HGGGQ HHGREGG Inc (CE)

Appliance and electronics retailer hhgregg, Inc. (HGG) announced the preliminary results for the third quarter fiscal 2013 (ended December 31, 2012), which is scheduled to release on January 31. hhgregg has also revised its guidance for fiscal 2013 ending March 31, 2013.

For the third quarter, the company expects net sales to decline approximately 3.6% year over year to $799.6 million, with a decline of approximately 9.7% in comparable store sales. The poor comparable sales performance is expected to come from both the video and other categories, which are expected to decline 24.6% and 23.7%, respectively.

This decline is expected to overshadow the positive comparable sales in the appliance category as well as the computing and mobile phones category, which are expected to increase approximately 6.1% and 16.2%, respectively.

Further, lower-than-expected sales performance in the video category is expected to impact third quarter earnings. Excluding one-time store impairment charge, hhgregg projects a decline of approximately 21.3% in third quarter fiscal 2013 adjusted earnings to 52 cents.

Guidance

Following the weak preliminary third quarter results, the Indianapolis-based retailer revised its guidance for fiscal 2013. hhgregg has reduced its earnings forecast for fiscal 2013 to a range of 70 to 80 cents per share, compared with the previous guidance of 90 cents to $1.05 per share.

The company has also lowered its comparable store sales guidance and expects it in the range of negative 8.5% to negative 7.5%, compared with the prior guidance range of negative 6.0% to negative 4.0%. Net sales are now expected to increase in the range of flat to 1.0%, much lower than the previous growth range of 3.0% to 6.0%. In addition, the company expects capital spending in the range of $35.0 million to $40.0 million, also lower than the previous guidance of $50.0 million to $55.0 million.

hhgregg has been growing its appliance business, expanding computing and mobile phones category and focusing on initiatives to drive additional traffic and increase sales. Despite of continued focus on these initiatives, hhgregg has been experiencing disappointing results in the video category due to fundamental shifts in the video category and lower-than-expected margins across all screen sizes.

In addition, declining industry demand for flat screen televisions severely impacted the overall store traffic and video category sales. The company has thus reduced its dependence on new product innovations in the video sector.

In order to turn around the performance in the video category, the company has reduced its focus on promotional activity within the video category in the quarter which thereby improved the gross profit margin rate for the video category and the total company gross margin rates. hhgregg has also been testing new merchandise categories to improve the overall mix of business from the video category. However, the diversification is expected to take time and thus we continue to expect sluggish performance in the video category.

hhgregg holds a Zacks Rank #3 (Hold), while its close peer Conn’s, Inc. (CONN) carries a Zacks Rank #1 (Strong Buy). Other stocks which are favorable in the industry are Aaron’s Inc (AAN) and Radioshack Corp (RSH), which hold a Zacks Rank #2 (Buy).

 
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