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.•


  • 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

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

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
thisissue1-092914.jpg 092914

Subscribe to IBJ
  1. Here are a few candidates for this new group, "ripped from the headlines." First up, that bizzaro State Senator Brent Waltz; secondly, the unethical Todd Huston, and his contractual arrangements scheme; Finally, but not least of all, the dishonorable Eric Turner. What sayeth you Greg Zoeller?

  2. Good day. I can't hide this great testimony that take place in my life I will love everyone to know it and be partaker that is why I always place it on answer, I am Mrs,Natalie Cuttaia by name, I live in Texas, United State Of America, I want to thank (Mr.Bruce Brandon) for his kindness upon my family life. I never knew that there is still nice lender like this on internet and earth here. Just some Months Back, I was in search for a loan of $100,000,00 as I was running out of money for feeding and rent. I was scammed $6,800 Dollars and I decided not to involve my self in such business again but a Friend of my introduced me to a loan firm due to my appearance and doings. And I told him that I am not interested of any loan deal anymore but he told me that there is still a nice lender who he will recommend me to, and I made a trial and I am most grateful lucky am I today, I was given a loan amount of $100,000.00usd, by this great Company (Bruce Brandon Loan Company) managed by (Mr.Bruce Brandon) If you are in need of a genuine or legit loan or financial assistance and you can be reliable and trusted of capable of paying back at the due time of the funds I will advice you to, contact him via: ( bruce.brandon071@gmail.com ) And you will be free from scams in the internet. All thanks to Mr.Bruce Brandon You are the one who remove me and my family out of poverty. The reason why i am doing this is that, i promise Mr.Bruce Brandon that if i truly got my loan, i will advertize his company and bring customers to his company. Contact him via ( bruce.brandon071@gmail.com )for the Loan you have been looking for..

  3. Hello, We are firm Organization formed to help people in needs of helps,such as financial help. So if you are going through financial difficulty or you are in any financial mess,and you need funds to start up your own business,or you need loan to settle your debt or pay off your bills,start a nice business, or you are finding it hard to obtain capital loan from local banks,contact us today via email mrsroseberrywilkinsfunds.usa@gmail.com So do not let these opportunity pass you by because Jesus is the same yesterday, today and forever more. Please these is for serious minded and God fearing People. Your Name: Loan Amount: Loan Duration: Valid Cell Phone Number: Thanks for your understanding to your contact as we Await Regards Management Email:mrsroseberrywilkinsfunds.usa@gmail.com

  4. The question is, where could they build a new stadium? It seems in the past year, all the prime spots have been spoken for with potential projects. Maybe in the industrial wasteland area a block past Lucas Oil? I think it needs to be close to the core, if a new stadium is built.

  5. Aldi is generally a great shopping experience. Still, I'm sure YOU wouldn't want to shop there, which I consider a positive.