H.h. gregg to Carry ‘Six or Seven’ Ultra HD TV Models During Q4

H.h. gregg is revamping its product mix by scaling back declining CE categories and adding more SKUs to the growing home products segment, CEO Dennis May said on the company’s fiscal Q1 earnings call Thursday. While CE remains an “important category,” it will become a smaller piece of the retailer’s overall sales mix as it moves into new territory, May said. The “reshaping” of the product mix will change the timing of the profit and sales and reduce the company’s “reliance on sales and profits within the holiday season,” he said.

The company’s Q1 CE category comp store sales decline was driven by a double-digit comp store sales drop in TVs, May said. H.h. gregg is continuing to reshape its video mix to focus on larger screen sizes and “rationalize” its roster of “smaller and mid-sized non-connected devices to combat the industry headwinds,” May said. Despite potential bright spots including 4K and Ultra HD, May expects the TV industry to “remain negative” through the rest of the fiscal year. The retailer will take a “pragmatic approach” by emphasizing stronger areas of the video category as it looks to differentiate itself from competitors, he said. Elsewhere, the tablet category continues to show “significant growth,” May said, while the company is shaving its selection of laptops and desktops.

H.h. gregg’s appliance group, which leads all product categories in revenue and gross margin dollars, posted its eighth consecutive quarter of comp store revenue growth, May said. The home products business -- including home fitness and home entertainment furniture -- grew from 2 percent to 5 percent of total company sales revenue over the year-ago quarter, May said.

In its smaller 25,000-square-foot store footprint, h.h. gregg will have a “dominant” selection of appliances, “optimize” its CE business, reallocate space within the PC and mobile space to focus more on tablets and dedicate more space to home products, May said. The goal of the sales mix shift is to lift the average unit volumes of stores, he said.

H.h. gregg’s CE category -- including TV, audio, personal electronics and digital accessories -- remains “challenged” by a struggling CE industry that has contributed “volatility” to the retailer’s results as the industry has transitioned to connected and wireless products, May said. Video remains the largest segment of CE, and despite the challenges in the category, May said the retailer is “encouraged” by innovation in new TV technologies and in larger screen sizes that will “continue to gain traction.” Still, the company expects “headwinds” going into the back half of the year and anticipates mid- to single-digit declines similar to first-half results for TVs, May said. Among new technologies, OLED will be a “real product” during the holiday season, “albeit at a high price,” he said.

H.h. gregg scaled back its video SKUs by 10 percent compared with fiscal Q1 2013, which also saw a 10 percent reduction over fiscal Q1 2012, May said. The company pulled back on opening price points in smaller screen sizes but has “reinvested” the allocation in 60 inches and larger where it sees the greatest opportunity for video sales, May said. The 60-inch and larger category expanded by 60 percent in the quarter, May said, with the smart TV category representing more than 60 percent of TV business currently.

May was cautious about Ultra HD on h.h. gregg’s previous earnings call but said Thursday the company is now seeing “a little more velocity” in the category based on sales of the Sony 55-inch and 65-inch models. He focused on Ultra HD products’ ability to “upconvert existing content.” H.h. gregg will carry “six or seven” Ultra HD TVs by the holiday season including products from Samsung and LG, he said. To drive interest in the larger screen segment, the retailer has added “opening price points” in 50-, 55- and 60-inch sizes, he said. Although the new SKUs resulted in lower gross margins for TVs in fiscal Q1, they helped create awareness around the larger screen sizes, he said. “The addition of large [opening price point] SKUs more than offset the impact of reducing some of the smaller screen sizes,” he said.

On the effect of universal pricing policies on video margins, May said they've had a positive impact. He cited pricing policies from Samsung, LG, and most recently Sharp, that have brought stabilization to average selling prices in TVs, he said.

Within the CE category in whole, video sales were down less in fiscal Q1 for h.h. gregg compared with categories such as GPS, camcorders and cameras that “are declining significantly,” May said. Interest in those products is transitioning to tablets and wireless products, he said. “We see a continual shift out of traditional CE products into IT, mobility and wireless products,” he said. In mobile, h.h. gregg is narrowing the product mix to focus on the highest-profile brands including Apple iPhones and Samsung Galaxy smartphones, he said.

Revenue grew 7 percent for h.h. gregg in fiscal Q1, to $525 million. The company had a net loss of $1.3 million versus a net loss of $5.7 million in the year-ago quarter. In addition to realigning the product mix, h.h. gregg plans to expand its customer base through “seamless” in-store financing options for the third of customers who apply but don’t qualify for the GE Capital-backed h.h. gregg credit card. The company also plans to offer items online that it doesn’t offer in stores, it said in the quarterly report. H.h. gregg shares closed 5 percent lower to $14.88.