HGG - hhgregg, Inc

[PatientCheetah]

HGG is an electronics and appliances retailers that derive 50% of its sales from appliances. I was curious on why the stock seemed to have a price floor at $8. I then did a liquidation value analysis. HGG's liquidation value is roughly $8 per share assuming inventory can be liquidated at 75% of the book value. Pretty much all the housing related stocks are close to their last year's lows. I think HGG, with its 50% exposures to appliances, is a relatively safe way to get long on housing.

[Saj]

It's got decent management too. They are willing to cut/stop square foot growth when margins are low, cut business lines when they are unprofitable (e.g. phones), experiment with new lines (e.g. furniture, which is now being scaled up after some learning), buy back shares when the market is pessimistic, and they have a lot of insider ownership as well, so interests are aligned. I've owned this one off and on over the last few years, as the stock price is quite volatile depending on Mr. Market's current view of things, which offers both entry and exit points.

[stahleyp]

It's got decent management too. They are willing to cut/stop square foot growth when margins are low, cut business lines when they are unprofitable (e.g. phones), experiment with new lines (e.g. furniture, which is now being scaled up after some learning), buy back shares when the market is pessimistic, and they have a lot of insider ownership as well, so interests are aligned. I've owned this one off and on over the last few years, as the stock price is quite volatile depending on Mr. Market's current view of things, which offers both entry and exit points.

 

Saj! I like your blog. Glad you finally signed up for the board.  :)

[PatientCheetah]

It's got decent management too. They are willing to cut/stop square foot growth when margins are low, cut business lines when they are unprofitable (e.g. phones), experiment with new lines (e.g. furniture, which is now being scaled up after some learning), buy back shares when the market is pessimistic, and they have a lot of insider ownership as well, so interests are aligned. I've owned this one off and on over the last few years, as the stock price is quite volatile depending on Mr. Market's current view of things, which offers both entry and exit points.

 

Those are very good points. I haven't been following this company for long. The only thing that prevents me from making this a larger than 2% position is the relatively low cash level. The vast majority of liquidation value comes from inventory. HGG is cash flow positive, maybe it doesn't need much cash.

[Saj]

 

Saj! I like your blog. Glad you finally signed up for the board.  :)

 

Thanks, Stahleyp!

[tooskinneejs]

Anyone have an HHGregg store near them?  If so, I'd be interested to know how they appear to be doing in your area.  I live in Arlington, Virginia and we have a store nearby.  I stopped by there last night and the parking lot was literally empty aside from 3 cars.  I walked inside and there was one customer other than myself in the entire store and (I think) two employees.  It was a literal ghost town.  I drive by the store infrequently, but when I do the parking lot is rarely crowded.

 

I'm curious to know whether their lack of business in Northern Virginia is just a regional issue or if it is the same in other parts of the country.

 

Just an additional piece of info, there is a Best Buy within a quarter mile of the HHGregg store and it appears to be busy most of the time.

[bci23]

Anyone have an HHGregg store near them?  If so, I'd be interested to know how they appear to be doing in your area.  I live in Arlington, Virginia and we have a store nearby.  I stopped by there last night and the parking lot was literally empty aside from 3 cars.  I walked inside and there was one customer other than myself in the entire store and (I think) two employees.  It was a literal ghost town.  I drive by the store infrequently, but when I do the parking lot is rarely crowded.

 

I'm curious to know whether their lack of business in Northern Virginia is just a regional issue or if it is the same in other parts of the country.

 

Just an additional piece of info, there is a Best Buy within a quarter mile of the HHGregg store and it appears to be busy most of the time.

 

I think HGG is dead in the water. They never should have had the run that they did but Best Buy was being terribly mismanaged at the time which created a window of opportunity. Best Buy upgraded management who got the company focused on the right things and Radioshack and HGG quickly began their decline. People like to say HGG should benefit from the decline of SHLD but there are many players making aggressive moves in appliances that i don't think that will be the case (Lowes, HD, BBY, SHOS). To me appliances is this shiny object retailers like to focus on because the margins are higher than average and it is a category that seems unlikely to be disrupted by the shift to e-commerce but in reality the margins are offset but significantly worse working capital metrics (sitting on 180 days of inventory) which make the category significantly less attractive from an ROIC standpoint. HGG just has nothing to offer, they aren't differentiated in anyway and they don't have dominant market share in any category. I just don't see them being around long term.