hhgregg, Inc. (NYSE: HGG) today announced operating results for
the first quarter ended June 30, 2015 as compared to the first
quarter ended June 30, 2014.
First Quarter
Summary
- Net sales decreased 6.6% to $441.1
million compared to prior year first quarter
- Comparable store sales decreased
6.3% compared to the prior year first quarter. This was a 370 basis
point sequential improvement compared to the comparable stores
sales decrease of 10.0% in the fourth quarter of fiscal
2015.
- 25.5% increase in comparable sales
on the e-commerce site
- Gross margin increased to 30.5%
compared to 29.7% in the prior year first quarter
- Net loss per diluted share was $0.32
versus net loss per diluted share of $0.36 in the prior year first
quarter
- EBITDA increased to $0.2 million
compared to $(3.5) million in the prior year first quarter
Dennis May, President and Chief Executive Officer, commented,
“We were pleased to have a solid start to our fiscal year and to
see an immediate impact from our fiscal 2016 initiatives on our
financial results, highlighted by generating positive EBITDA for
the quarter. Our transformation investments have been focused on
both cost cutting efforts and revenue generation. While comps were
still negative in the first fiscal quarter, we saw a positive
sequential improvement in our sales and traffic trend despite a
significant reduction in our advertising expense. Though we were
pleased with the traction of the transformation initiatives, we
still have a lot of work in front of us.”
Three Months Ended
June 30,
(unaudited, amounts in thousands, except
share and per share data)
2015 2014 Net sales $ 441,063 $ 472,293 Net
sales % decrease (6.6 )% (10.0 )% Comparable store sales % decrease
(1) (6.3 )% (10.2 )% Gross profit as a % of net sales 30.5 % 29.7 %
SG&A as a % of net sales 25.2 % 24.7 % Net advertising expense
as a % of net sales 5.2 % 5.8 % Depreciation and amortization
expense as a % of net sales 1.9 % 2.2 % Loss from operations as a %
of net sales (1.9 )% (3.0 )% Net interest expense as a % of net
sales 0.1 % 0.1 % Net loss $ (8,755 ) $ (10,269 ) Net loss per
diluted share $ (0.32 ) $ (0.36 ) EBITDA $ 199 $ (3,474 ) Weighted
average shares outstanding—diluted 27,680,209 28,444,948 Number of
stores open at the end of period 227 229
(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 FIRST QUARTER
Revenue Highlights
Our net sales performance in the quarter was driven primarily by
a comparable store sales decline, although we sequentially improved
our comparable sales in appliances, consumer electronics and home
products categories from fourth quarter of fiscal 2015 to first
quarter of fiscal 2016. Net sales mix and comparable store sales
percentage changes by product category for the three month periods
ended June 30, 2015 and 2014 were as follows:
Net Sales Mix Comparable
Store Summary
Sales Summary
Three Months Ended
Three Months Ended
June 30,
June 30,
2015 2014 2015 2014
Appliances 59 % 57 % (2.2 )% (2.0 )% Consumer electronics (1) 30 %
31 % (8.3 )% (18.7 )% Computers and tablets 5 % 7 % (42.0 )% (29.5
)% Home products (2) 6 % 5 % 12.1 % (0.5 )% Total 100 % 100 % (6.3
)% (10.2 )%
(1)
Primarily consists of televisions, audio,
personal electronics and accessories.
(2)
Primarily consists of furniture and
mattresses.
Our comparable store sales drivers for the three months ended
June 30, 2015 are summarized below:
Comparable Store
Comparable Store
Sales Excluding
Sales
Mobile and Fitness
Average Selling Price
Sales Volume Appliances (2.2 )% (2.2 )% Decrease Decrease
Consumer electronics (1)
(8.3 )% (8.3 )% Increase Decrease Computers and tablets (42.0 )%
(38.6 )% Decrease Decrease Home products (2) 12.1 % 17.4 % Increase
Increase Total (6.3 )% (5.7 )%
(1)
Primarily consists of televisions, audio,
personal electronics and accessories.
(2)
Primarily consists of furniture and
mattresses.
Gross Margin Highlights
Our gross profit margin, expressed as gross profit as a
percentage of net sales, increased approximately 80 basis points
for the three month period ended June 30, 2015 to 30.5% from
29.7% for the comparable prior year period.
- Our 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 and increases in gross
profit margin rates for the consumer electronics, computers and
tablets and home products categories.
Cost Structure Highlights
We continue to manage our cost structure to align with our
expected sales levels and to keep our company positioned for EBITDA
growth.
The increase in SG&A as a percentage of
net sales to 25.2% from 24.7% for the comparable prior year period
was a result of:
- 77 basis point increase in consulting
expenses to assist in rationalizing our marketing spend, optimizing
our logistics network and accelerating our transformation efforts.
