Lower Third Quarter Revenues Results in Lowered Guidance for Full Fiscal Year AMARILLO, Texas, Nov. 17
AMARILLO, Texas, Nov. 17 /PRNewswire-FirstCall/ -- Hastings Entertainment,
Inc. (Nasdaq: HAST), a leading multimedia entertainment retailer, today
reported results for the three and nine months ended October 31, 2008. Net
loss was approximately $3.7 million, or $0.36 per diluted share, for the third
quarter of fiscal 2008 compared to net income of approximately $0.1 million,
or $0.01 per diluted share, for the third quarter of fiscal 2007. Net loss
for the third quarter included a non-recurring charge of $0.4 million related
to prior years' depreciation expense and income tax expense of $0.7 million
related to an Internal Revenue Service audit of the Company's previously filed
federal tax returns. Net loss was approximately $7,000 or $0.00 per diluted
share, for the nine months ended October 31, 2008 compared to net income of
$4.4 million, or $0.40 per diluted share for the same period in the prior
year. Net income for the nine months ended October 31, 2007 includes a
discrete tax benefit reducing income tax expense by approximately $0.9
million, or $0.08 per diluted share for the nine months ended October 31,
2007, related to a favorable settlement of a prior year's state tax liability.
"Beginning with September, changes in consumer spending have created the
most difficult retail environment we have ever seen," said Chief Executive
Officer John Marmaduke. "In an effort to drive sales without the benefit of
significant video releases, we were highly promotional during the month of
October. Obviously we are concerned about the fourth quarter in light of the
current economic climate. However, we believe consumers will entertain
themselves with books, videos, video games and trend products, and we strongly
believe that the unique value proposition of our store model (BUY SELL TRADE
or RENT a vast array of products at relatively low price points) gives us a
competitive advantage in the gift giving season and beyond. Additionally, we
have an excellent credit facility with Bank of America in the amount of $100
million, which does not expire until August 2011 and provides us with
sufficient working capital for the foreseeable future."
Financial Results for the Third Quarter of Fiscal Year 2008
Revenues. Total revenues for the third quarter decreased approximately
$8.0 million, or 6.5%, to $114.3 million compared to $122.3 million for the
third quarter of fiscal 2007. The following is a summary of our revenues
results (dollars in thousands):
Three Months Ended October 31,
2008 2007(Decrease)
Percent of Percent of
Revenues TotalRevenues Total Dollar Percent
Merchandise revenue $95,991 84.0%$101,407 82.9% $(5,416) -5.3%
Rental revenue18,277 16.0% 20,868 17.1% (2,591) -12.4%
Total revenues$114,268 100.0%$122,275 100.0% $(8,007) -6.5%
Comparable-store
revenues ("Comp"):
Total-6.5%
Merchandise -5.1%
Rental -13.3%
Below is a summary of the Comp results for our major merchandise
categories:
Three Months Ended October 31,
2008 2007
Trends 21.7% 22.8%
Consumables 13.1% -0.1%
Electronics 12.7% 30.8%
Hardback Cafe 7.9% 9.7%
Books 1.0% 2.5%
Movies -5.0% 7.6%
Video Games -14.8% 34.0%
Music -19.5%-14.8%
Trends Comps increased 21.7% for the quarter driven by strong sales of
Webkinz plush products, as well as increased sales of action figures, apparel
(including sports apparel, hats and bags), seasonal merchandise for Halloween,
and posters. Electronics Comps increased 12.7% for the quarter, due to strong
sales of digital converter boxes, as well as increased sales of third-party
gift cards. Books Comps increased 1.0% for the quarter, due to strong sales
of new trade paperback as well as used trade paperback and used hardbacks,
partially offset by lower sales of periodicals. Movie Comps decreased 5.0%
for the period primarily due to an unusually limited slate of releases during
the third quarter. Video Game Comps decreased 14.8% for the quarter primarily
due to lower sales of new video games and video game consoles, partially
offset by increased sales of used video games. The decrease in sales of new
video games this quarter is primarily due to the release of XBOX 360 title
Halo 3 during the third quarter of fiscal 2007, with no comparable title
released in fiscal 2008. Music Comps decreased 19.5% for the quarter
resulting from a continued industry decline, as well as our de-emphasis on the
category through the reduction of the retail space dedicated to music in
twenty-nine stores, which were reformatted during the first nine months of
fiscal 2008. Merchandise Comps, excluding the sale of music, decreased 1.2%.
