IBJNews

HHGregg setbacks reflect deeper woes, some fear

Back to TopCommentsE-mailPrintBookmark and Share
Greg Andrews

When HHGregg Inc. went public in 2007, the company boasted in its prospectus about “superior store economics.”

It would be tough to make that claim now. Back then, the company had 77 stores generating annual operating income of $54 million. The investment firm Stifel Nicolaus projects the Indianapolis-based chain will have roughly the same amount of operating income this year, even with triple the number of stores.

The rapid decline in the company’s fortunes has sent investors fleeing. Especially jarring was the company’s July 10 announcement that fiscal first-quarter results, which are scheduled to be unveiled in early August, will miss analyst expectations by a mile.

The company said it expects a steep loss for the quarter, which ended June 30, and it ratcheted down full-year earnings-per-share guidance to between 90 cents and $1.05. The low end was 20-percent less and the high end 17-percent less than what HHGregg had forecast just six weeks earlier.

No wonder the stock dropped 37 percent, to $7.32, in the first trading day following the late-afternoon announcement and is now 44 percent under the March 2007 initial public offering price. And no wonder analysts are rethinking whether HHGregg is the exciting retail growth story many thought it was.

“The fact that the company lowered its full year earnings guidance by 20 percent, well ahead of the key selling season, says that the problems are deeper,” Credit Suisse analyst Gary Balter said in a report.

Barclays analyst Alan Rifkin called the reduction in guidance “alarming,” adding that “we reiterate our view that HHGregg’s store growth trajectory is far too aggressive, given the ongoing weakness” in consumer electronics.

He said the company likely is stuck with charging ahead with plans to open 20 to 22 new stores by the March 2013 fiscal year-end because it probably already has signed leases.

Most unnerving is the free fall in the company’s video segment, which includes big-screen TVs—a product decimated by brutal price competition and slack consumer demand. Consumers so far haven’t warmed to newer technologies with fatter profit margins, such as 3D televisions.

The video segment accounted for 47 percent of HHGregg’s sales when it went public. Since June 2011, it’s fallen from 37 percent to 33 percent.

In the latest quarter, same-store sales of video products fell 17 percent after tumbling 21 percent in the same period the prior year.

“Based on the continued headwinds in the video industry and our first-quarter results, we are taking measures to reduce costs and realign our operating structure moving forward,” HHGregg Chief Financial Officer Jeremy Aguilar said in the July 10 press release.

“We believe these actions will help offset the continued negative trends within our video business and ultimately allow us to achieve our revised earnings guidance.”

Analysts, though, aren’t so sure. The fiscal first quarter was supposed to be the least challenging for the company, because of steep declines in same-store sales in both video and appliances in the same period a year earlier.

From here, comparisons “get materially more difficult,” Barclays’ Rifkin said in his report, “which may prove management’s new guidance still aggressive.”

Senior executive departs

Amid the turmoil, a senior HHGregg executive has quietly left the company after only four months.

Douglas Moore, chief merchandising and marketing officer, resigned effective immediately, HHGregg said in a June 21 filing with the Securities and Exchange Commission.

The company hired Moore in February to oversee the company’s merchandising, marketing and digital services departments. He reported directly to Dennis May, HHGregg’s CEO.

Moore previously served as president of Sears’ appliance division and as executive vice president and chief merchandising officer of Circuit City Stores Inc., the now-defunct consumer electronics retailer.

Moore could not be reached, and HHGregg declined to comment.

Smith becomes chairman

Michael Smith, 63, one of the most active board members in the Indianapolis area, is taking on another big job—the chairmanship of HHGregg.

The board in May tapped Smith, an HHGregg director since 2005, to succeed Jerry Throgmartin, who’d been serving as executive chairman when he died in January after suffering complications from meningitis.

Since stepping down as executive vice president and chief financial officer of Anthem Inc., the forerunner to WellPoint Inc., in 2005, Smith has agreed to serve on the boards of many of the state’s highest-profile companies.

Current board posts include Hulman & Co., BrightPoint Inc., Kite Realty Group Trust and Vectren Corp.•

ADVERTISEMENT

  • Web and Mobile
    HH Gregg's terrible web and mobile presence are key to their downfall. While Best Buy ranks on over 8 million terms, HH Gregg ranks poorly on around 300,000. They're losing the online war and don't have a mobile app worth running. In this day and age where everyone researches and shops online and via mobile, they're blowing it.
  • Red flag
    Declining same-store sales are never a good sign. You can mask that in the short-term by opening bunch of new stores since those usually perform better in their first year until novelty wears out. Although I haven't look at their filings recently, I would probably stay clear of this stock.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I keep wondering why I keep hearing about this problem of corporations leaving America, and I never hear a reasonable proposal to lower corporate tax rates and raise personal rates on income from capital gains and dividends, especially for high earners. It is just too simple of a solution for Congress to embrace?

  2. Are you financially down and you need money to settle your dept,or you need money to start up a business or to invest on a huge business,we also offer Loans to individuals, Firms and cooperate bodies at low interest rate , loan terms determinant,Loan amount between the sum of $5,000.00 to $100,000,000.00. US Dollars And Euro. Loan for developing businesses a competitive edge/ business expansion. We Offer The Following Kinds Of Loans. Personal Loans (Secure and Unsecured) Business Loans (Secure and Unsecured) Consolidation Loan FIRST INFORMATIONS NEEDED ARE: BORROWER’S DATA’S INFORMATION,FILL AND RETURN FOR QUICK START UP PROCESS. Name:_________ Last Name:_________ Age:_________ Contact Address:_________ Country:_________ Amount Needed as Loan:_________ Loan Duration:_________ Phone Number__________ Monthly Income/Yearly Income:_________ Purpose for Loan:_________ Occupation:_________ How Soon is Loan Needed__________ Email via: albertbrownfirm@outlook.com

  3. is a disaster. SR37 already needs to be built to interstate standards between 465 and SR144. Southport Road is a mess each morning and evening.

  4. Bass Pro Shops would be good for the mall as well as a Giant Eagle Market District or a Jungle Jim's International Market Place grocery store like the one near Cincinnati Ohio.A Disney quest indoor theme park would be good.An Academy outdoor store would be good too.Indoor Circus shows and magic shows would be good as well. A casino with sports bar would be good.A Disney theater inside that shows movies and Broadway shows would work.Nashville Tennessee concert shops with indoor neon lights would be good.How about a theater that shows travel shows and theme parks. A train store would be good.How about a giant toy store with high tech video games.

  5. This development is in addition to Allpoints Midwest 5, Aitrtek, a recent FedEx and more in Plainfield. Greenwood and Brownsburg also have similar projects.

ADVERTISEMENT