Appliance and electronics retailer hhgregg, Inc. (HGG) announced weak preliminary sales for the third quarter of fiscal 2014 (ended Dec 31, 2013), final results of which are scheduled to be released on Jan 30.
For the third quarter, the company expects net sales to decline approximately 11.6% year over year to $799.6 million, due to a decline of approximately 11.2% in comparable store sales. The decline in comparable sales is the result of anticipation of double-digit decline from both the consumer electronic and computing and wireless categories, which are expected to decline 19.7% and 24.5%, respectively.
This decline is expected to overshadow the positive comparable sales in the appliance category as well as the home products category, which are expected to increase approximately 1.5% and 36.1%, respectively.
Further, the company cautioned that a volatile retail sales environment and lower-than-expected sales in the consumer electronic and computing and wireless categories are expected to impact third quarter earnings as well as fiscal 2014 results. The company expects third quarter earnings to be below its previous expectations. The Zacks Consensus Estimate for the third quarter and fiscal 2014 are 48 cents and 86 cents per share, respectively.
The anticipation of sluggish sales in the third quarter comes mainly on account of relatively weak sales in the holiday season. In order to compete with big-box retailers like Wal-Mart Stores Inc (WMT) and Best Buy Co. (BBY), the company offered aggressive promotions on items like televisions and tablets, which dragged down its holiday sales margins. However, hhgregg has now decided to curb its promotional spending during the third quarter and instead shift its focus toward a broader mix of home products, including appliances and home furnishings.
We note that hhgregg has been delivering disappointing results in the consumer electronic category since the past year due to lower-than-expected margins across all screen sizes. In addition, declining industry demand for flat screen televisions severely impacted overall store traffic and consumer electronic category sales.
The company is trying to improve its consumer electronics category through various initiatives. hhgregg has been growing its appliance business and focusing on initiatives to drive additional traffic and increase sales. 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. However, the improvement in the consumer electronic category is expected to take time and thus we continue to expect a sluggish performance in fiscal 2014. hhgregg holds a Zacks Rank #3 (Hold).
Appliance retailer Conn’s Inc. (CONN) is a better-ranked stock in the same sector, sporting a Zacks Rank #1 (Strong Buy).
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