Rental Comps decreased 13.3% from the same period last year, primarily as
a result of an unusually limited slate of titles released during the third
quarter as well as a strong following of viewers for the Olympics during the
period, coverage of the 2008 political conventions, and media coverage of the
current crisis in the economy and financial markets. Rental Game Comps
increased 15.0% for the period while Rental Movie Comps decreased 16.6%. The
combined sales and rental of movies and video games resulted in a Comp
decrease of 10.0%.
Gross Profit -- Merchandise. For the third quarter, total merchandise
gross profit dollars decreased approximately $1.8 million, or 5.8%, to $29.2
million from $31.0 million for the same period last year, directly as a result
of lower merchandise revenues. As a percentage of total merchandise revenue,
merchandise gross profit remained flat at 30.5% for the quarter as compared to
the same period in the prior year.
Gross Profit -- Rental. For the third quarter, total rental gross profit
dollars decreased approximately $1.4 million, or 10.4%, to $12.0 million from
$13.4 million for the same period in the prior year primarily due to lower
rental revenues. As a percentage of total rental revenue, rental gross profit
increased to 65.8% for the quarter compared to 64.4% for the same period in
the prior year, resulting primarily from lower units purchased for the quarter
as compared to the same period in the prior year.
Selling, General and Administrative Expenses ("SG&A"). As a percentage of
total revenue, SG&A increased to 40.1% for the third quarter compared to 35.7%
for the same quarter in the prior year. SG&A increased approximately $2.3
million during the quarter, or 5.3%, to $45.9 million compared to $43.6
million for the same quarter last year, primarily as a result of additional
costs associated with the operation of new, expanded, and relocated stores as
well as increased health insurance costs, store utility costs, and advertising
expense.
Interest Expense. For the third quarter, interest expense decreased
approximately $0.1 million, or 14.3%, to $0.6 million, compared to $0.7
million during fiscal 2007 resulting primarily from lower interest rates. The
average rate of interest charged for the quarter decreased to 4.08% compared
to 6.55% for the same period in the prior year.
Income Tax Expense. During the quarter, the Company recorded a tax charge
of approximately $0.7 million related to an Internal Revenue Service audit of
the Company's previously filed federal tax returns. During the three months
ended October 31, 2007, no related tax charges occurred.
Financial Results for the Nine Months Ended October 31, 2008
Revenues. Total revenues for the first nine months of fiscal 2008
decreased approximately $4.3 million, or 1.1%, to $371.9 million compared to
$376.2 million for the same period in the prior year. The following is a
summary of our revenue results (dollars in thousands):
Nine Months Ended October 31,
2008 2007(Decrease)
Percent of Percent of
Revenues TotalRevenues Total Dollar Percent
Merchandise revenue $308,168 82.9%$310,742 82.6% $(2,574) -0.8%
Rental revenue63,702 17.1% 65,450 17.4% (1,748) -2.7%
Total revenues$371,870 100.0%$376,192 100.0% $(4,322) -1.1%
Comparable-store
revenues ("Comp"):
Total-0.5%
Merchandise -0.2%
Rental -2.3%
Below is a summary of the Comp results for our major merchandise
categories:
Nine Months Ended October 31,
2008 2007
Trends 23.1% 8.0%
Electronics 22.0% 26.4%
Consumables 12.0% 2.0%
Hard Back Cafe9.5% 9.4%
Video Games 5.4% 12.7%
Books 1.6% 2.7%
Movies0.3% 7.5%
Music -15.7%-13.9%
Trends Comps increased 23.1% for the nine months ended October 31, 2008,
primarily due to strong sales of Webkinz plush products, as well as strong
sales of action figures and apparel. Key drivers in the apparel category
included jewelry, bags, hats, and sports apparel. Electronics Comps increased
22.0% primarily as a result of strong sales of refurbished iPods, MP3 players
and related accessories, as well as increased sales of third party gift cards.
