Hhgregg Management Discusses Q1 2013 Results - Earnings Call Transcript

hhgregg (HGG)

Q1 2013 Earnings Call

August 02, 2012 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

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

Christopher Horvers - JP Morgan Chase & Co, Research Division

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

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Michael Lasser - UBS Investment Bank, Research Division

N. Richard Nelson - Stephens Inc., Research Division

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

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

Gregory S. Melich - ISI Group Inc., Research Division

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

Alan M. Rifkin - Barclays Capital, Research Division

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Presentation

Operator

Good day, and welcome to hhgregg's First 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 first fiscal quarter operating results and discuss the revised 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 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 the MD&A and Risk Factor sections of our Form 10-K, which was filed on May 23, 2012; and our Form 10-Q, which was filed this morning, 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 recognizing our dedicated employees and extending 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.

As we mentioned in our press release, our sales results from the quarter were below our expectations. Heading into the quarter, we have projected comparable store sales to be in line with our March quarter results, which was a comparable store decline of negative 0.7.

However, we experienced weaker demand and greater volatility in our business than anticipated. We reacted to the sales shortfall and making adjustments to our cost structure and expects subsequent quarters to benefit from our cost-reduction measures.

Looking forward, these adjustments to our cost structure will allow us to partially offset the impact on earnings from our previously announced sales revised sales assumptions.

What we are disappointed in our results, we are as committed as ever to returning the business to positive comparable store sales.

The video industry remains challenged, with industry ASPs continuing to fall. As we continue to balance traffic growth and profitability in our Video business, we made progress in slowing the decline in gross margins, but at the expense of top line and market share.

While we believe that manufacturers attempts to slow the ASP declines and add profitability back to the category through universal pricing policies and better enforcement among advertised pricing will help profitability in future periods. The broader effect of weak industry demands is expected to continue the way on the category for some time.

In the appliance category, we remain very pleased with the results of our initiatives. We are continuing to gain market share and are becoming the appliance retailer of choice in our markets.

Our growth in the category remains robust, and as likely that appliance will grow to be our largest product category this fiscal year.

We are also pleased with the stability of gross margins in this category, and believe the appliance business is an attractive business that will continue to drive our business over time.

While the computing and mobile phone industry have negatively impacted as consumers defer purchases until the upcoming product launches by Microsoft and Apple, we were still able to generate positive comparable store sales in this product category.

We have fully rolled out our new IT product display and believe that they will help us build momentum in the back half of this year as new products are rolled out.

We remain committed to our core value of competing on price and differentiating ourselves through service.

While we define big-box consumer products today as appliances and large-screen television, we continue to test new products that set this definition.

We believe there is an opportunity for hhgregg to broaden its product assortment into home products that require delivery or installation.

We believe hhgregg puts big-box products in the home better than anyone. These types of products could leverage our consultive sales force, home delivery service and private label consumer credit card.

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