HHGregg, Inc. (HGG)

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hhgregg, Inc. (HGG)

F4Q08 Earnings Call

June 3, 2008 9:00 am ET


Andy Giesler – Director, Investor Relations

Jerry Throgmartin - Chairman and CEO

Dennis May - President and COO

Don Van der Wiel - Chief Financial Officer


Mitch Kaiser – Piper Jaffray

Brian Nagel – UBS

Gary Balter – Credit Suisse

David Magee – Suntrust Robinson Humphrey

Rick Nelson – Stephens Inc.

Michael Lasser – Lehman Brothers

Anthony Lebiedzinski – Sidoti & Company

Jack Balos – Midwood Research



(Operator Instructions) Welcome to hhgregg’s Fourth Quarter Earnings Conference Call for Fiscal 2008. At this time I would like to turn the conference over to Andy Giesler, Director of Investor Relations for hhgregg.

Andy Giesler

My name is Andy Giesler and I’m the Director of Investor Relations for hhgregg. With me today are Jerry Throgmartin our Chairman and CEO, Dennis May our President and COO, and Don Van der Wiel our Chief Financial Officer.

During today’s call Jerry will share some highlights from our fourth quarter and fiscal year ended March 31, 2008. Don will discuss our operating results and liquidity and capital resources and Dennis will conclude with a discussion on trends we are seeing in the marketplace, an update on our growth plans and our outlook for fiscal 2009. At the end of our prepared comments will have until 10:00 am Eastern time to discuss any questions you might have.

Let me take a moment to reference the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. During the call we will make forward looking statements which are subject to risks and uncertainties which include the future operating and financial performance of the company. We refer you to today’s press release and the risk factors and MG&A sections that were recently filed prospectus and 10-K for additional discussions of these risks and uncertainties.

In addition we will discuss adjusted EBITDA and net income and diluted earnings per share as adjusted to exclude the loss of the early extinguishment of debt, of the debt refinancing completed in connection with our initial public offering July 2007 which are considered non-GAAP measurements. We use adjusted EBITDA to measure operating performance as well as determine compliance with certain covenants under our credit agreement.

Please refer to our reconciliation of adjusted EBITDA to net income and our computation of net income and diluted earnings per share as adjusted in the non-GAAP disclosure section on our Investor Relations website which can accessed at ww.hhgregg.com. With that I would like to turn the call over to Jerry.

Jerry Throgmartin

We finished up fiscal 2008 with solid results during the fourth quarter recording a 14.4% increase in sales and a 0.8% same store sales increase while successfully opening six new stores. This increase in same store sales came on top of a 13% increase on the prior year. Our fourth quarter diluted net income per share was $0.31 versus $0.28 for the comparable prior year period. Our adjusted EBITDA increased 6.9% to $22.8 million for the three months ended March 31, 2008 as compared to $21.3 million for the comparable prior period.

For the full fiscal year we recorded sales increase of 18.6% driven by a 4.8% same store sales increase and 14 new store openings. Our full year diluted net income per share as adjusted to exclude the cost of our initial public offering was $1.07 per share compared with $0.76 per share in the prior year. This represents a 40.8% increase over the prior year. In addition, our adjusted EBITDA increased 23.6% to $80.9 million for the 12 months ended March 31, 2008 as compared with $65.5 million for the comparable prior period.

We are justifiably pleased with our operating results and many accomplishments during fiscal 2008. We stayed focused on execution at the store level to deliver an uncompromised customer purchase experience. This enabled us to gain market share in each of our major categories of business and generate profitable growth during a challenging economic environment. On July 19, we marked a significant milestone in our company’s 53 year history as we completed our initial public offering and the listing of our stock on the New York Stock Exchange.

We continue our disciplined self funded growth opening 14 stores during the fiscal year or an 18.2% unit growth rate. Very consistent with the 18.3% compound annual growth rate that we have delivered since the beginning of fiscal 1999. We strengthened the depth and talent of our leadership team adding Chief Human Resource Officer and many director level positions across the organization.

In addition, we made significant progress on our ERP system migration successfully implemented a demand management and forecasting tool to add more robust analytical capabilities to our inventory management process and opened an off site data center to enhance our disaster recovery capabilities. Lastly we generated enough free cash flow to optionally pay down $10 million of our term loan.

Our operating performance is a product of the superb efforts of our associates who have done an outstanding job of meeting and exceeding our customer’s expectations. Our consultative sales force is a significant competitive advantage during this challenging economic environment offering the advantages of a higher close rate yet a more variable at risk cost structure.

We look forward to fiscal 2009 assured in our ability to deliver a superior customer purchase experience and to continue to grow our market share. We currently plan to open between 15 and 17 new stores in fiscal 2009 with most scheduled to be open before Thanksgiving. As always all these stores will be funded from free cash flow. We continue to enjoy strong new store performance as we enter Florida and are confident that we are on course to achieve our long term objective of a profitable 15% to 18% unit growth rate and build a national footprint of over 400 stores in the continental United States.

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