On May 29, 2014, we issued an updated research report on hhgregg, Inc. (HGG). This appliance and electronics retailer reported weak results for fourth-quarter and fiscal 2014 on May 20, mainly due to harsh winter weather and continued decline in consumer electronic category.
hhgregg reported adjusted loss of 17 cents in the fourth quarter compared to the prior year adjusted net income of 31 cents per share. The loss was due to a decline in comparable store sales, lower gross margin and an increase in net advertising expense ratio and SG&A ratio. hhgregg’s net sales declined approximately 9.9% due to a decline in comparable store sales. The primary reason cited for weak sales was extreme cold weather. hhgregg witnessed lower traffic in most of its stores, especially in the Midwest and Mid-Atlantic regions due to harsh weather conditions in January, February and the beginning of March.
The poor comparable sales performance is largely attributable to the consumer electronic, computing and wireless and home products categories, which declined during the quarter.
hhgregg has been delivering disappointing results in the consumer electronic category since the past one year due to lower-than-expected margins and declining industry demand for flat screen televisions. Weak promotional activities are also adding to the woes. In addition, lack of innovation in televisions has been severely impacting overall store traffic.
The company also witnessed sluggishness in same store sales in the computing and wireless category in all the quarters of fiscal 2014. Weak comps were due to a decrease in demand for laptops and lower average selling price for tablets. Category comps declined due to the underperforming contract-based mobile phone business, which the company exited during the fourth quarter.
The company’s home products category, which showed signs of weakness during the third quarter declined further in the fourth quarter.
The company is therefore employing different initiatives to revive its business such as product innovation, shifting focus from one furniture brand to five brands and even exiting the underperforming businesses. The company is also focusing on its appliance category, which continues to gain market share through higher sales in the appliance category over the past 11 quarters. Moreover, the company is not relying much on consumer electronics and computing and wireless categories.
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. The Zacks Consensus Estimate for fiscal 2015 is pegged at 12 cents per share.
hhgregg holds a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Appliance retailers Aaron’s Inc. (AAN) and Conn’s Inc. (CONN) are better-ranked stocks in the same sector, sporting a Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy), respectively. Another stock worth considering in the wider retail sector is Citi Trends Inc (CTRN) with a Zacks Rank #1.