ValueX Vail 2015: Herb Singh Presentation On hhgregg, inc.

ValueX Vail 2015: Herb Singh Presentation On hhgregg, inc.

Herb Singh presentation on hhgregg, inc. from the ValueX Vail, June 24, 2015.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Herb Singh

  • Urologist
  • Spend 10h per week looking, but find 1-2 ideas/yr worth spending more than 20 hours on
  • Long portfolio of less than 5 holdings


  • I might have made a mistake so do your own homework

hhgregg, inc. - Business Background

  • 228 stores: major appliances, consumer electronics, home products
  • Rapid store expansion: 2010: 131, 2011: 173, 2012: 208, 2013-2015: 228
  • Grower turned into a turnaround sluggard with cyclical undertones

Financial Snapshot

Peter Lynch: How Investors Can Find Their Edge

Peter LynchPeter Lynch was one of the best growth investors of all time. As the Magellan Fund manager at Fidelity Investments between 1977 and 1990, he averaged a 29.2% annual return. Q1 2021 hedge fund letters, conferences and more The fund manager's investment strategy was straightforward. He wanted to find growth companies and sit on them Read More

  • Lowest trading price and market capitalization since company started trading in Summer 2007
  • Market Capitalization has fallen from 972M in March 2010 to 91M June 2015

What not to like

  • OI -99M TTM
  • Historic ROA most commonly about 8%
  • CCC at all time high
  • Inventory turnover at all time low
  • Big competitors: BBY, Sears, Walmart, Target, Home Depot, Lowes, Sams Club
  • Brick and Mortar business


  • Company has over-expansion indigestion
  • Cost cutting will get company profitable: low hanging fruit
  • Low chance of bankruptcy
  • Tailwinds and catalysts exist
  • Oversold by market with very favorable risk-reward


  • Dennis May has led company since 1999 (age 31) as COO then CEO, owns 4% outstanding stock ownership
  • Insider and employee alignment: ~3.3 M options vested, average strike price $12.5, ~ 4 years remaining
  • CFO bought $486k worth of shares, reported 11/4/2014 @ 4.86, base salary is $400K

Low Bankruptcy Risk

  • Management plan
    • Cut Advertising by $20M
    • Cut SGA by $50M
    • Reduce inventory by $50M -- onetime kicker to CF
    • Doable based on the how business was historically run
  • Net Current Asset Value per Share = 1.24
  • No LT debt, $400M credit facility expires 7/2018
  • Comps likely to improve because housing starts

Housing Construction returning to historical norm

Housing Starts Jump 20.2%, Building Permits Hit Seven-Year High In April - Forbes 5/19/2015


  1. CEO capable enough to run business like he has
  2. Good store site selection despite increase of 100 units over last 5 years
  3. Business model NOT broken
  4. CEO capable enough to run business like he has and reasonable estimate of normalized earnings

New Single Family Homes

hhgregg, inc.

  • 2014 housing starts are about 20%+ over 2010: 2012** Nationally and in Midwest
  • What pundits say about the norm - BUT I AM GOING TO IGNORE THEM

Killing Three Birds with One Stone

hhgregg, inc.

R/S stable between 110 and 208 store, last 20 probably okay

hhgregg, inc.

This business landscape has not changed materially from 2009:2012

hhgregg, inc.

Normalized Revenue = Rev/store x 228

Normalized Revenue = 3,002M

hhgregg, inc.


  • 2014 housing starts are about 20%+ over 2010:2012** Nationally and in Midwest
    • Pundits say we are 50% below our norm
  • 4K TVs
  • Cost cutting is low hanging fruit
  • Human capital replenishment

See full presentation below.

No posts to display