hhgregg Making Strides in the Right Direction

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After a 45% one-year loss in value, specialty retailer hhgregg (NYSE: HGG) has been among the best performers during the last two trading sessions following a mixed earnings report. The company posted an EPS of $0.11, which beat expectations, and is now showing strength; meanwhile, Best Buy (NYSE: BBY) continues to warn.

Hhgregg’s Q2 results were a bit of a mixed bag, but thankfully the stock was priced for a worst case scenario. The company missed on the top line but beat bottom line expectations, for the third quarter in a row. The company saw minor growth in gross margins and had optimistic guidance moving into the next quarter.

Overall, there wasn’t anything to create its 35% gain during the last two trading sessions. The quarter was solid, but nothing spectacular. The stock did have a short-ratio of 33.70 as of October 15; therefore its gains might have been a result of short covering.

Hhgregg’s performance has been a big topic among investors, with strong opinions for both long and shorts. The company saw a sales decline of 8.8% due mostly to a 20.5% drop from its video decision. As a result, the company’s addition of exercise equipment and furniture is being viewed as a positive, and this is perhaps something that could create new opportunity.

Hhgregg’s decision to enter exercise and furniture could be beneficial, as the company is small enough to limit any potential downside, but large enough to be competitive in the space. The retail industry is very dangerous in this economy, as consumers continue to switch to online buying and can constantly window shop and compare prices from their smartphones. However, hhgregg appears to be adapting to these changes nicely, while its largest competitor continues to seek answers.

While hhgregg was preparing to post a fairly decent quarter, Best Buy warned of yet more struggles. The retail giant announced that two executives would be leaving, third quarter earnings would be worse than expected, expect significant structural changes within the company were ahead.

At this time it looks as though Best Buy is holding on for dear life, and trying to implement effective changes that so far have not worked. Meanwhile, investors seem to be accepting the decisions of hhgregg, and because of Best Buy’s weakness, it’s stock has remained cheap.  I am not certain if hhgregg’s decision to enter the exercise and furniture industries will result in growth, but I think it is worth monitoring over the next year. Either way, hhgregg is making strides in the right direction, and looks to be separating itself from Best Buy. 

BrianNichols has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy and hhgregg. Motley Fool newsletter services recommend Best Buy and hhgregg. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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