Appliance and electronics retailer,
) again reported weak results in the first quarter of fiscal 2015.
The company missed the Zacks Consensus Estimate for sales and
reported wider-than-expected losses in the quarter. Shares declined
more than 16% after the earnings release.
hhgregg reported a loss of 36 cents per share in the first
quarter of fiscal 2015, wider than the prior year loss of 4 cents
per share and the Zacks Consensus Estimate of a loss of 16 cents.
The loss was primarily due to double-digit drop in comparable store
(comp) sales. An increase in net advertising expense ratio and
SG&A ratio also resulted in the decline.
Hhgregg, Inc - Earnings Surprise |
Quarter in Detail
hhgregg's net sales declined 10% year over year to $472.3
million due to a decline in comparable store sales. Net sales also
lagged the Zacks Consensus Estimate of $492 million by 4%.
Comparable-store sales decreased 10.2% in the quarter due to a fall
in comp sales at all its categories. Comp sales had improved 0.8%
in the year-ago period.
Adjusted gross margin improved 20 basis points to 29.7% in the
quarter owing to a favorable product sales mix shift to product
categories carrying higher gross profit margin rates.
However, SG&A expense ratio increased 205 basis points to
24.7% due to an increase in occupancy costs, wage expense and
increase in home delivery expenses. Net advertising expense ratio
also increased 83 basis points to 5.8% due to the deleveraging
effect of the net sales decline and an increase in advertising
spend for the new branding campaign.
The increase in SG&A expenses and advertising expenses led
to an increase in operating losses. Operating loss margin was 3%,
compared with a loss margin of 0.3% in the last year
Share Repurchase Update
During the quarter, hhgregg repurchased 102,705 shares for $1
million under the company's share repurchase program of $40
million, which will expire on May 20, 2015. At the end of Jun 30,
the company had approximately $39.0 million worth of shares
available for repurchase under the current share repurchase
The company reports its business under the following product
Comparable store sales in this category declined for the first
time, after posting increase in comp sales in the past 11 quarters.
Comp sales declined 2% in the current quarter due to a decrease in
units sold and a slight decrease in average selling price. Last
year, comp sales increased 7.5%.
Computers and Tablets Category:
Same store sales in this category declined significantly by 29.5%
in the quarter compared with growth of 13.2% in the last year
quarter. The decline was due to decreased demand for computers and
mobile phones and lower average selling prices for computers,
partially offset by higher average selling price for tablets.
Same-store sales in this category declined 0.5% in the quarter
compared with 84.5% growth in the prior-year quarter. The decline
was due to lower demand for ready to assemble television stands and
a decrease in sales of mattresses, offset partially by a
double-digit increase in sales of sofas, recliners and dinette
Same-store sales of this category declined 18.7% in the quarter,
which was worse than a decline 15.0% in the year-ago quarter due to
double-digit declines in units sold within the video category. This
was slightly offset by an increase in average selling price, which
was driven by an increase in sales of larger screen and more
premium featured televisions.
hhgregg did not provide a guidance for fiscal 2015 as the
company is working on its strategic initiatives and is pressurized
by continued volatility within the consumer electronics industry.
However, the company still expects the second half of the fiscal
year 2015 to outperform the first half.
The company expects annual comparable store sales to be negative
high single digits to negative mid single digits compared to the
previous expectation of negative low-single-digits to flat. Also,
the company expects earnings per share in fiscal 2015 to be below
the prior-year earnings.
The company also expects to open 2 new stores in fiscal 2015
compared with the prior expectation of opening 2 to 4 new stores
during fiscal 2015. Capital expenditures are expected to be in the
range of $20 million to $23 million for fiscal 2015. The Zacks
Consensus Estimate for fiscal 2015 is pegged at earnings of 12
cents per share.
We note that hhgregg has been disappointing its investors over
the past one year with sluggish results, particularly due to its
consumer electronic category. Revenues or growth in the category
has declined due to lower-than-expected margins and declining
industry demand for flat screen televisions. Weak promotional
activities are also adding to its woes. In addition, lack of
innovation in televisions has been severely impacting overall store
The company also witnessed sluggishness in same-store sales in
the computing and wireless category in the last five quarters. The
company's home products category is also showing signs of
However, the company is employing different initiatives to
revive its business such as product innovation, shifting focus from
one furniture brand to five brands and even exiting underperforming
businesses. hhgregg holds a Zacks Rank #2 (Buy).
Another appliance retailer Conn's Inc. (
) also holds the same rank as hhgregg. Other stocks worth
considering in the retail sector include Dillards Inc. (
) and J.C. Penney Co Inc (
), both holding a Zacks Rank #2.
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