hhgregg Inc. (HGG, Financial) filed Quarterly Report for the period ended 2009-06-30.
hhgregg Inc. is a leading specialty retailer of premium video products appliances audio products and accessories. hhgregg currently operates seventy nine stores in Alabama Georgia Indiana Kentucky North Carolina Ohio South Carolina and Tennessee. hhgregg Inc. has a market cap of $644.3 million; its shares were traded at around $19.59 with a P/E ratio of 17.8 and P/S ratio of 0.4.
Income tax expense decreased to $1.0 million for the three months ended June 30, 2009 compared to $1.4 million for the comparable prior year period. This decrease was the result of a decrease in income before income taxes in the current year compared to the comparable prior year period. Our effective income tax rate for the three months ended June 30, 2009 decreased to 40.1% compared to 40.3% for the comparable prior year period.
Capital Expenditures. We make capital expenditures principally to fund our expansion strategy, which includes, among other things, investments in new stores and new distribution facilities, remodeling and relocation of existing stores, as well as information technology and other infrastructure-related projects that support our expansion. Capital expenditures were $6.8 million and $8.1 million for the three months ended June 30, 2009 and 2008, respectively. The decrease in gross capital expenditures during the three months ended June 30, 2009 was primarily attributable to a lower number of store openings during the current year period. We opened one new store during the three months ended June 30, 2009 compared to six new stores for the comparable prior year period. We plan on opening between 20 and 22 new stores during fiscal 2010. In addition, we to continue to invest in our infrastructure, including management information systems and distribution capabilities, as well as incur capital remodeling and improvement costs. We expect capital expenditures, net of anticipated sale and leaseback proceeds for fiscal 2010 store openings and relocations as well as a portion of fiscal 2011 store openings, to range between $45 million and $50 million for fiscal 2010. Capital expenditures for fiscal 2010 and 2011 will be funded through cash and cash equivalents, borrowings on our revolving credit facility and sale and leaseback proceeds. To help fund our growth, we completed an underwritten public offering, consummated on July 24, 2009 and a private placement transaction of 1,000,000 shares of our common stock consummated on August 4, 2009. Proceeds, net of underwriting fees, for these transactions totaled $78.6 million.
The loans under the Term B Facility were originally scheduled to be repaid in consecutive quarterly installments of $250,000 each with a balloon payment at maturity, but as Gregg Appliances made an optional $10 million prepayment during fiscal 2008, the remaining scheduled quarterly principal installments are reduced to $227,099 with a balloon payment at maturity. As provided in the senior credit agreement, the prepayment was first applied to the next four scheduled principal installments of the loan occurring in fiscal 2009 and secondly applied on a pro rata basis to reduce the remaining scheduled principal installments of the loans. In accordance with the Term B Facility, we made a principal payment on June 30, 2009. In addition, Gregg Appliances is also required to prepay the outstanding loans, subject to certain exceptions, with annual excess cash flow and certain other proceeds (as defined in the Term B Facility). As of March 31, 2009, $89.0 million was outstanding on the Term B Facility.
Revolving Credit Facility. On July 25, 2007, Gregg Appliances entered into an Amended and Restated Loan and Security Agreement with a bank group for up to $100 million. Borrowings under the credit agreement are subject to a borrowing base calculation based on specified percentages of eligible accounts receivable and inventories. Interest on borrowings are payable monthly at a fluctuating rate based on the banks prime rate or LIBOR plus an applicable margin. Under the amended agreement the annual commitment fee is 1/4% on the unused portion of the facility and 1.25% for outstanding letters of credit. The asset backed credit facility does not require Gregg Appliances to comply with any financial maintenance covenant, unless it has less than $8.5 million of excess availability at any time, during the continuance of which event Gregg Appliances is subject to compliance with a fixed charge coverage ratio of 1.1 to 1.0. In addition, if Gregg Appliances has less than $5.0 million of excess availability, it may, in certain circumstances more specifically described in the Amended and Restated Loan and Security Agreement, become subject to cash dominion control. The credit agreement is guaranteed by Gregg Appliances wholly-owned subsidiary, HHG Distributing LLC (HHG), which has no assets or operations. The guarantee is full and unconditional and Gregg Appliances has no other subsidiaries. In addition, there are no restrictions on HHGs ability to pay dividends under the arrangement. Gregg Appliances was in compliance with the restrictions and covenants in the debt agreements at June 30, 2009.
As of June 30, 2009, we had $89.0 million outstanding on our Term B Facility. Interest on our Term B Facility is payable in defined periods, currently monthly, depending on our election of the banks prime rate or LIBOR plus an applicable margin. We are not subject to material interest rate risk as $50.0 million of the outstanding amount of Term B Facility is subject to an interest rate hedge. Effective October 2009, we will have an interest rate hedge for $75.0 million. A hypothetical 100 basis point increase in the banks prime rate would decrease our annual pre-tax income by approximately $0.4 million.