During the quarter, $3.9 million of consulting fees were incurred
related to transformation efforts;
- 48 basis point increase in occupancy
costs due to the deleveraging effect of our net sales decline;
and
- 38 basis point increase in bank
transactions fees associated with higher cost financing options
offered to the customer and higher private label credit card
penetration.
These increases were partially offset by the
result of:
- 47 basis point decrease in wages due to
our continuing effort to drive efficiencies in our labor structure;
and
- 35 basis point decrease in employee
benefits due to a reduction in medical expenses.
- The decrease in net advertising expense
as a percentage of net sales was due to a reduction of gross
advertising spend primarily driven by reductions in print media
along with rebalancing of spending among the different advertising
mediums.
- During the first quarter, we realized
$9.8 million of our expected $50 million of cost savings identified
as a fiscal 2016 initiative. We were able to front load more of
this cost savings than we originally anticipated.
Stock Repurchase Plan
During the first quarter ended June 30, 2015, the Company
did not repurchase any shares under the Company’s $40 million share
repurchase program that was authorized by the Company’s Board of
Directors and was effective on May 20, 2014. The Company acquired a
total of $5.3 million under the program. This share repurchase
program expired on May 20, 2015.
Teleconference and Webcast
hhgregg will be conducting a conference call to discuss
operating results for the three months ended June 30, 2015, on
Thursday, August 6, 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 our 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 SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) Three Months Ended June
30, June 30, 2015 2014 (In
thousands, except share and per share data) Net sales $ 441,063
$ 472,293 Cost of goods sold 306,706 331,954 Gross
profit 134,357 140,339 Selling, general and administrative expenses
111,104 116,589 Net advertising expense 23,054 27,224 Depreciation
and amortization expense 8,369 10,475 Loss from
operations (8,170 ) (13,949 ) Other expense (income): Interest
expense 590 629 Interest income (5 ) (5 ) Total other expense 585
624 Loss before income taxes (8,755 ) (14,573 )
Income tax benefit — (4,304 ) Net loss $ (8,755 ) $ (10,269
) Net loss per share Basic $ (0.32 ) $ (0.36 ) Diluted $ (0.32 ) $
(0.36 ) Weighted average shares outstanding-basic and diluted
27,680,209 28,444,948
HHGREGG, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (AS A PERCENTAGE OF NET SALES)
(UNAUDITED) Three Months Ended June
30, 2015 June 30, 2014 Net sales 100.0 % 100.0 %
Cost of goods sold 69.5 70.3 Gross profit 30.5 29.7
Selling, general and administrative expenses 25.2 24.7 Net
advertising expense 5.2 5.8 Depreciation and amortization expense
1.9 2.2 Loss from operations (1.9 ) (3.0 ) Other
expense (income): Interest expense 0.1 0.1 Interest income —
— Total other expense 0.1 0.1 Loss before
income taxes (2.0 ) (3.1 ) Income tax benefit — (0.9 ) Net
loss (2.0 )% (2.2 )%
Certain percentage amounts do not sum due
to rounding
HHGREGG, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS JUNE 30, 2015, MARCH 31, 2015 AND JUNE 30,
2014 (UNAUDITED) June 30,
2015
March 31, 2015
June 30, 2014
(In thousands, except share
data)
Assets
Current assets: Cash and cash equivalents $ 9,742 $ 30,401 $ 3,147
Accounts receivable—trade, less allowances of $13, $19 and $137 as
of June 30, 2015, March 31, 2015 and June 30, 2014, respectively
17,178 11,901 20,026 Accounts receivable—other 16,109 16,715 17,244
Merchandise inventories, net 324,551 257,469 364,252 Prepaid
expenses and other current assets 10,229 6,581 6,548 Income tax
receivable 5,345 5,326 14,690 Total current
assets 383,154 328,393 425,907 Net property
and equipment 123,985 128,107 188,229 Deferred financing costs, net
1,661 1,796 2,200 Deferred income taxes 7,816 6,489 37,613 Other
assets 2,914 2,844 2,243 Total long-term
assets 136,376 139,236 230,285 Total assets $
519,530 $ 467,629 $ 656,192
Liabilities and Stockholders’
Equity
Current liabilities: Accounts payable $ 167,108 $ 112,143 $ 167,261
Customer deposits 49,737 48,742 48,395 Accrued liabilities 52,161
46,723 54,695 Deferred income taxes 7,816 6,489 5,339
Total current liabilities 276,822 214,097
275,690 Long-term liabilities: Deferred rent 66,107 67,935
71,731 Other long-term liabilities 10,870 12,009
