hhgregg Inc. (HGG) has delivered adjusted earnings of 39 cents per share for the fourth quarter ended March 31, 2011, exceeding the Zacks Consensus Estimate by 2 cents.
Earnings in the fourth quarter of 2012, however, declined 2.5% on a year-over-year basis from 40 cents per share, as gross margin contraction and higher advertising expenses offset the top-line increase.
The adjusted earnings in the fourth quarter of 2012 exclude income from life insurance proceeds, severance related to death benefits and impairment charges, whereas the adjusted earnings in the fourth quarter of 2011 exclude the loss related to the early extinguishment of debt related to the company’s revolving credit facility.
Quarter in Detail
hhgregg’s net sales rose 21.1% to $613.8 million in the reported quarter, which resulted from an addition of 35 stores during the quarter, partially offset by a decline in comparable store sales by 0.7%. However, sales missed the Zacks Consensus Revenue Estimate of $647 million.
Gross margin, as a percentage of net sales, sunk 91 basis points to 30.5% in the quarter. The decline was caused by poor performance in the video category and increased promotional activity in the segment. The decline was also due to changes in product mix due to higher sales of computing and mobile phones which carry lower margins. However, the decline was partially offset by improvements in the appliance category.
SG&A, as a percentage of net sales, grew approximately 6 basis points in the quarter to 20.7%, while net advertising expense based on net sales climbed 39 basis points to 4.4% in the reported quarter, driven by increased promotional expenditures to drive market share and due to the launch of a new mobile department.
Fiscal 2012 results
In fiscal 2012, hhgregg’s adjusted earnings of $1.11 per share exceeded the Zacks Consensus Estimate by 2 cents. It was within the management’s guidance range of $1.05 to $1.15 per share. However, it declined 9.8% from $1.23 per share in the fiscal year 2011.
hhgregg’s net sales increased 20.0% to $2.49 billion in fiscal 2012, which resulted from an increase of 35 stores, partially offset by a decline in comparable store sales by 0.7%. However, sales slightly lagged the Zacks Consensus Revenue Estimate of $2.52 billion. It was below the guidance range of 22%-24%.
Other Financial Details
hhgregg repurchased 1.0 million shares during the reported quarter for atotal cost of $12.6 million. In fiscal 2012, the company repurchased 3.7 million shares for $47.6 million. In addition, hhgregg’s board has authorized an additional $50 million share repurchase program.
Guidance
Concurrent to the earnings release, management provided an outlook for fiscal 2013. For fiscal 2013, the company expects reported earnings will be within a range of $1.12 to $1.27. The Zacks Consensus Estimate for fiscal 2013 is $1.25.
Net sales for fiscal 2013 are expected to increase in the 9%-12% range, while comparable store sales are expected to be in the range of negative 1% to positive 1%. hhgregg also expects to open 20 to 22 new stores in the fiscal year 2013, and expects capital spending of approximately $50-$55 million in fiscal year 2013. The company expects effective tax rate to be 39.5% for fiscal year 2013.
hhgregg operates as a specialty retailer of consumer electronics, home appliances, and related services, and primarily competes with Best Buy Co. Inc. (BBY). hhgregg currently has a Zacks #4 Rank (short-term Sell rating) on the stock, which is partially explained by the continued headwinds in the video category. Over the long-term, we provide an Underperform rating on the stock.
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