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.”

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:

The Company’s comparable store sales drivers for the three months ended
June 30, 2016 are summarized below:

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, 2016				June 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, respectively		17,131				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, respectively		4				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