Indiana | 47-4850538 | |
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition |
Item 9.01. | Financial Statements and Exhibits |
Exhibit No. | Description | |
99.1 | Press release of hhgregg, Inc. dated November 8, 2016. |
hhgregg, Inc. | ||||
Date: November 8, 2016 | By: | /s/ Kevin J. Kovacs | ||
Kevin J. Kovacs | ||||
SVP, Chief Financial Officer |
Exhibit No. | Description | |
99.1 | Press release of hhgregg, Inc. dated November 8, 2016. |
• | Net sales decreased 6.6% to $455 million compared to prior year second fiscal quarter. Online sales increased 35.5% compared to the prior year second fiscal quarter. |
• | Comparable store sales decreased 6.4% compared to the prior year second fiscal quarter. Appliance comparable store sales increased 5.7%. |
• | Gross margin increased to 28.7% compared to 28.5% in the prior year second fiscal quarter. |
• | Net loss per diluted share was $0.66. Net loss per diluted share, as adjusted, was $0.51. In the prior year second fiscal quarter, net loss per diluted share was $0.37 and net loss per diluted share, as adjusted, was $0.35. |
• | As of September 30, 2016, hhgregg had no outstanding debt. |
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(unaudited, amounts in thousands, except share and per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net sales | $ | 454,500 | $ | 486,876 | $ | 878,072 | $ | 927,939 | ||||||||
Net sales % decrease | (6.6 | )% | (3.8 | )% | (5.4 | )% | (5.1 | )% | ||||||||
Comparable store sales % decrease (1) | (6.4 | )% | (3.5 | )% | (5.2 | )% | (4.8 | )% | ||||||||
Gross profit as a % of net sales | 28.7 | % | 28.5 | % | 29.8 | % | 29.4 | % | ||||||||
SG&A as a % of net sales | 25.9 | % | 23.3 | % | 25.7 | % | 24.2 | % | ||||||||
Net advertising expense as a % of net sales | 4.8 | % | 5.4 | % | 5.1 | % | 5.3 | % | ||||||||
Depreciation and amortization expense as a % of net sales | 1.6 | % | 1.7 | % | 1.6 | % | 1.8 | % | ||||||||
Asset impairment charges as a % of net sales | 0.3 | % | — | % | 0.2 | % | — | % | ||||||||
Loss from operations as a % of net sales | (3.8 | )% | (1.9 | )% | (2.7 | )% | (1.9 | )% | ||||||||
Net interest expense as a % of net sales | 0.2 | % | 0.1 | % | 0.2 | % | 0.1 | % | ||||||||
Net loss | $ | (18,377 | ) | $ | (10,126 | ) | $ | (25,604 | ) | $ | (18,881 | ) | ||||
Net loss, as adjusted (2) | $ | (14,133 | ) | $ | (9,718 | ) | $ | (19,875 | ) | $ | (14,541 | ) | ||||
Net loss per diluted share | $ | (0.66 | ) | $ | (0.37 | ) | $ | (0.92 | ) | $ | (0.68 | ) | ||||
Net loss per diluted share, as adjusted (2) | $ | (0.51 | ) | $ | (0.35 | ) | $ | (0.72 | ) | $ | (0.53 | ) | ||||
Adjusted EBITDA | $ | (6,146 | ) | $ | (680 | ) | (4,130 | ) | 3,451 | |||||||
Weighted average shares outstanding—diluted | 27,801,470 | 27,707,978 | 27,771,530 | 27,694,169 | ||||||||||||
Number of stores open at the end of period | 221 | 227 |
(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 the asset impairment charges, impact of severance and personnel costs related to organizational changes related to our transformation efforts, consulting expenses paid to outside parties to assist with our transformation efforts, costs associated with our logistics optimization project and debt issuance costs written off with the June 2016 amendment to our Facility. See the attached reconciliation of non-GAAP measures to GAAP measures. |
Net Sales Mix Summary | Comparable Store Sales Summary | |||||||||||||||||||||||
