Conn’s, hhgregg Paint Tale Of Two Cities - Twice

Conn’s, hhgregg Paint Tale Of Two Cities

Furniture, mattresses still driving comp gains
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First-quarter financial results from two multiregional CE and appliance chains this morning provide starkly different snapshots of the marketplace.

New York — First-quarter financial results from two multiregional CE and appliance chains this morning provide starkly different snapshots of the marketplace.

For Texas-based Conn’s, sales are on the ascent led by strength in appliances, UHD TVs and home furnishings.

But Indianapolis’ hhgregg is still finding its footing, reporting sales declines across majaps and CE, and an $8.6 million loss for quarter.

At Conn’s, net retail sales rose 12.7 percent to $325 million for the three months ended July 31, as it continues to open stores in new and existing markets. The company currently operates 95 big-box locations stretching from Colorado to the Carolinas.

But the real story lies in its same-store sales. Those were up 3.1 percent for the quarter, weighed down only by the retailer’s exit from the video game and digital imaging categories, and its decision to drop certain tablet lines. Excluding those changes, apples-to-apples comps increased 6.7 percent.

The momentum was even stronger in July, a traditionally slow month for CE, when TV comps increased 6.9 percent. Conn’s attributed the gain to UHD TV, whose higher average selling prices (ASPs) helped lift CE comps 6.1 percent (excluding the exited categories), as the advanced displays come to comprise a larger chunk of its video business.

Majaps turned in a comparable performance, with July comps up 7 percent on higher unit volume, which offset lower ASPs.

Showing the greatest strength on the product side once again was furniture and mattresses, whose comps rose 8.5 percent in July on higher ASPs and unit volume. But even that was outpaced by commissions from repair service agreements, whose comps increased 11.2 percent for the month.

But all is not rosy at company’s The Woodlands headquarters. The retailer’s in-house credit unit, which is the bedrock of its business model but also the cause of recent earnings declines, remains a pain point as consumers continue to struggle to make their payments. Indeed, despite tightening its credit requirements, the 60-plus-day delinquency rate at Conn’s continued to creep up, rising to 9.2 percent from 8.7 percent last year as of July 31.

Meanwhile, hhgregg said cost-cutting and revenue-generating initiatives contributed to improving sales and traffic trends in the first quarter, and a narrowing of its losses from last year.

Still, net sales slipped 6.6 percent to $441.1 million and comps decreased 6.3 percent on same-store sales declines in appliances (-2.2 percent), CE (-8.3 percent) and computers and tablets (-42 percent). Majaps now comprise fully 59 percent of the company’s sales mix, compared to 30 percent for CE.

The total comp decline was compounded by the chain’s exit from the mobile and fitness categories, but was offset by a 12.1 percent comp gain in furniture and mattresses.

Finances were bolstered by an 80-basis-point increase in gross profit margin, thanks to a mix-shift to more profitable categories and higher margins in CE, computers, tablets and home furnishings. The company also lowered its advertising expense by cutting back on circulars; reduced wages as it “drives efficiencies” in its labor structure; and saw a decrease in employee benefits due to a reduction in medical expenses.

All told, the company is aiming for $50 million in cost savings in the current fiscal year.

But despite the cost reductions, SG&A (selling, general and administrative expenses) as a percentage of net sales rose from 24.7 percent to 25.2 percent year over year due to consulting expenses and higher occupancy costs and bank transaction fees for its consumer finance programs.

Consulting fees totaled $3.9 million for the quarter, as the company sought assistance with rationalizing its marketing spend, optimizing its logistics network and accelerating its turnaround.

“We were pleased to have a solid start to our fiscal year and to see an immediate impact from our fiscal 2016 initiatives on our financial results, highlighted by generating positive EBITDA [earnings before interest, taxes, depreciation and amortization] for the quarter,” said president/CEO Dennis May. “Though we were pleased with the traction of the transformation initiatives, we still have a lot of work in front of us.”

hhgregg ended the quarter with 227 big-box locations across 20 states, reflecting one new store opening and two store closures.

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