hhgregg Announces Fourth Fiscal Quarter and Full Year Operating Results

INDIANAPOLIS–(BUSINESS WIRE)–hhgregg, Inc. (NYSE: HGG) (“hhgregg” or the “Company”) today announced
operating results for the fourth quarter and full year ended March 31,
2016 as compared to the fourth quarter and full year ended March 31,
2015.

Fourth Quarter Summary

  • Net sales decreased 9.6% to $439 million year-over-year.
  • Comparable store sales decreased 9.3% year-over-year, however
    appliance comp sales for February and March increased 4.9%.
  • Gross margin increased to 28.7% compared to 28.6% in the prior year
    fourth quarter
  • Net loss per diluted share, as adjusted, was $(0.28) compared to
    $(0.63) in the prior year
    fourth quarter.
  • Adjusted EBITDA increased $7.9 million in the current year fiscal
    quarter from a loss of $7.8 million in the prior year fourth quarter.

Fiscal Year 2016 Summary

  • Net sales decreased (8.0)% to $2.0 billion year-over-year.
  • Comparable store sales decreased (7.7)% year-over-year.
  • The Company realized $66.9 million in cost savings, primarily
    through better-targeted advertising expenditures, store operations and
    corporate overhead expense reductions, exceeding its fiscal year goal
    of $50 million.
  • Adjusted EBITDA increased $14.8 million to $8.2 million compared to
    $(6.6) million in fiscal year 2015.

Robert Riesbeck, Chief Financial Officer and Interim President and Chief
Executive Officer, commented, “We strengthened the company in fiscal
2016 and enter fiscal 2017 with significantly improved EBITDA and cost
savings that exceeded our target. Our primary focus this year is on
driving revenue. We finished our fourth quarter with improved momentum,
specifically in appliances where we achieved a positive 4.9% comparable
store sales increase over February and March combined. We will be as
passionate and focused on revenue growth in fiscal 2017 as we were on
cost reductions in fiscal 2016, and believe that our past and future
investments will help us significantly improve our net sales and
profitability this fiscal year.”

  Three Months Ended   Twelve Months Ended
March 31,   March 31,
(unaudited, amounts in thousands, except share and per share data) 2016   2015 2016   2015
Net sales $ 438,840 $ 485,603 $ 1,959,998 $ 2,129,374
Net sales % decrease (9.6 )% (9.8 )% (8.0 )% (8.9 )%
Comparable store sales % decrease (1) (9.3 )% (10.0 )% (7.7 )% (9.2 )%
Gross profit as a % of net sales 28.7 % 28.6 % 28.3 % 28.5 %
SG&A as a % of net sales 24.2 % 24.7 % 22.8 % 22.9 %
Net advertising expense as a % of net sales 4.9 % 6.1 % 5.4 % 6.0 %
Depreciation and amortization expense as a % of net sales 1.6 % 1.8 % 1.6 % 1.9 %
Asset impairment charges as a % of net sales % 1.0 % 1.1 % 2.2 %
Loss from operations as a % of net sales (2.1 )% (5.1 )% (2.6 )% (4.7 )%
Net interest expense as a % of net sales 0.2 % 0.1 % 0.1 % 0.1 %
Income tax benefit (expense) as a % of net sales 0.2 % n/m n/m (1.4 )%
Net loss $ (9,085 ) $ (25,228 ) $ (54,879 ) $ (132,746 )
Net loss, as adjusted (2) $ (7,675 ) $ (17,371 ) $ (26,522 ) $ (38,685 )
Net loss per diluted share $ (0.33 ) $ (0.91 ) $ (1.98 ) $ (4.72 )
Net loss per diluted share, as adjusted (2) $ (0.28 ) $ (0.63 ) $ (0.96 ) $ (1.38 )
Adjusted EBITDA (3) $ 16 $ (7,838 ) 8,241 (6,589 )
Weighted average shares outstanding—diluted 27,707,978 27,663,764 27,701,055 28,129,596
Number of stores open at the end of period 226 228
 
 

(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.

