hhgregg Inc.(HGG) is set to report its second quarter fiscal 2015 results before the opening bell on Oct 30. Last quarter, this specialty retailer of consumer and other home products posted a negative surprise of 125%. Let’s see how things are shaping up prior to the announcement.
Factors to Consider
hhgregg has been disappointing its investors for more than a year now with sluggish results, particularly due to its consumer electronic category. Revenues and growth in the category have declined due to lower-than-expected margins and declining industry demand for flat screen televisions. Weak promotional activities are also adding to the woes. In addition, lack of innovation in televisions has been severely impacting overall store traffic.
The company also witnessed sluggishness in same store sales in the computers and tablets category in the last five quarters. Weak comps were the result of decreased demand for computers and mobile phones and lower average selling prices for computers. Category comps also declined 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 is also showing signs of weakness since the third quarter of fiscal 2014.
The appliance category also witnessed comps decline in the last reported quarter, after delivering positive comps for the past 11 quarters. Comp sales in the appliance category declined 2% in the first quarter of fiscal 2015 due to a decrease in units sold and a slight drop in average selling price.
We note that the company is employing different initiatives to revive its business such as product innovation and even exiting underperforming businesses. But we believe these initiatives will take some time to bear fruits.
hhgregg also did not provide a guidance for fiscal 2015 as the company is under pressure as a result of continued volatility within the consumer electronics industry. However, the company still expects the second half of fiscal 2015 to be better than the first half.
Earnings Whispers?
Our proven model does not conclusively show that hhgregg is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP:The ESP for hhgregg is 0.00% as both the Zacks Consensus Estimate and the Most Accurate estimate stand at 1 cent per share.
Zacks Rank:hhgregg has a Zacks Rank #3 (Hold) which when combined with an ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Other stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank are:
L Brands Inc. (LB), with Earnings ESP of +6.25% and a Zacks Rank #2 (Buy).
The Men’s Wearhouse, Inc. (MW), with Earnings ESP of +2.30% and a Zacks Rank #3.
Zumiez, Inc. (ZUMZ), with an Earnings ESP of +3.85% and a Zacks Rank #3
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