Hhgregg (HGG) Q1 Loss Lower Than Expected, Sales In Line

Appliance and electronics retailer, hhgregg, Inc. (NYSE:HGG) reported narrower-than-expected loss in the first quarter of fiscal 2017. Sales matched the Zacks Consensus Estimate. Shares of hhgregg were down 3.95% after the close on Aug 4.

hhgregg reported adjusted loss of 21 cents per share in the first quarter of fiscal 2017, narrower than the Zacks Consensus Estimate of a loss of 31 cents, but wider than the prior year quarter loss of 17 cents. While comparable store (comp) sales declined in the quarter, it was narrower than the preceding quarter decline. Cost savings initiatives also moderated losses in the quarter.

Quarter in Detail

hhgregg reported net sales of $424.0 million, in line with the Zacks Consensus Estimate. However, it decreased 4% year over year due to a decline of 3.9% in comparable store sales. We note that the comparable store sales decline was however narrower than a decline of 9.3% in the preceding quarter and a decline of 6.3% in the prior year quarter. This was due to improved momentum, especially in the appliance category.

Despite a competitive environment, adjusted gross margin expanded 50 basis points (bps) to 31.0% in the quarter owing to favorable product sales mix to categories with higher gross margin rates such as appliances and home products, partially offset by lower gross profit margin rates in consumer electronics.

However, selling, general and administrative (SG&A) expense ratio increased 30 basis points (bps) to 25.5% due to increases in wages as a result of one-time labor costs, higher credit card charge backs, increases in delivery services and higher occupancy cost.

Adjusted EBITDA increased to $2.01 million in the first quarter, up more than 50% from $4.13 million in the prior year quarter. We note that the improved EBITDA was due to the company’s expense reduction initiatives.

HHGREGG INC Price and Consensus

HHGREGG INC Price and Consensus | HHGREGG INC Quote

Category Details

The company reports its business under the following product categories:

Appliances: Comparable store sales in this category increased 3.7% in the quarter due to increase in sales volume, offset by a decrease in average selling price. In the year-ago quarter, comp sales had decreased 2.2%.

During the quarter, the company gained 70 bps of market share across the entire appliance category per TraQline. The company is also looking forward to grow the Fine Lines locations, as they had helped to boost sales in the past.

In July, hhgregg announced its two-year plan of adding 25 to 30 Fine Lines locations to its stores over the next 24 months. The company opened three of these locations in the last quarter and is planning to open 12 more through the balance of this fiscal year. In fiscal 2018, the company will open 10 to 15 additional Fine Lines locations.

Home Products: Same store sales in this category increased 0.3% in the quarter driven by higher average selling prices offset by a decline in unit sales in the category.

The Home products category continues to grow at a faster pace, with furniture realizing positive comps of 7.7% in the quarter, offset by a decline in bedding. The company also believes the store reset initiative has infused positive growth in the category. The company is now tracking the resetting of 140 stores by the holiday period and all of its stores within this fiscal year.

Consumer Electronics: Same store sales of this category declined significantly by 17.4% in the quarter. The decline was due to a decrease in units sold within the video category, which makes up 75% of this category, as well as a double-digit decline in average selling price. The decline was wider than a decline of 14.8% in the prior-year quarter.

The company is working on several initiatives for the consumer electronics category to revive this difficult segment. These initiatives are expected to yield positive results in the consumer electronics space throughout the balance of this fiscal year.

hhgregg has a Zacks Rank #3 (Hold). Better-ranked retailers in the broader market include GameStop Corp. (NYSE:GME) , Best Buy Co., Inc. (NYSE:BBY) and The Wal-Mart Stores, Inc. (NYSE:WMT) . All of them carry a Zacks Rank #2 (Buy).