(2)

Amounts are adjusted in both the three and twelve months ended
March 31, 2016 and 2015 to exclude the impact of severance due to
our transformation efforts, consulting expenses paid to outside
parties to assist with our transformation efforts and fixed asset
impairment charges. Amounts are adjusted in the three months ended
March 31, 2016 for monetizing a federal tax credit that was
previously reserved. Amounts are adjusted in the twelve months
ended March 31, 2016 for the federal tax credit previously
discussed, as well as expenses associated with the Internal
Revenue Service’s settlement of a prior year tax matter. Amounts
are adjusted in the twelve months ended March 31, 2015 for
establishing a valuation allowance for deferred tax asset. See the
attached reconciliation of non-GAAP measures to GAAP measures.

(3)

Amounts are adjusted in both the current and prior year to
exclude the impact of severance due to our transformation efforts,
consulting expenses paid to outside parties to assist with our
transformation efforts and fixed asset impairment charges See the
attached reconciliation of non-GAAP measures to GAAP measures.

 

The Company’s net sales performance in the quarter and fiscal year ended
March 31, 2016 was driven primarily by a comparable store sales decline.
Net sales mix and comparable store sales percentage changes by product
category for the three and twelve months ended March 31, 2016 and 2015
were as follows:

  Net Sales Mix Summary   Comparable Store Sales Summary

Three Months Ended
March 31,

 

Twelve Months Ended
March 31,

Three Months Ended
March 31,

 

Twelve Months Ended
March 31,

2016   2015 2016   2015 2016   2015 2016   2015
Appliances 56 % 51 % 53 % 51 % (0.4 )% (5.0 )% (3.2 )% (3.1 )%
Consumer electronics (1) 34 % 38 % 36 % 37 % (19.6 )% (9.8 )% (10.3 )% (10.9 )%
Home products (2) 6 % 5 % 6 % 5 % 2.8

 %

(12.5 )% 5.4

 %

(4.7 )%
Computers and tablets 4 % 6 % 5 % 7 % (32.2 )% (37.6 )% (35.0 )% (34.0 )%
Total 100 % 100 % 100 % 100 % (9.3 )% (10.0 )% (7.7 )% (9.2 )%
 

(1)

 

Primarily consists of televisions, audio, personal electronics
and accessories.

(2)

Primarily consists of furniture and mattresses.

 

FOURTH QUARTER FINANCIAL RESULTS

The Company’s comparable store sales drivers for the three months ended
March 31, 2016 are summarized below:

 

Comparable Store
Sales

  Average Selling Price   Sales Unit Volume
Appliances (0.4 )% Increase Decrease
Consumer electronics (1) (19.6 )% Decrease Decrease
Home products (2) 2.8

 %

Increase Decrease
Computers and tablets (32.2 )% Decrease Decrease
Total (9.3 )%
 

(1)

 

Primarily consists of televisions, audio, personal electronics
and accessories.

(2)

Primarily consists of furniture and mattresses.

 

The Company’s gross profit margin, expressed as gross profit as a
percentage of net sales, increased for the three month period ended
March 31, 2016 to 28.7% from 28.6% for the comparable prior year period.

  • The Company’s increase in gross profit margin for the period was
    primarily a result of favorable product sales mix to categories with
    higher gross margin rates offsetting the decrease in gross profit
    margin rates in all categories except home products. The decrease in
    gross margin rates was primarily driven by free delivery in appliances
    and a continued promotional environment.

Cost Structure Highlights

The Company managed its cost structure to align with its sales levels
and to keep the Company positioned for positive adjusted EBITDA.

  • During the fourth quarter, hhgregg realized $21.1 million of its
    expected $50 million of annual cost savings for fiscal 2016.
  • The decrease in advertising expense of $8.1 million for the fourth
    quarter was due to a reduction of gross advertising spend primarily
    driven by reductions in print media along with rebalancing of spending
    among more efficient advertising mediums.
  • The decrease in SG&A as a percentage of net sales to 24.2% from 24.7%
    for the three month comparable prior year period was a result of:

    • 43 basis points decrease, or $6.1 million, in wages due to the
      Company’s continuing effort to drive efficiencies in its labor
      structure;
    • 38 basis points decrease, or $1.9 million, primarily due to the
      lapping of consulting expenses to assist with our transformation
      efforts in the prior year period;
    • 27 basis points decrease, or $1.8 million, in bank transaction
      fees due to less enhanced financing options than prior year; and
    • 24 basis points decrease, or $1.8 million, in employee benefits
      due to a reduction of medical expenses and payroll taxes driven by
      the efficiencies in the Company’s labor structure.

