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Hhgregg's Loss Widens, Guides Lower

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Hhgregg Inc.’s first quarter ended June 30, 2012 adjusted loss of 16 cents per share was in line with the Zacks Consensus Estimate. However, the loss incurred in the first quarter of 2013, was decently wider than prior-year quarter’s loss of 2 cents per share. Decline in comparable store sales, gross margin contraction and higher selling, general and administrative expenses incurred during the period were responsible for the wider loss.

Quarter in Detail

Hhgregg’s net sales rose 13.5% to $489.9 million in the reported quarter, driven by 30 new store openings during the calendar year, partially offset by a decline in comparable store sales. However, sales fell shy of the Zacks Consensus Estimate of $490 million.

Same store sales witnessed a 5.1% decline in the quarter compared to previous year due to poor performance of the video and other categories. The company reports its business under three product categories

Under the Video category, the company offers premium video products, branded appliances, audio products and accessories in its stores. Net sales in the Video category climbed 33% year over year while comparable store sales in the segment went down by 16.7% due to low demand during the quarter.

Under the Appliances category, it offers a broad selection of major appliances, including the latest generation refrigerators, cooking ranges, dishwashers, freezers, washers and dryers, sold under a variety of leading brand names. Appliance category witnessed a sales growth of 49% and same store sales growth of 6.3%.

Under the Computing and mobile phones, the company offers a broad selection of computer and mobile phone products, including notebook computers, tablets and mobile phones. Computing and mobile phones reported a sales growth of 8% with a same store sales growth of 8.7%.

Apart from the mentioned products, the company also sells Other products like audio systems, furniture, mattresses and other select popular consumer electronics and accessories. These products reported sales growth of 10%, while same store sales declined 19.7% due to low sales of cameras, camcorders and small electronics.

Gross margin, shrank 30 basis points to 29.9% in the quarter. The decline was caused by poor performance in the video and appliance category due to increased promotional expenses in the segment.

SG&A, as a percentage of net sales, improved approximately 32 basis points (bps) in the quarter to 24.3%. Net advertising expense based on net sales climbed 90 bps to 5.6% in the reported quarter, driven by increased promotional expenditures to drive market share.

Other Financial Details

Hhgregg repurchased 1.1 million shares during the reported quarter for a total cost of $11.2 million. The share buyback was part of the $50 million share repurchase program that commenced on May 24, 2012.  As of June 30, 2012, the company had $38.8 million worth of shares outstanding under the current share repurchase program.


Concurrent with the earnings release, management updated its outlook for fiscal 2013. For fiscal 2013, the company lowered its earnings guidance to a range of 90 cents to $1.05 from previously announced band of $1.12 to $1.27.

Net sales for fiscal 2013 are expected to increase in the 3%-6% range compared to previously announced range of $1.12 to $1.27, while comparable store sales are expected to be in the range of negative 6% to negative 4%. Hhgregg also expects to open 20 to 22 new stores in fiscal 2013.

The company plans to launch several new products to improve its store productivity. In the second quarter of fiscal 2013, the company plans to improve its online business by launching the ‘buy online, ship from store’ program. The company also plans to add additional Apple products in its stores in an effort to boost sales in the coming quarters.

Hhgregg operates as a specialty retailer of consumer electronics, home appliances, and related services, and primarily competes with Best Buy Co. Inc. (BBY - Free Report) . Hhgregg currently has a Zacks #5 Rank (short-term Strong Sell rating) on the stock.

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