HHGregg, Inc. (HGG)

HGG 
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Industry: Consumer Services
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hhgregg, Inc. (HGG)

F2Q13 Earnings Call

November 2, 2012 9:00 am ET

Executives

Andy Giesler – Vice President of Finance

Dennis L. May – President and Chief Executive Officer

Jeremy J. Aguilar – Chief Financial Officer

Analysts

Daniel Binder – Jefferies & Company

Michael Lasser – UBS

Greg Melich – ISI Group

Gary Balter – Credit Suisse

Jonathan Berg – Piper Jaffray

Brian Nagel – Oppenheimer

David Strasser – Janney Montgomery Scott

Marc Groshen – JP Morgan Chase & Co

David Magee – Suntrust Humphrey

Presentation

Operator

Good day, and welcome to hhgregg's Second 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 second fiscal quarter operating results and discuss our guidance. At the end of our prepared remarks, we will have until 10:00 am Eastern time to answer your questions. In the interest of time and uncertain that we are able to answer as many questions from you as possible, we ask that you limit your question to single question with one follow-up.

Let me take a moment to reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. During this call, we'll 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 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 10-Q and the MD&A and Risk Factor sections of our Form 10-K, which was filed on May 23, 2012; and our Form 10-Q filed on August 2, 2012, for additional discussion 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 extending our thoughts and prayers to everyone on the East Coast that was impacted by Hurricane Sandy this past week. As a company, we were only slightly impacted by the storm with approximately 40 stores being directly impacted with only minimal damage and having all of our stores reopened as of yesterday. Our hearts go after those individuals and families who lost loved ones in the destruction of the storm.

I’d also like to recognize our dedicated employees and extend a special thanks to all of our associates. It’s your hard work and dedication that differentiates hhgregg and assures our customers receive a superior shopping experience.

On today’s call, I will begin with a discussion of our current trends and performance within our major product categories. I will then review our strategies for maximizing our business in the current challenging industry landscape.

Our sales performance during the quarter was negatively impacted by a continued pressure in the video industry and fell below our expectations. In the video category, we saw comparable store sales decline 20.5% as we were pressured by both industry headwinds and the impact of our strategy to focus less on opening price points and smaller screen sizes.

While the strategy negatively impacted our sales and market share, we are pleased with our consolidated gross margin improvement of 107 basis points during the quarter. Looking ahead, we will continue to refine our assortments to find the right mix between gross margin rate and market share.

We are pleased that our appliance category has seen five consecutive quarters of comparable store sales increases. As we continue to gain market share in this category, we expect that it will be our largest category this fiscal year. We believe our increase in share is a result of our successful strategies built around the fact that the appliance category complements our core competencies very feel, which are centered on putting big-box products in consumers’ home better than anyone.

As we have grown our chain, we have strategically located our distribution capabilities to make big-box product distribution a cornerstone of our go-to-market strategy. Our distribution network utilizes a hub and spoke model of strategically placed stores around the centralized distribution center in order to operate an efficient and quick-to-market product delivery solution.

Another key competency we have is our ability to offer consumer credit to the consumer. Nearly one third of our business is done on our hhgregg private label credit card and our sales on credit are steadily growing. Many of the products we sell are large ticket purchases and as such the consumer is interested in utilizing our credit offerings and making the purchase.

Finally, the most importantly, we believe we have the best sales force in the industry. Customers today are more educated than ever in relation to the products sold in our categories. However, due to the innovation, interconnectivity and complication of these products, consumers still have questions related specifically to these products and our sales associates assist in the purchase decision in order to ensure that our customers are selecting the best product to fit their needs.

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