      These
      decreases were partially offset by:

    • a 28 basis points increase, or $0.3 million, in delivery services
      due to free delivery for appliances and a shift in sales mix to
      more products which require delivery; and
    • a 71 basis point increase,or $0.1 million, in occupancy costs
      primarily due to increased property tax rates and the deleveraging
      effect of lower net sales in the current quarter.

Income Taxes

During the fourth quarter of fiscal 2016 the Company recorded $0.8
million of income tax benefit due to the monetizing of a federal tax
credit that was previously reserved.

FISCAL YEAR FINANCIAL RESULTS

The Company’s comparable store sales drivers for fiscal year 2016 are
summarized below:

 

Comparable Store
Sales

  Average Selling Price   Sales Unit Volume
Appliances (3.2 )% Increase Decrease
Consumer electronics (1) (10.3 )% Increase Decrease
Home products (2) 5.4

 %

Increase Increase
Computers and tablets (35.0 )% Decrease Decrease
Total (7.7 )%
 

(1)

 

Primarily consists of televisions, audio, personal electronics
and accessories.

(2)

Primarily consists of furniture and mattresses.

 

The Company’s gross profit margin, expressed as gross profit as a
percentage of net sales, decreased 20 basis points for the twelve month
period ended March 31, 2016 to 28.3% from 28.5% for the comparable prior
year period.

  • The Company’s decrease in gross profit margin was due to lower gross
    profit margin rates in all categories, except home products, partially
    offset by a favorable sales mix shift to product categories with
    higher gross profit rates, such as appliances and furniture.

Cost Structure Highlights

The Company managed its cost structure to align with its sales levels
and to position the Company for positive adjusted EBITDA.

  • During fiscal 2016, hhgregg realized $66.9 million of its expected $50
    million of annual cost savings. This was inclusive of $4.2 million of
    additional fees associated with customer financing described below.
  • The decrease in advertising expense of $23.8 million for fiscal 2016
    was due to a reduction of gross advertising spend primarily driven by
    reductions in print media along with rebalancing of spending among
    more efficient advertising mediums.
  • The decrease in SG&A as a percentage of net sales to 22.8% from 22.9%
    for fiscal 2016 compared to fiscal 2015 was a result of:

    • 59 basis points decrease, or $26.7 million, in wages due to the
      Company’s continuing effort to drive efficiencies in its labor
      structure;
    • 17 basis points decrease, or $5.8 million, in employee benefits
      due to a reduction of medical expenses and payroll taxes driven by
      the efficiencies in the Company’s labor structure; and
    • 12 basis points decrease, or $8.1 million, in delivery services
      due to efficiencies in routing and lower fuel prices, slightly
      offset by free delivery for appliances and a shift in sales mix to
      more products which require delivery in the fourth quarter.

      These
      decreases were partially offset by:

    • a 30 basis points increase, or $4.2 million, in fees associated
      with the higher cost of offering customers extended months special
      financing options and the increased use of the private label
      credit card; and
    • a 57 basis point increase, or $1.3 million, in occupancy costs
      primarily due to increased property tax rates.

Asset Impairment

During fiscal 2016, the Company recorded $20.9 million of pre-tax,
non-cash charges related to impairment of property, plant and equipment.
For the 2015 fiscal year, total pre-tax, non-cash impairment charge was
$47.9 million.

Income Taxes

In fiscal 2016, the Company recorded $0.4 million of income tax expense
compared to $30.8 million recorded in fiscal 2015. For the current year,
the income tax expense recorded was due primarily to the settlement of
an Internal Revenue Service examination for the prior year, partially
offset by monetizing a federal tax credit that was previously fully
reserved. There was no income tax expense or benefit related to results
of the current year operations due to the Company’s full valuation
allowance. In the prior year, the Company recognized income tax expense
on a pretax loss resulting from the full valuation allowance that was
recorded to reduce the net deferred tax assets of the Company to zero.