Video Game Comps increased 5.4% for the period as a result of increased sales
of new and used video games, partially offset by lower video game console
sales. Books Comps increased 1.6% for the period as a result of strong sales
of new trade paperback books, used hardback books and used trade paperback
books, partially offset by lower sales of new hardback books. Movie Comps
increased 0.3% for the nine month period primarily due to increased sales of
used DVDs, partially offset by lower sales of new DVDs. Music Comps decreased
15.7% for the period resulting from continued industry decline, as well as our
de-emphasis on the category through the reduction of the retail space
dedicated to music in twenty-nine stores, which were reformatted during the
first nine months of fiscal 2008. Merchandise Comps, excluding the sales of
Music, increased 4.2% for the nine months ended October 31, 2008.
Rental Comps decreased 2.3% from the same period last year primarily as a
result of a decrease in DVD rentals, partially offset by increases in video
games and Blu-ray movie format rentals. Rental Comps were impacted by an
unusually limited slate of titles released during the third quarter as well as
a strong following of viewers for the Olympics, coverage of the 2008 political
conventions, and media coverage of the current crisis in the economy and
financial markets. Rental Video Game Comps increased 15.8% for the period
while Rental Video Comps decreased 5.8%. The combined sales and rental of
movies and video games resulted in a Comp increase of 0.4%.
Fiscal 2008 is a leap year which includes an extra day of sales in
February. Excluding this extra day of sales, merchandise Comps would have
decreased 0.7% for the nine months ended October 31, 2008 and rental Comps
would have decreased 2.9% for the same period.
Gross Profit -- Merchandise. For the current nine months, total
merchandise gross profit dollars remained constant at $94.3 million compared
to the same period in the prior year. Lower merchandise revenues were offset
by higher margin rates. As a percentage of total merchandise revenues,
merchandise gross profit increased to 30.6% for the nine months ended October
31, 2008, from 30.4% for the same period in the prior year.
Gross Profit -- Rental. For the current nine months, total rental gross
profit dollars decreased approximately $1.5 million, or 3.5%, to $41.9 million
from $43.4 million for the same period last year, primarily due to lower
rental revenues. As a percentage of total rental revenues, rental gross
profit decreased to 65.8% for the nine months ended October 31, 2008, compared
to 66.4% for the same period in the prior year.
Selling, General and Administrative expenses ("SG&A"). SG&A increased
approximately $4.1 million, or 3.2%, to $133.9 million for the nine months
ended October 31, 2008, compared to $129.8 million for the same period in the
prior year, primarily due to increased store labor costs and health insurance
costs, as well as additional costs associated with the operation of new,
expanded, and relocated stores and increased store utility costs. As a
percentage of total revenues, SG&A increased to 36.0% for the nine months
ended October 31, 2008, compared to 34.5% for the same period last year.
Interest Expense. For the nine months ended October 31, 2008, interest
expense decreased approximately $0.8 million, or 34.8%, to $1.5 million,
compared to $2.3 million during fiscal 2007 resulting primarily from lower
interest rates. The average rate of interest charged for the nine months
ended October 31, 2008 decreased to 4.26% compared to 6.73% for the same
period in the prior year.
Income Tax Expense. During the third quarter of fiscal 2008, the Company
recorded a tax charge of approximately $0.7 million related to an Internal
Revenue Service audit of previously filed federal tax returns. During the
nine months ended October 31, 2007, the Company recognized a discrete tax
benefit in the amount of $0.9 million related to a favorable settlement of a
prior year's state tax liability. During the nine months ended October 31,
2008, no related tax settlements occurred.
Stock Repurchase
On September 18, 2001, we announced a stock repurchase program of up to
$5.0 million of our common stock. Since that time, the Board of Directors has
approved increases in the program in the amounts of $2.5 million on April 4,
2005; $5.0 million on March 15, 2006; $2.5 million on October 3, 2006; and
$7.5 million on November 20, 2007. During the third quarter of fiscal 2008,
we purchased a total of 154,977 shares of common stock at a cost of $807,753,
or $5.21 per share. As of October 31, 2008, a total of 3,179,649 shares had
been repurchased under the program at a cost of approximately $21.1 million,
for an average cost of approximately $6.65 per share. As of October 31, 2008,
approximately $1.4 million remains available under the stock repurchase
program.
Store Activity
Since August 18, 2008, which was the last date we reported store activity,
we have had the following store activity:
-- New store opened in Lubbock, Texas on September 11, 2008. This store
is one of three stores in the Lubbock market.
