hhgregg Announces Full Year Operating Results and Issues Fiscal Year 2013 Guidance

hhgregg, Inc. (NYSE: HGG):

		Three Months Ended				Twelve Months Ended
		March 31,				March 31,
(unaudited, dollar amounts in thousands, except per share data)		2012		2011		2012		2011
Net sales		$613,788		$507,019		$2,493,392		$2,077,651
Net sales % increase		21.1%		21.5%		20.0%		35.4%
Comparable store sales % decrease (1)		(0.7)%		(10.8)%		(1.1)%		(4.0)%
Gross profit as % of net sales		30.5%		31.5%		28.9%		30.3%
SG&A as % of net sales		20.7%		20.6%		20.0%		20.7%
Net advertising expense as a % of net sales		4.4%		4.1%		4.7%		4.2%
Depreciation and amortization expense as a % of net sales		1.6%		1.4%		1.4%		1.3%
Life insurance proceeds as a % of net sales		6.5%		-		1.6%		-
Income from operations as a % of net sales		10.2%		5.4%		4.4%		4.2%
Net interest expense as a % of net sales		0.1%		0.2%		0.1%		0.2%
Loss related to early extinguishment of debt as a % of net sales		-		0.4%		-		0.1%
Net income		$53,630		$14,634		$81,373		$48,208
Net income per diluted share		$1.45		$0.36		$2.14		$1.19
Net income per diluted share, as adjusted (2)		$0.39		$0.40		$1.11		$1.23
Weighted average shares outstanding - diluted		36,971,100		40,315,607		38,079,685		40,368,223
Number of stores open at the end of the period		208		173

_______________

(1)		Comprised of net sales of stores in operation for at least 14 full months, including remodeled and relocated stores, as well as net sales for the Company’s website.
(2)		Fiscal 2012 amounts are adjusted to exclude income from life insurance proceeds, severance related to death benefits and impairment charges. Fiscal 2011 amounts are adjusted to exclude the loss related to the early extinguishment of debt incurred in conjunction with the amendment of the Company’s revolving credit facility on March 29, 2011. See the attached reconciliation of non-GAAP measures.

hhgregg, Inc. (“hhgregg” or “the Company”) today reported net income of $53.6 million for the three months ended March 31, 2012, or net income per diluted share of $1.45, compared with net income of $14.6 million, or $0.36 per diluted share, for the comparable prior year period. The fiscal fourth quarter of 2012 results include $39.6 million of net income related to life insurance proceeds received from a key man life insurance policy net of severance paid to the estate of our former Executive Chairman of the Board, who passed away on January 22, 2012. The fiscal fourth quarter of 2012 also includes a $0.8 million ($0.5 million after-tax) charge related to impairment for 2 store locations. Net income, as adjusted for these two items, for the three months ended March 31, 2012 was $14.5 million, a 9.1% decrease in adjusted net income when compared to the prior year period. The decrease in adjusted net income was the result of a decrease in gross margin rate and an increase in net advertising expense as a percentage of net sales, offset by an increase in net sales due to the net addition of 35 stores during the past 12 months.

Net income for the 12 months ended March 31, 2012 was $81.4 million, or $2.14 per diluted share, compared to net income of $48.2 million, or $1.19 per diluted share for the 12 months ended March 31, 2011. Excluding the items described above, adjusted net income for the 12 months ended March 31, 2012 was $42.2 million, or $1.11 per diluted share, a 14.7% decrease in adjusted net income when compared to the prior year period. The decrease in adjusted net income for the fiscal year ended March 31, 2012 was the result of a decrease in gross margin rate and an increase in net advertising expense as a percentage of net sales, offset by an increase in net sales due to the net addition of 35 stores during the past 12 months.

Dennis May, President and Chief Executive Officer of the Company, commented, “Our fourth quarter results were driven by solid market share gains in the appliance and home office categories, offset by continued headwinds in the video category. Through the launch of a number of strategic initiatives earlier this year, we continue to strengthen our positioning in appliances, expand our assortments in home office products and build our mobile business. We remain pleased with our progress in these key areas and believe recent investments in our multi-channel platforms and our unparalleled customer service better position us in a changing retail environment.”

Net sales for the three and 12 months ended March 31, 2012 increased 21.1% and 20.0%, respectively, to $613.8 million and $2.5 billion, respectively. The increases in net sales for the three and 12 months ended March 31, 2012 were primarily attributable to the net addition of 35 stores during the past 12 months partially offset by decreases of 0.7% and 1.1% in comparable store sales, respectively.

