HHGregg and Retailers and Retail and Real Estate & Retail

HHGregg shares tumble on profit warning

January 14, 2013

HHGregg shares tumbled 10 percent in early trading Monday after the Indianapolis-based appliance and electronics retailer slashed its 2013 profit forecast  almost 25 percent on a sharper-than-expected drop in television sales.

The company said it expects to report that same-store sales fell 9.7 percent for the quarter ended Dec. 31, led by an ugly 24.6-percent decline in the video category. Same-store sales figures are a key measure of a retailer's health.

HHGregg said it expects to earn from 70 cents to 80 cents per share for the 2013 fiscal year, which ends March 31. That compares to previous guidance in the range of 90 cents to $1.05. The chain is scheduled to report its official third-quarter results Jan. 31.

HHGregg said same-store sales of appliances likely rose 6.1 percent in the third quarter, and computing and mobile phone sales gained 16.2 percent. But that was not enough to offset the big drop in television sales, along with a 24-percent sales drop in an "other" category, which includeds audio, mattresses and personal electronics.

The chain has been moving aggressively away from relying on sales of flat-panel televisions, which have become a low-margin commodity. In recent months, stores have added furniture, exercise equipment and Apple products.

CEO Dennis May said in Monday's filing that the chain continues to test new product categories "that further diversify our business and reduce our dependence on new product innovations in the video sector."

He also pointed to appliances as a point of strength, noting the category has grown for HHGregg for six consecutive quarters. Last year, appliances overtook video as HHGregg's largest sales category, making up almost 50 percent of sales.

In its updated guidance, HHGregg said it expects to spend $35 million to $40 million on capital expenditures in fiscal 2013, down from an earlier target of $50 million to $55 million, suggesting a further reduction in store-count growth. The company, which operates 228 stores in 20 states, has been on a growth binge the last few years.

It expects fiscal 2013 same-store sales to fall from 7.5 percent to 8.5 percent and overall sales to stay flat or rise 1 percent.

HHGregg, which has no debt, also noted Monday that it has spent $30 million so far this fiscal year to repurchase 3.6 million shares. That works out to an average of about $8.33 per share, a premium of almost 20 percent to the trading price early Monday.

Shares dropped to as low as $6.95 each Monday morning, a fall of 95 cents.

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