Hhgregg's Uncommon Expansion Not Without Risks

Retail landlords probably love chains like hhgregg right now, as the electronics and appliance company takes up spaces where other retailers shut their doors or pared back due to the recession. Recent financial performances by the chain, though, suggest that shopping center owners might want to be careful.

The 115-unit hhgregg, which completed its first quarter early this month, forecasts 20 to 22 new stores to open in its current fiscal year and another 40 to 45 locations planned for the following 12 months. In a strange twist, Indianapolis-based hhgregg is moving into three stores once occupied by liquidated retailer Circuit City in the Richmond, Va., area later this year.

Unfortunately, some of hhgregg's financial results of late aren't moving in the same direction as its square footage growth. Same-store sales fell 14.7 percent year over year in its first quarter, and its net income dropped to just under $1.5 million from about $2.1 million during the same year-ago period.

Of course, no one is doing especially well in the current retail environment. Even the specialty leader in electronics, Best Buy, reported a same-store sales drop of 6.2 percent during its first quarter and saw its net income fall as well.

So hhgregg's management is obviously betting on the future and that things will turn around. During the company's annual meeting of shareholders earlier this month, Chairman Jerry Throgmartin acknowledged as much, saying: "We can't control the macro economy. We can control how we operate and perform within it. The opportunity ahead of us is tremendous."

Retail landlords can only hope he is right and that the company's story continues to head in a growth direction as opposed to a darker storyline, in which it goes down the same path of former retailers whose vacant stores it's replacing.