Teleconference and Webcast

hhgregg will be conducting a conference call to discuss operating
results for the fiscal year ended March 31, 2016, on Thursday, May 19,
2016 at 9:00 a.m. (Eastern Time). Our call will be hosted by Robert
Riesbeck, our Interim President and Chief Executive Officer and Chief
Financial Officer, 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
(to access webcast registration directly click
here
). 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
CONSOLIDATED
STATEMENTS OF OPERATIONS

(UNAUDITED)

   
Three Months Ended Twelve Months Ended
March 31,
2016
  March 31,
2015
March 31,
2016
  March 31,
2015
(In thousands, except share and per share data)
Net sales $ 438,840 $ 485,603 $ 1,959,998 $ 2,129,374
Cost of goods sold 313,090   346,651   1,406,216   1,523,536  
Gross profit 125,750 138,952 553,782 605,838
Selling, general and administrative expenses 106,392 120,127 447,508 488,391
Net advertising expense 21,570 29,638 105,046 128,826
Depreciation and amortization expense 6,928 8,840 32,043 40,200
Asset impairment charges   4,882   20,910   47,869  
Loss from operations (9,140 ) (24,535 ) (51,725 ) (99,448 )
Other expense (income):
Interest expense 776 678 2,742 2,600
Interest income (13 ) (9 ) (22 ) (63 )
Total other expense 763   669   2,720   2,537  
Loss before income taxes (9,903 ) (25,204 ) (54,445 ) (101,985 )
Income tax (benefit) expense (818 ) 24   434   30,761  
Net loss $ (9,085 ) $ (25,228 ) $ (54,879 ) $ (132,746 )
Net loss per share
Basic and diluted $ (0.33 ) $ (0.91 ) $ (1.98 ) $ (4.72 )
Weighted average shares outstanding-basic and diluted 27,707,978 27,663,764 27,701,055 28,129,596
 

HHGREGG, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

(AS A PERCENTAGE
OF NET SALES)

(UNAUDITED)

   
Three Months Ended Twelve Months Ended

March 31,
2016

 

March 31,
2015

  March 31,
2016
  March 31,
2015
Net sales 100.0

 %

  100.0

 %

100.0

 %

  100.0

 %

Cost of goods sold 71.3   71.4   71.7   71.5  
Gross profit 28.7 28.6 28.3 28.5
Selling, general and administrative expenses 24.2 24.7 22.8 22.9
Net advertising expense 4.9 6.1 5.4 6.0
Depreciation and amortization expense 1.6 1.8 1.6 1.9
Asset impairment charges   1.0   1.1   2.2  
Loss from operations (2.1 ) (5.1 ) (2.6 ) (4.7 )
Other expense (income):
Interest expense 0.2 0.1 0.1 0.1
Interest income        
Total other expense 0.2   0.1   0.1   0.1  
Loss before income taxes (2.3 ) (5.2 ) (2.8 ) (4.8 )
Income tax (benefit) expense (0.2 )     1.4  
Net loss (2.1 )% (5.2 )% (2.8 ) (6.2 )%
 

Certain percentage amounts do not sum due to rounding

 

HHGREGG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS

MARCH 31, 2016 AND 2015
(UNAUDITED)

   
March 31,
2016
March 31,
2015
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 3,703 $ 30,401
Accounts receivable—trade, less allowances of $5 and $19,
respectively
11,106 11,901
Accounts receivable—other 14,937 16,715
Merchandise inventories, net 256,559 257,469
Prepaid expenses and other current assets 6,333 6,581
Income tax receivable 1,130   5,326  
Total current assets 293,768   328,393  
Net property and equipment 87,472 128,107
Deferred financing costs, net 1,257 1,796
Deferred income taxes 6,489
Other assets 2,855   2,844  
Total long-term assets 91,584   139,236  
Total assets $ 385,352   $ 467,629  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 107,474 $ 112,143
Line of credit
Customer deposits 43,235 48,742
Accrued liabilities 43,370 46,723
Deferred income taxes   6,489  
Total current liabilities 194,079   214,097  
Long-term liabilities:
Deferred rent 59,101 67,935
Other long-term liabilities 10,818   12,009  
Total long-term liabilities 69,919   79,944  
Total liabilities 263,998   294,041  
Stockholders’ equity:
Preferred stock, par value $.0001; 10,000,000 shares authorized; no
shares issued and outstanding as of March 31, 2016 and March 31,
2015, respectively
Common stock, par value $.0001; 150,000,000 shares authorized;
41,204,660 and 41,161,753 shares issued; and 27,707,978 and
27,665,071 outstanding as of March 31, 2016 and March 31, 2015,
respectively
4 4
Additional paid-in capital 304,325 301,680
Retained earnings (accumulated deficit) (32,747 ) 22,132
Common stock held in treasury at cost, 13,496,682 shares as of March
31, 2016 and March 31, 2015, respectively
(150,228 ) (150,228 )
Total stockholders’ equity 121,354   173,588  
Total liabilities and stockholders’ equity $ 385,352   $ 467,629  
 

