UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2013~~June 30, 2014



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33600

hhgregg, Inc.

(Exact name of registrant as specified in its charter)




Delaware		20-8819207
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4151 East 96^th Street Indianapolis, IN		46240
(Address of principal executive offices)		(Zip Code)

(317) 848-8710

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated Filer	ý
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

The number of shares of hhgregg, Inc.’s common stock outstanding as of ~~January 27,~~July 28, 2014 was ~~29,492,032~~28,394,164.

Table of Contents

HHGREGG, INC. AND SUBSIDIARIES

Report on Form 10-Q

For the Quarter Ended ~~December 31, 2013~~June 30, 2014



		Page

Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited):

	Condensed Consolidated Statements of ~~Income~~Operations for the Three ~~and Nine~~ Months Ended ~~December 31,~~June 30, 2014 and 2013 ~~and 2012~~	3

	Condensed Consolidated Balance Sheets as of ~~December 31, 2013~~June 30, 2014 and March 31, ~~2013~~2014	4

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~December 31,~~June 30, 2014 and 2013 ~~and 2012~~	5

	Condensed Consolidated Statement of Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~December 31, 2013~~June 30, 2014	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1312

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2220

Item 4.	Controls and Procedures	2220

Part II. Other Information

Item 1.	Legal Proceedings	2321

Item 1A.	Risk Factors	2321

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2321

Item 6.	Exhibits	2422

Signatures		2523

Table of Contents



Part I.	Financial Information



ITEM 1.	Condensed Consolidated Financial Statements

HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Income~~Operations

(Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31, 2013			December 31, 2012			December 31, 2013			December 31, 2012			June 30, 2014			June 30, 2013
	(In thousands, except share and per share data)												(In thousands, except share and per share data)
Net sales	$	707,053		$	799,635		$	1,800,290		$	1,877,127		$	472,293		$	524,922
Cost of goods sold	517,773			581,450			1,288,295			1,338,136			331,954			370,157
Gross profit	189,280			218,185			511,995			538,991			140,339			154,765
Selling, general and administrative expenses	132,360			139,303			372,059			383,871			116,589			119,309
Net advertising expense	36,964			38,715			93,399			98,085			27,224			25,896
Depreciation and amortization expense	10,785			10,416			32,229			29,673			10,475			11,038
Asset impairment charges	310			504			310			504
Income from operations	8,861			29,247			13,998			26,858
Loss from operations													(13,949		)	(1,478		)
Other expense (income):
Interest expense	695			704			1,856			1,692			629			604
Interest income	(2		)	(3		)	(9		)	(8		)	(5		)	(5		)
Total other expense	693			701			1,847			1,684			624			599
Income before income taxes	8,168			28,546			12,151			25,174
Income tax expense	3,120			11,157			4,685			9,726
Net income	$	5,048		$	17,389		$	7,466		$	15,448
Net income per share
Loss before income taxes													(14,573		)	(2,077		)
Income tax benefit													(4,304		)	(817		)
Net loss													$	(10,269	)	$	(1,260	)
Net loss per share
Basic	$	0.17		$	0.51		$	0.24		$	0.44		$	(0.36	)	$	(0.04	)
Diluted	$	0.17		$	0.51		$	0.24		$	0.44		$	(0.36	)	$	(0.04	)
Weighted average shares outstanding-basic	29,915,307			33,934,383			30,617,856			35,099,660			28,444,948			31,263,226
Weighted average shares outstanding-diluted	30,387,251			33,985,113			31,117,896			35,168,497			28,444,948			31,263,226

See accompanying notes to condensed consolidated financial statements.

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HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)


	December 31, 2013			March 31, 2013			June 30, 2014			March 31, 2014
	(In thousands, except share data)						(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents	$	2,662		$	48,592		$	3,147		$	48,164
Accounts receivable—trade, less allowances of $45 and $1 as of December 31, 2013 and March 31, 2013, respectively	23,590			24,271
Accounts receivable—trade, less allowances of $137 and $132 as of June 30, 2014 and March 31, 2014, respectively							20,026			15,121
Accounts receivable—other	22,745			18,748			17,244			16,467
Merchandise inventories, net	384,172			315,562			364,252			298,542
Prepaid expenses and other current assets	13,648			5,567			6,548			6,694
Income tax receivable	734			1,414			14,690			1,380
Deferred income taxes	7,093			5,758
Deferred income tax assets							—			6,220
Total current assets	454,644			419,912			425,907			392,588
Net property and equipment	204,191			217,911			188,229			193,882
Deferred financing costs, net	2,469			1,992			2,200			2,334
Deferred income taxes	35,249			35,252
Deferred income tax assets							37,613			35,182
Other assets	1,652			1,354			2,243			1,977
Total long-term assets	243,561			256,509			230,285			233,375
Total assets	$	698,205		$	676,421		$	656,192		$	625,963
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	150,528		$	150,333		$	167,261		$	140,806
Line of credit	15,000			—
Customer deposits	46,656			38,042			48,395			41,518
Accrued liabilities	71,324			49,422			54,695			50,898
Deferred income tax liabilities							5,339			—
Income tax payable	4,048			2,145			—			122
Total current liabilities	287,556			239,942			275,690			233,344
Long-term liabilities:
Deferred rent	74,574			77,777			71,731			73,493
Other long-term liabilities	11,816			12,044			11,540			11,992
Total long-term liabilities	86,390			89,821			83,271			85,485
Total liabilities	373,946			329,763			358,961			318,829
Stockholders’ equity:
Preferred stock, par value $.0001; 10,000,000 shares authorized; no shares issued and outstanding as of December 31, 2013 and March 31, 2013, respectively	—			—
Common stock, par value $.0001; 150,000,000 shares authorized; 41,121,390 and 40,640,743 shares issued; and 29,492,032 and 31,468,453 outstanding as of December 31, 2013 and March 31, 2013, respectively	4			4
Preferred stock, par value $.0001; 10,000,000 shares authorized; no shares issued and outstanding as of June 30, 2014 and March 31, 2014, respectively							—			—
Common stock, par value $.0001; 150,000,000 shares authorized; 41,158,041 and 41,121,390 shares issued; and 28,394,164 and 28,460,218 outstanding as of June 30, 2014 and March 31, 2014, respectively							4			4
Additional paid-in capital	297,792			287,806			298,541			297,199
Retained earnings	162,116			154,650			144,609			154,878
Common stock held in treasury at cost, 11,629,358 and 9,172,290 shares as of December 31, 2013 and March 31, 2013, respectively	(135,653		)	(95,802		)
Common stock held in treasury at cost, 12,763,877 and 12,661,172 shares as of June 30, 2014 and March 31, 2014, respectively							(145,923		)	(144,947		)
Total stockholders’ equity	324,259			346,658			297,231			307,134
Total liabilities and stockholders’ equity	$	698,205		$	676,421		$	656,192		$	625,963

See accompanying notes to condensed consolidated financial statements.

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HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended						Three Months Ended
	December 31, 2013			December 31, 2012			June 30, 2014			June 30, 2013
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net income	$	7,466		$	15,448
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss							$	(10,269	)	$	(1,260	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	32,229			29,673			10,475			11,038
Amortization of deferred financing costs	469			498			134			166
Stock-based compensation	4,151			3,882			1,469			1,452
Excess tax benefit from stock based compensation	(21		)	(585		)
Excess tax deficiency from stock based compensation							—			37
Gain on sales of property and equipment	(437		)	(216		)	(27		)	—
Deferred income taxes	(1,332		)	3,575			9,128			(779		)
Asset impairment charges	310			504
Tenant allowances received from landlords	2,101			8,424			—			555
Changes in operating assets and liabilities:
Accounts receivable—trade	681			(1,207		)	(4,905		)	(13,137		)
Accounts receivable—other	(4,072		)	(8,071		)	(736		)	505
Merchandise inventories	(68,610		)	(155,969		)	(65,710		)	(33,947		)
Income tax receivable	701			(1,356		)	(13,310		)	(1,268		)
Prepaid expenses and other assets	(8,379		)	1,240			98			(244		)
Accounts payable	20,151			84,699			24,685			10,193
Customer deposits	8,614			11,278			6,877			8,517
Income tax payable	1,903			3,616			(122		)	(2,145		)
Accrued liabilities	21,902			23,759			3,670			5,444
Deferred rent	(5,229		)	(4,099		)	(1,803		)	(1,646		)
Other long-term liabilities	(28		)	198			(385		)	(662		)
Net cash provided by operating activities	12,570			15,291
Net cash used in operating activities							(40,731		)	(17,181		)
Cash flows from investing activities:
Purchases of property and equipment	(19,888		)	(50,291		)	(4,430		)	(5,360		)
Proceeds from sales of property and equipment	221			34			33			—
Purchases of corporate-owned life insurance							(218		)	—
Net cash used in investing activities	(19,667		)	(50,257		)	(4,615		)	(5,360		)
Cash flows from financing activities:
Purchases of treasury stock	(39,851		)	(30,041		)	(976		)	(10,311		)
Proceeds from exercise of stock options	5,814			4,184			—			2,174
Excess tax benefit from stock-based compensation	21			585
Net (decrease) increase in bank overdrafts	(8,764		)	12,153
Net borrowings on line of credit	15,000			—
Net (repayments) borrowings on inventory financing facility	(10,107		)	4,322
Payment of financing costs	(946		)	—
Payments received on notes receivable-related parties	—			41
Net cash used in financing activities	(38,833		)	(8,756		)
Excess tax deficiency from stock-based compensation							—			(37		)
Net decrease in bank overdrafts							—			(8,400		)
Net borrowings on inventory financing facility							1,305			13,643
Net cash provided by (used in) financing activities							329			(2,931		)
Net decrease in cash and cash equivalents	(45,930		)	(43,722		)	(45,017		)	(25,472		)
Cash and cash equivalents
Beginning of period	48,592			59,244			48,164			48,592
End of period	$	2,662		$	15,522		$	3,147		$	23,120
Supplemental disclosure of cash flow information:
Interest paid	$	1,359		$	226		$	489		$	428
Income taxes paid	$	3,412		$	7,509		$	—		$	3,375
Capital expenditures included in accounts payable	$	406		$	873		$	1,533		$	2,074

See accompanying notes to condensed consolidated financial statements.

