Why HHGregg Shares Tanked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of hhgregg (NYSE: HGG  ) finished down 13% today as the big-box retailer disappointed the market in its quarterly earnings report.

So what: The consumer-electronics chain came up short on both top and bottom lines, missing earnings estimates by $0.01, with a per-share profit of $0.12, while revenues fell 3.3%, to $568.3 million, well below the consensus at $611.7 million. The Best Buy rival said same-store sales fell 6.2%, indicating organic weakness in the company, and lapping an 8.8% drop the year before. CEO Dennis May acknowledged "headwinds" in the consumer electronics business, but said the company had completed its sales floor reset as well other initiatives to help it grow again. Despite that, full-year guidance was still weak at $0.75-$0.90, and management lowered its same-store sales forecast to -3.5% to -2%. Analysts had expected an EPS of $0.93 for the year.

Now what: While Best Buy seems to have found a way to turn around things for the moment, the brick-and-mortar consumer electronics industry continues to struggle, and as companies like Amazon.com make massive sales gains, it figures that HHGregg and its peers are going to lose out. A comparable sales drop of 6% in an improving economy is certainly a warning sign and, at a P/E of 17, the stock is not even cheap. It seems hard to justify a bullish investment thesis here.

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10/23/2014 4:03 PM
HGG $6.39 Up +0.09 +1.43%
hhgregg CAPS Rating: **

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