Big stock run-up puts pressure on HHGregg to deliver

Investors are ogling HHGregg Inc. these days, doubling the stock price since last May.

A new report by J.P. Morgan is full of superlatives and says shares of the appliances and electronics retailer might climb
from the current price of around $28 to $32 by the end of the year.

That’s the good news. The bad is that management better deliver strong results, and a positive outlook for the coming
year, when it announces fiscal fourth-quarter results on May 27.

That’s because high expectations already are baked into the stock price. A disappointment could spawn a sell-off.

J.P. Morgan’s Aaron Goldstein initiated coverage May 19 with a neutral rating for that very reason.

“We believe the relatively full valuation reflects enthusiasm regarding the consumer and product cycle, but appears
to minimize execution, consumer and product risks,” the report says.

At the same time, Goldstein and other analysts are abuzz about the potential upside. The chain, which has 126 locations now,
expects to open as many as 45 this year, and could operate more than 600 in the United States before reaching a saturation
point.

“We believe HHGregg has one of the best growth profiles in retail,” Goldstein said in his report. “[The
company] is one of the last regional-to-national retailers.”

Added Sidoti & Co. analyst Anthony Lebiedzinski in a report: “Considering HHGregg’s solid track record of
execution and market share gains, we expect the retailer to outperform rivals.”

A confluence of factors is stoking interest in the stock.

For starters, analysts say the demise of Circuit City has left a void in the marketplace, not to mention some strong locations
available for bargain-basement prices.

The slumping job market also is working in HHGregg’s favor, ensuring the availability of strong managers and salespeople
to man new stores.

Then there’s the proven success of the format. HHGregg uses commissioned salespeople who know how to close a sale,
often for higher-end merchandise with fatter profit margins.

Adding to analysts’ comfort is the reliability of the chain’s appliance business, which generates more than one-third
of sales. Appliance retailing isn’t as dependent on new product rollouts as electronics, and the segment also is less
competitive. Many of HHGregg’s rivals sell appliances almost as a sideline.

But that’s not to say the company won’t stumble—which is why Goldstein urges caution.

HHGregg CEO Dennis May said at an investor conference last month that the company has done the planning and built the infrastructure
necessary to support this year’s growth, which will be the fastest in its history.

“The company has been successful with its expansion not because it’s easy but because we’ve been prepared,”
May said at the Barclays Capital retail conference in New York City.

Madoff-tainted firm fades

KSM Capital Advisors—a ballyhooed investment-advisory arm of Katz Sapper & Miller before it crossed paths
with Bernard Madoff, has quietly disappeared, and its nine employees have joined Oxford Financial Group Inc.

The shift occurred last month.

“We are not really commenting,” Katz Sapper Managing Partner David Resnick said when asked to explain the move.

Peter Reist, a KSM managing director, said the change had nothing to do with Madoff, but wouldn’t comment further.

Oxford CEO Jeff Thomasson said the combination grew out of KSM’s desire to expand the services it offered clients.
Oxford is the far-larger organization, with about 120 employees.

KSM clients included a who’s who of wealthy Hoosiers. As of early this year, the firm oversaw 889 accounts and a total
of more than $375 million in assets, according to a regulatory filing.

KSM is the only local investment firm that has acknowledged major client exposure to Madoff. The New York financier is serving
a 150-year prison sentence after pleading guilty to running a multibillion-dollar Ponzi scheme.

The firm said in December 2008 that fewer than 50 clients had exposure to Madoff, but that the total amount invested was
about $15 million.

The money followed a convoluted path. KSM placed client cash in funds run by Redmond, Wash.-based Future Select Portfolio
Management Inc. Future Select, in turn, invested in funds run by Rye, N.Y.-based Tremont Group. Tremont was one of the biggest
operators of feeder funds for the now-defunct Bernard L. Madoff Investment Securities.•