hhgregg, Inc. (NYSE: HGG) ("hhgregg" or the "Company") today
announced operating results for the second quarter ended
September 30, 2015 as compared to the second quarter ended
September 30, 2014.
Second Quarter
Summary
- Net sales decreased 3.8% to $487
million compared to prior year second quarter, but improved by 280
basis points as compared to the first quarter of fiscal
2016.
- Comparable store sales decreased
3.5% compared to the prior year second quarter, but improved by 280
basis points as compared to the first quarter of fiscal
2016.
- 21.9% increase in comparable sales
on the e-commerce site for the second quarter
- Gross margin decreased to 28.5%
compared to 29.1% in the prior year second quarter
- Net loss per diluted share was $0.37
which did not include an income tax benefit. In prior year second
quarter, net loss per diluted share was $0.37 which included a
$0.22 benefit related to income taxes.
- EBITDA improved to $(1.1) million
compared to $(5.1) million in the prior year second
quarter
Dennis May, President and Chief Executive Officer, commented,
“We remain on track to meet or exceed our three key financial
objectives for the year, which are focused on driving improvements
for comparable store sales, cost savings and positive EBITDA for
the fiscal year. We were pleased with the continued traction in our
net sales during the second quarter driven by delivering on our
fiscal 2016 revenue generation initiatives. In addition, we have
continued our cost savings efforts and remain on track to meet our
plan to save $50 million in fiscal 2016. The steady progress we
have made with our transformation plan has positioned our company
well as we embark on the holiday season."
Three Months Ended Six Months Ended
September 30, September 30, (unaudited,
amounts in thousands, except share and per share data)
2015
2014 2015 2014 Net sales
$ 486,876 $ 505,862 $ 927,939 $ 978,154 Net sales % decrease
(3.8
)%
(11.0
)%
(5.1
)%
(10.5
)% Comparable store sales % decrease (1)
(3.5
)%
(11.4
)%
(4.8
)%
(10.9
)% Gross profit as a % of net sales
28.5
%
29.1
%
29.4
%
29.4
% SG&A as a % of net sales
23.3
%
23.5
%
24.2
%
24.1
% Net advertising expense as a % of net sales
5.4
%
6.5
%
5.3
%
6.2
% Depreciation and amortization expense as a % of net sales
1.7
%
2.1
%
1.8
%
2.2
% Loss from operations as a % of net sales
(1.9
)%
(3.2
)%
(1.9
)%
(3.1
)% Net interest expense as a % of net sales
0.1
%
0.1
%
0.1
%
0.1
% Income tax expense as a % of net sales
—
%
(1.2
)%
—
%
(1.1
)% Net loss $ (10,126 ) $ (10,384 ) $ (18,881 ) $ (20,653 ) Net
loss per diluted share $ (0.37 ) $ (0.37 ) $ (0.68 ) $ (0.73 )
EBITDA $ (1,088 ) $ (5,116 )
(889
)
(8,590
) Weighted average shares outstanding—diluted
27,707,978
28,394,164
27,694,169
28,419,417
Number of stores open at the end of period
227
228
(1)
Comprised of net sales at stores in
operation for at least 14 full months, including remodeled and
relocated stores, as well as net sales for the Company’s e-commerce
site.
HIGHLIGHTS FOR THE SECOND QUARTER
Revenue Highlights
The Company's net sales performance in the quarter was driven
primarily by a comparable store sales decline, although the
Company’s second quarter of fiscal 2016 comparable store sales in
appliances, consumer electronics and computers and tablets
categories were improved compared to the first quarter of fiscal
2016 comparable store sales in these categories. Net sales mix and
comparable store sales percentage changes by product category for
the three and six month periods ended September 30, 2015 and
2014 were as follows:
Net Sales Mix Summary Comparable Store
Sales Summary
Three Months EndedSeptember
30,
Six Months EndedSeptember
30,
Three Months EndedSeptember
30,
Six Months EndedSeptember
30,
2015 2014 2015 2014
2015 2014 2015 2014
Appliances 56 % 53 % 57 % 55 % 0.8
%
(5.8 )% (0.7 )% (3.9 )% Consumer electronics (1) 33 % 34 % 32 % 33
% (6.3 )% (16.0 )% (7.2 )% (17.2 )% Home products (2) 6 % 6 % 6 % 5
% 4.4
%
5.0
%
7.8
%
2.5
%
Computers and tablets 5 % 7 % 5 % 7 % (29.8 )% (33.7 )% (35.9 )%
(31.6 )% Total 100 % 100 % 100 % 100 % (3.5 )% (11.4 )% (4.8 )%
(10.9 )%
(1)
Primarily consists of televisions, audio,
personal electronics and accessories.
