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hhgregg Narrows Loss, Beats Rev Estimate

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Appliance and electronic retailer hhgregg Inc. reported a loss of 4 cents in the first quarter of fiscal 2014, narrower than the prior-year quarter loss of 16 cents per share. The reported loss was also narrower than the Zacks Consensus Estimate of 15 cents loss per share.

The narrower loss was driven by comparable store sales growth and cost cutting measures. A decrease in selling, general & administrative expenses (SG&A) ratio and a decline in net advertising expense ratio also contributed to the improvement in first quarter results and managed to offset the impact of a decline in gross margins. Share count declined 13.6% in the quarter which contributed to the earnings growth.

Quarter in Detail

hhgregg’s net sales climbed 7.2% year over year to $524.9 million in the reported quarter due to comparable store sales growth and the addition of 18 new stores in the last 12 months. Sales also beat the Zacks Consensus Estimate of $520.0 million.

Comparable store sales increased 0.8% in the quarter compared to a 5.1% decline in the previous year, driven primarily by growth in the appliances, computing and wireless and home products categories and partially offset by a decline in the consumer electronics category.

Gross margin contracted 40 basis points (bps) to 29.5% in the quarter, resulting from decreases in gross profit margin rates in the consumer electronics and computing and wireless categories, partially offset by a slight increase in gross profit margin rate in the appliance category.

During the quarter, hhgregg repurchased 698,369 shares for $10.3 million, under the company’s share repurchase program of $50 million.

Category Details

The company reports its business under the following product categories:

Appliances: Comparable store sales for this category improved to 7.5% in the current quarter from 6.3% last year driven by an increase in both average selling price and units sold.

Computing and Wireless Category: This category witnessed same store sales growth of 13.2% led by increased demand for tablets, partially offset by a decline in mobile phones and notebook computers. Last year, comp sales increased 8.3%.

Home Products: The category showed significant improvement and reported same store sales growth of 84.5% in the quarter versus a decline of 6.8% last year. The improvement was primarily a result of double digit comparable store sales increase in mattresses, in addition to sales from the introduction of furniture and fitness equipment categories.

Consumer Electronics: Same store sales for this category declined 15.0% in the quarter due to double digit comparable store sales decrease in televisions, largely resulting from the strategy of offering fewer entry level models. However, the decline in comp sales was better than the prior-year quarter decline of 18%.

The company’s initiatives to restructure its sales mix, expand customer base and enhance its service offerings bore fruits and hhgregg posted a comparable store sales increase in the quarter. In fact, hhgregg has been growing its business with the introduction of new products in the furniture and fitness categories. The company also expanded its computing and mobile phones category to drive additional traffic and increase sales.

The initiatives have pulled the company out from the continued weakness in the video category. 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 was severely impacting overall store traffic and video category sales.

With its persistent efforts to restructure the sales mix, the company has managed to improve the overall mix of business. We believe hhgregg will continue to focus on driving sales and profit growth through its cost control measures and initiatives to improve its merchandise, sales mix, service offerings and expand its customer base. hhgregg holds a Zacks Rank #1 (Strong Buy).

Other retail and wholesale stocks that are performing well currently include Conns Inc. (CONN - Free Report) , Ingles Market Inc (IMKTA - Free Report) and Best Buy Inc (BBY - Free Report) . While Conns and Ingles Markets hold a Zacks Rank #1, Best Buy carries a Zacks Rank #2 (Buy).

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