Zacks Investment Research downgraded
) to a Zacks Rank #5 (Strong Sell) on Jan 16. Expectations of a
disappointing third quarter fiscal 2013 and a consequent cut in
the fiscal 2013 outlook, particularly due to continued decline in
video category, are the reasons for the downgrade.
Why the Downgrade?
Appliance and electronics retailer, hhgregg has witnessed
sharp downward estimate revisions after it announced preliminary
results for the third quarter fiscal 2013 (ended December 31,
2012), which is scheduled to release on Jan 31. hhgregg has also
revised its guidance for fiscal 2013 ending March 31, 2013.
For the third quarter, the company expects net sales to
decline approximately 3.6% year over year to $799.6 million, with
a decline of approximately 9.7% in comparable store sales. The
poor comparable sales performance is expected to come from both
the video and other categories, which are expected to decline
24.6% and 23.7%, respectively.
This decline is expected to overshadow the positive comparable
sales in the appliance category as well as the computing and
mobile phones category, which are expected to increase
approximately 6.1% and 16.2%, respectively.
Further, lower-than-expected sales performance in the video
category is expected to impact third quarter earnings. Excluding
one-time store impairment charge, hhgregg projects a decline of
approximately 21.3% in third quarter fiscal 2013 adjusted
earnings to 52 cents.
Following the weak preliminary third quarter results, the
Indianapolis-based retailer revised its guidance for fiscal 2013.
hhgregg has reduced its earnings forecast for fiscal 2013 to a
range of 70 to 80 cents per share compared with the previous
guidance of 90 cents to $1.05 per share.
The company has also lowered its comparable store sales
guidance and expects it in the range of negative 8.5% to negative
7.5%, compared with the prior guidance range of negative 6.0% to
negative 4.0%. Net sales are now expected to increase in the
range of flat to 1.0%, much lower than the previous growth range
of 3.0% to 6.0%. In addition, the company expects capital
spending in the range of $35.0 million to $40.0 million, also
lower than the previous guidance of $50.0 million to $55.0
hhgregg has been experiencing disappointing results in the
video category since last few quarters due to fundamental shifts
in the video category and lower-than-expected margins across all
screen sizes. In addition, declining industry demand for flat
screen televisions severely impacted overall store traffic and
video category sales.
Moreover, promotional activities or product innovation within
the video category has further declined the gross profit margin
rate for the video category and the total company gross margin
Though hhgregg has also been testing new merchandise
categories to improve overall mix in the video category, we
continue to expect sluggish performance in the video
All the estimates declined for the third quarter over the past
7 days and the Zacks Consensus Estimate decreased 11.9% to 52
cents per share. For 2013, all the estimates were revised
downward over the same timeframe, sinking the Zacks Consensus
Estimate by 19.4% to 75 cents per share. For 2014, most of the
estimates declined, which dropped the Zacks Consensus Estimate
9.3% to 88 cents per share over the last 7 days.
Other Stocks to Consider
Not all stocks are performing as poorly as hhgregg. Other
computer & electronics retail industry stocks with favorable
Zacks Rank include
) with a Zacks Rank #1 (Strong Buy) and
) with a Zacks Rank #2 (Buy).
AARONS INC (AAN): Free Stock Analysis Report
CONNS INC (CONN): Free Stock Analysis Report
HHGREGG INC (HGG): Free Stock Analysis Report
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