Will hhgregg Inc. (HGG) Disappoint this Earnings Season? - Analyst Blog

hhgregg Inc. (HGG) is set to report its third quarter fiscal 2015 results before the opening bell on Jan 29. Last quarter, this specialty retailer of consumer and other home products reported a loss of 37 cents per share, which compared unfavorably to the Zacks Consensus Estimate of breakeven result. Let’s see how things are shaping up prior to the announcement.

Factors to Consider

hhgregg expects sluggish results in the third quarter of 2015 as announced during the preliminary results on Jan 7. Estimates for the third quarter have also declined over the past 30 days.

In the third quarter, the company expects net sales to decline approximately 6% year over year to $666 million, with a decline of approximately 6% in comparable store sales. The poor comparable sales performance is largely attributable to the computing and wireless category, which is expected to decline around 35%. The primary reason for the decline in the computer and tablet industry is lower consumer demand.

Other categories of consumer electronics and home products are expected to decline about 4% and 9%, respectively. Appliance category sales are estimated to remain flat in the third quarter. The company’s e-commerce business is an exception as its comparable sales are expected to witness a solid increase of approximately 59% in the third quarter.

The company stated that the continued focus on its strategic initiatives and change in its sales mix resulted in improvement in the consumer electronics category, which was reporting sluggish results for more than a year. Though the continued efforts have moderated the rate of comp sales decline, category sales are expected to remain in the red. Moreover, the company expects continued volatility within the consumer electronics industry in the near term as well.

In addition, in the preliminary results, the company stated that it does not expect to close any store location in fiscal 2015. Also, considering some non-cash charges and uncertain market conditions, the company has withdrawn its fiscal 2015 EBITDA outlook.

Earnings Whispers?

Our proven model does not conclusively show that hhgregg is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: The ESP for hhgregg is -50.00% as the Zacks Consensus Estimate stands at loss of 4 cents while the Most Accurate estimate stands at a loss of 6 cents per share.

Zacks Rank: hhgregg has a Zacks Rank #3 (Hold) which when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Other stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Bebe Stores Inc. (BEBE), with an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).

Tractor Supply Company (TSCO), with an Earnings ESP of +2.63% and a Zacks Rank #3.

Deckers Outdoor Corp. (DECK), with an Earnings ESP of +1.78% and a Zacks Rank #3

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