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HHGregg shares slide as company abandons Michigan plans

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HHGregg Inc.’s stock price has fallen by more than 18 percent this week after the company disclosed that it is postponing expansion plans in Michigan.

Shares of the Indianapolis-based appliance and electronics retailer slid from $8.49 each on Monday to $6.89 Wednesday morning.

The stock dropped a whopping 9.2 percent Tuesday, the fifth-largest percentage decrease for any stock trading on the New York Stock Exchange.

Crain’s Detroit Business reported Sunday that HHGregg had been in negotiations for the past six months with numerous landlords to open stores in the Detroit area and other parts of Michigan, but was postponing its plans to enter the Michigan market.

A developer who had been working with HHGregg on potential sites told the newspaper that the company did not give a reason for halting its plans.

Jeff Pearson, HHGregg’s senior vice president of marketing, told Crain’s that the company does not have any “firm commitments” for the Detroit market. He also said HHGregg often explores options in different markets to achieve its goal of becoming a national retailer of appliances and electronics.

HHGregg operates 223 stores in 19 states and has been in expansion mode, adding about 100 stores since early 2010. Earlier this month, the company announced four store openings in St. Louis, one each in Champaign and Springfield, Ill., and two each in Green Bay and Milwaukee, Wis.

But the retailer faces stiff competition from Best Buy and Wal-Mart, in addition to online retailers like Amazon.com

Besides the Michigan disclosure, a negative report Monday from The Motley Fool investment newsletter also may have contributed to HHGregg’s stock slide.

“When a company is unable to turn itself around and hits that point of no return, investors can ride the stock down and make some nice profits,” the report said. “Those with an appetite for thrills will sell the stock short or, for a more conservative plan, buy option puts to contain the risk.”

The report said that HHGregg’s new stores have not increased revenue enough and are adding to expenses.

The company posted a $5.7 million loss in the second quarter as same-store sales slid 5.1 percent. And management recently affirmed an earnings downgrade for 2013, now estimated at a range between 90 cents and $1.05 per share instead of the prior forecast of $1.12 and $1.27.

Shares of HHGregg were trading above $11 each as recently as July and had been as high as $30 in June 2010.
 
 

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  • Finally getting it
    I won't pretend to be business savvy, but my guess is that consumers are tiring of the initial allure of this company, that sells factory seconds and resells returned items. I for one have dealt with hhgregg and their warranty company endlessly. Two words...move on. You may save a few bucks initially at hhgregg, but in the long run they'll soak you.
  • Lost at sea
    HH Gregg could be the best operator in the world (they're not) and they would still lose money because they are in a dying business. Look at BBY and how bad things are there and this AFTER they lost a major competitor (Circuit City). This firm needs to reinvent itself, and opening new stores in markets where nobody is buying anything is not the way to do it. Bravo to management for figuring it out. Better late than never.

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  2. I believe that is incorrect Sir, the people's tax-dollars are NOT paying for the companies investment. Without the tax-break the company would be paying an ADDITIONAL $11.1 million in taxes ON TOP of their $22.5 Million investment (Building + IT), for a total of $33.6M or a 50% tax rate. Also, the article does not specify what the total taxes were BEFORE the break. Usually such a corporate tax-break is a 'discount' not a 100% wavier of tax obligations. For sake of example lets say the original taxes added up to $30M over 10 years. $12.5M, New Building $10.0M, IT infrastructure $30.0M, Total Taxes (Example Number) == $52.5M ININ's Cost - $1.8M /10 years, Tax Break (Building) - $0.75M /10 years, Tax Break (IT Infrastructure) - $8.6M /2 years, Tax Breaks (against Hiring Commitment: 430 new jobs /2 years) == 11.5M Possible tax breaks. ININ TOTAL COST: $41M Even if you assume a 100% break, change the '30.0M' to '11.5M' and you can see the Company will be paying a minimum of $22.5, out-of-pocket for their capital-investment - NOT the tax-payers. Also note, much of this money is being spent locally in Indiana and it is creating 430 jobs in your city. I admit I'm a little unclear which tax-breaks are allocated to exactly which expenses. Clearly this is all oversimplified but I think we have both made our points! :) Sorry for the long post.

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