(2)
Primarily consists of furniture and
mattresses.
The Company's comparable store sales drivers for the three
months ended September 30, 2015 are summarized below:
Comparable StoreSales
Comparable StoreSales
ExcludingMobile and Fitness
Average Selling Price Sales Unit Volume
Appliances 0.8
%
0.8
%
Increase Decrease Consumer electronics (1) (6.3 )% (6.3 )% Increase
Decrease Home products (2) 4.4
%
7.0
%
Decrease Increase Computers and tablets (29.8 )% (29.5 )% Decrease
Decrease Total (3.5 )% (3.3 )%
(1)
Primarily consists of televisions, audio,
personal electronics and accessories.
(2)
Primarily consists of furniture and
mattresses.
Gross Margin Highlights
The Company's gross profit margin, expressed as gross profit as
a percentage of net sales, decreased 59 basis points for the three
month period ended September 30, 2015 to 28.5% from 29.1% for
the comparable prior year period.
- The Company's decrease in gross profit
margin for the period was primarily a result of lower gross profit
margin rates in all categories except home products, partially
offset by a favorable product sales mix to categories with higher
gross margin rates.
Cost Structure Highlights
The Company continues to manage its cost structure to align with
its expected sales levels and to keep the Company positioned for
EBITDA growth.
- During the second quarter, hhgregg
realized $16.1 million of its expected $50 million of annual cost
savings for fiscal 2016. For the first six months of fiscal 2016,
the Company realized $27.2 million of the targeted $50 million
projected annual cost savings. This has partially been offset by
the increased fees associated with customer financing described
below.
- The decrease in advertising expense of
$6.8 million was due to a reduction of gross advertising spend
primarily driven by reductions in print media along with
rebalancing of spending among the more efficient advertising
mediums.
- The decrease in SG&A as a
percentage of net sales to 23.3% from 23.5% for the comparable
prior year period was a result of:
- 105 basis points decrease, or $6.9
million, in wages due to our continuing effort to drive
efficiencies in the Company's labor structure; and
- 24 basis points decrease, or $1.8
million, in delivery services due to efficiencies in routing and
lower fuel prices.
These decreases were partially offset by:
- a 79 basis points increase, or $3.7
million, in fees associated with higher cost customer financing
options and higher private label credit card penetration.
Income Taxes Highlights
During the second quarter fiscal 2016 the Company did not record
an income tax expense or benefit due to its full income tax
valuation allowance. For the three months ended September 30,
2014, the Company recorded a $6.2 million income tax benefit, or
$0.22 per diluted shared, due to its pre-tax loss.
Teleconference and Webcast
hhgregg will be conducting a conference call to discuss
operating results for the three months ended September 30,
2015, on Thursday, November 5, 2015 at 9:00 a.m. (Eastern
Time). Our call will be hosted by Dennis May, our President and
CEO, Robert Riesbeck, our CFO, and Lance Peterson, our Director of
Finance & Investor Relations.
Interested investors and other parties may listen to a
simultaneous webcast of the conference call by logging onto
hhgregg’s website at www.hhgregg.com. The on-line replay will be
available for a limited time immediately following the call. The
call can also be accessed live over the phone by dialing
(877) 304-8963. Callers should reference the hhgregg earnings
call.
About hhgregg
hhgregg is an appliance, electronics and furniture retailer that
is committed to providing customers with a truly differentiated
purchase experience through superior customer service,
knowledgeable sales associates and the highest quality product
selections. Founded in 1955, hhgregg is a multi-regional retailer
currently with 227 stores in 20 states that also offers
market-leading global and local brands at value prices nationwide
via hhgregg.com.
