Can This Hard-Goods Retailer Successfully Turn Around?

The model of another successful hard-goods retailer shows that hhgregg’s strategic turnaround initiatives make sense and have good chances of succeeding.

Jun 3, 2014 at 9:00AM

Source: hhgregg

Appliances, electronics, and furniture retailer hhgregg (NYSE:HGG) reported disappointing results for fiscal 2014 on 20 May 2014 . Its comparable-store sales declined 9.9% to $538.3 million and it registered a loss per share of $0.25 compared with diluted earnings per share of $0.31 in the prior year. Hhgregg attributed this lackluster set of results to the weakness in its consumer electronics business and bad weather. It has already put in place several strategic initiatives to reverse its fortunes.


Source: hhgregg

Product-mix shift
Among the variety of products that hhgregg sells, consumer electronics remain the most competitive. With this in mind, hhgregg has sought to maintain the balance between traffic drivers (consumer electronics) and high-margin products (appliances). While consumer electronics accounted for 59% of hhgregg's sales in 2010, they represent only 38% of its 2014 revenue.

Over the past few years, hhgregg has worked on expanding under-penetrated product categories such as appliances and this product-mix shift is likely to continue in the future. Appliances currently make up 47% of hhgregg's top line, in contrast with 35% in 2010. Similarly, hhgregg has increased its sales contribution from computing & wireless products from 4% in 2010 to 10% in 2014.

The results speak for themselves. Notwithstanding soft overall revenue growth, hhgregg has achieved its 11th consecutive quarter of comparable-store sales growth in the appliance category. Unlike consumer electronics which depend heavily on new-product pipelines, demand for appliances tends to be more steady as 65% of purchases involve replacements. To drive the appliances business, hhgregg plans to expand its product assortment and tailor its SKUs to local market demand.

Another new area of focus for hhgregg is furniture. The furniture business has grown rapidly to account for 5% of hhgregg's sales in a short span of time and hhgregg is optimistic that furniture will eventually account for 10% of its top line. More importantly, as furniture products tend to be big-ticket items they also stimulate the usage of credit. This works to hhgregg's advantage because of its strengths in credit, which is something that I will touch on below.

It's necessary to compare hhgregg with its peer Conn's (NASDAQ: CONN) to evaluate if hhgregg will be a successful turnaround play. In contrast with hhgregg, Conn's grew same-store sales and diluted EPS for fiscal 2014 by 26.5% and 62.8%, respectively. Conn's is obviously doing some things right that would be worth hhgregg's efforts to learn about.

Hhgregg isn't the only hard-goods retailer that has tweaked its product mix to increase its profitability. Conn's remodeled and relocated 11 and 22 stores in fiscal 2014 and 2013, respectively, to expand retail selling space at these stores by more than a quarter. It has allocated the extra square footage to higher-margin furniture and mattress products.

The results have been impressive as Conn's expanded its gross margin from 26.5% in 2011 to 40.6% in 2014, inline with the doubling of the sales contribution of furniture and mattress products to 37% over this period.

Building customer loyalty with credit
Given that most hard-goods retailers' product assortments have little differentiation, credit offerings can be a very effective tool for keeping customers happy and retaining them; hhgregg has seen its private-label credit cards drive higher average ticket size and greater brand loyalty. Its private-label credit cards contributed to 36% of its fiscal 2014 sales, compared with 29% in 2011.

Looking ahead, hhgregg will highlight the attractiveness of its private-label credit cards with respect to special offers and in-store payment options to further encourage card usage. It will also explore new credit offerings that will be well-received by its customers. Hhgregg forecasts that two-fifths of its fiscal 2015 business will involve at least one of its credit offerings.

While hhgregg only offers non-recourse financing options, Conn's has taken the use of credit as a strategic competitive advantage to a different level. Conn's has more than four decades' experience with providing in-house credit to its customers, and this helps finance about 78% of its total sales. Its in-house credit program is something that its peers can't match.

Firstly, most subprime borrowers won't receive loan approval for third-party financing options offered by other retailers. Secondly, few retailers have similar credit offerings targeted at un-banked and under-banked customers. Non-bank lenders may be another alternative for these credit-constrained customers, but their interest rates would be much higher than those of Conn's.

Conn's internal statistics validate its belief in using in-house credit as a marketing tool as it has seen high rates of repeat purchases for customers who use credit. In fact, in comparison with customers who don't rely on credit, Conn's credit customers make an average of two additional purchases within the next five years.

Foolish final thoughts
While the success of any turnaround effort is anyone's guess, hhgregg's chances are boosted by the fact that its strategic initiatives mirror those of its successful peer Conn's. While the near-term outlook remains bleak with hhgregg expecting annual comparable-store sales to be between 'negative low single digits to flat', I have confidence in its long-term prospects as a successful turnaround play.

Will this stock be your next multi-bagger?
Turnaround plays have a higher probability of being the next multi-bagger than your steady consistent blue chips, but they also come with greater risk. hhgregg's chances of being the next mult-bagger are boosted by the fact that its strategic plans look promising. Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers