hhgregg Announces First Fiscal Quarter Operating Results
INDIANAPOLIS–(BUSINESS WIRE)–hhgregg, Inc. (NYSE: HGG) (“hhgregg” or the “Company”) today announced
operating results for the first fiscal quarter ended June 30, 2016 as
compared to the first fiscal quarter ended June 30, 2015.
First Fiscal Quarter Summary
-
Net sales decreased 4.0% to $424 million compared to prior year
first fiscal quarter. -
Comparable store sales decreased 3.9% compared to the prior year
first fiscal quarter, a sequential improvement compared to the prior
year fiscal quarter. Appliance comparable store sales increased 3.7%. -
Continued to successfully shift more sales mix to appliances, which
accounted for 64% of sales for the first fiscal quarter. -
Gross margin increased to 31.0% compared to 30.5% in the prior year
first fiscal quarter. -
Net loss per diluted share was $0.26. Net loss per diluted share,
as adjusted, was $0.21. In the prior year first fiscal quarter, net
loss per diluted share was $0.32 and net loss per diluted share, as
adjusted, was $0.17. -
As of June 30, 2016, there were no borrowings outstanding on the
recently amended $300 million credit facility.
Robert Riesbeck, President and Chief Executive Officer and Chief
Financial Officer, commented, “We delivered a solid first fiscal quarter
and are off to a positive start to our fiscal year. We made progress
toward our top company goal of driving revenue. We improved comps
sequentially from last quarter and year-over-year, driven by appliances,
which generated a 3.7% comparable store sales increase in the quarter,
along with our continued growth in furniture. We improved our top-line
in appliances while protecting our margins. Our total company gross
margin increased and we were able to generate positive EBITDA. As the
fiscal year progresses we will continue to invest in Fine Lines and
store resets to help with our relentless efforts to grow net sales and
profitability this fiscal year.”
Three Months Ended | ||||||||
June 30, | ||||||||
(unaudited, amounts in thousands, except share and per share data) | 2016 | 2015 | ||||||
Net sales | $ | 423,572 | $ | 441,063 | ||||
Net sales % decrease | (4.0 | )% | (6.6 | )% | ||||
Comparable store sales % decrease (1) | (3.9 | )% | (6.3 | )% | ||||
Gross profit as a % of net sales | 31.0 | % | 30.5 | % | ||||
SG&A as a % of net sales | 25.5 | % | 25.2 | % | ||||
Net advertising expense as a % of net sales | 5.4 | % | 5.2 | % | ||||
Depreciation and amortization expense as a % of net sales | 1.6 | % | 1.9 | % | ||||
Loss from operations as a % of net sales | (1.5 | )% | (1.9 | )% | ||||
Net interest expense as a % of net sales | 0.2 | % | 0.1 | % | ||||
Net loss | $ | (7,227 | ) | $ | (8,755 | ) | ||
Net loss, as adjusted (2) | $ | (5,742 | ) | $ | (4,822 | ) | ||
Net loss per diluted share | $ | (0.26 | ) | $ | (0.32 | ) | ||
Net loss per diluted share, as adjusted (2) | $ | (0.21 | ) | $ | (0.17 | ) | ||
Adjusted EBITDA | $ | 2,016 | $ | 4,132 | ||||
Weighted average shares outstanding—diluted | 27,741,261 | 27,680,209 | ||||||
Number of stores open at the end of period | 226 | 227 | ||||||
(1) |
Comprised of net sales at stores in operation for at least 14 |
|
(2) |
Amounts are adjusted to exclude the impact of severance and |
|
HIGHLIGHTS FOR THE FIRST FISCAL QUARTER
Revenue Highlights
The Company’s net sales performance for the quarter was driven primarily
by a comparable store sales decline. Net sales mix and comparable store
sales percentage changes by product category for the three month periods
ended June 30, 2016 and 2015 were as follows:
Net Sales Mix Summary | Comparable Store Sales Summary | |||||||||||
Three Months Ended June 30 | Three Months Ended June 30 | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Appliances | 64 | % | 59 | % | 3.7 |
% |
(2.2 | )% | ||||
Consumer electronics (1) | 30 | % | 35 | % | (17.4 | )% | (14.8 | )% | ||||
Home products (2) | 6 | % | 6 | % | 0.3 |
% |
12.1 |
% |
||||
Total | 100 | % | 100 | % | (3.9 | )% | (6.3 | )% | ||||
(1) |
Primarily consists of televisions, audio, personal electronics, |
|
(2) |
Primarily consists of furniture and mattresses. |
|
The Company’s comparable store sales drivers for the three months ended
June 30, 2016 are summarized below:
Comparable Store |
Average Selling Price | Sales Unit Volume | |||||
Appliances | 3.7 |
% |
Decrease | Increase | |||
Consumer electronics (1) | (17.4 | )% | Decrease | Decrease | |||
Home products (2) | 0.3 |
% |
Increase | Decrease | |||
Total | (3.9 | )% | |||||
Gross Margin Highlights
The Company’s gross profit margin, expressed as gross profit as a
percentage of net sales, increased for the three month period ended
June 30, 2016 to 31.0% from 30.5% for the comparable prior year period.
