) hit a 52-week low of $7.43 on Feb 4, and eventually closed at
$7.54. The drop in share price could be attributed to weak third
quarter fiscal 2014 results and a reduced fiscal 2014 guidance,
reported last week. In fact, shares of this appliance and
electronics retailer have dipped roughly 45% year-to-date.
Factors Hurting hhgregg
On Jan 30, hhgregg reported lower-than-expected earnings and
sales in the third quarter fiscal 2014 and cut its outlook for
hhgregg's earnings of 17 cents per share missed the Zacks
Consensus Estimate by 41.4% due to weaker-than-expected sales. It
also declined 67.3% from the prior-year quarter due to a decline
in comparable store sales, lower gross margins and higher
selling, general & administrative expense (SG&A)
hhgregg's net sales declined 11.6% year over year to $707.1
million in the quarter due to a decline in comparable store
sales. Sales also lagged the Zacks Consensus Estimate of $716.0
The sluggish revenue in the third quarter was mainly due to
relatively weak sales in the holiday season. During the holiday
season, the company offered aggressive promotional offers on
items like televisions and tablets in order to compete with
big-box retailers like
Wal-Mart Stores Inc
Best Buy Co.
), which dragged down holiday sales margins. hhgregg has now
decided to curb its promotional spending and instead shift its
focus toward a broader mix of home products, including appliances
and home furnishings.
Comparable store sales decreased 11.2% in the quarter as a
decline in consumer electronics and computing and wireless
categories was partially offset by growth in appliances and home
products categories. Comp sales were wider than the decline of
9.7% in the year-ago period and 6.2% in the second quarter of
We note that hhgregg has been delivering disappointing results
in the consumer electronic category since the past one year due
to lower-than-expected margins across all screen sizes. In
addition, declining industry demand for flat screen televisions
severely impacted overall store traffic and consumer electronic
The company is trying to improve its consumer electronics
category through various initiatives. hhgregg has been expanding
its appliance business and focusing on initiatives to drive
additional traffic and increase sales. The company is taking
initiatives to restructure its sales mix, expand customer base
and enhance its service offerings. However, the improvement in
the consumer electronic category is expected to take time and
thus we continue to expect a sluggish performance in fiscal
Reduced Fiscal 2014 Guidance
Following weak third quarter fiscal 2014 results and
lower-than-expected comps, hhgregg lowered its top and bottom
line guidance for fiscal 2014. Adjusted earnings are expected to
be in the range of 30 cents to 40 cents, lower than the prior
estimate of 75 cents to 90 cents.
For fiscal 2014, the company expects net sales to decline in
the range of 4%-5.5% worse than the prior guidance of negative
1.5% to flat. Comparable store sales is expected in the range of
negative 7.0% to negative 5.5%, worse than previous expectation
of negative 3.5% to negative 2.0%.
The company does not intend to open any new store in fiscal
2014, in contrast to its earlier expectation of opening one store
in the year. hhgregg holds a Zacks Rank #4 (Sell).
) is a better-ranked stock in the same sector, sporting a Zacks
Rank #1 (Strong Buy).
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