Appliance and electronic retailer hhgregg Inc. (HGG) reported earnings of 12 cents in the second quarter of fiscal 2014, which lagged the Zacks Consensus Estimate of 14 cents per share by 14.3% due to weaker-than-expected sales.
However, earnings increased 9.1% from the prior-year earnings of 11 cents per share. The upswing in earnings was driven by a decline in selling, general & administrative expenses (SG&A) ratio by 22 basis points and lower share count owing to share buyback.
Quarter in Detail
hhgregg’s net sales declined 3.3% year over year to $568.3 million in the reported quarter due to decline in comparable store sales. Comparable store sales were adversely affected by a weak retail sales environment owing to low consumer confidence. Sales lagged the Zacks Consensus Estimate of $608.0 million.
Comparable store sales decreased 6.2% in the quarter as decline in the consumer electronics and computing and wireless categories was partially offset by growth in the appliances and home products categories. Comp sales declined 8.8% in the year-ago period.
Gross margin remained flat at 29.6% in the quarter as favorable product sales mix shift was offset by modest gross margin rate declines within most of the categories.
During the quarter, hhgregg repurchased 0.8 million shares for $13.9 million, under the company’s share repurchase program of $50 million. The company opened 5 stores in the last 12 months and now has 228 stores as of Sep 30, 2013.
The company reports its business under the following product categories:
Appliances: Comparable store sales for this category improved 2.6% in the current quarter compared with 1.1% growth last year, driven by an increase in average selling price.
Computing and Wireless Category: Same store sales for this category declined 7.2% in the quarter. The decline was due to lower sales of mobile phones and notebook computers, partially offset by an increase in demand for tablets. Year-ago quarter, comp sales increased 10.8%.
Home Products: The category showed significant improvement and reported same store sales growth of 69.1% in the quarter versus a decline of 6.9% last year. The improvement was primarily a result of increased sales from the introduction of furniture and fitness equipment categories.
Consumer Electronics: Same store sales for this category declined 20.4%, flat year over year, in the quarter due to a double digit decline in television sales, largely resulting from the strategy of offering fewer entry level models.
We believe that the company is taking initiatives to restructure its sales mix, expand customer base and enhance its service offerings. hhgregg has been consistently improving its comparable store sales growth rate in the appliance category. The company has also been growing its business with the introduction of new products in the furniture and fitness categories.
The company is also trying to improve its consumer electronics category through its initiatives. However, the category is suffering due to industry-wide headwinds such as a decline in demand for flat screen LCD televisions. However, we believe that the company’s persistent efforts to restructure the sales mix will improve overall store traffic and category sales in the upcoming quarters. hhgregg holds a Zacks Rank #2 (Buy).
Other retail and wholesale stocks that are performing well currently include Best Buy Inc (BBY), Gamestop Corp Holding Co (GME) and Fortune Brands Home & Security (FBHS). While Best Buy holds a Zacks Rank #1 (Strong Buy), Gamestop and Fortune Brands carry a Zacks Rank #2.