-
The Company’s increase in gross profit margin for the period was
primarily a result of a favorable product sales mix to categories with
higher gross margin rates in addition to higher gross margin rates in
appliances and home products, partially offset by lower gross profit
margin rates in consumer electronics.
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.
-
The decrease in advertising expense of $0.2 million for the first
fiscal quarter was due to a reduction of gross advertising spend
driven by continued efficiency and effectiveness in our advertising
spend. -
The increase in SG&A as a percentage of net sales to 25.5% from 25.2%
for the three month comparable prior year period was primarily a
result of:-
Increase of 34 basis points in occupancy costs due primarily to
increased utility expenses and the deleveraging effect of the
sales decline. -
Increase of 32 basis points in delivery services primarily due to
the increased number of deliveries in all categories due to free
delivery promotions. -
Increase of 17 basis points in wages primarily due to one time
labor costs related to the distribution center consolidation. - Increase of 13 basis points for credit card charge backs.
These increases were partially offset by:
-
Decrease of 86 basis points for consulting expenses incurred in
the prior year to assist in our cost saving initiatives for fiscal
2016.
Teleconference and Webcast
hhgregg will be conducting a conference call to discuss operating
results for the three months ended June 30, 2016, on Thursday, August 4,
2016 at 9:00 a.m. (Eastern Time). Our call will be hosted by Robert
Riesbeck, our President and CEO and 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 226 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 2017 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 the Company’s strategies and initiatives, particularly in
returning the Company to profitable growth; the Company’s ability to
increase customer traffic and conversion; competition in the retail
industry; the Company’s ability to maintain a positive brand perception
and recognition; the Company’s ability to attract and retain qualified
personnel; the Company’s ability to maintain the security of customer,
associate and Company information; rules, regulations, contractual
obligations, compliance requirements and fees associated with accepting
a variety of payment methods; the Company’s ability to effectively
achieve cost cutting initiatives; the Company’s ability to generate
strong cash flows to support its operating activities; the Company’s
relationships and operations of its key suppliers; the Company’s ability
to generate sufficient cash flows to recover the fair value of
long-lived assets; the Company’s ability to maintain and upgrade its
information technology systems; the fluctuation of the Company’s
comparable store sales; the effect of general and regional economic and
employment conditions on the Company’s net sales; the Company’s ability
to meet financial performance guidance; disruption in the Company’s
supply chain; changes in trade regulation, 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 for fiscal year 2016 filed May 19, 2016. 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 SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)Three Months Ended June 30,
2016June 30,
2015(In thousands, except share and per share data) Net sales $ 423,572 $ 441,063 Cost of goods sold 292,063 306,706 Gross profit 131,509 134,357 Selling, general and administrative expenses 108,109 111,104 Net advertising expense 22,869 23,054 Depreciation and amortization expense 6,978 8,369 Loss from operations (6,447 ) (8,170 ) Other expense (income): Interest expense 785 590 Interest income (5 ) (5 ) Total other expense 780 585 Loss before income taxes (7,227 ) (8,755 ) Income taxes — — Net loss $ (7,227 ) $ (8,755 ) Net loss per share Basic and diluted $ (0.26 ) $ (0.32 ) Weighted average shares outstanding-basic and diluted 27,741,261 27,680,209 HHGREGG, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(AS A PERCENTAGE
OF NET SALES)