Forward Looking Statements
The following is a Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995:
This press release includes forward-looking statements,
including with respect to the Company’s financial performance,
ability to manage costs, ability to execute the Company's 2016
initiatives, innovation in the video industry, the impact and
amount of non-cash charges, and shifts in the Company’s sales mix.
hhgregg has based these forward-looking statements on its current
expectations, assumptions, estimates and projections. While hhgregg
believes these expectations, assumptions, estimates and projections
are reasonable, these forward-looking statements are only
predictions and involve known and unknown risks and uncertainties,
many of which are beyond its control. These and other important
factors may cause hhgregg’s actual results, performance or
achievements to differ materially from any future results,
performance or achievements expressed or implied by these
forward-looking statements. Some of the key factors that could
cause actual results to differ from hhgregg’s expectations are: the
ability to successfully execute its strategies and initiatives,
particularly in the sales mix shift and consumer electronics
category; its ability to maintain a positive brand perception and
recognition; the failure of manufacturers to introduce new products
and technologies; competition in existing, adjacent and new
metropolitan markets; its ability to maintain the security of
customer, associate and Company information; its ability to roll
out new financing offers to customers; its ability to effectively
manage and monitor its operations, costs and service quality; its
ability to maintain and upgrade its information technology systems;
its ability to maintain and develop multi-channel sales and
marketing strategies; competition from internet retailers; its
ability to meet delivery schedules; the effect of general and
regional economic and employment conditions on its net sales; its
ability to attract and retain qualified sales personnel; its
ability to meet financial performance guidance; its ability to
generate sufficient cash flows to recover the fair value of
long-lived assets and recognize deferred tax assets; its reliance
on a small number of suppliers; its ability to negotiate with its
suppliers to provide product on a timely basis at competitive
prices; changes in legal and/or trade regulations, currency
fluctuations and prevailing interest rates and the potential for
litigation.
Other factors that could cause actual results to differ from
those implied by the forward-looking statements in this press
release are more fully described in the “Risk Factors” section in
the Company’s Annual Report on Form 10-K filed May 15,
2015. Given these risks and uncertainties, you are cautioned not to
place undue reliance on these forward-looking statements. The
forward-looking statements included in this press release are made
only as of the date hereof. hhgregg does not undertake, and
specifically declines, any obligation to update any of these
statements or to publicly announce the results of any revisions to
any of these statements to reflect future events or
developments.
HHGREGG, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(UNAUDITED)
Three Months Ended Six Months Ended
September 30, 2015 September 30,
2014 September 30, 2015 September
30, 2014 (In thousands, except share and per share
data) Net sales $ 486,876 $ 505,862 $ 927,939 $ 978,154 Cost of
goods sold 348,231 358,817 654,937 690,770
Gross profit 138,645 147,045 273,002 287,384 Selling,
general and administrative expenses 113,479 119,112 224,583 235,701
Net advertising expense 26,254 33,049 49,308 60,273 Depreciation
and amortization expense 8,391 10,823 16,760
21,298 Loss from operations (9,479 ) (15,939 ) (17,649 )
(29,888 ) Other expense (income): Interest expense 649 678 1,239
1,307 Interest income (2 ) (2 ) (7 ) (7 ) Total other expense 647
676 1,232 1,300 Loss before income
taxes (10,126 ) (16,615 ) (18,881 ) (31,188 ) Income tax benefit —
