Weak sales of major appliances, which make up more than a third of HHgregg Inc.'s (HGG) annual revenue, are weighing on the retailer's fiscal 2010 outlook and its shares Tuesday.

The regional electronics and appliance retailer on Tuesday listed housing-related weakness in appliance sales, along with the broader economic climate and falling television set prices, as the major factors in its disappointing sales and earnings forecasts.

HHgregg said it expects fiscal 2010 per-share earnings of between 85 cents and $1 -- below the consensus forecast of $1.09 a share, according to Thomson Reuters. It expects same-store sales to decline 7% to 12% for the year, with trends being worse in the first half and improving in the second.

Fiscal fourth-quarter earnings of 42 cents a share on a 6.5% decline in same-store sales were in line with the company's April 7 preannouncement.

"We obviously don't know exactly when the economy will improve and believe it is prudent to plan conservatively," President and Operating Chief Dennis May said during a conference call.

HHgregg shares have nearly doubled year to date amid signs it is picking up some of the share given up when Circuit City Stores Inc. (CCTYQ) went out of business. The stock fell 6.8% in recent trading to $15.72 amid the disappointing forecast.

HHgregg said it continues to gain favor with customers and suppliers, and it expects the weak economy and shrinking retail industry will give it new opportunities to add stores at favorable rent rates.

But the most recent results and the outlook show that appliances are a mixed blessing for HHgregg.

On the one hand, appliances generate gross margins above the Indianapolis company's average for all products. Despite intense promotional activity from top U.S. appliance retailer Sears Holdings Corp. (SHLD) and others, gross margins have been relatively stable, May said.

In addition, higher-priced front-loading washers and three-door refrigerators remain popular as shoppers look for upgrades to energy efficiency and style, and that's helping to push up HHgregg's average sales ticket.

HHgregg, which currently has about 110 stores, also says it's gaining market share in the category. It expects to open 16 to 18 new stores this fiscal year, funding the expansion through internally generated cash, and it is one of the few U.S. chains expanding.

This year, however, is expected to mark the third year in a row of challenging appliance industry trends. Major home appliance shipments fell nearly 9% in 2008, according to the Association of Home Appliance Manufacturers.

HHgregg expects overall industry shipments to return to their historical growth rate of low single digits eventually. Meanwhile, though, appliances historically make up an even greater share of HHgregg's first-quarter sales than the rest of the year. And after a nearly 20% drop in same-store appliance sales during the fourth quarter ended March 31, company executives said they are taking a cautious view despite recent signs of a business pickup.

"After a difficult March and April, our appliance business began to pick up in May," said May, who will succeed retiring Chief Executive Jerry Throgmartin in August.

Sales of TV sets and other video products, which represent about 50% of company sales, grew 1.5% on a same-store basis for fiscal 2009.

Some analysts said investors should use the weakness in share prices Tuesday to buy HHgregg shares.

Hudson Square Research analyst Scott Tilghman said he believes management guidance is conservative, adding that fiscal 2009 first-half results only accounted for about 15% of the full-year outcome.

Credit Suisse analyst Gary Balter told clients that looking past the near term, "the outlook remains quite promising."

HHgregg is gaining efficiency as it expands, leveraging advertising costs and distribution, while gaining favor with vendors and adding market share, executives said.

"It is a very good time to be a growth company," May said.

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com

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