Friday, July 10, 2009

Huge expansion at HHGregg (HGG)

AlphaNinja - Electronics retailer HHGregg (HGG) announced earlier this week that it would be increasing its planned store openings for this fiscal year. You read that right - as the US consumer is facing his/her worst environment in a generation, this retailer is expanding.

The company upped its planed store openings for the current fiscal year to 20-22, from a previous plan of 16-18. 19% growth in new stores would seem to be a crazy decision in this environment, but the company is taking advantage of Circuit City's demise:





HHGregg IPO'd about 2 years ago, and it's shares have beat the pants off the general market:



One reason for the stock outperformance - the company has grown earnings. In addition, the company's gross margin is 6 percent higher than Best Buy (BBY), the category leader. Best Buy makes up for it on scale however, as the companies have nearly identical operating margins.

The stock trades at a what I consider to be a modest 15PE - modest because the company is in a hyper-growth mode. I'll pass on this stock because huge capital spending results in a tiny FCFY, but the company has operated impressively in this environment, and looks to be making an aggressive but potentially lucrative move with this expansion.


1 comment:

  1. It might be a fairly decent idea to expand in this environment. I would bet they would be able to lock in very attractive leases in buildings that used to house Circuit City and CompUSAs.

    I mean those buildings are currently sitting vacant so their owners would love to get some kind of paying tenant in there so their lease can perform.

    They might even be able to compete on cost with Best Buy if these lease savings are substantial enough.

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