Shares of hhgregg, Inc. (HGG) hit a 52-week low of $6.10 on Sep 23, and eventually closed at $6.11. The share price has been declining since the company reported weak first quarter fiscal 2015 results on Jul 31. In fact, shares of this appliance and electronics retailer have plummeted roughly 55.8% year-to-date.
Factors Hurting hhgregg
On Jul 31, hhgregg reported wider-than-expected losses and lower-than-expected sales in the first quarter of fiscal 2015.
hhgregg reported a loss of 36 cents per share, which was wider than the prior year loss of 4 cents and the Zacks Consensus Estimate of a loss of 16 cents. The loss was primarily due to double-digit drop in comps, higher advertising expenses and higher SG&A costs.
hhgregg’s net sales of $472.3 million declined 10% from the prior-year and also lagged the Zacks Consensus Estimate by 4% due to weak comps. Comps decreased in double-digits in the quarter due to weakness in all product categories, which include consumer electronics, computing and wireless, appliances and home products categories. In fact, comps of the appliances category declined for the first time, after increasing in the past 11 quarters. Comp sales in the appliance category declined 2% in the current quarter due to a decrease in units sold and a slight drop in average selling price. (Read: hhgregg Posts Wider-Than-Expected Q1 Loss, Shares Down 16%).
hhgregg has been delivering disappointing results in the consumer electronic category for more than a year due to declining industry demand. Weak promotional activities are also hurting sales. In addition, lack of innovation in televisions has been severely impacting overall store traffic. Though the company witnessed growth in large screen sizes and improved mix of Ultra HD in the first quarter of fiscal 2015, which led to gross margin expansion within the category, we continue to expect weakness in the video industry over the near term.
Besides consumer electronics, the company is also witnessing sluggishness in same store sales in the computing and wireless category. Weak comps were due to a decrease in demand for laptops and lower average selling price for tablets. Category comps were also negatively impacted due to the underperforming contract-based mobile phone business, which the company exited during the fourth quarter of fiscal 2014.
The company’s home products category also started showing signs of weakness during the third quarter of fiscal 2014, which continued in the recently reported first quarter fiscal 2015.
The company is therefore employing different initiatives to revive its business such as product innovation, shifting focus from one furniture brand to five brands (to revive its home products category) and even exiting the underperforming businesses. However, we still continue to expect weakness in these categories over the near term.
Moreover, hhgregg did not provide a guidance for fiscal 2015 as the company is experiencing continued volatility in the consumer electronics industry. hhgregg holds a Zacks Rank #5 (Strong Sell).
Better-ranked retailers include Citi Trends, Inc. (CTRN), Express, Inc. (EXPR) and Foot Locker, Inc (FL). While Citi Trends sports a Zacks Rank #1 (Strong Buy), Foot Locker and Express, Inc. hold a Zacks Rank #2 (Buy).
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