(UNAUDITED)Three Months Ended June 30, 2016 June 30, 2015 Net sales 100.0 % 100.0 % Cost of goods sold 69.0 69.5 Gross profit 31.0 30.5 Selling, general and administrative expenses 25.5 25.2 Net advertising expense 5.4 5.2 Depreciation and amortization expense 1.6 1.9 Loss from operations (1.5 ) (1.9 ) Other expense (income): Interest expense 0.2 0.1 Interest income — — Total other expense 0.2 0.1 Loss before income taxes (1.7 ) (2.0 ) Income taxes — — Net loss (1.7 ) (2.0 ) Certain percentage amounts do not sum due to rounding
HHGREGG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
JUNE 30, 2016, MARCH 31, 2016 AND JUNE 30, 2015
(UNAUDITED)June 30, 2016 March 31, 2016 June 30, 2015 (In thousands, except share data) Assets Current assets: Cash $ 1,214 $ 3,703 $ 9,742 Accounts receivable—trade, less allowances of $3, $5 and $13 as of
June 30, 2016, March 31, 2016 and June 30, 2015, respectively17,131 11,106 17,178 Accounts receivable—other 18,672 14,937 16,109 Merchandise inventories, net 292,025 256,559 324,551 Prepaid expenses and other current assets 10,021 6,333 10,229 Income tax receivable 1,107 1,130 5,345 Total current assets 340,170 293,768 383,154 Net property and equipment 85,236 87,472 123,985 Deferred financing costs, net 2,432 1,257 1,661 Deferred income taxes — — 7,816 Other assets 3,239 2,855 2,914 Total long-term assets 90,907 91,584 136,376 Total assets $ 431,077 $ 385,352 $ 519,530 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 145,383 $ 107,474 $ 167,108 Line of credit — — — Customer deposits 54,682 43,235 49,737 Accrued liabilities 49,466 43,370 52,161 Deferred income taxes — — 7,816 Total current liabilities 249,531 194,079 276,822 Long-term liabilities: Deferred rent 56,598 59,101 66,107 Other long-term liabilities 10,381 10,818 10,870 Total long-term liabilities 66,979 69,919 76,977 Total liabilities 316,510 263,998 353,799 Stockholders’ equity: Preferred stock, par value $.0001; 10,000,000 shares authorized; no
shares issued and outstanding as of June 30, 2016, March 31, 2016
and June 30, 2015, respectively— — — Common stock, par value $.0001; 150,000,000 shares authorized;
41,291,415, 41,204,660 and 41,204,660 shares issued; and 27,794,733,
27,707,978 and 27,707,978 outstanding as of June 30, 2016, March 31,
2016, and June 30, 2015, respectively4 4 4 Additional paid-in capital 304,765 304,325 302,578 Accumulated deficit (39,974 ) (32,747 ) 13,377 Common stock held in treasury at cost; 13,496,682 shares as of June
30, 2016, March 31, 2016, and June 30, 2015(150,228 ) (150,228 ) (150,228 ) Total stockholders’ equity 114,567 121,354 165,731 Total liabilities and stockholders’ equity $ 431,077 $ 385,352 $ 519,530 HHGREGG, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30,
2016 AND 2015
(UNAUDITED)Three Months Ended June 30, 2016 June 30, 2015 (In thousands) Cash flows from operating activities: Net loss $ (7,227 ) $ (8,755 ) Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation and amortization 6,978 8,369 Amortization of deferred financing costs 135 135 Stock-based compensation 440 898 Excess tax benefit from stock based compensation 126 — Gain on sales of property and equipment (63 ) (78 ) Tenant allowances received from landlords — 580 Changes in operating assets and liabilities: Accounts receivable—trade (6,025 ) (5,277 ) Accounts receivable—other (3,735 ) 46 Merchandise inventories (35,466 ) (67,082 ) Income tax receivable 23 (19 ) Prepaid expenses and other assets (4,004 ) (3,645 ) Accounts payable 44,905 55,081 Customer deposits 11,447 995 Accrued liabilities 6,096 5,438 Deferred rent (2,503 ) (1,848 ) Other long-term liabilities (370 ) (1,072 ) Net cash provided by (used in) operating activities 10,757 (16,234 ) Cash flows from investing activities: Purchases of property and equipment (3,910 ) (4,304 ) Proceeds from sales of property and equipment 4 11 Purchases of corporate-owned life insurance (68 ) (73 ) Net cash used in investing activities (3,974 ) (4,366 ) Cash flows from financing activities: Net repayments on inventory financing facility (7,836 ) (59 ) Payment of financing costs (1,436 ) — Net cash used in financing activities (9,272 ) (59 ) Net decrease in cash and cash equivalents (2,489 ) (20,659 ) Cash and cash equivalents Beginning of period 3,703 30,401 End of period $ 1,214 $ 9,742 Supplemental disclosure of cash flow information: Interest paid $ 647 $ 459 Income taxes (received) paid $ (23 ) $ 19 Capital expenditures included in accounts payable $ 2,105 $ 1,352 HHGREGG, INC. AND SUBSIDIARIES
