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Gregg Appliances, Inc. Announces Q3 Results
Feb 14, 2006
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Gregg Appliances reported a 10.6 percent increase in total sales for the 3 months ended Dec. 31, 2005, as sales increased to U.S. $281.2 million compared to $254.2 million for the comparable prior year period. This increase in sales was primarily attributable to the net addition of eight stores during the past 12 months coupled with a 1.7 percent increase in comparable stores sales for the third quarter of fiscal 2006. The comparable store sales performance was primarily driven by sales growth in the major appliance and video categories, with gains in flat panel TVs outpacing the sales decline in projection and tube TV sales.

Net income for the third quarter of fiscal 2006 was $22.6 million compared with $14.6 million for the third quarter of fiscal 2005. Net income for the third quarter of fiscal 2006 included a pretax gain of approximately $27.9 million on the transfer of the majority of our extended service plan obligations to a third party. This gain partially offset by a $4.6 million increase in pretax interest expense versus the third quarter of fiscal 2005 associated with the recapitalization of Gregg Appliances in Feb. 2005, as well as $15.3 million in income tax expense.

Sales for the 9 months ended Dec. 31, 2005 increased 13.6 percent to $679.1 million from $597.6 million for the 9 months ended Dec. 31, 2004. This increase in sales was largely due to the net addition of eight stores during the past 12 months coupled with a 3.2 percent increase in comparable store sales for the first 9 months of fiscal 2006. The comparable store sales improvement was largely due to strong performance in the major appliance and video categories, particularly in flat panel TVs, partially offset by weaker tube TV sales.

Net income for the 9 months ended Dec. 31, 2005 was $18.5 million as compared to $15.1 million for the comparable prior year period. Net income for the first 9 months of fiscal 2006 included a $27.9 million gain on the transfer of extended service plan obligations to a third party, partially offset by a $2.5 million pretax charge, in the aggregate, associated with the decision to outsource product service and repair work to third party providers. Net income for the first 9 months of fiscal 2006 also included an increase of $13.6 million in pretax interest expense versus the comparable prior year period due to Gregg Appliances' recapitalization, as well as $16.2 million in income tax expense. Net income for the first 9 months of fiscal 2005 included the recognition of a $6.7 million charge to reflect the increase in fair market value of certain variable stock-based awards.

Gregg Appliances also announced that it currently expects comparable store sales for the fourth quarter of fiscal 2006 (the 3 months ending March 31, 2006) to decline between 3 percent to 5 percent as compared to the comparable period in fiscal 2005 as a result of declining consumer demand for big screen projection TVs in favor of plasma and LCD flat panel technology. We expect, however, that earnings before net interest expense, income taxes, depreciation and amortization will increase during the fourth fiscal quarter compared to the prior year period. During this transition, Gregg Appliances expects that larger screen plasma and LCD flat panel supply adjusts in the second half of calendar 2006 to compensate for the declining demand for big screen projection TVs.

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