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hhgregg Inc. is a leading specialty retailer of premium video products appliances audio products and accessories. hhgregg currently operates seventy nine stores in Alabama Georgia Indiana Kentucky North Carolina Ohio South Carolina and Tennessee. hhgregg Inc. has a market cap of $644.3 million; its shares were traded at around $19.59 with a P/E ratio of 17.8 and P/S ratio of 0.4.
Highlight of Business Operations:
Net advertising expense as a percentage of net sales decreased 79 basis points, or $2.8 million, for the three months ended June 30, 2009 to $11.8 million compared to $14.6 million for the three months ended June 30, 2008. Gross advertising spend decreased for the three months ended June 30, 2009 largely due to reduced advertising rates coupled with higher expense in the prior year period due to the launch of new markets in Florida. These decreases were coupled with increased advertising support dollars which further reduced net advertising expense as a percentage of net sales.Income tax expense decreased to $1.0 million for the three months ended June 30, 2009 compared to $1.4 million for the comparable prior year period. This decrease was the result of a decrease in income before income taxes in the current year compared to the comparable prior year period. Our effective income tax rate for the three months ended June 30, 2009 decreased to 40.1% compared to 40.3% for the comparable prior year period.
Capital Expenditures. We make capital expenditures principally to fund our expansion strategy, which includes, among other things, investments in new stores and new distribution facilities, remodeling and relocation of existing stores, as well as information technology and other infrastructure-related projects that support our expansion. Capital expenditures were $6.8 million and $8.1 million for the three months ended June 30, 2009 and 2008, respectively. The decrease in gross capital expenditures during the three months ended June 30, 2009 was primarily attributable to a lower number of store openings during the current year period. We opened one new store during the three months ended June 30, 2009 compared to six new stores for the comparable prior year period. We plan on opening between 20 and 22 new stores during fiscal 2010. In addition, we to continue to invest in our infrastructure, including management information systems and distribution capabilities, as well as incur capital remodeling and improvement costs. We expect capital expenditures, net of anticipated sale and leaseback proceeds for fiscal 2010 store openings and relocations as well as a portion of fiscal 2011 store openings, to range between $45 million and $50 million for fiscal 2010. Capital expenditures for fiscal 2010 and 2011 will be funded through cash and cash equivalents, borrowings on our revolving credit facility and sale and leaseback proceeds. To help fund our growth, we completed an underwritten public offering, consummated on July 24, 2009 and a private placement transaction of 1,000,000 shares of our common stock consummated on August 4, 2009. Proceeds, net of underwriting fees, for these transactions totaled $78.6 million.
The loans under the Term B Facility were originally scheduled to be repaid in consecutive quarterly installments of $250,000 each with a balloon payment at maturity, but as Gregg Appliances made an optional $10 million prepayment during fiscal 2008, the remaining scheduled quarterly principal installments are reduced to $227,099 with a balloon payment at maturity. As provided in the senior credit agreement, the prepayment was first applied to the next four scheduled principal installments of the loan occurring in fiscal 2009 and secondly applied on a pro rata basis to reduce the remaining scheduled principal installments of the loans. In accordance with the Term B Facility, we made a principal payment on June 30, 2009. In addition, Gregg Appliances is also required to prepay the outstanding loans, subject to certain exceptions, with annual excess cash flow and certain other proceeds (as defined in the Term B Facility). As of March 31, 2009, $89.0 million was outstanding on the Term B Facility.
Revolving Credit Facility. On July 25, 2007, Gregg Appliances entered into an Amended and Restated Loan and Security Agreement with a bank group for up to $100 million. Borrowings under the credit agreement are subject to a borrowing base calculation based on specified percentages of eligible accounts receivable and inventories. Interest on borrowings are payable monthly at a fluctuating rate based on the banks prime rate or LIBOR plus an applicable margin. Under the amended agreement the annual commitment fee is 1/4% on the unused portion of the facility and 1.25% for outstanding letters of credit. The asset backed credit facility does not require Gregg Appliances to comply with any financial maintenance covenant, unless it has less than $8.5 million of excess availability at any time, during the continuance of which event Gregg Appliances is subject to compliance with a fixed charge coverage ratio of 1.1 to 1.0. In addition, if Gregg Appliances has less than $5.0 million of excess availability, it may, in certain circumstances more specifically described in the Amended and Restated Loan and Security Agreement, become subject to cash dominion control. The credit agreement is guaranteed by Gregg Appliances wholly-owned subsidiary, HHG Distributing LLC (HHG), which has no assets or operations. The guarantee is full and unconditional and Gregg Appliances has no other subsidiaries. In addition, there are no restrictions on HHGs ability to pay dividends under the arrangement. Gregg Appliances was in compliance with the restrictions and covenants in the debt agreements at June 30, 2009.
As of June 30, 2009, we had $89.0 million outstanding on our Term B Facility. Interest on our Term B Facility is payable in defined periods, currently monthly, depending on our election of the banks prime rate or LIBOR plus an applicable margin. We are not subject to material interest rate risk as $50.0 million of the outstanding amount of Term B Facility is subject to an interest rate hedge. Effective October 2009, we will have an interest rate hedge for $75.0 million. A hypothetical 100 basis point increase in the banks prime rate would decrease our annual pre-tax income by approximately $0.4 million.
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