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HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

~~Nine~~Three Months Ended ~~December 31, 2013~~June 30, 2014

(Dollars in thousands, Unaudited)

Common Shares
Preferred
Stock

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Common Stock
Held in
Treasury

Total
Stockholders’
Equity
Balance at March 31, 2013 31,468,453
$ —
$ 4
$ 287,806
$ 154,650
$ (95,802 ) $ 346,658
Net income 7,466
7,466
Exercise of stock options and vesting of RSUs 480,647
—
—
5,814
—
—
5,814
Stock compensation expense —
—
—
4,151
—
—
4,151
Excess tax benefit from stock-based compensation, net —
—
—
21
—
—
21
Repurchase of common stock (2,457,068 ) —
—
—
—
(39,851 ) (39,851 )
Balance at December 31, 2013 29,492,032
$ —
$ 4
$ 297,792
$ 162,116
$ (135,653 ) $ 324,259



	Common Shares		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held in Treasury			Total Stockholders’ Equity
Balance at March 31, 2014	28,460,218		$	—	$	4	$	297,199		$	154,878		$	(144,947	)	$	307,134
Net loss										(10,269		)				(10,269		)
Exercise of stock options and vesting of RSUs	36,651		—		—		(127		)	—			—			(127		)
Stock compensation expense	—		—		—		1,469			—			—			1,469
Repurchase of common stock	(102,705	)	—		—		—			—			(976		)	(976		)
Balance at June 30, 2014	28,394,164		$	—	$	4	$	298,541		$	144,609		$	(145,923	)	$	297,231

See accompanying notes to condensed consolidated financial statements.

Table of Contents

HHGREGG, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


(1)	Summary of Significant Accounting Policies

Description of Business

hhgregg ~~Inc. (the “Company” or “hhgregg”)~~is an appliance, electronics and furniture retailer that is committed to providing customers with a truly differentiated purchase experience through superior customer service, knowledgeable sales associates and the highest quality product selections. Founded in 1955, hhgregg is a ~~specialty~~multi-regional retailer ~~of home appliances, televisions, computers, tablets, wireless devices, consumer electronics, home furniture, mattresses, fitness equipment~~with 229 stores in 20 states that also offers market-leading global and ~~related services operating under the name hhgregg~~^™~~. As of~~ ~~December 31, 2013, the Company had~~ ~~228~~ ~~stores located in~~ Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin.local brands at value prices nationwide via hhgregg.com. The Company operates in one reportable segment.

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, these unaudited condensed consolidated financial statements reflect all necessary adjustments, which are of a normal recurring nature, for a fair presentation of such data. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of hhgregg and the notes thereto for the fiscal year ended March 31, ~~2013~~2014, included in the Company’s Annual Report on Form 10-K filed with the SEC on May 20, ~~2013~~2014.

The consolidated results of operations, financial position and cash flows for interim periods are not necessarily indicative of those to be expected for a full year. The Company has made a number of estimates and assumptions relating to the assets and liabilities and the reporting of sales and expenses to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of hhgregg and its wholly-owned subsidiary, Gregg Appliances, Inc. (“Gregg Appliances”). Gregg Appliances has a wholly-owned subsidiary, HHG Distributing LLC (“HHG Distributing”), which has no assets or operations.

New Accounting Standards

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This guidance states that the disposal of a component of an entity is to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The pronouncement also requires additional disclosures regarding individually significant disposals of components that do not meet the criteria to be recognized as a discontinued operation as well as additional and expanded disclosures. The guidance will be effective prospectively for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company does not expect this standard to have a material impact on the Company's consolidated financial statements upon adoption.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles used to recognize revenue for all

entities. The new guidance is effective for annual and interim periods beginning after December 15, 2016, with no early adoption permitted. The Company is currently evaluating the impact, if any, the adoption of this guidance will have on its financial position, results of operations or cash flows.


(2)	Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable—trade, accounts receivable—other, accounts payable and customer deposits approximate fair value because of the short maturity of these instruments. Any outstanding amount on the Company’s line of credit approximates fair value as the interest rate is market based.

~~Non-recurring Fair Value Measurements~~

The Company has property and equipment that are measured at fair value on a non-recurring basis when impairment indicators are present. The assets are adjusted to fair value only when the carrying values exceed the fair values. The categorization of the framework used to price the assets is considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. Property and equipment fair values were derived using a discounted cash flow model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the discounted cash flow model generally included our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as certain capital expenditures, as well as an appropriate discount rate. For the quarter ended December 31, 2013, the Company entered into a lease modification to downsize a store. In conjunction with the downsize, the Company determined that certain of the assets in use would be abandoned at the time construction to downsize begins, and as a result determined this to be a triggering event for an impairment analysis to be performed in accordance with guidance on impairment of long-lived assets. The estimated undiscounted future cash flows generated by the store was less than its carrying amount, therefore the carrying amount of the assets related to this store were reduced to fair value. For the quarter ended December 31, 2012, the Company had one store whose profit contributions were significantly lower than the chain average due to decreased sales. This decrease in profit triggered the need for an impairment analysis to be performed in accordance with guidance on impairment of long-lived assets. The estimated undiscounted future cash flows generated by the store was less than its carrying amount, therefore the carrying amount of the assets related to this store were reduced to fair value.

Table of Contents

~~The following table summarizes the fair value remeasurements recorded during the three and nine months ended December 31, 2013 and 2012 (in millions):~~

Three and Nine Months Ended
December 31,
2013 December 31,
2012
Carrying value (pre-asset impairment) $ 0.7
$ 0.9
Asset impairment loss (included in income from operations) 0.3
0.5
Remaining net carrying value $ 0.4
$ 0.4


(3)	Property and Equipment

Property and equipment consisted of the following at ~~December 31, 2013~~June 30, 2014 and March 31, ~~2013~~2014 (in thousands):


	December 31, 2013			March 31, 2013			June 30, 2014			March 31, 2014
Machinery and equipment	$	28,516		$	25,328		$	28,361		$	28,478
Store fixtures and furniture	183,151			175,659			182,131			180,799
Vehicles	2,247			2,269			2,206			2,207
Signs	19,620			19,163			19,640			19,545
Leasehold improvements	178,821			172,952			180,871			178,888
Construction in progress	7,296			5,995			8,831			8,167
	419,651			401,366			422,040			418,084
Less accumulated depreciation and amortization	(215,460		)	(183,455		)	(233,811		)	(224,202		)
Net property and equipment	$	204,191		$	217,911		$	188,229		$	193,882


(4)	Net ~~Income~~Loss per Share

Net ~~income~~loss per basic ~~share is calculated based on the weighted-average number of outstanding common shares. Net income per~~and diluted share is calculated based on the weighted-average number of outstanding ~~common shares plus the effect of potential dilutive~~ common shares. When the Company reports net income, the calculation of net income per diluted share excludes shares underlying outstanding stock options and restricted stock units with exercise prices that exceed the average market price of the Company’s common stock for the period and certain options and restricted stock units with unrecognized compensation cost, as the effect would be antidilutive. Potential dilutive common shares are composed of shares of common stock issuable upon the exercise of stock options and restricted stock units. For the three months ended June 30, 2014 and 2013, the diluted loss per common share calculation represents the weighted average common shares outstanding with no additional dilutive shares as the Company incurred a net loss for the respective periods and such shares would be antidilutive.

The following table presents net ~~income~~loss per basic and diluted share for the ~~three and~~ ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 and ~~2012~~2013 (in thousands, except share and per share amounts):


	Three Months Ended				Nine Months Ended				Three Months Ended
	December 31, 2013		December 31, 2012		December 31, 2013		December 31, 2012		June 30, 2014			June 30, 2013
Net income (A)	$	5,048	$	17,389	$	7,466	$	15,448
Net loss (A)									$	(10,269	)	$	(1,260	)
Weighted average outstanding shares of common stock (B)	29,915,307		33,934,383		30,617,856		35,099,660		28,444,948			31,263,226
Dilutive effect of employee stock options and restricted stock units	471,944		50,730		500,040		68,837		—			—
Common stock and potential dilutive common shares (C)	30,387,251		33,985,113		31,117,896		35,168,497		28,444,948			31,263,226
Net income per share:
Net loss per share:
Basic (A/B)	$	0.17	$	0.51	$	0.24	$	0.44	$	(0.36	)	$	(0.04	)
Diluted (A/C)	$	0.17	$	0.51	$	0.24	$	0.44	$	(0.36	)	$	(0.04	)

Antidilutive shares not included in the net ~~income~~loss per diluted share calculation for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2014 and 2013 were ~~936,040~~3,527,896 and ~~937,640~~,2,006,645, respectively. ~~Antidilutive shares not included in the net income per diluted share calculation for the three and nine months ended December 31,~~ ~~2012~~ ~~were~~ ~~3,663,282~~.

