HHGregg shares plunge after rare quarterly loss

August 4, 2011

Shares of electronics and appliance retailer HHGregg Inc. slumped more than 18 percent Thursday morning, to a two-year low, after the chain reported its first quarterly loss in four years.

As investors dumped shares of the fast-growing Indianapolis-based retailer, CEO Dennis L. May sought to reassure Wall Street analysts on a conference call that HHGregg's strategy remains on track. 

Among the signs of progress May noted: The chain has added a home-office business that achieved 54-percent growth in the quarter yet comprises only about 7 percent of the chain's business; HHGregg is bringing its Verizon Wireless kiosk business in-house in a move that should boost sales over time; and the chain's slew of new stores are outperforming existing ones.

The chain opened seven new stores in its fiscal first quarter, mostly in the Pittsburgh area, compared with 26 during the same period last year. It plans to open another 24 in the second quarter.

"Sales performance of our new stores remained strong and many of these stores are the best-performing amongst our chain," May said, according to a transcript of the conference call. "This is important as we continue to adapt the business to changes in consumer preferences and shopping patterns."

HHGregg reported an ugly 13.2-percent same-store sales decline for the quarter that ended June 30.

May said same-store sales figures should improve since comparisons are easier in the next few quarters. He said sales were particularly strong during the first quarter of last year because of high-volume grand openings, with "consumer demand similar to that of Black Friday."

Wall Street analysts were particularly troubled by the chain's more than 20-percent sales decline in the video category, the largest drop in more than five years, KeyBanc Capital Markets noted in a report. The chain's 12.6-percent drop in appliance sales was slightly better than KeyBanc had expected.

HHGregg's first quarter loss of $800,000, or 2 cents per share, which compares with a profit of $2.7 million, or 7 cents per share, in the same period last year, actually beat the estimate from J.P. Morgan.

But the investment bank still is keeping its "neutral" rating on the company's shares, thanks to the "discretionary and big-ticket nature of its product categories."

"We don't expect to see a relief rally in the stock and believe investors will continue to be apathetic to the growth story until comps begin to show some positive momentum," analysts at J.P. Morgan wrote in a note to investors. "While valuation might appear 'cheap' on consensus forecasts, we remain patient on recommending the name."

The company's shares traded for $10.36 apiece late Thursday morning, up from a low of $10.09 on the day. The overall market was in a swoon Thursday, with major indexes down more than 3 percent near midday.

HHGregg’s only other quarterly loss occurred in the fiscal second quarter of 2007, the year it went public, and that was caused by a special charge related to a debt refinancing.

The 13.2-percent decline in same-store sales in the quarter compared with an increase of 6.3 percent in the same period last year. The loss was steeper than the 10.8-percent decrease in same-store sales HHGregg reported in the previous quarter.

The company also attributed the quarterly loss to an increase in selling, general and administrative expenses, a decrease in the gross margin and additional advertising expenses.

The chain, founded in 1955, operates 190 stores in 15 states.


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