Three Months Ended September 30, | Six Months Ended September 30, | Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Appliances | 63 | % | 56 | % | 64 | % | 57 | % | 5.7 | % | 0.8 | % | 4.7 | % | (0.7 | )% | ||||||||
Consumer electronics (1) | 30 | % | 38 | % | 30 | % | 37 | % | (25.1 | )% | (10.2 | )% | (21.6 | )% | (12.3 | )% | ||||||||
Home products (2) | 7 | % | 6 | % | 6 | % | 6 | % | (0.7 | )% | 4.4 | % | (0.3 | )% | 7.8 | % | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | (6.4 | )% | (3.5 | )% | (5.2 | )% | (4.8 | )% |
(1) | Primarily consists of televisions, audio, personal electronics, computers and tablets and accessories. |
(2) | Primarily consists of furniture and mattresses. |
Comparable Store Sales | Average Selling Price | Sales Unit Volume | |||||
Appliances | 5.7 | % | Decrease | Increase | |||
Consumer electronics (1) | (25.1 | )% | Increase | Decrease | |||
Home products (2) | (0.7 | )% | Increase | Decrease | |||
Total | (6.4 | )% |
• | The Company's increase in gross profit margin for the period was due to a favorable sales mix shift to product categories with higher gross profit margin rates, in addition to higher gross margin rates in consumer electronics offset by decreased gross margin rates in appliances and home products. |
• | The decrease in advertising expense of $4.5 million in the second 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 25.9% from 23.3% for the three month comparable prior year period was primarily a result of: |
▪ | Increase of 103 basis points in delivery services primarily due to the increased number of deliveries in all categories due to free delivery promotions; |
▪ | Increase of 59 basis points in occupancy costs due to increased utilities and the deleveraging effect of net sales decline; |
▪ | Increase of 50 basis points for costs associated with our logistics optimization project; and |
▪ | Increase of 42 basis points in wages primarily due to the deleveraging effect of net sales decline. |
• | In order to achieve greater profitability and reduce expenses, the Company closed all five stores in the under performing Wisconsin market. |
Contact: | Lance Peterson, Vice President, Finance and Planning |
investorrelations@hhgregg.com | |
(317) 848-8710 |
Three Months Ended | Six Months Ended | ||||||||||||||
September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | ||||||||||||
(In thousands, except share and per share data) | |||||||||||||||
Net sales | $ | 454,500 | $ | 486,876 | $ | 878,072 | $ | 927,939 | |||||||
Cost of goods sold | 324,113 | 348,231 | 616,176 | 654,937 | |||||||||||
Gross profit | 130,387 | 138,645 | 261,896 | 273,002 | |||||||||||
Selling, general and administrative expenses | 117,626 | 113,479 | 225,735 | 224,583 | |||||||||||
Net advertising expense | 21,763 | 26,254 | 44,632 | 49,308 | |||||||||||
Depreciation and amortization expense | 7,068 | 8,391 | 14,046 | 16,760 | |||||||||||
Asset impairment charges | 1,388 | — | 1,388 | — | |||||||||||
Loss from operations | (17,458 | ) | (9,479 | ) | (23,905 | ) | (17,649 | ) | |||||||
Other expense (income): | |||||||||||||||
Interest expense | 936 | 649 | 1,721 | 1,239 | |||||||||||
Interest income | (17 | ) | (2 | ) | (22 | ) | (7 | ) | |||||||
Total other expense | 919 | 647 | 1,699 | 1,232 | |||||||||||
Loss before income taxes | (18,377 | ) | (10,126 | ) | (25,604 | ) | (18,881 | ) | |||||||
Income taxes | — | — | — | — | |||||||||||
