hhgregg, Inc. (OTCMKTS:HGGGQ) filed for Chapter 11 bankruptcy this past March, just days after saying it was closing 88 stores. The Indianapolis-based appliance and electronics retailer announced the hhgregg store closures in 2017 and eventual bankruptcy after reporting abysmal financial results for the holiday quarter, with overall sales cratering 24% year-over-year. After the announcement, shares fell 24% to $1.00 in after-hours trading.
In 2016, hhgregg shifted its focus away from electronics to appliances. This move ultimately sent the company’s third-quarter results off the cliff. Third-quarter electronics sales plunged 39%, with appliance sales falling four percent and home products shrinking nine percent.
In October 2017, hhgregg emerged from bankruptcy, but in an entirely different format. Instead of having a big retail footprint, it will live on (for now) as an online brand. The company believes that its name still holds sway with its long-time customers. But the retail apocalypse doesn’t care about sentiment or history.
hhgregg will have a difficult time competing with bigger brands that have a huge online presence, like Amazon.com, Inc. (NASDAQ:AMZN), Wal-Mart Stores Inc (NYSE:WMT), and Best Buy Co Inc (NYSE:BBY).
hhgregg’s Q3 Sales Fall 24% Year-Over-Year
The last time hhgregg reported its financial results, it wasn’t pretty, reporting a wider-than-expected loss in the third quarter of 2017 (ended December 31, 2016). On January 26, hhgregg reported third-quarter revenue of $453.0 million, a 24% drop over the $593.2 million recorded in the same prior-year period.
Comparable store sales tumbled 22.2%. This is wider than the 6.4% drop in the preceding quarter and the 10.8% drop in the prior-year quarter. The underwhelming numbers are a result of the company’s shift to appliances from electronics. Over the Christmas holidays, consumers shop more for electronics than major appliances.
Third-quarter electronics revenue tumbled 39%, appliance sales fell four percent, and home products slipped nine percent.
hhgregg reported a third-quarter loss of $58.2 million, or $2.10 per share, a huge increase over the loss of $26.9 million, or $0.97 per share, recorded in the same prior-year period. The retailer reported an adjusted net loss of $1.70 per share. In the prior-year third quarter, hhgregg reported an adjusted loss of $0.15.
Company CEO Robert Riesbeck was understandably “disappointed” by the results and blamed the poor showing on, “competitive pressure in the market, specifically in consumer electronics as it is a larger mix of our business during the holidays.”
Riesbeck tried to assuage investor fears by saying that hhgregg would continue to reposition its electronics business to focus on “premium models” and appliance and home products categories.
“Through these initiatives and additional expected cost reductions, we are committed to improving our results,” Riesbeck explained. “We are pleased with how we have managed our balance sheet to give us the liquidity position to drive these future results.”
hhgregg Files for Chapter 11 Bankruptcy After Closing 88 Stores
We’ll never know what those future results would have looked like. Less than two months later, on March 6, the struggling retailer filed for Chapter 11 bankruptcy.
This move came four days after hhgregg announced that it was shuttering 88 of its weakest stores in an effort to stay afloat. The closings resulted in 1,500 layoffs. At the time, hhgregg had around 5,000 employees.
“We are strategically exiting markets and stores that are not financially profitable for us,” Riesbeck said in a statement. “This is a proactive decision to streamline our store footprint in the markets where we have been, and will continue to be, important to our customers, vendor partners and communities.”
hhgregg’s decision to eliminate 40% of its stores and 30% of its staff came just one month after it said it was laying off 100 workers, including 70 at its Indianapolis headquarters, as part of a restructuring plan designed to save the company $15.0 million annually.
In an emailed statement, Riesbeck stated that, “in light of our recent Q3 earnings release, we have made the difficult decision to restructure our field and corporate workforce. While decisions like this are never easy, we are taking the necessary steps to preserve and grow our business during the continued challenging retail environment.”
In announcing its filing for bankruptcy, hhgregg said it signed a term sheet with anonymous buyers to purchase its assets. The selling of its assets will allow hhgregg to exit Chapter 11, “debt free with significant improvement in liquidity for the future stability of the business.”
“We’ve given it a valiant effort over the past 12 months,” Riesbeck said. “We have conducted an extensive review of alternatives and believe pursuing a restructuring through Chapter 11 is the best path forward to ensure HHGregg’s long-term success.”
Riesbeck expected the Chapter 11 process to be smooth and quick and for the company to emerge from the restructuring in around 60 days.
That didn’t happen.
hhgregg Store Closures 2017: All Stores on the Chopping Block
In April, hhgregg announced it was closing all 220 of its stores at the end of May, resulting in the loss of 5,000 jobs. The closures come after the deal to sell off its assets fell through.
Commenting on the total shut down of hhgregg locations, Riesbeck said, “While we had discussions with more than 50 private equity firms, strategic buyers and other investors, unfortunately, we were unsuccessful in our plan to secure a viable buyer of the business on a going-concern basis within the expedited timeline set by our creditors.”
The chain signed a consulting agreement with Tiger Capital Group and Great American Group to sell its merchandise, furniture, fixtures, and equipment from all of its stores and 14 distribution centers.
hhgregg was the seventh-largest appliance retailer in the U.S., but it wasn’t enough to keep it afloat. Even Riesbeck said as much in September 2016, before the company reported terrible third-quarter results.
“I would say we’re not unique in retail,” Riesbeck said.
As the retail apocalypse has shown us, businesses that are not unique do not stay in business. hhgregg followed the same trajectory as many other retailers.
In October 2017, hhgregg emerged from bankruptcy, but will live on as an online brand. The new hhgregg isn’t affiliated with the out-of-business Indianapolis chain, though. Valor LLC acquired hhgregg’s intellectual property for $400,000 in June, giving it the right to use the hhgregg name, logo, and other assets.
It will now attempt to carve out a niche in a crowded marketplace, competing with the biggest names in online retail.
“hhgregg Announces Third Fiscal Quarter Operating Results,” hhgregg, Inc., January 26, 2017.
“hhgregg Files for Chapter 11 Reorganization,” hhgregg, Inc., March 6, 2017.
“hhgregg closing 88 stores amid bankruptcy rumors,” IndyStar, March 2, 2017.
“Struggling HHGregg lays off 100 in bid to save $15M a year,” Indianapolis Business Journal, February 2, 2017.
“Briggs: HHGregg has a plan to fix its bland stores,” IndyStar, September 23, 2016.
“Hhgregg emerges from a bankruptcy sale as an online-only brand, with stores possible,” Digital Commerce 360, October 20, 2017.