As announced in the preliminary results reported on Jan 14,
appliance and electronic retailer hhgregg Inc. (
HGG ) posted third
quarter fiscal 2013 adjusted earnings (excluding one-time charge)
of 52 cents per share, missing the prior-year quarter earnings of
60 cents by 13.3%. The results were in line with the Zacks
Revenues and comparable-store sales decline, especially in the
video category and higher selling, general and administrative
(SG&A) expense ratio led to the year-over-year decline in
earnings. The decline also partially offset the benefit from
improved gross margins and addition of new stores.
Quarter in Detail
hhgregg's net sales dropped 3.6% year over year to $799.6
million in the reported quarter due to a decline in comparable
store sales. Sales also fell shy of the Zacks Consensus Estimate of
$813.0 million. However, the company opened 20 new stores in the
last 12 months.
Comparable store sales witnessed a 9.7% decline in the quarter
compared to the previous-year period as the poor performance of
video and other categories overshadowed the improved results of the
appliance and computing and mobile phones categories.
Gross margin expanded 10 basis points (bps) to 27.3% in the
quarter, resulting from improved margin rates in the video and
appliance category, offset by a decline in computing and mobile
phone and other categories.
Selling, general and administrative expenses (SG&A), as a
percentage of net sales, increased 47 bps in the quarter to 17.4%,
owing to higher occupancy costs, offset by cost control measures.
Net advertising expense as a percentage of net sales also climbed 8
bps to 4.8% in the reported quarter, due to the deleveraging effect
of the net sales decline.
As discussed previously, the 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 severely
impacted overall store traffic and video category sales.
However, the company made strategic decisions to improve the
gross margin rates in the video category. The company focused on
larger screen LED models, which generate higher gross margin rates
than smaller screen LCD models. The company also reduced its focus
on promotional activity within the video category in the quarter,
which thereby improved the gross profit margin rate for the video
category and the total company gross margin rates.
The company reports its business under the following product
The Video category (comprising 39% of total
sales mix) offers premium video products, branded appliances, audio
products and accessories. Comparable store sales declined 24.6% in
the current quarter compared with a decline of 4.8% in the
prior-year period, resulting from double-digit decrease in unit
demand partially offset by increase in average selling prices
during the quarter.
The Appliances category (comprising 35% of
total sales mix) offers a broad selection of major appliances,
including latest range of refrigerators, cooking ranges,
dishwashers, freezers, washers and dryers, sold under a variety of
leading brand names. Comparable store sales in the Appliance
category witnessed same store sales growth of 6.1% compared with a
growth of 6.8% in the prior-year period, driven by both increase in
average selling prices and units sold.
The Computing and mobile phones category
(comprising 14% of total sales mix) offers a broad selection of
computer and mobile phone products, including notebook computers,
tablets and mobile phones. The category reported same store sales
growth of 16.2% versus a growth of 91.4% in the prior-year period.
The quarter witnessed increased demand for tablets, with less
demand for mobile phones.
Apart from the mentioned products, the company also sells
Other products (comprising 12% of total sales mix)
like audio systems, furniture, mattresses and other select popular
consumer electronics and accessories. Same store sales declined
15.2% in the quarter compared with a decline of 7.1% in the
prior-year period due to double-digit decreases in cameras,
camcorders, small electronics and mattresses, partially offset by
sales from the furniture and fitness equipment categories.
Consistent with the company's preliminary third quarter results
reported on Jan 14, the Indianapolis-based retailer revised its
earnings and sales 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
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
The company expects capital spending of approximately $45
million, also lower than the previous guidance of $50.0 million to
$55.0 million. However, the company had forecasted capital
expenditure in the range of $35.0 million to $40.0 million in its
We are witnessing continued growth in the appliances business,
with its introduction of new products in furniture and fitness
equipments. The company is also expanding its computing and mobile
phones category and focusing on initiatives to drive additional
traffic and increase sales.
However, the industry-wide headwind in video category has
prompted the company to reduce its dependence on new product
innovations in the video sector. hhgregg has also been testing new
merchandise categories to improve the overall mix of business from
the video category. However, the diversification is expected to
take time and thus we continue to expect sluggish performance in
the video category over the near term.
hhgregg holds a Zacks Rank #5 (Strong Sell). Stocks in the
sector worth considering are Conn's, Inc. ( CONN ),
Aaron's Inc ( AAN ) and
Radioshack Corp ( RSH ). While Conn's
holds a Zacks Rank #1 (Strong Buy), Aaron's Inc and Radioshack Corp
hold a Zacks Rank #2 (Buy).AARONS INC (AAN): Free Stock Analysis ReportCONNS INC (CONN): Free Stock Analysis ReportHHGREGG INC (HGG): Free Stock Analysis ReportRADIOSHACK CORP (RSH): Free Stock Analysis
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