hhgregg Remains Neutral - Analyst Blog
15 12월 2012 - 2:02AM
Zacks
We are maintaining our Neutral recommendation on
hhgregg, Inc. (HGG), a specialty retailer of
premium video products, following an appraisal of its second
quarter fiscal 2013 results.
hhgregg’s second quarter earnings of 11 cents per share exceeded
the Zacks Consensus Estimate by 22%. However, the quarter’s
earnings lagged the prior-year quarter earnings by 31%. Lower
revenues and higher selling, general and administrative expense
ratio led to the earnings decline.
hhgregg’s net sales dropped 5% year over year to $587.6 million
in the reported quarter due to 8.8% decline in comparable store
sales. Sales also fell shy of the Zacks Consensus Estimate of $640
million. The poor performance of video and other categories
resulted in the comparable sales decline. However, improved margin
rates in the video category drove gross margins higher by 107 basis
points to 29.6% in the quarter.
Overall, we are encouraged by the company’s initiatives to drive
additional traffic and increase sales. Strategic initiatives like
restructuring of in-store management team and introduction of new
categories have grown its appliance market share.
The company has expanded its computing and mobile phones
category by introducing notebooks and desktops along with Verizon
smartphones, which previously only included computers and tablets.
Management has plans to fully roll out furniture and exercise
equipment at all its stores in fiscal third quarter 2013.
Management claims that these new categories will cover less store
space and will not affect existing products and yet boost
sales.
hhgregg has been expanding its stores into new markets for the
last few years. The company has opened or acquired stores in 14 new
metropolitan markets in the past five years, most recently in the
Chicago, Illinois and Miami, Florida markets. hhgregg further plans
to open 20 new stores in fiscal 2013, predominately in St. Louis,
Missouri and Milwaukee, Wisconsin.
It also redesigned its website during the second quarter of
fiscal 2013, which offers options to buy products online and ship
them directly to consumers. The new website thus provides an
enhanced purchase experience and boosts the company’s multi-channel
retail strategy.
However, the company has been experiencing disappointing results
in the video category due to lower-than-expected margins across all
screen sizes. In addition, promotional activity within the video
category has resulted in a reduction in the gross profit margin
rate for the category.
Though management’s decision to focus more on the large screen
video category improved the gross margin rate, the loss of overall
market share of televisions resulted in poor performance of the
video category in the second quarter of fiscal 2013. We do not
expect the company to find the right mix of gross margin rate and
market share in the next few quarters and thus remain on the
sidelines.
hhgregg currently has a Zacks #3 Rank (short-term Hold rating),
in sharp contrast to its peer Best Buy Co. Inc.
(BBY), which holds a Zacks #5 Rank (short-term Strong Sell
rating).
BEST BUY (BBY): Free Stock Analysis Report
HHGREGG INC (HGG): Free Stock Analysis Report
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HHGREGG (CE) (USOTC:HGGGQ)
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HHGREGG (CE) (USOTC:HGGGQ)
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