NON-GAAP
RECONCILIATION OF NET LOSS, AS ADJUSTED AND
DILUTED
NET LOSS PER SHARE, AS ADJUSTED,
(UNAUDITED)Three Months Ended June 30, (Amounts in thousands, except share data) 2016 2015 Net loss as reported $ (7,227 ) $ (8,755 ) Non-cash adjustments to net loss: Severance and personnel costs (1) 674 — Consulting fees (2) 138 3,933 Other (3) 673 — Net loss, as adjusted $ (5,742 ) $ (4,822 ) Weighted average shares outstanding – Diluted 27,741,261 27,680,209 Net loss per diluted share as reported $ (0.26 ) $ (0.32 ) Net loss per diluted share, as adjusted $ (0.21 ) $ (0.17 ) (1)
Expenses incurred related to our organizational changes in our
transformation efforts.(2)
Costs paid to outside consultants to assist with the Company’s
transformation efforts.(3)
Consists of $0.5 million of costs associated with our logistics
optimization project and $0.1 million of deferred amortization
fees written off with the June 2016 amendment to our Facility.Three Months Ended June 30, (Amounts in thousands) 2016 2015 Net loss as reported $ (7,227 ) $ (8,755 ) Adjustments: Depreciation and amortization 6,978 8,369 Interest expense, net 780 585 Income tax expense — — EBITDA $ 531 $ 199 Severance and personnel costs (1) 674 — Consulting fees (2) 138 3,933 Other (3) 673 — Adjusted EBITDA $ 2,016 $ 4,132 (1)
Expenses incurred related to our transformation efforts.
(2)
Costs paid to outside consultants to assist with the Company’s
transformation efforts.(3)
Consists of $0.5 million of costs associated with our logistics
optimization project and $0.1 million of deferred amortization
fees written off with the June 2016 amendment to our Facility.We believe that the non-GAAP measures described above provide meaningful
information to assist shareholders in understanding our financial
results and assessing our prospects for future performance. Management
believes adjusted net loss, adjusted net loss per diluted share, EBITDA
and Adjusted EBITDA are important indicators of our operations because
they exclude items that may not be indicative of or are unrelated to our
core operating results and provide a baseline for analyzing trends in
our underlying businesses. Management makes standard adjustments for
items such as non-cash asset impairments, consulting fees, severance
costs, as well as adjustments for other items that may arise during the
period and have a meaningful impact on comparability.The above information provides reconciliations from net loss, the most
comparable financial measure calculated and presented in accordance with
accounting principles generally accepted in U.S. (“GAAP”), to non-GAAP
financial measures. The Company has provided non-GAAP financial
measures, which are not calculated or presented in accordance with GAAP,
as information supplemental and in addition to the financial measures
presented in the accompanying earnings release that are calculated and
presented in accordance with GAAP. Such non-GAAP financial measures
should not be considered superior to, as a substitute for, or as an
alternative to, and should be considered in conjunction with, the GAAP
financial measures presented in the earnings release. The non-GAAP
financial measures in the accompanying earnings release may differ from
similar measures used by other companies.EBITDA represents net loss before income tax expense, interest income,
interest expense, depreciation and amortization. The Company has
presented EBITDA because it considers it an important supplemental
measure of its performance and believes 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 US 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 SUBSIDIARIES
Store Count by
Quarter for Fiscal Years 2015, 2016 and 2017
(Unaudited)FY2015 FY2016 FY2017 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Beginning Store Count 228 229 228 228 228 227 227 227 226 Store Openings 1 — — — 1 — — — — Store Closings — (1 ) — — (2 ) — — (1 ) — Ending Store Count 229 228 228 228 227 227 227 226 226 Note: hhgregg, Inc.’s fiscal year is comprised of four quarters ending
June 30th, September 30th, December 31st and March 31st.Contacts
hhgregg, Inc.
Lance Peterson, 317-848-8710
Director, Finance &
Investor Relations
investorrelations@hhgregg.com -
Increase of 34 basis points in occupancy costs due primarily to