(6,231 ) — (10,535 ) Net loss $ (10,126 ) $ (10,384 )
$ (18,881 ) $ (20,653 ) Net loss per share Basic and diluted $
(0.37 ) $ (0.37 ) $ (0.68 ) $ (0.73 ) Weighted average shares
outstanding-basic and diluted 27,707,978 28,394,164 27,694,169
28,419,417
HHGREGG, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(AS A PERCENTAGE OF NET
SALES)(UNAUDITED)
Three Months Ended Six Months Ended
September 30,2015
September 30,2014
September 30, 2015 September 30,
2014 Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 71.5 70.9 70.6 70.6
Gross profit 28.5 29.1 29.4 29.4 Selling, general and
administrative expenses 23.3 23.5 24.2 24.1 Net advertising expense
5.4 6.5 5.3 6.2 Depreciation and amortization expense 1.7
2.1 1.8 2.2 Loss from operations (1.9 ) (3.2 )
(1.9 ) (3.1 ) Other expense (income): Interest expense 0.1 0.1 0.1
0.1 Interest income — — — — Total other
expense 0.1 0.1 0.1 0.1 Loss before
income taxes (2.1 ) (3.3 ) (2.0 ) (3.2 ) Income tax benefit —
(1.2 ) — (1.1 ) Net loss (2.1 ) (2.1 ) (2.0 ) (2.1 )
Certain percentage amounts do not sum due
to rounding
HHGREGG, INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE
SHEETSSEPTEMBER 30, 2015, MARCH 31, 2015 AND
SEPTEMBER 30, 2014(UNAUDITED)
September 30,2015
March 31, 2015
September 30,2014
(In thousands, except share data) Assets Current
assets: Cash and cash equivalents $ 34,877 $ 30,401 $ 40,557
Accounts receivable—trade, less allowances of $5, $19 and $106 as
of September 30, 2015, March 31, 2015 and September 30, 2014,
respectively 11,556 11,901 15,450 Accounts receivable—other 14,383
16,715 17,922 Merchandise inventories, net 288,690 257,469 335,699
Prepaid expenses and other current assets 5,381 6,581 6,745 Income
tax receivable 706 5,326 9,724 Total current
assets 355,593 328,393 426,097 Net property
and equipment 118,463 128,107 183,326 Deferred financing costs, net
1,526 1,796 2,065 Deferred income taxes 7,816 6,489 45,463 Other
assets 2,905 2,844 2,431 Total long-term
assets 130,710 139,236 233,285 Total assets $
486,303 $ 467,629 $ 659,382
Liabilities and
Stockholders’ Equity Current liabilities: Accounts payable $
143,840 $ 112,143 $ 185,026 Customer deposits 50,851 48,742 48,806
Accrued liabilities 52,454 46,723 51,375 Deferred income taxes
7,816 6,489 4,531 Total current liabilities
254,961 214,097 289,738 Long-term liabilities:
Deferred rent 63,887 67,935 70,330 Other long-term liabilities
11,128 12,009 11,389 Total long-term
liabilities 75,015 79,944 81,719 Total
liabilities 329,976 294,041 371,457
Stockholders’ equity: Preferred stock, par value $.0001; 10,000,000
shares authorized; no shares issued and outstanding as of September
30, 2015, March 31, 2015 and September 30, 2014, respectively — — —
Common stock, par value $.0001; 150,000,000 shares authorized;
41,204,660, 41,161,753 and 41,158,041 shares issued; and
27,707,978, 27,665,071 and 28,394,164 outstanding as of September
30, 2015, March 31, 2015, and September 30, 2014, respectively 4 4
4 Additional paid-in capital 303,300 301,680 299,619 Retained
earnings 3,251 22,132 134,225 Common stock held in treasury at cost
13,496,682, 13,496,682 and 12,763,877 shares as of September 30,
2015, March 31, 2015, and September 30, 2014, respectively (150,228
) (150,228 ) (145,923 ) Total stockholders’ equity 156,327
173,588 287,925 Total liabilities and stockholders’
equity $ 486,303 $ 467,629 $ 659,382
HHGREGG, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSSIX
MONTHS ENDED SEPTEMBER 30, 2015 AND
2014(UNAUDITED)
Six Months Ended September 30, 2015
September 30, 2014 (In thousands) Cash flows from
operating activities: Net loss $ (18,881 ) $ (20,653 ) Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities: Depreciation and amortization 16,760 21,298
Amortization of deferred financing costs 270 269 Stock-based
compensation 1,684 2,547 Gain on sales of property and equipment 52
166 Deferred income taxes — 470 Tenant allowances received from
landlords 721 306 Changes in operating assets and liabilities:
Accounts receivable—trade 345 (329 ) Accounts receivable—other
1,631 (1,262 ) Merchandise inventories (31,221 ) (37,157 ) Income
