HGGGQ HHGREGG Inc (CE)

We have downgraded the hhgregg, Inc.'s (HGG) recommendation to Underperform from Neutral on the heels of the hhgregg's first-quarter 2012 net loss of $0.02 per share which was below the Zacks Consensus Estimate of a break-even as well as the year-ago quarter earnings of $0.07. The loss reflected a 13.2% drop in comparable store sales with an increase in SG&A as a percentage of net sales.

Moreover, hhgregg's top-line inched down 1.0% to $431.5 million during the quarter. Going forward, we expect net sales and operating margin to remain muted owing to the seasonal shopping patterns, rising costs and competitive pressures. Moreover, weakness across the consumer electronics and appliances industry and alarming macroeconomic factors brings in serious concerns to the topline.

Our six-month target price of $10.00 per share equates to about 8.3x our earnings estimate for 2012. With no annual cash dividend, the target price implies an expected total return of negative 10.5% over that period.
 
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