Regional electronics and appliance retailer hhgregg (NYSE:HGG) recently completed a fiscal year with its fair share of ups and downs given an uneven consumer spending environment. The year ended on a positive note, and although the coming year will also prove challenging, hhgregg’s competitive positioning indicates a bright future that has little risk of being derailed.

Performance Recap
Fourth-quarter net sales increased 12.5% to $364.9 million as the addition of two stores proved sufficient to offset a 6.5% decline in same store sales, which stemmed from poor sales in appliances and indicates that housing trends are far from recovering from depressed levels. Appliance manufacturer Whirlpool (NYSE:WHR) reported that its sales fell 23% when it reported fiscal first-quarter results on April 27. Fortunately for hhgregg, the majority of sales (55%) stem from video, where comps improved 1.5% on continued strength in flat-panel LCD and Plasma televisions. The rest of sales stem from the ‘other’ category, which eked out a 0.6% comparable sales increase on strong computer sales.

Expense controls pushed gross margins up and SG&A down to 19.8% of total sales, which boosted operating income to 7.1% of sales. This outdid Best Buy (NYSE:BBY), which reported a 6.7% operating income margin as its own same store sales fell 4.9%. Hhgregg’s fourth-quarter earnings grew over 30% to 42 cents per diluted share.

Hhgregg’s full-year performance was more mixed as same store sales fell in all three primary categories. Profit trends were murkier, though net income increased as a percent of sales on a one-time charge in the previous year. Earnings were $1.10 per diluted share. The coming year will be more of a challenge – management expects earnings to reach $1 at best as total net sales growth should come in between 3 – 7%. Comparable sales are projected to fall 7 – 12%.

The Bottom Line
Hhgregg ended the quarter with 111 stores and as a regional operator currently serving parts of the Midwest and Southeast. Conn’s (Nasdaq:CONN) is another regional rival that operates primarily in Texas and reports results this Thursday. This leaves plenty of real estate to expand and hhgregg believes, as its website states, its “proven ability to successfully penetrate new markets” is a competitive strength, along with a highly trained sales staff, merchandise mix geared to higher-end video and appliance goods and overall customer service focus.

The demise of Circuit City has also enhanced hhgregg’s competitive position, and with sales levels a mere 3% of Best Buy’s total sales, hhgregg can happily coexist indefinitely with the undisputed industry leader. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

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