HHGREGG, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS

YEARS ENDED MARCH 31, 2016
AND 2015

(UNAUDITED)

   
2016 2015
(In thousands)
Cash flows from operating activities:
Net loss $ (54,879 ) $ (132,746 )
Adjustments to reconcile net loss to net cash provided by (used by)
operating activities:
Depreciation and amortization 32,043 40,200
Amortization of deferred financing costs 539 538
Stock-based compensation 2,709 4,623
Loss (gain) on sales of property and equipment (19 ) 252
Deferred income taxes 41,402
Asset impairment charges 20,910 47,869
Tenant allowances received from landlords 812 986
Changes in operating assets and liabilities:
Accounts receivable—trade 795 3,220
Accounts receivable—other 986 384
Merchandise inventories 910 41,073
Income tax receivable 4,196 (3,946 )
Prepaid expenses and other assets 454 (108 )
Accounts payable (12,537 ) (26,882 )
Customer deposits (5,507 ) 7,224
Income tax payable (122 )
Accrued liabilities (3,417 ) (4,317 )
Deferred rent (8,854 ) (7,176 )
Other long-term liabilities (923 ) 289  
Net cash provided by (used in) operating activities (21,782 ) 12,763  
Cash flows from investing activities:
Purchases of property and equipment (12,828 ) (22,522 )
Proceeds from sales of property and equipment 117 45
Purchases of corporate-owned life insurance (217 ) (646 )
Net cash used in investing activities (12,928 ) (23,123 )
Cash flows from financing activities:
Purchases of treasury stock (5,281 )
Net borrowings (repayments) on inventory financing facility 8,012   (2,122 )
Net cash provided by (used in) financing activities 8,012   (7,403 )
Net decrease in cash and cash equivalents (26,698 ) (17,763 )
Cash and cash equivalents
Beginning of period 30,401   48,164  
End of period $ 3,703   $ 30,401  
Supplemental disclosure of cash flow information:
Interest paid $ 2,205 $ 2,085
Income taxes received $ (3,523 ) $ (6,411 )
Capital expenditures included in accounts payable $ 1,265 $ 1,409
 

HHGREGG, INC. AND SUBSIDIARIES
NON-GAAP
RECONCILIATION OF NET LOSS, AS ADJUSTED AND

DILUTED
NET LOSS PER SHARE, AS ADJUSTED,

(UNAUDITED)

   

Three Months Ended
March 31, 2016

Twelve Months Ended
March 31, 2016

(Amounts in thousands, except share data) 2016   2015 2016   2015
Net loss as reported $ (9,085 ) $ (25,228 ) $ (54,879 ) $ (132,746 )
Non-cash adjustments to net loss:
Asset impairment charges 4,882 20,910 47,869
Valuation allowance for deferred tax assets 41,402
Cash adjustments to net loss:
Severance (1) 2,215 1,323 2,526 1,515
Consulting fees (2) 13 1,652 4,487 3,275
Income tax (benefit) expense (3) (818 )   434    
Net loss, as adjusted $ (7,675 ) $ (17,371 ) $ (26,522 ) $ (38,685 )
Weighted average shares outstanding – Diluted 27,707,978 27,663,764 27,701,055 28,129,596
Net loss per diluted share as reported $ (0.33 ) $ (0.91 ) $ (1.98 ) $ (4.72 )
Net loss per diluted share, as adjusted $ (0.28 ) $ (0.63 ) $ (0.96 ) $ (1.38 )
 

(1)

 

Expense for severance due to the transformation efforts.

(2)

Costs paid to outside consultants to assist with the Company’s
transformation efforts.

(3)

Included in the amount for three months ended March 31, 2016 is
$0.8 million for monetizing a federal tax credit that was
previously reserved. Included in the twelve months ended March 31,
2016 amount is the $0.8 million income tax benefit previously
discussed, as well as expenses of $1.2 million charged in the
current period associated with the Internal Revenue Service’s
settlement of a prior year tax matter.

 

Contacts

hhgregg, Inc.
Lance Peterson, 317-848-8710
Director, Finance &
Investor Relations
investorrelations@hhgregg.com

Read full story here