~~Table of Contents~~


(5)	Inventories

Net merchandise inventories consisted of the following at ~~December 31, 2013~~June 30, 2014 and March 31, ~~2013~~2014 (in thousands):


	December 31, 2013		March 31, 2013		June 30, 2014		March 31, 2014
Appliances	$	143,666	$	120,972	$	169,660	$	134,053
Consumer electronics	164,949		126,019		139,890		108,193
Computing and wireless	49,613		46,020
Computers and tablets					31,144		36,039
Home products	25,944		22,551		23,558		20,257
Net merchandise inventory	$	384,172	$	315,562	$	364,252	$	298,542

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(6)	Debt

A summary of debt at ~~December 31, 2013~~June 30, 2014 and March 31, ~~2013~~2014 is as follows (in thousands):

December 31,
2013 March 31,
2013
Line of credit $ 15,000
$ —



	June 30, 2014		March 31, 2014
Line of credit	$	—	$	—

On July 29, 2013, Gregg Appliances entered into Amendment No. 1 to the Amended and Restated Loan and Security Agreement (the “Amended Facility”) to increase the maximum credit available to $400 million from $300 million, subject to borrowing base availability, and extend the term of the facility to expire on July 29, 2018. ~~The facility was set to expire on March 29, 2016.~~

Interest on borrowings (other than Eurodollar rate borrowings) is payable monthly at a fluctuating rate based on the bank’s prime rate or LIBOR plus an applicable margin based on the average quarterly excess availability. Interest on Eurodollar rate borrowings is payable on the last day of each “interest period” applicable to such borrowing or on the three month anniversary of the beginning of such “interest period” for interest periods greater than three months. The unused line rate is determined based on the amount of the daily average of the outstanding borrowings for the immediately preceding calendar quarter period (the “Daily Average”). For a Daily Average greater than or equal to 50% of the defined borrowing base, the unused line rate is 0.25%. For a Daily Average less than 50% of the defined borrowing base, the unused line rate is 0.375%. The Amended Facility is guaranteed by Gregg Appliances’ wholly-owned subsidiary, HHG Distributing, which has no assets or operations. The guarantee is full and unconditional and Gregg Appliances has no other subsidiaries.

Pursuant to the Amended Facility, the borrowing base is equal to the sum of (i) 90% of the amount of the eligible commercial accounts, (ii) 90% of the amount of eligible commercial and credit card receivables of Gregg Appliances and (iii) 90% of the net recovery percentage multiplied by the value of eligible inventory consistent with the most recent appraisal of such eligible inventory.

Under the Amended Facility, Gregg Appliances is not required to comply with any financial maintenance covenant unless “excess availability” is less than the greater of (i) 10.0% of the lesser of (A) the defined borrowing base or (B) the defined maximum credit or (ii) $20.0 million during the continuance of which event Gregg Appliances is subject to compliance with a fixed charge coverage ratio of 1.0 to 1.0.

Pursuant to the Amended Facility, if Gregg Appliances has “excess availability” of less than 12.5% of the lesser of (A) the defined borrowing base or (B) the defined maximum credit, it may, in certain circumstances more specifically described in the Amended Facility, become subject to cash dominion control.

The Amended Facility places limitations on the ability of Gregg Appliances to, among other things, incur debt, create other liens on its assets, make investments, sell assets, pay dividends, undertake transactions with affiliates, enter into merger transactions, enter into unrelated businesses, open collateral locations outside of the United States, or enter into consignment assignments or floor plan financing arrangements. The Amended Facility also contains various customary representations and warranties, financial and collateral reporting requirements and other affirmative and negative covenants. Gregg Appliances was in compliance with the restrictions and covenants of the Amended Facility at ~~December 31, 2013~~June 30, 2014.

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As of ~~December 31, 2013~~June 30, 2014, Gregg Appliances had ~~$15.0 million of cash~~no borrowings outstanding under the Amended ~~Facility. As of~~ ~~December 31, 2013, Gregg Appliances had~~Facility and $5.3 million of letters of credit outstanding, which expire through December 31, 2014. The total borrowing availability under the Amended Facility was $~~224.4~~212.4 million as of ~~December 31, 2013~~June 30, 2014. The interest rate based on the bank’s prime rate as of ~~December 31, 2013~~June 30, 2014 was 3.75%.

As of March 31, ~~2013~~2014, Gregg Appliances had no borrowings outstanding under the Amended ~~Facility. As of~~ ~~March 31, 2013, Gregg Appliances had $4.9~~Facility and $5.3 million of letters of credit outstanding, which expire through December 31, ~~2013.~~2014. The total borrowing availability under the Amended Facility was $~~189.8~~169.5 million as of March 31, ~~2013~~2014. The interest rate based on the bank’s prime rate as of March 31, ~~2013~~2014 was ~~4.25%~~3.75%.

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(7)	Stock-based Compensation

Stock Options

On April 2, 2013, the Company’s Board of Directors approved a one-time voluntary stock option exchange program (the “Offer”), as amended on April 17, 2013. On April 2, 2013, the Company commenced the Offer, which allowed employees to surrender all outstanding and unexercised stock options, whether vested or unvested, that were granted subsequent to July 18, 2007 (the “Eligible Options”), in a ~~one~~-for-one exchange for new options (the “New Options”). Under the Offer, employees who chose to participate would receive New Options with an exercise price per share equal to the greater of (a) $10.00 or (b) the closing price of the Company’s Common Stock as reported on the New York Stock Exchange on the New Option grant date. Additionally, the Offer did not allow partial tenders of any one particular option grant, however employees could choose to exchange some but not all Eligible Option grants held by any optionee. Options granted prior to July 19, 2007 were not eligible for exchange.

~~The Offer expired on April 30, 2013. Pursuant to the Offer, a total of~~ 58 eligible participants tendered, and the Company accepted for cancellation, options to purchase an aggregate of 898,665 shares of the Company’s common stock. The eligible stock options that were accepted for cancellation represented approximately ~~31%~~ of the options eligible for participation in the Exchange Offer. Pursuant to the terms and conditions of the Amended Exchange Offer, on May 1, 2013, the Company issued 898,665 New Options in exchange for the tendered stock options. The Company will recognize the incremental expense resulting from this exchange, aggregating ~~$1.4 million, over the three-year vesting period, in accordance with the Exchange Offer.~~

The following table summarizes the activity under the Company’s Stock Option Plans for the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014:


	Number of Options Outstanding		Weighted Average Exercise Price per Share		Number of Options Outstanding		Weighted Average Exercise Price per Share
Outstanding at March 31, 2013	3,322,462		$	15.81
Outstanding at March 31, 2014					3,232,208		$	13.61
Granted	1,806,805		13.99		915,640		9.09
Exercised	(480,647	)	12.10		—		—
Canceled	(981,328	)	22.19		(47,298	)	13.23
Expired	(27,002	)	23.53		(109,668	)	13.11
Outstanding at December 31, 2013	3,640,290		$	13.60
Outstanding at June 30, 2014					3,990,882		$	12.59

During the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014, the Company granted options for ~~1,806,805~~915,640 shares of common stock under the 2007 Equity Incentive Plan to certain employees and directors of the Company. The options vest in equal amounts over a three-year period beginning on the first anniversary of the date of grant and expire 7 years from the date of the grant. The fair value of each option grant is estimated on the date of grant and is amortized on a straight-line basis over the vesting period.

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The weighted average estimated fair value of options granted to employees and directors under the 2007 Equity Incentive Plan ~~was~~ ~~$7.09~~during the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 was $4.28, calculated using the Black-Scholes model with the following weighted average assumptions:



Risk-free interest rate	~~0.06%~~1.31% - ~~1.53%~~1.47%
Dividend yield	—
Expected volatility	~~63.0~~57.0	%
Expected life of the options (years)	4.5
Forfeitures	~~7.20~~8.40	%

Time Vested Restricted Stock Units

During the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014, the Company granted ~~27,237~~40,950 time vested restricted stock units (“RSUs”) under the 2007 Equity Incentive Plan to certain directors of the Company. The RSUs vest three years from the date of grant. Upon vesting, the outstanding number of RSUs will be converted into shares of common stock. RSUs are forfeited if they have not vested before the participant ceases to serve as director for any reason other than death or total permanent disability or certain other circumstances as described in such participant’s RSU agreement. Upon death or disability, the participant is entitled to receive a portion of the award based upon the period of time lapsed between the date of grant of the RSU and the termination of service as a director. The fair value of RSU awards is based on the Company’s stock price at the close of the market on the date of grant. The weighted average grant date fair value for the RSUs issued during the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 was $~~14.32~~9.17.

The following table summarizes RSU vesting activity for the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014:

Shares
Weighted
Average
Grant-Date
Fair Value
Nonvested at March 31, 2013 155,600
$ 12.38
Granted 27,237
14.32
Vested —
—
Forfeited (14,692 ) 12.96
Nonvested at September 30, 2013 168,145
$ 12.64


~~(8)~~	~~Stockholders’ Equity~~

~~The Company filed a universal shelf registration statement which was declared effective on July 3, 2013, registering~~ ~~$300 million~~ principal amount of its securities, which may be sold by hhgregg under such registration statement at any time. Each of Gregg Appliances and HHG Distributing were additional registrants to the shelf registration statement because each may guarantee any debt securities that are issued by hhgregg under the shelf registration statement. Gregg Appliances and HHG Distributing are exempt from reporting under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to Rule 12h-5 under the Exchange Act as: (i) hhgregg has no independent assets or operations; (ii) any guarantees of the subsidiary guarantors of debt securities issued under the shelf registration statement are full and unconditional and joint and several; and (iii) there are no subsidiaries of hhgregg other than Gregg Appliances and HHG Distributing.



