Hhgregg Inc. (HGG) reported its fourth-quarter and full year 2011 operating results. Income from continuing operations for the quarter were $15.9 million or 39 cents per share, which was above the Zacks Consensus Estimate of 29 cents.

Both net income and earnings increased 59% and 56% respectively in the year-ago quarter. The increase was primarily attributable to strong inventory management and higher merchandise margins.

For the full year 2011, net income was $49.4 million or $1.22 per share compared to $39.2 million or $1.03 per share.

 Quarter in Detail

Hhgregg’s net sales rose 21.5% to $507 million in the reported quarter. This was due to a net addition of 42 stores during the past one year partially offset by 10.8% decline in comparable store sales.

The decrease in same-store sales of Hhgregg was attributable to a 3.0% decrease in the video category during the three-month period ended March 31, 2011 as a result of a decrease in unit demand, a double-digit decline in average selling prices due to lower-than-expected demand for emerging technologies.  

For the full year 2011, net sales surged 35.4% to $2.1 billion attributable to the net new addition of stores, partially offset by a decline of 4.0%.

Gross margin based on net sales increased 92 basis points to 31.5% in the current quarter. The increase was primarily driven by improved margin performance in the appliance category.

SG&A based on net sales also plunged approximately 89 basis points in the fourth quarter of 2011 due to increased leverage of expenses based on the company’s overall increase in sales.

Net advertising expense based on net sales increased approximately 38 basis points in the reported quarter.

 Cash Flow, Balance Sheet and Share Repurchase

The company ended the year with cash and cash equivalents of $48 million while net cash provided by operating activities declined to $60 million compared to $107.8 million in the prior year. The decline was primarily attributable to higher working capital requirements. The company has no long term debt.

The Board of Directors authorized $50 million share repurchase plan.

Guidance
 
Concurrent to the earnings release, management provided an outlook for fiscal 2012. For fiscal 2012, the company expects earnings to be in the range of $1.20 to $1.35 a share. The Zacks Consensus Estimate is in the mid range of the company’s guidance at $1.30 a share.

Net sales for the year are expected to increase in the 15% to 20% range, while comparable store sales are expected to be negative 3% to flat. During fiscal 2012, the company expects to open 35 to 40 net new stores. Capital expenditures for the year are expected to be in the range of $75 million to $80 million.

hhgregg, Inc. operates as a specialty retailer of consumer electronics, home appliances, and related services and primarily competes with Best Buy Co.Inc. (BBY). hhgregg currently has a Zacks #3 Rank, which implies a short term Hold’ rating on the stock.

 
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