On Feb 28, we downgraded
) to Underperform due to a disappointing third quarter fiscal
2013 (ended December 31, 2012) and a consequent cut in fiscal
2013 outlook, particularly due to continued decline in the video
Why the Downgrade?
Appliance and electronics retailer, hhgregg has witnessed
sharp downward estimate revisions after it announced weak
preliminary results for the third quarter fiscal 2013 on Jan 14.
hhgregg later delivered weak third quarter results on Jan 31 and
also slashed its earnings, sales and comparable sales guidance
for fiscal 2013 due to sluggish video category sales.
hhgregg's third quarter earnings declined 13.3% from the
prior-year quarter due to revenue and comparable-store sales
decline, especially in the video category. Sales dropped 3.6%
year over year due to a decline in comparable store sales. Sales
also fell shy of the Zacks Consensus Estimate. The company also
reported higher selling, general and administrative (SG&A)
expense ratio, which resulted in the decline.
Following the release of third quarter results, the Zacks
Consensus Estimate for fiscal 2013 has gone down 1.4% to 75 cents
per share. The Zacks Consensus Estimate for fiscal 2014 has also
declined 1.2% to 84 cents per share. With the Zacks Consensus
Estimates going down, the company now has a Zacks Rank #5 (Strong
Cause for Concern
hhgregg's video category is suffering from significant
top-line pressure 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. Moreover, promotional activities or product innovation
within the video category has further declined the gross profit
margin rate for the video category and total company gross margin
Though hhgregg has slightly improved its margins in the third
quarter fiscal 2013 and also been testing new merchandise
categories to improve overall mix in the video category, we
believe that the industry-wide headwind in video category has
overshadowed the company's efforts to improve the overall mix of
business. Moreover, we continue to expect sluggish performance in
the video category over the near term.
Other Stocks to Consider
Not all stocks are performing as poorly as hhgregg. Other
retail and wholesale stocks that are presently doing favorable
Green Mountain Coffee Roasters, Inc.
Natural Grocers by Vitamin Cotta
). Green Mountain holds a Zacks Rank #1 (Strong Buy), while
Safeway and Natural Grocers carry a Zacks Rank #2 (Buy).
GREEN MTN COFFE (GMCR): Free Stock Analysis
HHGREGG INC (HGG): Free Stock Analysis Report
NATURAL GROCERS (NGVC): Free Stock Analysis
SAFEWAY INC (SWY): Free Stock Analysis Report
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