hhgregg Inc. (HGG, Financial) filed Quarterly Report for the period ended 2010-09-30.
Hhgregg Inc. has a market cap of $971.9 million; its shares were traded at around $24.66 with a P/E ratio of 24.2 and P/S ratio of 0.6. HGG is in the portfolios of Ron Baron of Baron Funds, Steven Cohen of SAC Capital Advisors.
Net sales for the three and six months ended September 30, 2010 increased 44.8% and 48.7%, respectively, to $480.9 million and $916.9 million, respectively, compared to the comparable prior year periods. The change in net sales for the three months ended September 30, 2010 was primarily attributable to the net addition of 51 stores during the past 12 months offset by and a 1.5% decrease in comparable store sales. The change in net sales for the six months ended September 30, 2010 was primarily attributable to the net addition of 51 stores during the past 12 months and a 2.2% increase in comparable store sales.
Gross profit margin, expressed as gross profit as a percentage of net sales, decreased approximately 15 basis points for the six months ended September 30, 2010 to 30.2% from 30.3%. The decrease in the gross profit margin percentage was primarily due to an overall shift in net sales mix between product categories. Consistent with historical new market launches, the appliance business takes longer to mature than does the rest of the product categories in stores in our new markets. Due to the lower balance of sales of appliances in new markets, coupled with the fact that appliance margins are higher than our company average, our overall margin was negatively impacted by the change in overall product mix. In addition, a decline in vendor support and increased promotions, used to drive market share gains in the video category, led to decreased margins in the video category. The other category gross profit margin increased slightly in the six month period ended September 30, 2010, and carries a gross margin percentage less than our company average.
Our effective income tax rate for the six months ended September 30, 2010 increased to 39.4% compared to 38.8% in the comparable prior year period. The increase in our effective income tax rate is primarily the result of changes in the expected annual effective state income tax rate for fiscal 2011.
Senior Secured Term Loan. On July 25, 2007, Gregg Appliances entered into a senior credit agreement (the Term B Facility) with a bank group obtaining a $100 million senior secured term loan B maturing on July 25, 2013. Interest on borrowings is payable in defined periods, currently monthly, depending on our election of the banks prime rate or LIBOR plus an applicable margin, currently 200 basis points. The weighted average interest rate on the term loan as of September 30, 2010 and March 31, 2010 was 2.3% and 2.5%, respectively. We entered into an interest rate related derivative on $75 million of the Term B Facility which adjusts the effective weighted average interest rate on the Term B Facility at September 30, 2010 and March 31, 2010 to 3.9%.
Pursuant to Amendment No. 1, the borrowing base was modified to equal the sum of (i) the lesser of (a) 90% of the net orderly liquidation value of all eligible inventory of Gregg Appliances and (b) 75% of the net book value of such eligible inventory and (ii) 90% of all commercial and credit card receivables of Gregg Appliances, in each case subject to customary reserves and eligibility criteria. Prior to Amendment No. 1, the borrowing base equaled the sum of (i) the lesser of (a) 93% (96% during a seasonal period) of the net orderly liquidation value of all eligible inventory of Gregg Appliances and (b) 75% of the net book value of such eligible inventory and (ii) 90% of all commercial and credit card receivables of Gregg Appliances, in each case subject to customary reserves and eligibility criteria. Amendment
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Hhgregg Inc. has a market cap of $971.9 million; its shares were traded at around $24.66 with a P/E ratio of 24.2 and P/S ratio of 0.6. HGG is in the portfolios of Ron Baron of Baron Funds, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations:
Operating Strategy and Performance. We focus the majority of our floor space, advertising expense and distribution infrastructure on the marketing, delivery and installation of a wide selection of premium video and appliance products. We display over 100 models of flat panel televisions and 350 major appliances in our stores with an especially broad assortment of models in the middle- to upper-end of product price ranges. Video and appliance net sales comprised 83% of our net sales mix for the three and six months ended September 30, 2010 and 84% of our net sales mix for the three and six months ended September 30, 2009.Net sales for the three and six months ended September 30, 2010 increased 44.8% and 48.7%, respectively, to $480.9 million and $916.9 million, respectively, compared to the comparable prior year periods. The change in net sales for the three months ended September 30, 2010 was primarily attributable to the net addition of 51 stores during the past 12 months offset by and a 1.5% decrease in comparable store sales. The change in net sales for the six months ended September 30, 2010 was primarily attributable to the net addition of 51 stores during the past 12 months and a 2.2% increase in comparable store sales.
Gross profit margin, expressed as gross profit as a percentage of net sales, decreased approximately 15 basis points for the six months ended September 30, 2010 to 30.2% from 30.3%. The decrease in the gross profit margin percentage was primarily due to an overall shift in net sales mix between product categories. Consistent with historical new market launches, the appliance business takes longer to mature than does the rest of the product categories in stores in our new markets. Due to the lower balance of sales of appliances in new markets, coupled with the fact that appliance margins are higher than our company average, our overall margin was negatively impacted by the change in overall product mix. In addition, a decline in vendor support and increased promotions, used to drive market share gains in the video category, led to decreased margins in the video category. The other category gross profit margin increased slightly in the six month period ended September 30, 2010, and carries a gross margin percentage less than our company average.
Our effective income tax rate for the six months ended September 30, 2010 increased to 39.4% compared to 38.8% in the comparable prior year period. The increase in our effective income tax rate is primarily the result of changes in the expected annual effective state income tax rate for fiscal 2011.
Senior Secured Term Loan. On July 25, 2007, Gregg Appliances entered into a senior credit agreement (the Term B Facility) with a bank group obtaining a $100 million senior secured term loan B maturing on July 25, 2013. Interest on borrowings is payable in defined periods, currently monthly, depending on our election of the banks prime rate or LIBOR plus an applicable margin, currently 200 basis points. The weighted average interest rate on the term loan as of September 30, 2010 and March 31, 2010 was 2.3% and 2.5%, respectively. We entered into an interest rate related derivative on $75 million of the Term B Facility which adjusts the effective weighted average interest rate on the Term B Facility at September 30, 2010 and March 31, 2010 to 3.9%.
Pursuant to Amendment No. 1, the borrowing base was modified to equal the sum of (i) the lesser of (a) 90% of the net orderly liquidation value of all eligible inventory of Gregg Appliances and (b) 75% of the net book value of such eligible inventory and (ii) 90% of all commercial and credit card receivables of Gregg Appliances, in each case subject to customary reserves and eligibility criteria. Prior to Amendment No. 1, the borrowing base equaled the sum of (i) the lesser of (a) 93% (96% during a seasonal period) of the net orderly liquidation value of all eligible inventory of Gregg Appliances and (b) 75% of the net book value of such eligible inventory and (ii) 90% of all commercial and credit card receivables of Gregg Appliances, in each case subject to customary reserves and eligibility criteria. Amendment
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