Net sales mix and comparable store sales percentage changes by product category for the three and 12 months ended March 31, 2012 and 2011 were as follows:

		Net Sales Mix Summary												Comparable Store Sales Summary
		Three Months Ended March 31,						Twelve Months Ended March 31,						Three Months Ended March 31,						Twelve Months Ended March 31,
		2012			2011			2012			2011			2012			2011			2012			2011
Video		43	%		47	%		43	%		46	%		(10.2)	%		(16.7)	%		(8.7)	%		(6.3)	%
Appliances		37	%		35	%		37	%		36	%		9.3	%		(5.0)	%		3.0	%		(0.2)	%
Computing and mobile phones (1)		10	%		7	%		9	%		6	%		34.8	%		25.2	%		52.9	%		21.6	%
Other (2)		10	%		11	%		11	%		12	%		(12.0)	%		(14.8)	%		(9.2)	%		(14.2)	%
Total		100	%		100	%		100	%		100	%		(0.7)	%		(10.8)	%		(1.1)	%		(4.0)	%

_______________

(1)		Primarily consists of computers, mobile phones and tablets
(2)		Primarily consists of audio, furniture and accessories, mattresses and personal electronics

The decreases in the comparable store sales for the video category for the three month period ended March 31, 2012 was due primarily to a double digit decline in average selling prices. The decreases in the comparable store sales for the video category for the 12 month period ended March 31, 2012 was due primarily to a double digit decline in average selling prices partially offset by increased unit demand. The increases in comparable store sales within the appliance category for the three and 12 month periods were due to an increase in both unit demand and average selling prices, driven largely by our initiatives to capture market share and outpace the marketplace in comparable store sales growth. The increases in the computing and mobile phone category were driven by increased demand in notebook computers and the additional offering of tablets and mobile phones in fiscal 2012. The decrease in the other category was due primarily to comparable store sales decreases in small electronics, cameras and camcorders, offset by strong double digit growth in mattresses.

Gross profit margin, expressed as gross profit as a percentage of net sales, decreased approximately 91 basis points for the three months ended March 31, 2012 to 30.5% from 31.5% for the comparable prior year period, and decreased approximately 142 basis points for the 12 months ended March 31, 2012 to 28.9% from 30.3% for the prior year. The decreases in gross profit margin for the three and twelve month periods were largely due to gross profit margin pressure within the video category, which is primarily the result of increased promotional activity in the category. In addition, computing and mobile phones, which carry a gross profit margin percentage lower than the Company average, increased as an overall percentage of the Company’s net sales mix, which resulted in a decrease in the Company’s total gross profit margin percentage. These declines were partially offset by improvements in gross profit margin percentage in the appliance category which were primarily driven by a mix shift to more heavily featured appliances, which carry an average selling price and gross margin percentage greater than the Company average.

SG&A, as a percentage of net sales, remained consistent for the three month period ended March 31, 2012, increasing six basis points, and decreased approximately 69 basis points for the 12 months ended March 31, 2012, compared with the respective prior year periods. For the 12 month period, the improvement is SG&A was largely due to slight decreases in occupancy costs and wage expenses, offset by a slight increase in delivery costs, which resulted from an increase in appliance sales as a percentage of the Company’s total net sales.

Net advertising expense, as a percentage of net sales, increased approximately 39 basis points during the three months ended March 31, 2012 and increased approximately 51 basis points during the 12 months ended March 31, 2012 when compared with the respective comparable prior year periods. The increase as a percentage of net sales for the three and 12 month periods were driven largely by increased promotions to drive market share and support the launch of our new mobile department.

The Company’s effective income tax rate for the three months ended March 31, 2012 decreased to 13.7% compared to 39.0% in the comparable prior year period. The Company’s effective income tax rate for the fiscal year ended March 31, 2012 decreased to 24.1% compared to 39.2% in the prior year. Excluding the impact of the non-taxable life insurance proceeds received, the adjusted effective income tax rate was 38.4% for the three and 12 months ended March 31, 2012. The decreases in the adjusted effective income tax rates, which exclude the impact of the non-taxable life insurance proceeds, are primarily the result of federal income tax credits recognized under the Hiring Incentives to Restore Employment Act of 2010.

Mr. May also commented “Looking ahead, we believe there is a significant opportunity utilizing additional initiatives to continue growing the appliance business while strengthening our home office, computing and mobile offerings. We are encouraged by recent strength in larger-size televisions and believe we are positioned well to take advantage of this trend.”

