Large HHGregg investor ups stake, surprising analysts

HHGregg Inc. shares have enjoyed a spectacular runup this year. But the company’s biggest shareholder is making a
huge bet that the good times are only beginning.

At the same time HHGregg sold 3.5 million shares to outside
investors in a secondary stock offering last month, the Los Angeles-based private equity firm Freeman Spogli & Co. spent
$16.5 million to purchase 1 million additional shares—leaving it with a 36-percent stake.

Analysts are
abuzz about the purchase, because it’s the exact opposite of what private equity players typically do. A few years after
they invest, they’re normally looking for an exit strategy, not to ante up more cash.

Throgmartin

Freeman Spogli has been in the picture at HHGregg since 2005, when it purchased 80 percent of the then-family-owned company.
Two years later, when HHGregg launched an initial public offering, Freeman Spogli did cash in 4.6 million shares for $60 million
but retained ownership of more than one-third of the company.

The recent secondary offering raised $54 million—an
achievement no doubt made easier by the public disclosure that Freeman Spogli had agreed in advance to make its huge purchase
in a private transaction at the same price, $16.50 a share.

“Of all the [recent] announcements, the one
to focus on is the increased investment from Freeman Spogli,” David Strasser, an analyst with Janney Montgomery Scott,
said in a report. “Not often does the key financial sponsor use a liquidity event, after a major move-up in the stock,
to increase their position.”

Freeman Spogli principal John Roth, one of HHGregg’s nine board members,
could not be reached for comment.

He’s not the only insider who has scarfed up company shares since the
recession set in 20 months ago, sapping retail spending and causing many investors to flee the sector. In 2008, Chairman Jerry
Throgmartin was a regular buyer on the open market, purchasing 322,353 shares for a total of $2.4 million.

Throgmartin,
54, is looking savvy now. He paid as little as $4.39 a share and his average price was $7.48—less than half of where
the stock now trades. Shares in recent days fetched $19.50 apiece—up 125 percent for the year and 445 percent from their
November low.

But some observers think the stock is starting to get ahead of itself. In late July, Barron’s
ran a skeptical analysis of the company under the headline, “Too much too soon.” It noted the chain’s locations
are concentrated in states with high unemployment and that it has reported four consecutive quarters of declining same-store
sales.

Janney Montgomery Scott’s Strasser urges “a bit of caution” at current prices, but thinks
the failure of rival Circuit City Stores Inc. will allow HHGregg to trim advertising expenses at the same time it scoops up
prime locations from landlords eager to negotiate.

“We believe strong square footage growth will help drive
significant revenue and earnings growth at (HHGregg), particularly as they open new stores in key Circuit City markets at
fire sale prices,” Strasser said in a report.

From burgers to body fat

Health
care might seem like an unlikely business for a guy who used to make his living selling steakburgers. But that’s just
the transition that Peter Dunn, Steak n Shake Co.’s former CEO, is in the process of making.

Dunn

Dunn, 54,
who left Steak n Shake two years ago after the company hit a sales slump, has formed Activate Healthcare, an Indianapolis-based
operator of on-site health clinics for businesses.

Dunn declined an IBJ reporter’s request for
an interview, saying he wants Activate to be further along in its business plan before discussing it in detail.

The firm has a Web site up and running. Activate said it will help employees “confront the need to change,”
improving the quality of their lives and lowering employers’ health care expenses.

Dunn previously was
a big-company guy. Before joining Steak n Shake in 2002, he was president of Borden Foods Corp., where he helped revitalize
such brands as Cracker Jack. He also is a former executive of Kraft Foods, where he led a team that created Lunchables, a
product scorned by many dietitians.

But Dunn also has helped sell products popular with the healthy-food crowd.
One of his posts at Kraft was general manager of the Claussen Pickle Co.•