make some opening comments, Dennis will provide highlights from our third quarter and Don will conclude with a discussion of our liquidity and capital resources and an update of our earnings guidance. At the end of our prepared comments, we will have until 10:00 am ET to discuss any questions that you might have.

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 believes that the expectations reflected in these forward-looking statements are reasonable and can give no assurance that such expectations for any of its forward-looking statements will prove to be correct.

We refer you to today's earnings release, the MD&A section of our Form 10-Q and the risk factor section of our Form 10-K for additional discussion of these risks and uncertainties. In addition, we will discuss net income and earnings per diluted share as adjusted to primarily exclude the impact of the loss from the early extinguishment of debt from the debt refinancing completed in connection with our initial public offering in July 2007, all of which are considered non-GAAP measurements.

We use these measurements to highlight operating performance. Please refer to our reconciliation of net income and diluted earnings per share as adjusted in the non-GAAP disclosure section on our investor relations website, which can be accessed through www.hhgregg.com.

With that, I would like to turn the call over to Jerry.

Jerry Throgmartin

We were pleased with our solid performance during the third quarter in light of the tough macroeconomic environment and ongoing challenges in retail in general. Though macroeconomic trends continue to present stiff headwinds and affected our sales during our third quarter, we were very pleased with our ability to manage margin, expenses and working capital.

There has been substantial market volatility stemming from recent turmoil in the financial and credit markets and growing unemployment, which has created economic uncertainty. We believe that this economic uncertainty has contributed to a significant drop in customer traffic since the last two weeks in September.

In the face of this economic uncertainty, we developed a plan to maximize our bottom line results and believe that we executed it very well as reflected by a 15.6% increase in our third quarter earnings per share over last year. This was achieved by focusing our attention on the aspects of the business that we can control namely our plan to sell, expense management, inventory control, and working capital management.

Even though we saw gradual modest improvement in customer traffic trends throughout the third quarter and into the start of the fourth quarter, we do not expect any demonstrable improvement in the macroeconomic environment for the foreseeable future. As a result, we will continue to focus on the aforementioned controllables.

In the longer term we are confident that we are well suited to take advantage of the upturn in the economy through an improvement in real estate terms, and most importantly, increased market share gain. We move forward with a strong liquidity position, a powerful operating platform and a team that is energized and focused on maximizing the many opportunities that lie ahead.

Before I turn the call over to over Dennis to discuss some important third quarter trends, I want to acknowledge the dedication and effort of all of our associates who continue to make us a compelling alternative to low-serve big box competitors. This market is like nothing I've ever seen before, and I couldn't be more pleased with the level of execution that our associates are delivering during these times.

I will now turn the call over to Dennis.

Dennis May

Let me reiterate Jerry's sentiment as it relates to our performance during the quarter. Despite an extremely tough macroeconomic environment compounded by our heavy balance of sales in appliances, we were able to achieve a 15.6% increase in our diluted earnings per share during the third quarter due to our ability to manage our plan to sell, expenses, inventory and working capital. These results are a testament to the caliber and dedication of all of our associates across the organization.

During the third quarter, our comparable store sales decreased by 13.2% on top of a 3% increase during the third quarter last year. This was comprised of a 21.9% decline in appliances, which comprised 28% of our business, a 6.9% decrease in the video category, which comprised 54% of our business, and a 14.6% decrease in our other category, which comprised the remaining 18% of our business.

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