	Shares		Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2014	143,503		$	12.72
Granted	40,950		9.17
Vested	(50,500	)	14.20
Forfeited	(1,400	)	10.86
Nonvested at June 30, 2014	132,553		$	11.08

~~(9)~~

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(8) Share Repurchase Program

On May ~~16, 2013~~14, 2014, the Company’s Board of Directors authorized a new share repurchase program, which became effective on May ~~22, 2013~~20, 2014 (the “May ~~2013~~2014 Program”), allowing the Company to repurchase up to $5040 million of its common stock. The May ~~2013~~2014 Program allows the Company to purchase its common stock on the open market or in privately negotiated transactions in accordance with applicable laws and regulations, and expires on May ~~22, 2014~~20, 2015. The previous share repurchase program expired on May ~~21, 2013.~~19, 2014.

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The following table shows the number and cost of shares repurchased during the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 and ~~2012~~2013, respectively ($ in thousands):


	Nine Months Ended				Three Months Ended
	December 31, 2013		December 31, 2012		June 30, 2014		June 30, 2013
May 2014 Program
Number of shares repurchased					102,705		—
Cost of shares repurchased					$	976	$	—
May 2013 Program
Number of shares repurchased	2,457,068		—		—		698,369
Cost of shares repurchased	$	39,851	$	—	$	—	$	10,311
May 2012 Program
Number of shares repurchased	—		3,558,600
Cost of shares repurchased	$	—	$	30,041

As of ~~December 31, 2013~~June 30, 2014, the Company had $~~10.1~~39.0 million remaining under the May ~~2013~~2014 Program. The repurchased shares are classified as treasury stock within stockholders’ equity in the accompanying condensed consolidated balance sheets.

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ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five sections:

Overview

Critical Accounting Polices

Results of Operations

Liquidity and Capital Resources

Contractual Obligations

Our MD&A should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and the Consolidated Financial Statements for the fiscal year ended March 31, ~~2013~~2014, included in our latest Annual Report on Form 10-K, as filed with the SEC on May 20, ~~2013~~2014.

Overview

hhgregg ~~Inc.~~is an appliance, electronics and furniture retailer that is committed to providing customers with a truly differentiated purchase experience through superior customer service, knowledgeable sales associates and the highest quality product selections. Founded in 1955, hhgregg is a ~~specialty~~multi-regional retailer ~~of home appliances, televisions, computers, tablets, wireless devices, consumer electronics, home furniture, mattresses, fitness equipment and related services operating under the name hhgregg~~^™~~. As of~~ ~~December 31, 2013, we operated~~ ~~228~~with 229 stores in Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia,20 states that also offers market-leading global and ~~Wisconsin~~.local brands at value prices nationwide via hhgregg.com. References to fiscal years in this report relate to the respective 12 month period ended March 31. Our ~~2014~~2015 fiscal year is the 12 month period ending on March 31, ~~2014~~2015.

Throughout our MD&A, we refer to comparable store sales. Comparable store sales is comprised of net sales at stores in operation for at least 14 full months, including remodeled and relocated stores, as well as net sales for our e-commerce site. The method of calculating comparable store sales varies across the retail industry, and our method of calculating comparable store sales may not be the same as other retailers’ methods.

This overview section is divided into ~~four~~three sub-sections discussing our operating strategy and performance, ~~store development strategy,~~ business strategy and core philosophies and seasonality.

Operating Strategy and Performance. We focus the majority of our floor space, advertising expense and distribution infrastructure on the marketing, delivery and installation of a wide selection of premium appliance, ~~and~~ consumer electronics and home furniture products. We ~~display nearly~~carry approximately 350 models of major appliances in stock, and ~~100 models~~a large selection of ~~flat panel televisions in our stores with a broad assortment of models in the middle- to upper-end of product price ranges.~~TVs, as well as computers, consumer electronics, furniture, mattresses, and tablets. Appliance and consumer electronics sales comprised ~~84%~~88% ~~and 83% of our net sales mix for the three months ended December 31, 2013 and 2012, and 85%~~ and 86% of our net sales mix for the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 and ~~2012.~~2013, respectively.

We strive to differentiate ourselves through our customer purchase experience starting with a highly-trained, consultative commissioned sales force which educates our customers on the features and benefits of our products, followed by rapid product delivery and installation, and ending with post-sales support services. We carefully monitor our competition to ensure that our prices are competitive in the market place. Our experience has been that informed customers often choose to buy a more heavily-featured product once they understand the applicability and benefits of its features. Heavily-featured products typically carry higher average selling prices and higher margins than less-featured, entry-level price point products.

~~For fiscal 2014~~In recent quarters we have ~~implemented three major initiatives~~experienced a decline in ~~response to~~ our ~~continuing~~overall comparable store sales, ~~decline~~primarily driven by declines in the consumer electronics and computers and tablets categories as a result of industry pressures and market share losses. The market share losses have primarily come in products that are smaller in size and easier to ship, which ~~are:~~have increasingly seen larger portions of industry sales made online. In response to ~~reshape~~these declines, we have developed four major initiatives for fiscal 2015. These include continuing to redefine our sales mix, ~~expand~~further differentiating our customer ~~base~~experience, enhancing our e-commerce capabilities and ~~enhance~~launching new customer facing technologies. We also developed a “purpose” statement, “To inspire and delight our ~~service offerings.~~customers with a truly differentiated purchase experience to help bring their homes to life.” We believe that our fiscal 2015 initiatives support this “purpose”, and that the success of these strategies will result in consumers recognizing hhgregg as a “home products” retailer.

Our first initiative for fiscal ~~2014~~2015 is ~~to reshape~~redefining our sales mix through a continued ~~increase in~~investment and focus on the appliance ~~category as well as~~and furniture categories while stabilizing the ~~introduction of new product categories. Our~~consumer electronics category. While negative this quarter, our comparable store sales in the appliance category have ~~increased on a comparative basis over~~consistently performed above the ~~past ten quarters,~~total chain average, and this category has proven to be ~~a centerpiece~~the cornerstone of our business. To ~~maintain this~~continue to drive growth, we are ~~placing~~enhancing our displays of complete kitchen solutions, p

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roviding a differentiated product assortment based on geography and demographics, more than doubling our current number of five Fine Lines locations, and enhancing our special order capabilities. In addition, we will continue to place a greater emphasis on the appliances category in our ~~in home delivery capabilities for appliances. We also are enhancing our in store cooking~~branding and ~~built-in displays, and providing a product assortment based upon geography and preferences within the geography.~~advertisement messages. The U.S. Census ~~Bureau's~~Bureau’s data on New Residential Construction shows that ~~2013~~2014 U.S. Housing ~~Start-Up’s~~Start-up’s experienced a ~~12%~~9% increase for the ~~quarterly~~twelve month period ended ~~December~~May 31, ~~2013~~2014 over the prior year comparable period. WeAdditionally, according to the U.S. Department of Commerce - Bureau of Economic Analysis, annualized personal consumption expenditures for home appliances decreased 0.9% from $45.5 billion in 2013 to $45.1 billion through the first quarter of 2014. Despite the minor decline noted, we expect that the appliance industry will experience increases in demand as the U.S. housing market and general economy continues to ~~improve,~~improve. While the ~~appliance industry will experience increases in demand. While this~~new residential construction data indicates that the housing market has improved year over year, there is no guarantee that the improvement in the housing market will continue and ~~won't~~will not be impacted in the future by factors such as rising interest rates.

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~~Additionally, during~~ During our previous fiscal year ~~we tested and launched new products and categories, including home furniture and home fitness products. Based on the success of testing an expanded furniture assortment,~~ we rolled out an expanded offering of furniture products. ~~Additionally,~~In the current year we ~~rolled out~~are in the process of transitioning our furniture assortment by increasing the number of brands that we sell, resulting in a greater assortment of furniture merchandise at a variety of price-points, which we believe better match our customers’ taste. While we do not expect to dedicate any incremental floor space to this new ~~mid-price product offerings~~selection of ~~bedding and fitness equipment.~~furniture at this time, we will continue to optimize our floor space that is already dedicated to furniture. The consumer electronics category will continue to be an important category for us ~~however,~~during this fiscal year and beyond. During fiscal 2015, we will seek to stabilize consumer electronics sales through further investing in large screen sizes, OLED technology and having an expansive selection of ultra HD/4K products. Despite the new technology and innovations in this category, we expect to continue to ~~place greater emphasis on other areas of~~see negative comparable store sales within consumer electronics, driven by continued pressure in the video category. During the first quarter we exited the contract-based mobile phone business, and now refer to this category as computers and tablets. Historically, the mobile business negatively impacted our ~~sales mix as we further develop new categories. As it relates~~overall operating profitability, and the decision to exit this business better aligns with our ~~computing and wireless category,~~long-term strategic initiatives.

During fiscal 2015 we plan to ~~provide an expanded offering of connected devices,~~continue to develop and ~~have fully rolled out the Apple iPad and iPod to all stores. We expect that with the continued innovations to connected devices, we will utilize these products to drive greater traffic to~~enhance our ~~stores. Our ultimate goal of reshaping our sales mix is to lift the average sales units of our stores.~~

~~Our second initiative for fiscal 2014 is to expand our customer base through increased~~ credit offerings. Over the past 12 months, our non-recourse private label credit card penetration has increased ~~230~~342 basis points to ~~36% of transactions.~~37%. We continue to encourage the use of the card, ~~not only~~ through unique benefits such as in store payment options, ~~but through~~reward offers ~~such as~~and extended financing options. Over the past two years we have grown our ~~5% discount on qualifying merchandise. In addition to our private label~~ credit ~~card, during~~offerings, beginning with the ~~second fiscal quarter~~roll out of ~~2014 we rolled out~~ a “lease to own” option ~~through a third party provider~~ in ~~all~~fiscal 2013, and the roll out of our stores. This allows us to provide an alternative credit offering to customers who historically had been turned down for credit through our private label card. Additionally, during the third fiscal quarter we rolled out a secondary finance offering ~~for~~in fiscal 2014, both through third party providers and non-recourse to our business. We are continuing to tailor our credit offerings to best meet the ~~lower-middle income consumer.~~ongoing needs of our customers. We believe that ~~enhancing~~continuing to enhance our credit offerings will generate greater brand loyalty, ~~and~~ higher average sales per transaction, ~~resulting~~and increased premium service plan sales.

