Indianapolis — Weak TV demand led to soft holiday sales and a projected profit decline for hhgregg.
In a preliminary report, the chain estimated that net sales slipped 3.6 percent to $799.6 million for its fiscal third quarter, ended Dec. 31, while comp-store sales sank 9.7 percent.
Net income is expected to fall 22.7 percent to $17.4 million on sluggish TV sales and a one-time $500,000 impairment charge for one store.
Broken out by product category, video led the decline with a 24.6 percent drop in comps, which was partially offset by a 16.2 percent spike in computing and mobile phones comps and a 6.1 percent comp increase in major appliances. The catchall “other” category, which includes CE, is expected to have decreased approximately 23.7 percent.
President/CEO Dennis May attributed the chain’s weak TV performance to “fundamental shifts across the video category” and a decision to focus on larger, higher-end TVs, which boosted margin rates but impacted revenue.
“Declining industry demand for flat screen televisions along with broadened distribution of large-screen televisions negatively impacted overall store traffic and video category sales,” May said.
Conversely, majaps, now the company’s largest category, continues to perform well, posting its sixth consecutive quarter of comp sales increases and, ostensibly, market share gains, he said.
hhgregg is also pleased with its computing/mobile phone business, as well as the recent rollouts of furniture and Apple products, and continues to test new financing options and product categories including exercise equipment “that further diversify our business and reduce our dependence on new product innovations in the video sector,” May said.
“We believe that our service-oriented sales force along with our ability to both offer attractive financing options and deliver big-box product to our consumers’ homes gives us the flexibility to adapt our business around today’s dynamic retail environment,” he noted.
Chief financial officer Jeremy Aguilar added that the company “effectively managed” inventory levels during the quarter, with average inventory per store down 3.8 percent year over year, and that it maintains a strong liquidity position with no outstanding debt at the end of the reporting period.
In a research note, Janney retail analyst David Strasser observed that hhgregg “will need to change their mix away from TVs, as this category will continue to be impacted by lack of innovation and the economy for big-ticket products.” He lauded expected cuts in capital expenditures of $35 million to $40 million, “as the company will use the time and money to more fully rethink the mix of the business before a more aggressive rollout. Furniture and PCs seem like keepers going forward, but the exercise equipment still needs some work before it’s ready for prime time.”