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Hhgregg Lowers 2012 Guidance

Zacks Equity Research

Indianapolis-based appliance and electronics retailer, Hhgregg Inc. (NYSE:HGG - News) has announced the preliminary results for its third quarter 2012, which is expected to be released on February 8, 2012. Hhgregg has also lowered its fiscal 2012 outlook.

According to Hhgregg, net income for the third quarter 2012 is expected to decline to approximately $22.5 million, or 60 cents per share, from the prior-year quarter of $26.9 million, or 66 cents per share. Hhgregg believes that the weak earnings were driven by lower than expected margins in the video category owing to the promotional activities across all screen sizes.

Hhgregg also expects advertising expenses to increase due to the recent initiatives the company has taken up to increase its market share in the appliance and home office categories. In addition, Hhgregg has also launched a mobile product offering to enhance its customers’ shopping experience.

Hhgregg also expects its net revenue for the third quarter 2012 to increase approximately by 26.9% to $829.5 million, from revenue of $653.7 million in the prior-year quarter. The company also forecasts its comparable store sales to increase 3.9% for the third quarter 2012.

In addition, Hhgregg expects its video category and other categories to decrease 4.8% and 7.1%, respectively, while the company expects its appliance category and home office category to increase 6.8% and 91.4%, respectively.

Fiscal 2012 Guidance

The preliminary third quarter 2012 results also led to a revision in fiscal 2012 estimates. Hhgregg now forecasts its 2012 earnings per share in the range of $1.05 to $1.15, compared with the previous guidance of $1.26 to $1.41, as announced on November 2, 2011.

Besides earnings, the company has also updated its fiscal 2012 guidance for same store sales and expects it to remain flat to positive 2%, compared with the previous guidance of flat to positive 3%. Hhgregg also forecasts its net revenue to increase in the range of 22% - 24% for 2012, as compared to the previous guidance of net revenue increase of 20% - 25%.

In addition, the company now expects 35 new store openings in fiscal 2012, while it had previously expected to open around 20-25 new stores in 2012.

Though Hhgregg enjoys a strong liquidity position and remains on-track to continue to execute its long-term growth plan, it also remains concerned about the industry-wide pressure on sales and margin within the video category.

Hhgregg also fears the slowdown in its consumer electronics categories, as the company has seen the same thing happening in its peer companies including Best Buy Company, Inc. (NYSE:BBY - News), Sears Holding Corp. (NasdaqGS:SHLD - News), Target Corp. (NYSE:TGT - News) and Costco Wholesale Corp. (NasdaqGS:COST - News).

Hhgregg, which operates as a specialty retailer of consumer electronics, home appliances, and related services, thus has a Zacks #4 Rank, which implies a short-term Sell rating on the stock. Over the long term, we maintain a Neutral outlook on Hhgregg.

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