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HHGregg Inc. had only 18 stores when Dennis L. May left the bankrupt Sun Television and Appliances chain in Ohio about 10 years ago to join the locally based company.
Today, HHGregg has 108 stores and stands as a rare survivor in a crowded field of home technology retailers. And the closure of Circuit City Stores Inc. this month could give HHGregg, which was founded in 1955, a unique opportunity to grow from a strong regional player into a national powerhouse.
May, 41, is slated to take over as the company’s CEO in August. He vows to continue growing what is already the nation’s largest regional electronics player. The chain has 4,000 employees and now ranks third on a national level for consumer electronics and appliances, behind only Best Buy and Sears.
May recently spoke about the outlook and challenges for HHGregg with IBJ. Here’s the edited transcript:
IBJ: You take over as CEO in August. You expect consumers will start to wake up by then?
MAY: I certainly hope so. The key for us is what’s going to make the consumer respond, and confidence is key. Two factors-jobless rates and the housing market-aren’t helping.
IBJ: What are people buying?
MAY: The TV business continues to be relatively robust. Flat-panel TV is a great product and still has a relatively low household penetration-about 55 percent-and most of them have only one per home. It’s a product people want. Blu-ray has been a tremendous growth category.
IBJ: What else is cooking on the innovation front?
MAY: This fall, we’ll be selling LED flat-panel TVs, which have improved picture quality and are even thinner. On the appliance side, front-load laundry now represents one-third of the industry-it’s energy-efficient, saves water and electricity, and has style innovation.
IBJ: What steps are you taking to capitalize on the demise of Circuit City?
MAY: I’ve been in the business for 20 years. If you had asked me any time in my career, I could not have imagined this industry without Circuit City. I feel horrible for those 36,000 families.
We’re reaching out to the Circuit City consumers, accepting Circuit City gift cards, helping facilitate warranties-exposing them to our level of service. We’re going to get our unfair share, that’s our goal.
As a company, we need to stay humble. We need to focus on customer needs and employee needs.
IBJ: HHGregg took over some of the old Sun locations about 10 years ago. Do you expect you might do the same
with some old Circuit City stores?MAY: There are quite a few closings-including Linens & Things and Circuit City-that have created a pretty exciting opportunity for HHGregg in terms of real estate. Also, lease rates are coming down-good news for an expanding retailer.
But we’re not going to overstretch our resources and liquidity as we grow. Our goal is to continue to expand out of our profits.
IBJ: Why are you taking over now? Is Jerry Throgmartin OK, health-wise? (Throgmartin, 54, is the current CEO and a cancer survivor.)
MAY: Everything’s fine. We felt the timing was appropriate as Jerry focuses on vision and strategy and I focus on the day-to-day business. I’ve been part of adding 90 stores to the company. I’ve grown up in retail.
IBJ: The company’s shares have recovered from a low under $4 to more than $10. Are they still undervalued?
MAY: We have a policy not to comment on our stock price. We think our performance reflects the strength of the model. We’ve got a strong balance sheet, great momentum in a tough economy, and great support from our suppliers.
IBJ: You’ve got about $100 million in debt at a time when Wall Street is uneasy about leverage. Are you comfortable with the debt?
MAY: We’ve been able to grow and deleverage at the same time. You won’t find another growth retailer with a better debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio.
IBJ: So it’s still possible to be a growth retailer these days?
MAY: It’s safe as long as you apply the appropriate metrics to your expansions. Being profitable is not optional for our new stores.
IBJ: Where are you looking geographically for more stores?
MAY: We have tremendous flexibility. We will continue to leverage our Florida distribution facility (in Orlando). We now have 14 stores in Florida and have said we’d like to have 30. We’re also looking to backfill in existing markets, leveraging our business model to be more efficient. •
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