Our second initiative for fiscal 2015 is continuing to enhance and differentiate our customer experience. hhgregg provides customers an educated sales force to assist them in ~~an overall more profitable relationship~~making informed decisions about their purchases. We are continuing to refine our selling techniques to embrace technology, and utilize omni-channel strategies to better connect with ~~customers.~~our customer base in store. Our ~~credit offerings~~goal will be to better serve and engage our customers by providing a truly differentiated shopping and purchase experience. Additionally, our goal will be to eliminate the types of issues that most often frustrate customers who are ~~non-recourse~~buying large products for their homes. We plan to ~~us, consequently, we bear no risk for any~~establish consumers' trust in this experience through a very transparent online price comparison tool that is available inside of the store. We believe that the key to unlocking our brand potential ~~delinquencies.~~is through a truly differentiated purchase experience.

Our third initiative for fiscal ~~2014~~2015 is enhancing our e-commerce capabilities to ~~enhance~~provide our ~~service offerings, with particular emphasis on~~customers a truly omni-channel shopping experience. This will allow them to move seamlessly across the various mediums including store, web, mobile, social and call center. During fiscal 2015, we plan to invest in infrastructure upgrades, additional web-application capabilities, enhancing our ~~website capabilities.~~mobile application and adding greater selection to our product assortment. During fiscal 2014, we ~~have added the following features to our website:~~implemented an ~~expanded aisle~~"expanded aisle" concept which tripled our product assortment online by ~~carrying~~offering many products that are not available in ~~stores; updated~~stores. During fiscal 2015 we plan to grow our ~~mobile commerce site~~current partner base by ~~allowing greater functionality, including transacting through the site~~seeking opportunities with other vendors, and ~~intuitive navigation; omnichannel shopping experience improvements~~adding an in-store kiosk where our associates can assist our customers in purchasing these products. Additional enhancements include improving our nationwide delivery model, adding additional payment options for ~~our customers; and improved~~efficient checkout, and ~~payment options including accepting hhgregg credit card applications on our website. In~~making personalization updates such as profile improvements, recommendations and communication. We are pleased with the ~~year ahead,~~continued growth in e-commerce as we ~~expect~~have seen nearly 64% sales growth during the first quarter of the fiscal year. We know that many consumers start their research online and we want to continue to ~~expand~~make hhgregg.com an advantage for our ~~online product assortment, integrate the omnichannel shopping experience with with the implementation of a~~brand.

Our fourth initiative for fiscal 2015 is to launch new customer facing technologies. We are currently implementing our new point of sale system, and expect to ~~make social media enhancements.~~be completed by the end of the fiscal second quarter of 2015. The new system will provide operational improvements, customer service improvements and a streamlined checkout process. The new point of sale system that we plan to implement will not only have new digital capabilities, but expedite the check-out ~~process to decrease the time to complete~~process. Additionally, we implemented a ~~sale. We also intend to improve our~~new delivery ~~service by utilizing new devices that better communicate expected delivery timing with the consumer.~~

~~Store Development Strategy.~~ Over the past several years, we have adhered closely to a development strategy of adding stores to metropolitan markets in clusters to achieve rapid market share penetration and more efficiently leverage our distribution network, advertising and regional management costs. Our long-term expansion plans include looking for new markets where we believe there is significant underlying demand for stores, typically in areas that have historically demonstrated above-average economic growth, strong household incomes and growth in new housing starts and/or remodeling activity. Our markets typically include most or all of our major competitors. We plan to continue to follow our approach of building store density in each major market and distribution area, which in the past has helped us to improve our market share and realize operating efficiencies.

Our near term expectations will be to continue to shift the balance of our focus to sales and profit productivity in our existing store base before we resume store growth and expansion plans. We plan to enhance our store productivity within our existing markets through growth in both new and existing businesses, increased focus on large deliverable home products, and growth of our competencies with our e-commerce platform.

~~In the~~ ~~nine months ended December 31, 2013, we relocated four stores, and began construction on one new store that is planned to open~~tracking system during the first ~~fiscal~~ quarter of fiscal 2015. The goal of the system is to not only provide more efficient delivery routes, but more importantly, to provide an integrated tool that allows for communication before, during and after the delivery process. We understand that having a delivery come to a customer’s house may require a

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customer to leave work or disrupt their schedule. With that in mind, we will be deploying a solution that allows constant communication between the delivery team and the customer. This will help ensure that we provide the customer with a seamless, on-schedule, best in class home delivery experience.

Business Strategy and Core Philosophies. Our business strategy is focused around offering our customers a superior customer purchase experience. From the time the customers walk in the door, they experience a well-designed, customer-friendly store. Our stores are brightly lit and have clearly distinguished departments that allow our customers to find what they are looking for. We greet and assist our customers with our highly-trained consultative sales force, who educate the customers about the different product features.

We believe our products are rich in features and innovation. We believe that customers find it helpful to have someone explain the features and benefits of a product as this assistance allows them the opportunity to buy the product that most closely matches their needs. We focus our product assortment on big box items requiring in-home delivery and installation in order to utilize ~~our~~ service offerings. We follow up on the customer purchase experience by offering ~~next-day~~ delivery capabilities on many of our products and in-home installation service.

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While we believe many of our product offerings are considered essential items by our customers, other products and certain features are viewed as discretionary purchases. As a result, our results of operations are susceptible to a challenging macro-economic environment. Factors such as changes in consumer confidence, unemployment, ~~and~~ consumer credit availability and the condition of the housing market have negatively impacted our core product categories and added volatility to our overall business. As consumers show a more cautious approach to purchases of discretionary items, customer traffic and spending patterns continue to be difficult to predict. By providing a knowledgeable consultative sales force, delivery capabilities, credit offerings and expanded product offerings, we believe we offer our customers a differentiated value proposition.

Retail appliance sales are correlated to the housing industry and housing turnover. As more people purchase existing homes in the market, appliance sales tend to trend upward. Conversely, when demand in the housing market declines, appliance sales are ~~also~~ negatively impacted. The appliance industry has benefited from increased innovation in energy efficient products. While these energy efficient products typically carry a higher average selling price than traditional products, they save the consumer significant dollars in annual energy savings. Average unit selling prices of major appliances are not expected to change dramatically in the foreseeable future.

~~According to~~ For the ~~NPD Consumer Electronics Data for the three month period~~first fiscal quarter ended ~~December 31, 2013,~~June 30, 2014, we generated 57% of total product sales ~~for the consumer electronics industry have decreased 8.5%~~ from the ~~comparable prior year period.~~ sale of home appliances, compared to 52% in the fiscal quarter ended June 30, 2013.

The consumer electronics industry depends on new product innovations to drive sales and profitability. Innovative, heavily-featured products are typically introduced at relatively high price points. Over time, price points are gradually reduced to drive consumption. Accordingly, there has been consistent price compression in flat panel televisions for equivalent screen sizes in recent years ~~which was further compressed during~~without a widely accepted innovation in technology to offset this compression. As new technology has not been sufficient to keep demand constant, the current quarterly period ended December 31, 2013 as retailers provided increased promotional offerings for the holiday. According to the NPD TV Market Pulse reports for the three months ended December 31, 2013, flat-panel TV sales units were 1% less than the comparable prior year period, and the average selling price has decreased by approximately 4%. The industry has seen falling demand, ~~as new technology innovation has been insufficient, which has resulted in~~ gross margin rate declines, and average selling price declines. ~~Other~~For the first fiscal quarter ended June 30, 2014, we generated 38% of total product sales from the sale of consumer electronics ~~categories have also experienced significant demand pressure. Cameras, camcorders, mp3 players,~~ and ~~GPS devices have been largely replaced by the use of smart phones. As such, we continue~~computers and tablets, compared to ~~shift our product mix away from these categories and into the computing and wireless category. In future years, we will continue to evaluate our mix of product offerings~~43% in the ~~consumer electronics category to maximize profit margins without significant loss of market share, while also featuring key opening price points to drive traffic.~~fiscal quarter ended June 30, 2013.

~~The computing and wireless product category drives traffic into our stores. As a result,~~During fiscal 2014 we ~~have enhanced~~expanded our offerings ~~of such products. We have fully rolled out the offering of Apple iPod and Apple iPad products to all stores.~~

~~In addition to testing new products in existing categories, we have also expanded our product assortment~~ within the home products category ~~which fit our core competencies, including home furniture~~by adding room settings, additional mattresses and ~~fitness equipment.~~dinette sets. We will continue to refine our assortment ~~in this category as~~of furniture by expanding our selection from one brand to several brands, and we ~~learn more about their success in our stores.~~

~~We also rolled out additional credit offerings for our consumers. As over one-third of our sales today are transacted on the hhgregg private label credit card, we want~~plan to expand our ~~consumer base to allow new consumers to shop~~offerings in ~~our stores. We added a “lease to own” program through a third party provider chain-wide, and added a secondary financing offer for~~ the ~~lower-middle income consumer. These programs are non-recourse to the Company through the use of third party solutions.~~home products category during fiscal 2015.