Board of Directors

On May 17, 2012, the Board of Directors of the Company elected Gregg W. Throgmartin as a director of the Company to fill a vacant seat on the Board of Directors. Mr. Throgmartin currently serves as Executive Vice President and Chief Operating Officer of the Company. The Board of Directors also appointed Michael L. Smith, a current director of the Company, as Chairman of the Board of Directors of the Company. Mr. Smith formerly served as Executive Vice President and Chief Financial Officer at Anthem Blue Cross and Blue Shield.

Share Repurchase Plan

During the three months ended March 31, 2012, the Company repurchased 1.0 million shares of its common stock for $12.6 million at an average price of $12.57 per share. During the fiscal year ended March 31, 2012, the Company repurchased 3.7 million shares for $47.6 million at an average price of $12.81 per share.

Additionally, effective on May 24, 2012, the Company’s Board of Directors authorized an additional $50 million share repurchase program. Under the program, purchases may be made from time to time in the open market or in privately negotiated transactions in accordance with applicable laws and regulations. The repurchase program will expire on May 23, 2013, unless extended or shortened by the Company’s Board of Directors.

hhgregg Establishes Fiscal Year 2013 Net Income Per Diluted Share Guidance Range of $1.12 to $1.27

Included in the Company’s guidance, are the following assumptions:

• Net sales increase of 9% to 12%
• Comparable store sales of (1%) to 1%
• The opening of 20 to 22 new stores
• Capital expenditures of approximately $50 million to $55 million
• An effective income tax rate of approximately 39.5%
• All assumptions in the guidance exclude any impact of the share repurchase plan

Jeremy Aguilar, Chief Financial Officer of the Company, commented “During the upcoming year, we expect to continue to drive market share gains in the appliance category while stabilizing our margin performance across all categories. We also expect our advertising and other expenses, as a percentage of net sales, to remain relatively stable in order to drive bottom line profits. Finally, we remain focused on enhancing our near and long-term stockholder value through use of our capital and continuing to execute on our long-term growth plans.”

Teleconference and Webcast

hhgregg will be conducting a conference call to discuss operating results for the three and 12 months ended March 31, 2012, on Wednesday, May 23, 2012 at 9:00 a.m. (Eastern Time). Interested investors and other parties may listen to a simultaneous web cast 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.

Non-GAAP to GAAP Reconciliation

Attached is a reconciliation of non-GAAP measures used in this earnings release including net income to net income, as adjusted, and diluted net income per share to diluted net income per share, as adjusted. Definitions and reconciliations of non-GAAP financial measures that will be discussed on the hhgregg investor earnings call, including net income, as adjusted, and diluted net income per share, as adjusted, can be found at www.hhgregg.com on the investor relations page.

About hhgregg

hhgregg is a specialty retailer of home appliances, televisions, computers, consumer electronics, mattresses and related services operating under the name hhgregg™. hhgregg currently operates 210 stores in Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Maryland, Mississippi, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee and Virginia.

Safe Harbor Statement

The following is a Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This press release includes forward-looking statements. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should,” or “will,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the expectations, beliefs, plans, objectives, assumptions or future events or performance of hhgregg, Inc. are forward-looking statements.

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 effect of general and regional economic and employment conditions on its net sales; impact of average selling prices on net sales; competition in existing, adjacent and new metropolitan markets; changes in consumer preferences; its ability to effectively manage and monitor its operations, costs and service quality; its reliance on a small number of suppliers; rapid inflation or deflation in core product prices; the failure of manufacturers to introduce new products and technologies; customer acceptance of new technology; its dependence on the Company’s key management personnel and its ability to attract and retain qualified sales personnel; its ability to negotiate with its suppliers to provide product on a timely basis at competitive prices; the identification and acquisition of suitable sites for its stores and the negotiation of acceptable leases for those sites; fluctuation in seasonal demand; its ability to maintain its rate of growth and penetrate new geographic areas; its ability to obtain additional financing and maintain its credit facilities; its ability to maintain and upgrade its information technology systems; the effect of a disruption at the Company’s central distribution centers; changes in cost for advertising; and changes in legal and/or trade regulations, currency fluctuations and prevailing interest rates.

