Janney Trims PT on hhgregg (HGG) 30% to $5; Sees Nothing Really Good About Q4/FY15 Results

Janney Capital affirms hhgregg (NYSE: HGG) at Neutral and moves its price target from $7 down to $5 following the retailer's Q4 report earlier Friday morning.

Analyst David Strasser summarized the report: There is little good in HGG’s print. Sales were weak as they lost competitive ground across all categories. We know it’s not a great sales environment, but it’s not this bad. Despite weak topline trends, SG&A dollars were slightly up. HGG did cut advertising, but not as much as we anticipated. Also, HGG has identified over $50 million in cost cuts for next year, but a large part of this savings will need to be redeployed immediately.

Strasser also offered the following commentary: There are no easy cures for HGG right now. Intuitively, it doesn't make sense to dramatically cut advertising as traffic remains their core concern. However, we believe it's the right and necessary move. HGG needs to quickly roll out a strategy to drive far better advertising efficiency via a more robust digital/social media strategy. The use of TV advertising to highlight appliances will be an interesting test to see if they can revive the demand. HGG then need to reinvest these savings into better pricing, stronger in store close rates, and a far more robust online selling presence, all while hoarding enough of these savings to maintain sufficient cash, to help through this transition period. HGG plans to reduce $20 million of gross advertising, we estimate about $10 million net reduction after reinvestments.

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