Net loss | $ | (18,377 | ) | $ | (10,126 | ) | $ | (25,604 | ) | $ | (18,881 | ) | |||
Net loss per share | |||||||||||||||
Basic and diluted | $ | (0.66 | ) | $ | (0.37 | ) | $ | (0.92 | ) | $ | (0.68 | ) | |||
Weighted average shares outstanding-basic and diluted | 27,801,470 | 27,707,978 | 27,771,530 | 27,694,169 |
Three Months Ended | Six Months Ended | |||||||||||
September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of goods sold | 71.3 | 71.5 | 70.2 | 70.6 | ||||||||
Gross profit | 28.7 | 28.5 | 29.8 | 29.4 | ||||||||
Selling, general and administrative expenses | 25.9 | 23.3 | 25.7 | 24.2 | ||||||||
Net advertising expense | 4.8 | 5.4 | 5.1 | 5.3 | ||||||||
Depreciation and amortization expense | 1.6 | 1.7 | 1.6 | 1.8 | ||||||||
Asset impairment charges | 0.3 | — | 0.2 | — | ||||||||
Loss from operations | (3.8 | ) | (1.9 | ) | (2.7 | ) | (1.9 | ) | ||||
Other expense (income): | ||||||||||||
Interest expense | 0.2 | 0.1 | 0.2 | 0.1 | ||||||||
Interest income | — | — | — | — | ||||||||
Total other expense | 0.2 | 0.1 | 0.2 | 0.1 | ||||||||
Loss before income taxes | (4.0 | ) | (2.1 | ) | (2.9 | ) | (2.0 | ) | ||||
Income taxes | — | — | — | — | ||||||||
Net loss | (4.0 | ) | (2.1 | ) | (2.9 | ) | (2.0 | ) |
September 30, 2016 | March 31, 2016 | September 30, 2015 | ||||||||||
(In thousands, except share data) | ||||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash | $ | 1,207 | $ | 3,703 | $ | 34,877 | ||||||
Accounts receivable—trade, less allowances of $6, $5 and $5 as of September 30, 2016, March 31, 2016 and September 30, 2015, respectively | 12,697 | 11,106 | 11,556 | |||||||||
Accounts receivable—other | 21,999 | 14,937 | 14,383 | |||||||||
Merchandise inventories, net | 241,518 | 256,559 | 288,690 | |||||||||
Prepaid expenses and other current assets | 5,406 | 6,333 | 5,381 | |||||||||
Income tax receivable | — | 1,130 | 706 | |||||||||
Total current assets | 282,827 | 293,768 | 355,593 | |||||||||
Net property and equipment | 83,081 | 87,472 | 118,463 | |||||||||
Deferred financing costs, net | 2,314 | 1,257 | 1,526 | |||||||||
Deferred income taxes | — | — | 7,816 | |||||||||
Other assets | 3,081 | 2,855 | 2,905 | |||||||||
Total long-term assets | 88,476 | 91,584 | 130,710 | |||||||||
Total assets | $ | 371,303 | $ | 385,352 | $ | 486,303 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 109,104 | $ | 107,474 | $ | 143,840 | ||||||
Line of credit | — | — | — | |||||||||
Customer deposits | 48,487 | 43,235 | 50,851 | |||||||||
Accrued liabilities | 47,769 | 43,370 | 52,454 | |||||||||
Deferred income taxes | — | — | 7,816 | |||||||||
Total current liabilities | 205,360 | 194,079 | 254,961 | |||||||||
Long-term liabilities: | ||||||||||||
Deferred rent | 53,321 | 59,101 | 63,887 | |||||||||
Other long-term liabilities | 16,079 | 10,818 | 11,128 | |||||||||
Total long-term liabilities | 69,400 | 69,919 | 75,015 | |||||||||
Total liabilities | 274,760 | 263,998 | 329,976 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock, par value $.0001; 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2016, March 31, 2016 and September 30, 2015, respectively | — | — | — | |||||||||
Common stock, par value $.0001; 150,000,000 shares authorized; 41,302,642, 41,204,660 and 41,204,660 shares issued; and 27,805,960, 27,707,978 and 27,707,978 outstanding as of September 30, 2016, March 31, 2016, and September 30, 2015, respectively | 4 | 4 | 4 | |||||||||
Additional paid-in capital | 305,118 | 304,325 | 303,300 | |||||||||