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 fiscal 2012 Form 10-K filed May 22, 2012. 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 CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
		Three Months Ended								Twelve Months Ended
		March 31, 2012				March 31, 2011				March 31, 2012				March 31, 2011
		(In thousands, except share and per share data)
Net sales		$	613,788			$	507,019			$	2,493,392			$	2,077,651
Cost of goods sold			426,299				347,520				1,773,004				1,447,891
Gross profit			187,489				159,499				720,388				629,760
Selling, general and administrative expenses			127,071				104,665				498,600				429,823
Net advertising expense			27,274				20,545				117,423				87,340
Depreciation and amortization expense			9,516				6,901				33,752				26,238
Life insurance proceeds			(40,000	)			-				(40,000	)			-
Asset impairment charges			813				88				813				88
Income from operations			62,815				27,300				109,800				86,271
Other (income) expense:
Interest expense			694				1,253				2,658				4,992
Interest income			(18	)			(3	)			(23	)			(22	)
Loss related to early extinguishment of debt			-				2,071				-				2,071
Total other expense			676				3,321				2,635				7,041
Income before income taxes			62,139				23,979				107,165				79,230
Income tax expense			8,509				9,345				25,792				31,022
Net income		$	53,630			$	14,634			$	81,373			$	48,208
Net income per share
Basic		$	1.46			$	0.37			$	2.16			$	1.22
Diluted		$	1.45			$	0.36			$	2.14			$	1.19
Weighted average shares outstanding-basic			36,781,606				39,716,509				37,749,354				39,394,708
Weighted average shares outstanding-diluted			36,971,100				40,315,607				38,079,685				40,368,223

HHGREGG, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (AS A PERCENTAGE OF NET SALES) (UNAUDITED)
		Three Months Ended								Twelve Months Ended
		March 31, 2012				March 31, 2011				March 31, 2012				March 31, 2011
Net sales		100.0		%		100.0		%		100.0		%		100.0		%
Cost of goods sold		69.5				68.5				71.1				69.7
Gross profit		30.5				31.5				28.9				30.3
Selling, general and administrative expenses		20.7				20.6				20.0				20.7
Net advertising expense		4.4				4.1				4.7				4.2
Depreciation and amortization expense		1.6				1.4				1.4				1.3
Life insurance proceeds		(6.5	)			-				(1.6	)			-
Asset impairment charges		0.1				-				-				-
Income from operations		10.2				5.4				4.4				4.2
Other expense (income):
Interest expense		0.1				0.2				0.1				0.2
Interest income		-				-				-				-
Loss related to early extinguishment of debt		-				0.4				-				0.1
Total other expense		0.1				0.7				0.1				0.3
Income before income taxes		10.1				4.7				4.3				3.8
Income tax expense		1.4				1.8				1.0				1.5
Net income		8.7		%		2.9		%		3.3		%		2.3		%

Certain percentage amounts do not sum due to rounding

HHGREGG, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2012 AND 2011 (UNAUDITED)
		2012				2011
		(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents		$	59,244			$	72,794
Accounts receivable—trade, less allowances of $25 and $134, respectively			19,467				8,931
Accounts receivable—other			18,630				19,806
Merchandise inventories, net			282,409				212,008
Prepaid expenses and other current assets			5,562				11,062
Deferred income taxes			9,639				5,606
Total current assets			394,951				330,207
Net property and equipment			204,273				162,781
Deferred financing costs, net			2,656				3,232
Deferred income taxes			38,970				52,385
Other assets			1,934				1,040
Total long-term assets			247,833				219,438
Total assets		$	642,784			$	549,645
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	122,596			$	94,363
Customer deposits			28,993				21,791
Accrued liabilities			48,093				49,191
Total current liabilities			199,682				165,345
Long-term liabilities:
Deferred Rent			71,304				55,240
Other long-term liabilities			12,278				12,474
Total long-term liabilities			83,582				67,714
Total liabilities			283,264				233,059
Stockholders’ equity:
Preferred stock, par value $.0001; 10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2012 and 2011			-				-
Common stock, par value $.0001; 150,000,000 shares authorized; 40,066,005 and 39,724,737 shares issued; and 36,351,716 and 39,724,737 outstanding as of March 31, 2012 and 2011, respectively			4				4
Additional paid-in capital			277,846				268,715
Retained earnings (accumulated deficit)			129,281				47,908
Common stock held in treasury at cost, 3,714,289 and 0 shares as of March 31, 2012 and 2011, respectively			(47,570	)			-
			359,561				316,627
Note receivable for common stock			(41	)			(41	)
Total stockholders’ equity			359,520				316,586
Total liabilities and stockholders’ equity		$	642,784			$	549,645

