January 30, 2014

hhgregg Announces Third Fiscal Quarter Operating Results

Third Quarter Summary

  • Net sales decreased 11.6% to $707.1 million
  • Comparable store sales decreased 11.2%
  • Tenth consecutive quarter of positive comparable store sales for the appliance category
  • Net income per diluted share was $0.17 versus net income per diluted share of $0.51 in the prior year quarter
  • The Company repurchased 1.0 million shares of its common stock for $15.6 million under its share repurchase program

INDIANAPOLIS--(BUSINESS WIRE)-- hhgregg, Inc. (NYSE: HGG):

        Three Months Ended     Nine Months Ended
December 31, December 31,
(unaudited, amounts in thousands, except share and per share data) 2013   2012 2013   2012
Net sales $ 707,053 $ 799,635 $ 1,800,290 $ 1,877,127
Net sales % decrease (11.6 )% (3.6 )% (4.1 )% (0.1 )%
Comparable store sales % decrease (1) (11.2 )% (9.7 )% (6.4 )% (8.3 )%
Gross profit as a % of net sales 26.8 % 27.3 % 28.4 % 28.7 %
SG&A as a % of net sales 18.7 % 17.4 % 20.7 % 20.4 %
Net advertising expense as a % of net sales 5.2 % 4.8 % 5.2 % 5.2 %
Depreciation and amortization expense as a % of net sales 1.5 % 1.3 % 1.8 % 1.6 %
Income from operations as a % of net sales 1.3 % 3.7 % 0.8 % 1.4 %
Net interest expense as a % of net sales 0.1 % 0.1 % 0.1 % 0.1 %
Net income $ 5,048 $ 17,389 $ 7,466 $ 15,448
Net income per diluted share $ 0.17 $ 0.51 $ 0.24 $ 0.44
Net income per diluted share, as adjusted (2) $ 0.17 $ 0.52 $ 0.25 $ 0.45
Weighted average shares outstanding—diluted 30,387,251 33,985,113 31,117,896 35,168,497
Number of stores open at the end of period 228 228
 
       

(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 to exclude impairment charges. See the attached reconciliation of non-GAAP measures.

 

hhgregg, Inc. ("hhgregg" or the "Company") today reported net income of $5.0 million, or $0.17 per diluted share, for the three month period ended December 31, 2013, compared with net income of $17.4 million, or $0.51 per diluted share, for the comparable prior year period. For the nine month period ended December 31, 2013, the Company reported net income of $7.5 million, or $0.24 per diluted share, compared with net income of $15.4 million, or $0.44 per diluted share for the comparable prior year period. Third fiscal quarter 2014 results include a $0.3 million ($0.2 million after-tax) charge related to impairment for one store. Net income, as adjusted for this item, for the three month period ended December 31, 2013 was $5.2 million, or $0.17 per diluted share, as adjusted. Net income, as adjusted for this item for the nine month period ended December 31, 2013 was $7.7 million, or $0.25 per diluted share, as adjusted. Third fiscal quarter 2013 results include a $0.5 million ($0.3 million after-tax) charge related to impairment for one store. Net income, as adjusted for this item, for the three month period ended December 31, 2012 was $17.7 million, or $0.52 per diluted share, as adjusted. Net income, as adjusted for this item for the nine month period ended December 31, 2012 was $15.8 million, or $0.45 per diluted share, as adjusted. The decrease in net income for the three months ended December 31, 2013 was largely due to a comparable store sales decrease of 11.2% and a decrease in gross margin. The decrease in net income for the nine month period was largely due to a comparable store sales decrease of 6.4% and a decrease in gross margin.

Dennis May, President and CEO, commented, "As previously reported, our sales of consumer electronics and computing and wireless products were significantly below our expectations during the quarter. The broad distribution of these categories across a variety of retail formats combined with the intensely promotional environment led to a challenging operating environment for hhgregg. While disappointed with the holiday industry trends, we took a balanced approach, choosing not to fully participate in the heavy promotional environment and proactively managing our inventory levels to match the product demand of our business."

