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Bear of the Day

Hhgregg, Inc. (HGG) has recently expressed its apprehension with regard to its third-quarter 2012 earnings to decline to approximately $0.60 per share, from the prior-year quarter of $0.66. The estimate slid on the back of lower than expected margins in the video category owing to the promotional activities across all screen sizes.

Hhgregg also expects advertising expenses to escalate due to the recent initiatives taken up to increase its market share in the appliance and home office categories. In addition, Hhgregg has also launched a mobile product offering to enhance its customers shopping experience. The preliminary third quarter 2012 results also led to a downward revision in fiscal 2012 earnings in the range of $1.05 to $1.15, compared with the previous guidance of $1.26 to $1.41.

Going forward, we expect net sales and operating margins to remain muted owing to the seasonal shopping patterns, rising costs and competitive pressures. Moreover, weakness across the consumer electronics and appliances industry may turn out to be serious headwinds to the top-line. We thus maintain our Underperform rating on the stock.

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