HHGREGG, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)
		2012				2011
		(In thousands)
Cash flows from operating activities:
Net income		$	81,373			$	48,208
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			33,752				26,238
Amortization of deferred financing costs			664				1,198
Stock-based compensation			5,935				5,199
Excess tax benefits from stock-based compensation			(732	)			(14,913	)
Gain on sales of property and equipment			(332	)			(379	)
Loss on early extinguishment of debt			-				2,071
Deferred income taxes			9,382				11,612
Asset impairment charges			813				88
Tenant allowances received from landlords			22,895				16,040
Changes in operating assets and liabilities:
Accounts receivable—trade			(10,536	)			(1,619	)
Accounts receivable—other			(2,836	)			3,605
Merchandise inventories			(70,401	)			(10,505	)
Prepaid expenses and other assets			4,606				(2,706	)
Accounts payable			38,374				(48,976	)
Customer deposits			7,202				1,461
Accrued liabilities			(366	)			19,258
Deferred rent			(2,819	)			1,914
Other long-term liabilities			63				1,203
Net cash provided by operating activities			117,037				58,997
Cash flows from investing activities:
Purchases of property and equipment			(83,054	)			(59,938	)
Net proceeds from sale leaseback transactions			1,625				-
Proceeds from sales of property and equipment			80				153
Net cash used in investing activities			(81,349	)			(59,785	)
Cash flows from financing activities:
Purchases of treasury stock			(47,570	)			-
Proceeds from exercise of stock options			2,464				4,955
Excess tax benefits from stock-based compensation			732				14,913
Net settlement of shares - payment of witholding tax			-				(11,122	)
Net decrease in bank overdrafts			(4,776	)			(2,263	)
Payments on notes payable			-				(908	)
Payment of financing costs			(88	)			(2,440	)
Payment for early debt extinguishment			-				(87,433	)
Other, net			-				43
Net cash used in financing activities			(49,238	)			(84,255	)
Net decrease in cash and cash equivalents			(13,550	)			(85,043	)
Cash and cash equivalents
Beginning of year			72,794				157,837
End of year		$	59,244			$	72,794
Supplemental disclosure of cash flow information:
Interest paid		$	726			$	3,571
Income taxes paid		$	13,219			$	1,975
Capital expenditures included in accounts payable		$	1,216			$	6,581

HHGREGG, INC. AND SUBSIDIARIES NON-GAAP RECONCILIATION OF NET INCOME, AS ADJUSTED AND DILUTED NET INCOME PER SHARE, AS ADJUSTED (UNAUDITED)
		Three Months Ended March 31,								Twelve Months Ended March 31,
(Amounts in thousands, except share data)		2012				2011				2012				2011
Net income as reported		$	53,630			$	14,634			$	81,373			$	48,208
Adjustments to net income:
Loss related to early extinguishment of debt			-				2,071				-				2,071
Asset impairment charges			813				88				813				88
Life insurance proceeds (1)			(40,000	)			-				(40,000	)			-
Severance paid for death benefits			600				-				600				-
Tax impact of adjustments to net income (2)			(565	)			(863	)			(565	)			(863	)
Net income, as adjusted		$	14,478			$	15,930			$	42,221			$	49,504
Weighted average shares outstanding – Diluted			36,971,100				40,315,607				38,079,685				40,368,223
Diluted net income per share as reported		$	1.45			$	0.36			$	2.14			$	1.19
Tax adjusted impact of above adjustments		$	(1.06	)		$	0.04			$	(1.03	)		$	0.04
Diluted net income per share, as adjusted		$	0.39			$	0.40			$	1.11			$	1.23

(1)		Life insurance proceeds were non-taxable.
(2)		Computed using a blended statutory rate of 40%.

HHGREGG, INC. AND SUBSIDIARIES Store Count by Quarter for Fiscal Years 2010, 2011 and 2012 (Unaudited)
			FY2010									FY2011									FY2012
			Q1		Q2		Q3			Q4		Q1		Q2		Q3		Q4			Q1		Q2		Q3		Q4
Beginning Store Count			110		111		118			127		131		157		169		173			173		180		204		208
	Store Openings		1		7		10			4		26		12		4		1			7		24		4		-
	Store Closures		-		-		(1	)		-		-		-		-		(1	)		-		-		-		-
Ending Store Count			111		118		127			131		157		169		173		173			180		204		208		208

Note: hhgregg, Inc.'s fiscal year is comprised of four quarters ending June 30th, September 30th, December 31st and March 31st.