Accumulated deficit | (58,351 | ) | (32,747 | ) | 3,251 | |||||||
Common stock held in treasury at cost; 13,496,682 shares as of September 30, 2016, March 31, 2016, and September 30, 2015 | (150,228 | ) | (150,228 | ) | (150,228 | ) | ||||||
Total stockholders’ equity | 96,543 | 121,354 | 156,327 | |||||||||
Total liabilities and stockholders’ equity | $ | 371,303 | $ | 385,352 | $ | 486,303 |
Six Months Ended | |||||||
September 30, 2016 | September 30, 2015 | ||||||
(In thousands) | |||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (25,604 | ) | $ | (18,881 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 14,046 | 16,760 | |||||
Amortization of deferred financing costs | 256 | 270 | |||||
Stock-based compensation | 835 | 1,684 | |||||
Excess tax benefit from stock based compensation | 126 | — | |||||
Gain on sales of property and equipment | 219 | 52 | |||||
Asset impairment charges | 1,388 | — | |||||
Tenant allowances received from landlords | — | 721 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable—trade | (1,591 | ) | 345 | ||||
Accounts receivable—other | (7,062 | ) | 1,631 | ||||
Merchandise inventories | 15,041 | (31,221 | ) | ||||
Income tax receivable | 1,130 | 4,620 | |||||
Prepaid expenses and other assets | 816 | 1,217 | |||||
Accounts payable | 12,104 | 29,461 | |||||
Customer deposits | 5,252 | 2,109 | |||||
Accrued liabilities | 4,357 | 5,667 | |||||
Deferred rent | (5,780 | ) | (4,068 | ) | |||
Other long-term liabilities | 5,395 | (747 | ) | ||||
Net cash provided by operating activities | 20,928 | 9,620 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (11,475 | ) | (8,118 | ) | |||
Proceeds from sales of property and equipment | 42 | 62 | |||||
Purchases of corporate-owned life insurance | (115 | ) | (78 | ) | |||
Net cash used in investing activities | (11,548 | ) | (8,134 | ) | |||
Cash flows from financing activities: | |||||||
Net (repayments) borrowings on inventory financing facility | (10,437 | ) | 2,990 | ||||
Payment of financing costs | (1,439 | ) | — | ||||
Net cash (used in) provided by financing activities | (11,876 | ) | 2,990 | ||||
Net (decrease) increase in cash and cash equivalents | (2,496 | ) | 4,476 | ||||
Cash and cash equivalents | |||||||
Beginning of period | 3,703 | 30,401 | |||||
End of period | $ | 1,207 | $ | 34,877 | |||
Supplemental disclosure of cash flow information: | |||||||
Interest paid | $ | 1,504 | $ | 966 | |||
Income taxes received | $ | (1,132 | ) | $ | (4,600 | ) | |
Capital expenditures included in accounts payable | $ | 1,228 | $ | 665 |
• | 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. |
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||
(Amounts in thousands, except share data) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net loss as reported | $ | (18,377 | ) | $ | (10,126 | ) | $ | (25,604 | ) | $ | (18,881 | ) | |||
Non-cash adjustments to net loss: | |||||||||||||||
Asset impairment charges | 1,388 | — | 1,388 | — | |||||||||||
Cash adjustments to net loss: | |||||||||||||||
Severance and personnel costs (1) | 762 | — | 1,425 | — | |||||||||||
Logistics optimization (2) | 2,284 | — | 2,858 | — | |||||||||||
Other (3) | (190 | ) | 408 | 58 | 4,340 | ||||||||||
Net loss, as adjusted | $ | (14,133 | ) | $ | (9,718 | ) | $ | (19,875 | ) | $ | (14,541 | ) | |||
Weighted average shares outstanding – Diluted | 27,801,470 | 27,707,978 | 27,771,530 | 27,694,169 | |||||||||||