11,540 Total long-term liabilities 76,977 79,944
83,271 Total liabilities 353,799 294,041
358,961 Stockholders’ equity: Preferred stock, par
value $.0001; 10,000,000 shares authorized; no shares issued and
outstanding as of June 30, 2015, March 31, 2015 and June 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
June 30, 2015, March 31, 2015, and June 30, 2014, respectively 4 4
4 Additional paid-in capital 302,578 301,680 298,541 Retained
earnings 13,377 22,132 144,609 Common stock held in treasury at
cost 13,496,682, 13,496,682 and 12,763,877 shares as of June 30,
2015, March 31, 2015, and June 30, 2014, respectively (150,228 )
(150,228 ) (145,923 ) Total stockholders’ equity 165,731
173,588 297,231 Total liabilities and stockholders’
equity $ 519,530 $ 467,629 $ 656,192
HHGREGG, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30, 2015
AND 2014 (UNAUDITED) Three Months
Ended June 30, 2015 June 30, 2014 (In
thousands) Cash flows from operating activities: Net loss $
(8,755 ) $ (10,269 ) Adjustments to reconcile net loss to net cash
used in operating activities: Depreciation and amortization 8,369
10,475 Amortization of deferred financing costs 135 134 Stock-based
compensation 898 1,469 Gain on sales of property and equipment (78
) (27 ) Deferred income taxes — 9,128 Tenant allowances received
from landlords 580 — Changes in operating assets and liabilities:
Accounts receivable—trade (5,277 ) (4,905 ) Accounts
receivable—other 46 (736 ) Merchandise inventories (67,082 )
(65,710 ) Income tax receivable (19 ) (13,310 ) Prepaid expenses
and other assets (3,645 ) 98 Accounts payable 55,081 24,685
Customer deposits 995 6,877 Income tax payable — (122 ) Accrued
liabilities 5,438 3,670 Deferred rent (1,848 ) (1,803 ) Other
long-term liabilities (1,072 ) (385 ) Net cash used in operating
activities (16,234 ) (40,731 ) Cash flows from investing
activities: Purchases of property and equipment (4,304 ) (4,430 )
Proceeds from sales of property and equipment 11 33 Purchases of
corporate-owned life insurance (73 ) (218 ) Net cash used in
investing activities (4,366 ) (4,615 ) Cash flows from financing
activities: Purchases of treasury stock — (976 ) Net (repayments)
borrowings on inventory financing facility (59 ) 1,305 Net
cash (used in) provided by financing activities (59 ) 329
Net decrease in cash and cash equivalents (20,659 ) (45,017 ) Cash
and cash equivalents Beginning of period 30,401 48,164
End of period $ 9,742 $ 3,147 Supplemental
disclosure of cash flow information: Interest paid $ 459 $ 489
Income taxes paid $ 19 $ — Capital expenditures included in
accounts payable $ 1,352 $ 1,533
HHGREGG, INC. AND
SUBSIDIARIES NON-GAAP RECONCILIATION OF EBITDA
(UNAUDITED) Three
Months Ended June 30, June 30,
(Amounts in thousands)
2015 2014 Net loss as reported $ (8,755 ) $
(10,269 ) Adjustments: Depreciation and amortization 8,369 10,475
Interest expense, net 585 624 Income tax expense (benefit) —
(4,304 ) EBITDA $ 199 $ (3,474 )
EBITDA represents net income (loss) before income tax expense,
interest income, interest expense, depreciation and amortization.
We have presented EBITDA because we consider it an important
supplemental measure of our performance and believe it is
frequently used by analysts, investors and other interested parties
in the evaluation of companies in our industry. Management uses
EBITDA as a measurement tool for evaluating our 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 our results as
reported under GAAP.
Some of the limitations of EBITDA measures are:
- EBITDA does not reflect our 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 our 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.
We compensate for these limitations by relying primarily on our
GAAP results and using EBITDA only as a supplement.
HHGREGG, INC. AND SUBSIDIARIES Store Count by
Quarter for Fiscal Years 2014, 2015 and 2016 (Unaudited)
FY2014 FY2015
FY2016 Q1 Q2 Q3
Q4 Q1 Q2 Q3
Q4 Q1 Beginning Store Count 228 228 228 228 228 229
228 228 228 Store Openings — — — — 1 — — — 1 Store Closings —
— — — — (1 ) — —
(2 ) Ending Store Count 228 228 228 228
229 228 228 228 227
Note: hhgregg, Inc.'s fiscal year is comprised of four quarters
ending
June 30th, September 30th, December 31st
and March 31st.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150806005238/en/
hhgregg, Inc.Lance Peterson, Director, Finance & Investor
Relations, 317-848-8710investorrelations@hhgregg.com
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