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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowSteep discounts resulting from the liquidation of Circuit City Stores Inc. are expected to have a short-term negative impact on Indianapolis retailer HHGregg Inc., company officials said this morning in conference call with investors.
But, ultimately, they think HHGregg is well-positioned to fill the void that the nation’s No. 2 electronic retailer will leave when its stores are closed.
“We are aggressively pursuing Circuit City’s market share,” President Dennis May said. “However, at this point, we cannot accurately estimate the impact.”
HHGregg likely will not reap any substantial benefits until after March, when much of Circuit City’s inventory is liquidated, he said. Sales of laptop computers and video games, which are relatively new product lines at HHGregg, are expected to present the biggest opportunities.
The Indianapolis retailer also has agreed to provide discounts in exchange for Circuit City gift cards until April and is creating a service to handle warranty issues for products purchased from its bankrupt competitor.
Still, the electronics and appliance industry is highly competitive, an analyst pointed out, as was evidenced by the aggressive advertising campaign Sears launched during the holiday season.
“We’ve seen them be pretty competitive and pretty aggressive in the marketplace, in appliances and electronics,” May acknowledged. “That being said, as we look at our competitive posture in the marketplace, we feel great.”
Indeed, the Indianapolis retailer overcame a decline in comparable-store sales and the difficult economic environment during its third fiscal quarter, reporting profit of $17.1 million – a 13-percent improvement from the prior year period.
Sales during the quarter were up almost 7 percent, to $416 million.
Profit margins increased primarily because the company was able to make some good buys in key merchandise categories, May said.
The results also were helped by the addition of six stores during the quarter. Excluding the new properties, sales were down about 13 percent.
HHGregg’s quarterly profit, which is equal to 52 cents per share, exceeded analysts’ average estimate of 38 cents per share. But revenue fell short of their $424.7 million prediction.
The company attributed the comparable-store sales drop to lower prices on flat-panel televisions and fewer sales of major appliances, mattresses and personal electronics.
The nation’s financial crisis also has taken a toll. Customer traffic patterns have been more volatile than normal since mid-September, company officials said. Even so, they expect sales to increase 9 percent to 12 percent in the fourth quarter, when two more stores are slated to open. In fiscal 2009, HHGregg will have opened 20 new stores.
On a positive note, the contracting economy is giving the company ammunition to negotiate better lease rates and terms, May said.
Particularly harsh economic conditions in Florida continue to be challenging, he said, but the company remains “bullish” on the market.
Going forward, the company will continue to focus on what it can best control, namely reducing expenses, carefully managing inventory and cash flow, and keeping its sales force highly motivated, CEO Jerry Throgmartin said.
“Longer-term, we are confident that we are ideally suited to take advantage of the industry dynamics … [including] increased market share gains.”
HHGregg stock was up 10 percent, to $9.10 per share, in late-morning trading.
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