Net loss per diluted share as reported | $ | (0.66 | ) | $ | (0.37 | ) | $ | (0.92 | ) | $ | (0.68 | ) | |||
Net loss per diluted share, as adjusted | $ | (0.51 | ) | $ | (0.35 | ) | $ | (0.72 | ) | $ | (0.53 | ) |
(1) | Expenses incurred related to our organizational changes in our transformation efforts. |
(2) | Includes consulting expenses, payroll expenses and retention bonuses for key employees assisting in the transition and pre-opening expenses for the new logistic facilities. |
(3) | Current year consists deferred amortization fees written off with the June 2016 amendment to our Facility, costs incurred for the closing of stores including deferred rent written off and costs paid to consultants to assist with the Company's transformation. See breakout below. Prior year amounts are for costs paid to consultants to assist with the Company's transformation efforts. |
Three Months Ended | Six Months Ended | |||||||
(Amounts in thousands) | September 30, 2016 | September 30, 2016 | ||||||
Deferred Amortization Fees Written Off | $ | — | $ | 126 | ||||
Store Closing Costs | (274 | ) | (274 | ) | ||||
Consulting Costs | 84 | 206 | ||||||
$ | (190 | ) | $ | 58 |
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||
(Amounts in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net loss as reported | $ | (18,377 | ) | $ | (10,126 | ) | $ | (25,604 | ) | $ | (18,881 | ) | |||
Adjustments: | |||||||||||||||
Depreciation and amortization | 7,068 | 8,391 | 14,046 | 16,760 | |||||||||||
Interest expense, net | 919 | 647 | 1,699 | 1,232 | |||||||||||
Income tax expense | — | — | — | — | |||||||||||
EBITDA | $ | (10,390 | ) | $ | (1,088 | ) | $ | (9,859 | ) | $ | (889 | ) | |||
Non-cash asset impairment charges | 1,388 | — | 1,388 | — | |||||||||||
Severance and personnel costs (1) | 762 | — | 1,425 | — | |||||||||||
Logistics optimization (2) | 2,284 | — | 2,858 | — | |||||||||||
Other (3) | (190 | ) | 408 | 58 | 4,340 | ||||||||||
Adjusted EBITDA | $ | (6,146 | ) | $ | (680 | ) | $ | (4,130 | ) | $ | 3,451 |
(1) | Expenses incurred related to our organizational changes in our transformation efforts. |
(2) | Includes consulting expenses, payroll expenses and retention bonuses for key employees assisting in the transition and pre-opening expenses for the new logistic facilities. |
(3) | Current year consists deferred amortization fees written off with the June 2016 amendment to our Facility, costs incurred for the closing of stores including deferred rent written off and costs paid to consultants to assist with the Company's transformation. See breakout below. Prior year amounts are for costs paid to consultants to assist with the Company's transformation efforts. |
Three Months Ended | Six Months Ended | |||||||
(Amounts in thousands) | September 30, 2016 | September 30, 2016 | ||||||
Deferred Amortization Fees Written Off | $ | — | $ | 126 | ||||
Store Closing Costs | (274 | ) | (274 | ) | ||||
Consulting Costs | 84 | 206 | ||||||
$ | (190 | ) | $ | 58 |
FY2015 | FY2016 | FY2017 | |||||||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | ||||||||||||||||||||
Beginning Store Count | 228 | 229 | 228 | 228 | 228 | 227 | 227 | 227 | 226 | 226 | |||||||||||||||||||
Store Openings | 1 | — | — | — | 1 | — | — | — | — | — | |||||||||||||||||||
Store Closings | — | (1 | ) | — | — | (2 | ) | — | — | (1 | ) | — | (5 | ) | |||||||||||||||
Ending Store Count | 229 | 228 | 228 | 228 | 227 | 227 | 227 | 226 | 226 | 221 |