hhgregg Inc. (HGG) filed Quarterly Report for the period ended 2009-09-30.
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 $666.5 million; its shares were traded at around $17.91 with a P/E ratio of 16.6 and P/S ratio of 0.4.
Highlight of Business Operations:
We focus on leveraging our semi-fixed expenditures in advertising, distribution and regional management through closely managing our inventory, working capital and store development expenditures. Our inventory has averaged 7.0 turns per year over the past three fiscal years. Our working capital has averaged 2.4%, expressed as a percentage of sales, over the past three fiscal years. Our net capital expenditures have averaged 1.8%, measured as a percentage of sales, over the past three fiscal years. These factors, combined with our strong store-level profitability, have contributed to the generation of significant free cash flow over the past three fiscal years. This has enabled us to de-leverage our balance sheet and internally fund our store growth.
Conversely, retail appliance sales are highly correlated to the housing industry and housing turnover. As more people purchase existing homes in the market, appliance sales tend to trend upward. As the recent demand in the housing market has been relatively low, our appliance sales traffic has suffered significantly. The Association of Home Appliance Manufacturers reported that shipments of major appliances fell 18.0% for the six months ended September 30, 2009, while our comparable store sales for appliances for the same period were down 12.3%. Management does not expect this trend in appliance traffic to substantially improve until the housing market begins to turn positive.
Net sales for the three and six months ended September 30, 2009 increased 3.7% and 0.1%, respectively, compared to the comparable prior year period to $332.2 million and $616.6 million, respectively. The increase in sales for the three and six months ended September 30, 2009 was primarily attributable to the net addition of 15 stores during the past 12 months, partially offset by a 9.4% and an 11.9% decrease in comparable store sales, respectively.
Our effective income tax rate for the three months ended September 30, 2009 decreased to 38.3% compared to 40.3% for the comparable prior year period. The decrease in our effective income tax rate for the three months ended September 30, 2009 compared to the comparable prior year period is primarily the result of changes in the expected annual effective state income tax rate.
Income tax expense increased to $4.1 million for the six months ended September 30, 2009 compared to $3.7 million for the comparable prior year period. This increase was the result of an increase in income before income taxes in the current year compared to the comparable prior year period. Our effective income tax rate for the six months ended September 30, 2009 decreased to 38.8% from 40.3% for the comparable prior year period. The decrease in our effective income tax rate for the six months ended September 30, 2009 is primarily the result of changes in the expected annual effective state income tax rate.
Borrowings under the credit agreement are subject to a borrowing base calculation based on specified percentages of eligible accounts receivable and inventories. 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 inventories 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 the amendment, 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 No. 1 required payment to the incremental lenders of a commitment fee equal to 5.0% of the incremental commitment, or $1,250,000.
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