hhgregg (HGG) Prelim. Q3 Revs Miss Views; Cautions on FY15 Outlook

hhgregg (NYSE: HGG) announced preliminary sales results for the third fiscal quarter ended December 31, 2014. The Company also announced details of its third fiscal quarter earnings conference call.

For the third fiscal quarter of 2015, the Company estimates net sales to be approximately $666 million, a decrease of approximately 6% as compared to net sales of $707 million reported for the third fiscal quarter of 2014. Third fiscal quarter comparable store sales are estimated to have decreased approximately 6%, with the appliance category estimated to be relatively flat, the consumer electronics category estimated to have decreased approximately 4%, the home products category estimated to have decreased approximately 9%, and the computer and tablet category estimated to have decreased approximately 35%. The company estimates that its e-commerce business comparable sales were up approximately 59% for the fiscal third quarter.

*** The Street was looking for Q3 revs of $670.1 million.

Dennis May, President and CEO commented, “The Company continues to execute on its strategic initiatives focused on transforming our sales mix. The Company has made progress improving on our previous quarters’ sales trends, in particular in the consumer electronics and appliance business. We are pleased with our market share numbers in 4k ultra-high definition televisions along with the progress we are making in the appliance category. The computer and tablet industry continues to be negatively impacted by declining consumer demand. Additionally, we made a decision not to participate in certain areas of the computer and tablet business that were not profitable. The Company remains active in executing our transformation strategies, and we are confident in our ability to make meaningful improvements in the coming fiscal year.”

FY 2015 Outlook

The Company expects to incur non-cash charges related to a valuation allowance for its deferred tax assets and impairment of certain stores in the quarter ended December 31, 2014. In accordance with Accounting Standards Codification ASC 740, the Company is required to reduce the deferred tax asset if it is more likely than not that some portion of or all of the deferred tax asset will not be realized. Also in accordance with Accounting Standards Codification 360, factors including the decline in operating performance at certain locations, led the Company to perform an additional review for impairment of long lived assets. The impairment charge is based on current trends in certain under-performing markets and the lack of visibility to the recoverability of the assets associated with those stores. The Company does not have current plans to close any of its store locations. The Company expects the combined impact of these non-cash pre-tax charges to be $60 - $70 million and is currently in the process of finalizing that determination. Because of these charges coupled with uncertain current market conditions, the Company is withdrawing its fiscal year 2015 EBITDA outlook at this time.

Robert Riesbeck, CFO commented, “While the accounting related charges are significant, it is important to note that these charges are non-cash items. The Company finished the quarter in a strong liquidity position with a cash balance of approximately $27 million and no outstanding borrowings.”

All figures in this release are preliminary and remain subject to the completion of normal quarter-end accounting procedures and adjustments, which could result in changes to these preliminary results. hhgregg will provide additional information regarding its quarterly results when it reports its third fiscal quarter results on January 29, 2015.

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