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Appliance and electronic retailer hhgregg Inc.’s (HGG - Analyst Report) fourth quarter fiscal 2013 earnings of 31 cents per share declined from the prior-year quarter’s adjusted earnings (excluding one-time charge) of 39 cents by 20.5%. The results, however, beat the Zacks Consensus Estimate by a penny.

Decline in revenues and comparable store sales, especially in the video category, gross margin shortfall and higher advertising expense ratio led to the year-over-year decline in earnings. The decline also partially offset the benefit from addition of new stores.

The video category has been suffering from significant top-line pressure since the last few quarters due to fundamental shifts and lower-than-expected margins across all screen sizes. In addition, declining industry demand for flat screen LCD televisions is severely impacting overall store traffic and video category sales.

Quarter in Detail

hhgregg’s net sales dropped 2.6% year over year to $597.6 million in the reported quarter due to a decline in comparable store sales. Sales also fell shy of the Zacks Consensus Estimate of $627.0 million. However, the company opened 20 new stores in the last 12 months.

Comparable store sales declined 9.8% in the quarter much more than the previous-year’s decline of 0.7% as poor performance of video, computing and mobile phones and other categories overshadowed the improved results in the appliance category.

Gross margin contracted 66 basis points (bps) to 29.9% in the quarter, resulting from lower gross margin rates within categories. The decline also partially offset the favorable shift in net sales mix to the appliance category.

Category Details

The company reports its business under the following product categories:

Video: Comparable store sales for this category declined 25.1% in the current quarter, resulting from a double-digit decline in units sold. The decline was slightly offset by a low single-digit increase in average selling price during the quarter.

Appliances: The Appliance category witnessed same store sales growth of 5.2% driven by an increase in units sold, offset by a decline in average selling prices.

Computing and mobile phones: The category reported a decline in same store sales of 7.1%. The quarter witnessed decreased demand for notebook computers and mobile phones, with increased demand for tablets.

Other: Same store sales for this category declined 3.1% in the quarter due to double-digit decreases in cameras, camcorders, small electronics, partially offset by increases in mattresses and sales from the furniture and fitness equipment categories.

Fiscal 2013 Results

The company reported adjusted earnings of 74 cents in fiscal 2013, which declined 65.7% from the prior-year quarter earnings of $1.11 per share. The results were in line with the Zacks Consensus Estimate.

hhgregg’s net sales declined 0.7% year over year to $2.48 billion in fiscal 2013 due to a 8.7% decline in comparable store sales. Sales also fell shy of the Zacks Consensus Estimate of $2.506 billion.

Guidance

For fiscal 2014, hhgregg expects its earnings in the range of 75 to 90 cents per share. Sales are expected to increase in the range of 1.0% to 3.5%, while comparable store sales are expected in the range of flat to negative 2.5%.

The company expects to open 5 new stores and projects capital spending of approximately $28 million to $32 million in fiscal 2014.

The Indianapolis-based retailer continues to remain focused on driving sales and profit growth through its cost control measures and initiatives to improve its merchandise sales mix, expand its service offerings and its customer base. The company has plans to roll out new home product categories such as bedding, furniture and fitness equipment during fiscal year 2014. Further, the company has plans to sell more of small-to-medium screen sizes in the video category and dedicate resources to larger screen sizes.

However, the industry-wide headwind in video category has prompted the company to reduce its dependence on new product innovations in the sector. hhgregg has also been testing new merchandise categories to improve the overall mix of business. However, the diversification is expected to take time and thus we continue to expect sluggish performance in the video category over the near term.

hhgregg holds a Zacks Rank #3 (Hold). Other retail and wholesale stocks that are performing well currently include Conns, Inc. (CONN - Snapshot Report), Green Mountain Coffee Roasters, Inc. (GMCR - Analyst Report) and The TJX Companies, Inc (TJX - Analyst Report). While Conns and Green Mountain hold a Zacks Rank #1 (Strong Buy), TJX carries a Zacks Rank #2 (Buy).

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