Seasonality. Our business is seasonal, with a higher portion of net sales and operating profit realized during the quarter that ends December 31 due to the overall demand for consumer electronics during the holiday shopping season. Appliance ~~revenue is~~sales are impacted by seasonal weather patterns, but isare less seasonal than our ~~consumer~~ electronics business and helps to offset the seasonality of our overall business.

Critical Accounting Policies

We describe our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended March 31, ~~2013~~2014 in our latest Annual Report on Form 10-K filed with the SEC on May 20, ~~2013~~2014. There have been no significant changes in our critical accounting policies and estimates since the end of fiscal ~~2013~~2014.

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Results of Operations

Operating Performance. The following table presents selected unaudited condensed consolidated financial data (in thousands, except share amounts, per share amounts, and store count data):


	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31,						December 31,						June 30,
(unaudited)	2013			2012			2013			2012			2014			2013
Net sales	$	707,053		$	799,635		$	1,800,290		$	1,877,127		$	472,293		$	524,922
Net sales % decrease	(11.6		)%	(3.6		)%	(4.1		)%	(0.1		)%
Comparable store sales % decrease ⁽¹⁾	(11.2		)%	(9.7		)%	(6.4		)%	(8.3		)%
Net sales % (decrease) increase													(10.0		)%	7.2		%
Comparable store sales % (decrease) increase ⁽¹⁾													(10.2		)%	0.8		%
Gross profit as a % of net sales	26.8		%	27.3		%	28.4		%	28.7		%	29.7		%	29.5		%
SG&A as a % of net sales	18.7		%	17.4		%	20.7		%	20.4		%	24.7		%	22.7		%
Net advertising expense as a % of net sales	5.2		%	4.8		%	5.2		%	5.2		%	5.8		%	4.9		%
Depreciation and amortization expense as a % of net sales	1.5		%	1.3		%	1.8		%	1.6		%	2.2		%	2.1		%
Income from operations as a % of net sales	1.3		%	3.7		%	0.8		%	1.4		%
Loss from operations as a % of net sales													(3.0		)%	(0.3		)%
Net interest expense as a % of net sales	0.1		%	0.1		%	0.1		%	0.1		%	0.1		%	0.1		%
Net income	$	5,048		$	17,389		$	7,466		$	15,448
Net income per diluted share	$	0.17		$	0.51		$	0.24		$	0.44
Net loss													$	(10,269	)	$	(1,260	)
Net loss per diluted share													$	(0.36	)	$	(0.04	)
Weighted average shares outstanding—diluted	30,387,251			33,985,113			31,117,896			35,168,497			28,444,948			31,263,226
Number of stores open at the end of period	228			228									229			228


⁽¹⁾	Comprised of net sales at stores in operation for at least 14 full months, including remodeled and relocated stores, as well as net sales for our e-commerce site.

Net ~~income~~loss was $~~5.0~~10.3 million for the three months ended ~~December 31, 2013~~June 30, 2014, or $~~0.17~~0.36 per diluted share, compared with net ~~income~~loss of $~~17.4~~1.3 million, or $~~0.51~~0.04 per diluted share, for the comparable prior year period. ~~For~~Net sales for the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014decreased10.0%~~, net income was~~ to $~~7.5~~472.3 million~~, or~~ from $~~0.24~~524.9 million ~~per diluted share, compared with net income of~~ ~~$15.4 million, or~~ ~~$0.44~~ ~~per diluted share for~~in the comparable prior year period. The ~~decrease~~increase in net ~~income~~loss and decrease in net sales for the three months ended ~~December 31, 2013~~June 30, 2014 ~~was~~were largely due to a comparable store sales decrease of ~~11.2%~~ and a decrease in gross margin. The decrease in net income for the nine month period ended December 31, 2013 was largely due to a comparable store sales decrease of 6.4% and a decrease in gross margin.

~~Net sales for the~~ ~~three months ended December 31, 2013decreased11.6%~~ to ~~$707.1 million~~ ~~from~~ ~~$799.6 million~~ ~~in the comparable prior year period. The~~ ~~decrease~~ ~~in net sales for the~~ ~~three~~ ~~month period was the result of a comparable store sales~~ ~~decrease~~ of ~~11.2%. Net sales for the~~ ~~nine months ended December 31, 2013~~ ~~decreased~~ ~~4.1%~~ to ~~$1.80 billion~~ ~~from~~ ~~$1.88 billion~~ ~~in the comparable prior year period. The decrease in net sales for the nine month period was the result of a comparable store sales decrease of~~ ~~6.4%~~10.2%.

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Net sales mix and comparable store sales percentage changes by product category for ~~the three and~~ ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 and ~~2012~~2013 were as follows:


	Net Sales Mix Summary								Comparable Store Sales Summary								Net Sales Mix Summary				Comparable Store Sales Summary
	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended June 30,				Three Months Ended June 30,
	2013		2012		2013		2012		2013		2012		2013		2012		2014		2013		2014		2013
Appliances	41	%	35	%	47	%	42	%	1.5	%	6.1	%	3.8	%	4.4	%	57	%	52	%	(2.0	)%	7.5	%
Consumer electronics ⁽¹⁾	43	%	48	%	38	%	44	%	(19.7	)%	(24.1	)%	(18.8	)%	(21.7	)%	31	%	34	%	(18.7	)%	(15.0	)%
Computing and wireless ⁽²⁾	12	%	14	%	10	%	11	%	(24.5	)%	15.1	%	(12.4	)%	12.7	%
Computers and tablets																	7	%	9	%	(29.5	)%	13.2	%
Home products ⁽³⁾⁽²⁾	4	%	3	%	5	%	3	%	36.1	%	23.4	%	57.7	%	5.4	%	5	%	5	%	(0.5	)%	84.5	%
Total	100	%	100	%	100	%	100	%	(11.2	)%	(9.7	)%	(6.4	)%	(8.3	)%	100	%	100	%	(10.2	)%	0.8	%


⁽¹⁾	Primarily consists of ~~accessories,~~televisions, audio, personal electronics and ~~televisions.~~accessories.


⁽²⁾	Primarily consists of ~~computers, mobile phones~~furniture, mattresses and ~~tablets.~~


⁽³⁾	~~Primarily consists of~~ fitness ~~equipment, furniture and mattresses.~~equipment.

The decrease in comparable store sales within the appliance category for the three months ended ~~December 31, 2013~~June 30, 2014 was driven ~~primarily~~ by a decrease in units sold and a slight decrease in average selling price. The decrease in comparable ~~store~~stores sales infor the consumer electronics ~~and computing and wireless categories, partially~~category for the three months ended June 30, 2014 was due primarily to a double digit decline in units sold within the video category offset slightly by an increase in ~~the appliance and home products categories. The appliance category increase in comparable store sales~~average selling price, which was driven by an increase in ~~units sold.~~sales of larger screen and more premium featured televisions. The ~~home products category increase~~decrease in comparable store sales ~~was a result of sales of furniture~~for the computers and ~~fitness equipment. The consumer electronics~~tablets category ~~comparable store sales decline was driven primarily by a double digit comparable store sales decrease in video, largely resulting from our strategy of not fully participating in~~for the ~~increased promotional offerings that occurred across a variety of retail formats during the~~ three months ended ~~December 31, 2013.~~June 30, 2014 was driven by the exit from the contract-based mobile phone business, a decrease in demand for computers and tablets, and a decrease in the average selling prices for computers, partially offset by a higher average selling price for tablets. The ~~computing and wireless category~~ decrease in comparable store sales within the home products category was driven by a decrease in the demand for ~~laptop computers and mobile phones~~ready to assemble television stands and a ~~lower average selling price for tablets.~~decrease in sales of mattresses, offset partially by a double digit increase in sales of sofas, recliners and dinette sets.

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Three Months Ended ~~December 31, 2013~~June 30, 2014 Compared to Three Months Ended ~~December 31,~~June 30, ~~2012~~2013

Gross profit margin, expressed as gross profit as a percentage of net sales, ~~decreased~~increased for the three months ended ~~December 31, 2013~~June 30, 2014 to ~~26.8%~~29.7% from ~~27.3%~~29.5% for the comparable prior year period. The ~~decrease is~~increase was due to a ~~decline~~favorable product sales mix shift to product categories with higher gross profit margin rates, partially offset by decreases in gross profit margin rates ~~across~~in all categories ~~primarily due to~~except the ~~promotional nature of this holiday season.~~consumer electronics category.

SG&A expense, as a percentage of net sales, increased ~~130~~205 basis points for the three months ended ~~December 31, 2013~~June 30, 2014 compared to the prior year period. The increase in SG&A as a percentage of net sales was largely a result of ~~increases~~a 66 basis point increase in ~~wage expense,~~ occupancy costs ~~and product services as a percentage of net sales, primarily~~ due to the deleveraging effect of the net sales ~~decline.~~decline, a 65 basis point increase in wage and benefit expense due to increased medical expense coupled with the deleveraging effect of the net sales decline and a 23 basis point increase in home delivery expense primarily due to a higher sales mix of deliverable product.

Net advertising expense, as a percentage of net sales, increased 3983 basis points during the three months ended ~~December 31, 2013~~June 30, 2014 compared to the prior year period. ~~While we reduced our gross advertising spend from the prior year, the~~The increase as a percentage of net sales was primarily due to the deleveraging effect of the net sales ~~decline.~~decline and an increase in advertising spend for the new branding campaign.

Depreciation expense, as a percentage of net sales, increased 2212 basis points for the three months ended ~~December 31, 2013~~June 30, 2014 compared to the prior year period. The increase as a percentage of net sales was ~~primarily~~ due to the deleveraging effect of the net sales decline.

