Why I Think Investors Should Avoid hhgregg

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

When I was a child, I talked like a child, I thought like a child, I reasoned like a child... and I still never considered buying anything from hhgregg (NYSE: HGG  ) . Apparently I'm not the only one, as the company's quarterly earnings came in well below expectations. Comparable sales, net sales, and earnings per share were all down.

As a result, the stock fell 12% by midday on Tuesday, giving up about a month's worth of gains. Up until the announcement, hhgregg shares had been having a pretty stellar year. The stock is still up over 90% year to date, and 38% over the last 12 months. Clearly, someone sees potential in hhgregg, but that someone is not me -- also, if you ask me, that someone is probably wrong.

The sales make the man
As I mentioned above, hhgregg failed on just about every level. It all started with a 9.8% drop in comparable sales over the last quarter, which helped pull yearly comparable sales down 8.7%. Despite the company's seeming inability to manage its current lineup of stores, hhgregg has added 20 new locations over the year.

The company pointed out that appliance sales showed strength, with comparable sales rising 5.2% over the quarter. Unfortunately, this was offset by a 25% drop in comparable sales for video, which made up over a third of hhgregg's total revenue.

The shift in sales is similar to what Best Buy (NYSE: BBY  ) has seen, but Best Buy has managed the fall better -- somehow. Comparable sales at Best Buy fell 2.8% over its last quarter, with the biggest falls coming in consumer electronics and entertainment. But Best Buy has managed to focus on its strengths, and appliances and services both had 7% gains last quarter. Mobile is the company's clear strength, and comparable sales grew 12%.

Is there a plan for recovery?
Best Buy is by no means a golden child, and the newest earnings release pushed shares down 5%, but at least Best Buy seems to have a vague plan. hhgregg spent cash that it didn't have last year. The company's on-hand cash dropped almost $11 million over the year.

In fiscal 2014, hhgregg is going to open five new stores, move a half-dozen more, and try to spend more of its advertising dollars focusing on its appliance division. That's not quite enough focus on growing sales for me. Other divisions seem destined for more comparable-sales declines, and even a big push in appliances isn't going to make up the difference.

The only real plan that I can see from the company's earnings call is that it wants to get more service revenue through the door. The Geek Squad has been good for Best Buy, and the company has rolled it out into some Target locations. If hhgregg can start to make a name for itself as a service provider, it might be able to bump sales a bit.

I don't have much faith in the long-term plan at hhgregg, and there's nothing on the table that looks exciting to me either. While I'm not going to advocate jumping into Best Buy instead, if you're forced to choose, I'd go with the Big Blue Box.

The Motley Fool has released a premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2444992, ~/Articles/ArticleHandler.aspx, 10/1/2016 8:41:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 4:02 PM
HGG $1.84 Up +0.03 +1.66%
hhgregg CAPS Rating: *
BBY $38.18 Up +0.77 +2.06%
Best Buy CAPS Rating: *