Indianapolis-based hhgregg Inc. (NYSE: HGG) is reporting fiscal full-year net income of nearly $230,000, compared to $25.4 million for the previous year. Chief Executive Officer Dennis May believes several strategic changes, including a rebranding effort, will improve results in the current fiscal year. The retailer also says it lost more than $7.2 million during the fourth quarter, down from a profit of $9.9 million during the same period in fiscal 2013.

May 20, 2014

News Release

INDIANAPOLIS, Ind. – hhgregg, Inc. (“hhgregg” or “the Company”) today reported a net loss of $7.2 million for the three month period ended March 31, 2014, or a net loss per diluted share of $0.25, compared with net income of $9.9 million, or $0.31 per diluted share, for the comparable prior year period. The three month period ended March 31, 2014 results include approximately $4.0 million ($2.4 million after-tax) of charges related to the write down of inventory for the planned exit from the contract-based mobile phone business and the write-off of store fixtures associated with the Company's changing product mix. Net loss, as adjusted for these items, for the three month period ended March 31, 2014 was $4.8 million, or $0.17 per diluted share. The decrease in adjusted net income for the three month period ended March 31, 2014 was primarily the result of a comparable store sales decrease of 9.9%, a decrease in gross profit as a percentage of net sales, and an increase in net advertising expense and SG&A as a percentage of net sales.

Net income was $0.2 million, or $0.01 per diluted share, for the twelve month period ended March 31, 2014 compared with net income of $25.4 million, or $0.74 per diluted share for the comparable prior year period. The results for the twelve months ended March 31, 2014 include approximately $4.3 million ($2.6 million after-tax) of charges related to the write down of inventory for the planned exit from the contract-based mobile phone business, the write-off of store fixtures associated with the Company's changing product mix and the previously announced impairment of one store. The results for the twelve month period ended March 31, 2013 include approximately a $0.5 million ($0.3 million after-tax) charge related to the impairment for one store. Net income, as adjusted for these items, for the twelve month period ended March 31, 2014 was $2.8 million or $0.09 per diluted share compared to $25.7 million, or $0.74 per diluted share for the comparable prior year period. The decrease in adjusted net income for the twelve month period ended March 31, 2014 as compared to the prior year period was largely due to a comparable store sales decrease of 7.3% and a decrease in the gross margin rate.

Dennis May, President and Chief Executive Officer of the Company, commented, “As we discussed in our pre-release, we faced a number of headwinds during the quarter, which led to disappointing financial results. In addition to continued volatility in the consumer electronics business, extreme weather in January, February and the beginning of March negatively impacted traffic and operating performance in the majority of our stores, particularly those located in the Midwest and Mid-Atlantic regions, where the weather was the most severe. Despite these challenges, the Company was able to report a comparable sales increase in its appliance category, which marked its 11th consecutive quarter of comparable store sales increases in the appliance category.

“Despite the challenges of last year, we are excited about the current fiscal year and our opportunity to transform our business through a number of strategic initiatives. During the fiscal year, we will focus on redefining our sales mix; enhancing and differentiating our customer experience; expanding our e-commerce capabilities; and launching new customer facing technologies. We believe our responsibility is to inspire and delight our customers with a truly differentiated purchase experience to help bring their homes to life. In doing so, we will improve our financial and operating results, and will solidify our brand relevance within the marketplace.”

Net sales for the three and 12 month periods ended March 31, 2014 decreased 9.9% and 5.5%, respectively, to $538.3 million and $2.3 billion, respectively, as compared to the same periods in the prior year. The decreases in net sales for the three month period ended March 31, 2014 was primarily attributable to the reduced customer traffic as a reaction to extreme weather during the quarter. The decrease in net sales for the 12 month period ended March 31, 2014 was attributable to a comparable store sales decrease of 7.3%.

Net sales mix and comparable store sales percentage changes by product category for the three and 12 month periods ended March 31, 2014 and 2013 were as follows:

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

The increase in comparable store sales within the appliance category for the three month period ended March 31, 2014 was due to an increase in average selling prices, offset partially by a decline in demand due to the weather. The decrease in comparable store sales for the consumer electronics category for the three month period ended March 31, 2014 was due primarily to double digit declines in units sold within the video category, largely resulting from our strategy of offering fewer entry level models and a greater mix of larger screen televisions. The decrease in comparable store sales within the computing and wireless category for the three month period was driven by decreased demand for computers and mobile phones and a decrease in the average selling prices for computers, tablets and mobile phones, partially offset by double digit increased demand for tablets. The decrease in comparable store sales within the home products category was driven by decrease in the demand of mattresses along with the transition within the furniture category. This was also the first full quarter lapping the new furniture and fitness products rolled out in the third fiscal quarter of fiscal year 2013.

Gross profit margin, expressed as gross profit as a percentage of net sales, decreased approximately 154 basis points for the three month period ended March 31, 2014 to 28.3% from 29.9% for the comparable prior year period. The three month period ended March 31, 2014 includes an approximately $1.7 million charge related to the expected write down of inventory for the planned exit from the contract-based mobile phone business. Excluding this charge the gross profit margin, as adjusted, for the three month period ended March 31, 2014 was 28.7%. The decrease in gross profit margin for the period was a result of decreases in gross profit margin rates across the majority of our categories, partially offset by a favorable product sales mix shift.

SG&A, as a percentage of net sales, increased 192 basis points for the three month period ended March 31, 2014, compared with the prior year period. Excluding the $1.9 million charge for the write-off of store fixtures associated with the Company's changing product mix, SG&A, as a percentage of net sales, for the three month period ended March 31, 2014 was 22.3%. The increase in SG&A as a percentage of net sales was a result of a 69 basis point increase in occupancy costs due to the deleveraging effect of the net sales decline, a 36 basis point increase due to the write-off of store fixtures associated with the Company's changing product mix, a 22 basis point increase of in-home delivery expense as a percentage of net sales due to a higher sales mix of deliverable product, and various other increases in SG&A expenses primarily due to the deleveraging effect of the net sales decline, which included weather related expenses.

Net advertising expense, as a percentage of net sales, increased 114 basis points during the three month period end

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