Our effective income tax rate for the three months ended ~~December 31, 2013~~June 30, 2014 decreased to ~~38.2%~~29.5% from ~~39.1%~~39.3% in the comparable prior year period. The decrease in our effective income tax rate is primarily the result of ~~an increase in federal and state~~a non-cash charge to income tax ~~credits recognized compared~~expense related to stock options that expired during the current quarter. Due to the ~~comparable prior year period.~~

~~Nine Months Ended December 31, 2013~~ ~~Compared~~pretax loss for the quarter, this charge to ~~Nine Months Ended December 31,2012~~

~~Gross profit margin, expressed as gross profit~~income tax expense reduced our overall income tax benefit recorded for the quarter and as a ~~percentage of net sales,~~ ~~decreased~~ ~~for the~~ ~~nine months ended December 31, 2013~~ to ~~28.4%~~ ~~from~~ ~~28.7%~~ ~~for the comparable prior year period. The decrease is a~~ result, ~~of decreases in gross profit margin rates across the majority of~~decreased our ~~categories, partially offset by a favorable product sales mix shift.~~

~~SG&A expense, as a percentage of net sales,~~ ~~increased~~ ~~22 basis points for the~~ ~~nine months ended December 31, 2013~~ ~~compared to the prior year period. The~~ ~~increase~~ in SG&A as a percentage of net sales was a result of an increase in product services and occupancy costs as a percentage of net sales due to the deleveraging effect of the net sales decline, partially offset by the decrease in bank transaction fees and employee benefits as a percentage of net sales due to cost cutting measures.

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~~Net advertising expense, as a percentage of net sales, remained consistent for the~~ ~~nine months ended December 31, 2013~~ ~~compared to the prior year period. This was driven largely by decreased advertising spend in comparable markets, offset by the deleveraging effect of the net sales decline.~~

~~Depreciation expense, as a percentage of net sales,~~ ~~increased~~ ~~21 basis points for the~~ ~~nine months ended December 31, 2013~~ ~~compared to the prior year period. The~~ ~~increase~~ ~~as a percentage of net sales was primarily due to the deleveraging effect of the net sales decline.~~

~~Our~~ effective income tax ~~rate remained unchanged at~~ ~~38.6%~~ ~~for the~~ ~~nine months ended December 31, 2013~~ ~~compared to the comparable prior year period.~~ rate.

Liquidity and Capital Resources

The following table presents a summary on a consolidated basis of our net cash provided by (used in) operating, investing and financing activities (dollars are in thousands):

Nine Months Ended
December 31, 2013 December 31, 2012
Net cash provided by operating activities $ 12,570
$ 15,291
Net cash used in investing activities (19,667 ) (50,257 )
Net cash used in financing activities (38,833 ) (8,756 )



	Three Months Ended
	June 30, 2014			June 30, 2013
Net cash used in operating activities	$	(40,731	)	$	(17,181	)
Net cash used in investing activities	(4,615		)	(5,360		)
Net cash provided by (used in) financing activities	329			(2,931		)

Our liquidity requirements arise primarily from our need to fund working capital requirements and 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.

During fiscal ~~2014,~~2015, we ~~relocated four~~plan to open two new stores, relocate several stores, downsize one store, add several Fine Lines to existing stores, and ~~began construction on~~move one ~~new store that is planned to open during the first fiscal quarter of 2015.~~regional distribution center. In addition, we plan to continue to invest in our infrastructure, including management information systems, e-commerce and distribution capabilities, as well as incur capital remodeling and improvement costs. Capital expenditures for fiscal ~~2014~~2015 will be funded through cash and cash equivalents, borrowings under our Amended Facility described below and tenant allowances from landlords.

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Cash ~~Provided by~~Used in Operating Activities. Net cash ~~provided by~~used in operating activities primarily consists of net income as adjusted for increases or decreases in working capital and non-cash charges such as depreciation, deferred taxes and stock compensation expense. Cash ~~provided by~~used in operating activities was $~~12.6~~40.7 million and $~~15.3~~17.2 million for the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 and ~~2012~~2013, respectively. The ~~decrease~~increase in cash used in operating activities is primarily a result of an increase in net cash used by working capital and an increase in net loss, offset by an increase in cash provided by other operating activities. Net cash used by working capital was $51.6 million for the three months ended June 30, 2014, an increase of $23.2 million from the comparable prior year period. Adjustments for other operating activities ispositively impacted operating cash flows by $21.2 million for the three months ended June 30, 2014, an increase of $8.7 million from the comparable prior year period, primarily due to an increase of $9.9 million in our deferred income tax provision, offset by a decrease ~~in net income, a decrease in accounts payable due to the timing~~ of payments and overall lower inventory requirements as compared to the prior year, an increase in the percentage of owned merchandise inventory despite the lower inventory levels previously mentioned, the net change in our other current operating assets and liabilities, and the decrease$0.6 million in cash received from landlords for tenant allowances due to opening fewer stores in the current period compared to the prior ~~period. The net change~~period and various decreases in other ~~current~~ operating ~~assets and liabilities was primarily a result of differences in timing of customer sales and vendor payments.~~activities.

Cash Used In Investing Activities. Net cash used in investing activities was $~~19.7~~4.6 million and $~~50.3~~5.4 million for the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 and ~~2012~~2013, respectively. The decrease in cash used in investing activities is due to ~~less~~the timing of purchases of property and equipment associated with various projects in the ~~opening of new stores.~~current year compared to the prior year and management's intent to reduce spending. In the ~~nine~~three months ended ~~December 31,~~June 30, 2014, we opened one new store, began construction for three stores relocating in the second fiscal quarter of 2015, began construction for one distribution center relocating in the second fiscal quarter of 2015, and began construction on the addition of Fine Lines to three existing stores; however, a portion of the spend on these projects was incurred during fiscal 2014. In the three months ended June 30, 2013, we relocated ~~four stores,~~one store, and began construction ~~on one new store opening~~for three stores relocating in the ~~first~~second fiscal quarter of ~~2015. In the~~ ~~nine months ended December 31, 2012, we opened 20 new stores.~~2014.

Cash ~~Used In~~Provided by (Used In) Financing Activities. Net cash ~~used in~~provided by (used in) financing activities was $~~38.8~~0.3 million and $~~8.8~~($2.9) million for the ~~nine~~three months ended ~~December 31, 2013~~June 30, 2014 and ~~2012~~2013, respectively. The increase in cash ~~used in~~provided by financing activities is primarily due to a decrease in funds ~~provided by~~used in bank overdrafts of $~~20.9~~8.4 million and a decrease in funds used for treasury stock repurchases of $9.3 million, offset by a decrease in net borrowings on an inventory financing facility of ~~$14.4 million, an increase in funds used for treasury stock repurchases of~~ ~~$9.8 million, and funds used for payment of financing costs of $0.9 million, offset by an increase in borrowings under the Amended Facility described below of $15.0~~$12.3 million and ~~an increase~~a decrease in funds provided by the exercise of stock options of ~~$1.6~~$2.2 million.

Amended Facility. On July 29, 2013, Gregg Appliances, Inc. (“Gregg Appliances”), our wholly-owned subsidiary, entered into Amendment No. 1 to its Amended and Restated Loan and Security Agreement (the “Amended Facility”) to increase the

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maximum credit available to $400 million from $300 million, subject to borrowing base availability, and extend the term of the facility to expire on July 29, 2018. The facility was set to expire on March 29, 2016.

Interest on borrowings (other than Eurodollar rate borrowings) is payable monthly at a fluctuating rate based on the bank’s prime rate or LIBOR plus an applicable margin based on the average quarterly excess availability. Interest on Eurodollar rate borrowings is payable on the last day of each “interest period” applicable to such borrowing or on the three month anniversary of the beginning of such “interest period” for interest periods greater than three months. The unused line rate was determined based on the amount of the daily average of the outstanding borrowings for the immediately preceding calendar quarter period (the “Daily Average”). For a Daily Average greater than or equal to 50% of the defined borrowing base, the unused line rate was 0.25%. For a Daily Average less than 50% of the defined borrowing base, the unused line rate was 0.375%. The Amended Facility is guaranteed by Gregg Appliances’ wholly-owned subsidiary, HHG Distributing, which has no assets or operations. The guarantee is full and unconditional and Gregg Appliances has no other subsidiaries.

Pursuant to the Amended Facility, the borrowing base is equal to the sum of (i) 90% of ~~all~~the amount of the eligible commercial accounts, (ii) 90% of ~~all~~the amount of eligible commercial and credit card receivables of Gregg Appliances and (iii) 90% of the net recovery percentage ~~of the eligible inventory~~ multiplied by the value of ~~such~~ eligible inventory consistent with the most recent appraisal of such eligible ~~inventory, in each case subject to customary reserves and eligibility criteria.~~inventory.

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warranties, financial and collateral reporting requirements and other affirmative and negative covenants. Gregg Appliances was in compliance with the restrictions and covenants of the Amended Facility at ~~December 31, 2013~~June 30, 2014.

As of ~~December 31, 2013~~June 30, 2014, Gregg Appliances had ~~$15.0 million of cash~~no borrowings outstanding under the Amended Facility. As of ~~December 31, 2013~~June 30, 2014, Gregg Appliances had $5.3 million of letters of credit outstanding, which expire through December 31, 2014. The total borrowing availability under the Amended Facility was $~~224.4~~212.4 million as of ~~December 31, 2013~~June 30, 2014. The interest rate based on the bank’s prime rate as of ~~December 31, 2013~~June 30, 2014 was 3.75%.

As of March 31, ~~2013~~2014, Gregg Appliances had no borrowings outstanding under the Amended Facility. As of March 31, ~~2013~~2014, Gregg Appliances had ~~$4.9~~$5.3 million of letters of credit outstanding, which expire through December 31, 2013. The total borrowing availability under the Amended Facility was $~~189.8~~169.5 million as of March 31, ~~2013~~2014. The interest rate based on the bank’s prime rate as of March 31, ~~2013~~2014 was ~~4.25%~~3.75%.