tax receivable 4,620 (8,344 ) Prepaid expenses and other assets
1,217 (121 ) Accounts payable 29,461 30,350 Customer deposits 2,109
7,288 Income tax payable — (122 ) Accrued liabilities 5,667 350
Deferred rent (4,068 ) (3,662 ) Other long-term liabilities (747 )
(469 ) Net cash provided by (used in) operating activities 9,620
(9,075 ) Cash flows from investing activities: Purchases of
property and equipment (8,118 ) (11,059 ) Proceeds from sales of
property and equipment 62 43 Purchases of corporate-owned life
insurance (78 ) (384 ) Net cash used in investing activities (8,134
) (11,400 ) Cash flows from financing activities: Purchases of
treasury stock — (976 ) Net borrowings on inventory financing
facility 2,990 13,844 Net cash provided by financing
activities 2,990 12,868 Net increase (decrease) in
cash and cash equivalents 4,476 (7,607 ) Cash and cash equivalents
Beginning of period 30,401 48,164 End of period $
34,877 $ 40,557 Supplemental disclosure of cash flow
information: Interest paid $ 966 $ 552 Income taxes received $
(4,600 ) $ (2,510 ) Capital expenditures included in accounts
payable $ 655 $ 1,094
HHGREGG, INC. AND
SUBSIDIARIESNON-GAAP RECONCILIATION OF
EBITDA(UNAUDITED)
Three Months Ended Six Months Ended
(Amounts in thousands) September 30, 2015
September 30, 2014 September 30,
2015 September 30, 2014 Net loss
as reported $ (10,126 ) $ (10,384 ) $ (18,881 ) $ (20,653 )
Adjustments: Depreciation and amortization 8,391 10,823 16,760
21,298 Interest expense, net 647 676 1,232 1,300 Income tax expense
(benefit) — (6,231 ) — (10,535 ) EBITDA $ (1,088 ) $
(5,116 ) $ (889 ) $ (8,590 )
EBITDA represents net loss before income tax expense (benefit),
interest income, interest expense, depreciation and amortization.
The Company has presented EBITDA because it considers it an
important supplemental measure of its performance and believe it is
frequently used by analysts, investors and other interested parties
in the evaluation of companies in its industry. Management uses
EBITDA as a measurement tool for evaluating its actual operating
performance compared to budget and prior periods. EBITDA is not a
measure of performance under generally accepted accounting
principles (GAAP) and should not be considered as a substitute for
net loss prepared in accordance with GAAP. EBITDA has limitations
as an analytical tool, and you should not consider these in
isolation or as a substitute for analysis of the Company's results
as reported under GAAP.
Some of the limitations of EBITDA measures are:
- EBITDA does not reflect the Company's
cash expenditures, or future requirements, for capital expenditures
or contractual commitments;
- EBITDA does not reflect interest
expense or the cash requirements necessary to service interest
payments on the Company's debt;
- EBITDA does not reflect tax expense or
the cash requirements necessary to pay for tax obligations;
and
- Although depreciation and amortization
are non-cash charges, the asset being depreciated and amortized
will often have to be replaced in the future, and EBITDA does not
reflect any cash requirements for such replacements.
The Company compensates for these limitations by relying
primarily on its GAAP results and using EBITDA only as a
supplement.
HHGREGG, INC. AND
SUBSIDIARIESStore Count by Quarter for Fiscal Years 2014,
2015 and 2016 (Unaudited)
FY2014 FY2015 FY2016
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
Q1 Q2 Beginning Store Count 228 228 228 228
228 229 228 228 228 227 Store Openings — — — — 1 — — — 1 —
Store Closings — — — — — (1 ) —
— (2 ) — Ending Store Count 228 228 228
228 229 228 228 228 227
227
Note: hhgregg, Inc. ’s fiscal year is comprised of four quarters
ending
June 30th, September 30th, December 31st
and March 31st.
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version on businesswire.com: http://www.businesswire.com/news/home/20151105005480/en/
hhgregg, Inc.Lance Peterson, 317-848-8710Director, Finance &
Investor Relationsinvestorrelations@hhgregg.com
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