Mr. May continued, "The broadening distribution and heightened promotional nature of the consumer electronics category during the holiday period reinforces our strategic decision to continue transforming our business toward a broader assortment of home products, including appliances and home furnishings. We remain pleased with the strength of these products, with the third fiscal quarter representing our tenth consecutive quarter of comparable store sales increases in the appliance category. We plan to continue to invest in initiatives to drive profitable sales and customer traffic in these categories and management remains committed to transforming the Company's sales mix and broadening its reach to both new and existing customers."

Net sales for the three months ended December 31, 2013 decreased 11.6% to $707.1 million from $799.6 million in the comparable prior year period. The decrease in net sales for the three month period was primarily the result of a comparable store sales decrease of 11.2%. Net sales for the nine months ended December 31, 2013 decreased 4.1% to $1.8 billion from $1.9 billion in the comparable prior year period. The decrease in net sales for the nine month period was the result of a comparable store sales decrease of 6.4%.

Net sales mix and comparable store sales percentage changes by product category for the three and nine months ended December 31, 2013 and 2012 were as follows:

        Net Sales Mix Summary     Comparable Store Sales Summary

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

2013   2012 2013   2012 2013   2012 2013   2012
Appliances 41 % 35 % 47 % 42 % 1.5 % 6.1 % 3.8 % 4.4 %
Consumer electronics (1) 43 % 48 % 38 % 44 % (19.7 )% (24.1 )% (18.8 )% (21.7 )%
Computing and wireless (2) 12 % 14 % 10 % 11 % (24.5 )% 15.1 % (12.4 )% 12.7 %
Home products (3) 4 % 3 % 5 % 3 % 36.1 % 23.4 % 57.7 % 5.4 %
Total 100 % 100 % 100 % 100 % (11.2 )% (9.7 )% (6.4 )% (8.3 )%
 
       

(1)

   

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

(2)

Primarily consists of computers, mobile phones and tablets.

(3)

Primarily consists of fitness equipment, furniture and mattresses.

 

The decrease in comparable store sales for the three months ended December 31, 2013 was driven primarily by a decrease in comparable store sales in the consumer electronics and computing and wireless categories, partially offset by an increase in the appliance and home products categories. The appliance category increase in comparable store sales was driven by an increase in units sold. The home products category increase in comparable store sales was a result of sales of furniture and fitness equipment. The consumer electronics category comparable store sales decline was driven primarily by a double digit comparable store sales decrease in video, largely resulting from our strategy of not fully participating in the increased promotional offerings that occurred across a variety of retail formats during the three months ended December 31, 2013. The computing and wireless category decrease in comparable store sales was driven by a decrease in demand for laptop computers and mobile phones and a lower average selling price for tablets.

Gross profit margin, expressed as gross profit as a percentage of net sales, decreased for the three months ended December 31, 2013 to 26.8% from 27.3% for the comparable prior year period. The decrease is due to a decline in gross profit margin rates across all categories primarily due to the promotional nature of this holiday season.

SG&A expense, as a percentage of net sales, increased 130 basis points for the three months ended December 31, 2013 compared to the prior year period. The increase in SG&A as a percentage of net sales was a result of increases in wage expense, occupancy costs, and product services as a percentage of net sales, primarily due to the deleveraging effect of the net sales decline.

Net advertising expense, as a percentage of net sales, increased 39 basis points during the three months ended December 31, 2013 compared to the prior year period. While the Company reduced its gross advertising spend from the prior year, the increase as a percentage of net sales was primarily due to the deleveraging effect of the net sales decline.

Depreciation expense, as a percentage of net sales, increased 22 basis points for the three months ended December 31, 2013 compared to the prior year period. The increase as a percentage of net sales was primarily due to the deleveraging effect of the net sales decline.

Our effective income tax rate for the three months ended December 31, 2013 decreased to 38.2% from 39.1% in the comparable prior year period. The decrease in our effective income tax rate was primarily the


Close window | Back to top

Copyright 2015 hhgregg