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.”

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:

FOURTH QUARTER FINANCIAL RESULTS

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

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

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