Inventory Financing Facility. We have an inventory financing facility, which is a $20 million unsecured credit line that is non-interest bearing and is not collateralized with the inventory purchased. The facility includes customary covenants as well as customary events of default.

Long Term Liquidity. Anticipated cash flows from operations and funds available from our Amended Facility, together with cash on hand, should provide sufficient funds to finance our operations for the foreseeable future. Our cash on hand has decreased from $48.6 million as of March 31, 2013 to $2.6 million as of December 31, 2013, which is primarily a result of the timing of purchases of inventory and an increase in the level of owned inventory due to purchases for the holiday season. There have been no changes to the terms of our purchase agreements with inventory suppliers.next 12 months. As a normal part of our business, we consider opportunities to refinance our existing indebtedness, based on market conditions. Although we may refinance all or part of our existing indebtedness in the future, there can be no assurances that we will do so. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may require us to seek additional debt or equity financing. There can be no guarantee that financing will be available on acceptable terms or at all. Additional debt financing, if available, could impose additional cash payment obligations, additional covenants and operating restrictions.

Contractual Obligations

We entered into lease commitments totaling approximately ~~$12.0~~$2.9 million over their respective lease terms during the three months ended ~~December 31, 2013.~~June 30, 2014. There have been no other significant changes in our contractual obligations during the period covered by this report. See our “Management’s Discussion and Analysis of Financial Condition and Results of

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Operations” for the fiscal year ended March 31, ~~2013~~2014 in our latest Annual Report on Form 10-K filed with the SEC on May 20, ~~2013~~2014 ~~and our Quarterly Report on Form 10-Q filed with the SEC on August 1, 2013 for additional information regarding our contractual obligations.~~.

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Cautionary Note Regarding Forward-Looking Statements

Some of the statements in this document constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our business’ or our industry’s actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements include, in particular, statements about our plans, strategies, prospects, changes, outlook and trends in our business and the markets in which we operate; customer preferences; the impact of our fiscal 2014 initiatives; the impact of enhanced in store cooking and built-in displays on appliance sales; the impact of competition on prices; refinements to our product mix and to customer services and service offerings, including in our appliance category and on our website and mobile site; expectations around the U.S. housing market and general economy; efforts to increase the use of our private label credit card and supplemental credit programs; the impact of our enhanced credit offerings and non-recourse nature of such offerings; how we entice discretionary purchases; shifts in product mix of consumer electronics and home products including, furniture, fitness equipment, and ~~computing~~computers and ~~wireless;~~tablets; investments in our delivery and installation capabilities; the success of our general initiatives and initiatives in our consumer electronics category and strategies to offset declines in that category; variations and enhancements of our product offerings; updates and refinements to our omni-channel experience, including our e-commerce site and timing and the impact of our new point of sale system; the impact of our initiatives to drive sales; our long term and near term store development and expansion strategies; steps to slow store growth and enhance store productivity in existing markets; the impact of our customer purchase experience; predictions around customer spending patterns; factors impacting our gross profit rate; impact of consumer demand and pricing pressures on certain products; outlook for sales of major appliances, including price changes; factors impacting the decrease in consumer electronics sales, gross margin rate declines, and average selling price declines for the industry, including, the steps taken by retailers in the current period to further compress prices of televisions, insufficient innovations in consumer electronics to maintain demand, and the obsolescence of certain devices which have been replaced by smart phones; the seasonality of our business; our income tax rate; plans to refinance our indebtedness or seek additional financing and ability to secure additional debt financing; plans regarding new store openings and investment in our infrastructure; the impact of litigation; and our expected capital expenditures and expected sources of funding found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “tends,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of those terms or other comparable terminology. These statements are only predictions. We have based these forward-looking statements on its current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, these forward looking statements are projections only and involve known and unknown risks and uncertainties, many of which are beyond our control. Actual events or results may differ materially because of market conditions in our industry or other factors. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our latest Annual Report on Form 10-K filed with the SEC on May 20, ~~2013~~2014 and the Risk Factors set forth in this Quarterly ~~Reports~~Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on May 20, ~~2013~~2014. The forward-looking statements are made as of the date of this document and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

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ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk

In addition to the risks inherent in our operations, we are exposed to certain market risks, including interest rate risk.

As of ~~December 31, 2013~~June 30, 2014, our debt was comprised of our Amended Facility.

Interest on borrowings under our Amended Facility is payable monthly at a fluctuating rate based on the bank’s prime, LIBOR, or Eurodollar rates plus an applicable margin based on the average quarterly excess availability. As of ~~December 31, 2013~~June 30, 2014, we had ~~$15.0 million in~~no outstanding borrowings onunder our Amended Facility. ~~A hypothetical 100 basis point increase in the bank's prime rate would decrease our annual pre-tax income by approximately $0.2 million.~~



ITEM 4.	Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. Our Disclosure Committee meets on a quarterly basis and more often if necessary.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), as of ~~December 31, 2013~~June 30, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~December 31, 2013~~June 30, 2014, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended ~~December 31, 2013~~June 30, 2014, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II.	Other Information



ITEM 1.	Legal Proceedings

We are engaged in various legal proceedings in the ordinary course of business and have certain unresolved claims pending. The ultimate liability, if any, for the aggregate amounts claimed cannot be determined at this time. However, management believes, based on the examination of these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided for in the unaudited condensed consolidated financial statements is not likely to have a material effect on our consolidated financial position, results of operations or cash flows.



ITEM 1A.	Risk Factors

Except for the new risk factor below, there have been no material changes to the risk factors set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on May 20, ~~2013~~2014. The risks disclosed in our Annual Report on Form 10-K, , and below are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

~~We could incur charges due to impairment of long-lived~~Our financial results may be adversely affected by a valuation allowance on our deferred tax assets.

~~At December 31, 2013, we had long-lived asset balances of~~ ~~$204.2 million, which are subject to periodic testing for impairment. See Note 2 of Notes to Condensed Consolidated Financial Statements for further information. A~~The Company has a significant amount of ~~judgment~~deferred tax assets. Our ability to recognize these deferred tax assets is ~~involved~~dependent upon our ability to determine whether it is more likely than not that we will be able to realize, or actually use, these deferred tax assets. That determination depends primarily on our ability to generate future U.S. taxable income. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. tax laws and other factors. These changes, if any, may require possible material adjustments to the ~~periodic testing. Failure to achieve sufficient levels of cash flow generated from operations at individual store locations could~~deferred tax assets. A valuation allowance against our deferred tax assets would result in ~~impairment charges for the related fixed assets, which could~~an increase in our effective tax rate and have ~~a material~~an adverse ~~effect~~impact on ~~our reported results of operations. Impairment charges, if any, resulting from the periodic testing are non-cash.~~

future operating results.



ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the information with respect to repurchases of our common stock for the three months ended ~~December 31, 2013~~June 30, 2014 (in thousands, except share and per share amounts):

Period
Total Number of
Shares Purchased

Average Price Paid
Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)

Approximate
Maximum Dollar Value
of Shares that May Yet
Be Purchased Under
the Plans or Programs
(1)
October 1, 2013 to October 31, 2013 —
—
—
$ 25,786
November 1, 2013 to November 30, 2013 962,893
$ 16.24
962,893
10,149
December 1, 2013 to December 31, 2013 —
—
—
10,149
Total 962,893
$ 16.24
962,893
$ 10,149



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1, 2014 to April 30, 2014	—	$	—	—	$	40,000
May 1, 2014 to May 31, 2014	—	—		—	40,000
June 1, 2014 to June 30, 2014	102,705	9.50		102,705	39,024
Total	102,705	$	9.50	102,705	$	39,024

(1)

All of the above repurchases were made on the open market at prevailing market rates plus related expenses under our May ~~2013~~2014 Program, which authorized the repurchase of up to $5040 million of our common stock. The May ~~2013~~2014 Program was authorized by our Board of Directors on May ~~16, 2013~~14, 2014 ~~and~~, expires on May ~~22, 2014~~20, 2015. and replaced our previous share repurchase program that expired on May 19, 2014.

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ITEM 6.	Exhibits



~~10.36~~	~~Employment Agreement, dated May 20, 2013, between Gregg Appliances, Inc. and Andrew S. Giesler.~~

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following materials from hhgregg, Inc.’s Form 10-Q for the quarterly period ended ~~December 31, 2013,~~June 30, 2014, formatted in an XBRL Interactive Data File: (i) Condensed Consolidated Statements of Operations-unaudited; (ii) Condensed Consolidated Balance Sheets-unaudited; (iii) Condensed Consolidated Statements of Cash Flows-unaudited; (iv) Condensed Consolidated Statement of Stockholders’ Equity-unaudited; and (v) Notes to Condensed Consolidated Financial Statements-unaudited.



*	This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	HHGREGG, INC.

By:	/s/ ~~Jeremy J. Aguilar~~Andrew S. Giesler
	~~Jeremy J. Aguilar~~Andrew S. Giesler Interim Chief Financial Officer (Principal Financial Officer)

Dated: ~~January 30,~~July 31, 2014

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	Three and Nine Months Ended
	December 31, 2013		December 31, 2012
Carrying value (pre-asset impairment)	$	0.7	$	0.9
Asset impairment loss (included in income from operations)	0.3		0.5
Remaining net carrying value	$	0.4	$	0.4



	Shares		Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2013	155,600		$	12.38
Granted	27,237		14.32
Vested	—		—
Forfeited	(14,692	)	12.96
Nonvested at September 30, 2013	168,145		$	12.64