Fiscal Year 2008 Guidance
"In light of the current financial crisis and the impact it is having on
consumer spending, along with the financial results for the third quarter, we
are lowering our guidance of net earnings per diluted share to a range of
$0.50 to $0.55 for the full fiscal year ending January 31, 2009," said Dan
Crow, Vice President and Chief Financial Officer. "Although we are encouraged
by the expected quantity and the quality of new release movies and games, we
are now estimating our fourth quarter comp revenues to drop in the low to mid
single digits which compares to our original estimate of an increase in the
mid single digits.
Safe Harbor Statement
This press release contains "forward-looking statements." Hastings
Entertainment, Inc. is including this statement for the express purpose of
availing itself of the protections of the safe harbor provided by the Private
Securities Litigation Reform Act of 1995 with respect to all such
forward-looking statements. These forward-looking statements are based on
currently available information and represent the beliefs of the management of
the company. These statements are subject to risks and uncertainties that
could cause actual results to differ materially. These risks include, but are
not limited to, consumer appeal of our existing and planned product offerings,
and the related impact of competitor pricing and product offerings; overall
industry performance and the accuracy of our estimates and judgments regarding
trends; our ability to obtain favorable terms from suppliers; our ability to
respond to changing consumer preferences, including with respect to new
technologies and alternative methods of content delivery, and to effectively
adjust our offerings if and as necessary; the application and impact of future
accounting policies or interpretations of existing accounting policies;
unanticipated adverse litigation results or effects; the effects of a
continued deterioration in economic conditions in the U.S. or the markets in
which we operate our stores; and other factors which may be outside of the
company's control. Please refer to the company's annual, quarterly, and
periodic reports on file with the Securities and Exchange Commission for a
more detailed discussion of these and other risks that could cause results to
differ materially.
About Hastings
Founded in 1968, Hastings Entertainment, Inc. is a leading multimedia
entertainment retailer that combines the sale of new and used books, videos,
video games and CDs, as well as trends merchandise, with the rental of videos
and video games in a superstore format. We currently operate 153 superstores,
averaging approximately 20,000 square feet, primarily in medium-sized markets
throughout the United States.
We also operate http://www.gohastings.com, an e-commerce Internet Web site
that makes available to our customers new and used entertainment products and
unique, contemporary gifts and toys. The site features exceptional product
and pricing offers. The Investor Relations section of our web site contains
press releases, a link to request financial and other literature and access
our filings with the Securities and Exchange Commission.
Consolidated Balance Sheets
(Dollars in thousands)
October 31, October 31, January 31,
2008 2007 2008
(unaudited) (unaudited)
Assets
Current Assets
Cash and cash equivalents $4,228 $3,709 $3,982
Merchandise inventories, net 188,469 178,764 171,557
Deferred income taxes9,846 2,903 3,441
Prepaid expenses and other current
assets 11,041 11,466 11,042
Total current assets 213,584 196,842 190,022
Rental assets, net15,200 14,545 13,236
Property and equipment, net 57,381 53,567 52,572
Deferred income taxes 3,090 2,437 2,756
Intangible assets, net 391 392 391
Other assets 847 261 1,244
Total assets$290,493$268,044$260,221
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $90,558 $88,909 $76,364
Accrued expenses and other liabilities 38,040 33,032 36,675
Total current liabilities 128,598 121,941 113,039
Long-term debt, excluding current
maturities 58,914 43,815 40,616
Other liabilities 4,601 4,442 4,758
Shareholders' equity
Preferred stock - - -
Common stock 119 119 119
Additional paid-in capital 36,587 36,833 37,125
Retained earnings 75,885 70,074 75,892
Accumulated other comprehensive
(loss) income (55) 14 (15)
Treasury stock, at cost(14,156) (9,194)(11,313)
Total shareholders' equity 98,380 97,846 101,808
Total liabilities and shareholders'
equity $290,493$268,044$260,221
Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Nine Months Ended
October 31, October 31,
200820072008 2007
(unaudited) (unaudited) (unaudited) (unaudited)
Merchandise revenue$95,991$101,407 $308,168$310,742
Rental revenue 18,277 20,868 63,702 65,450
Total revenues 114,268 122,275371,870 376,192
Merchandise cost of revenue 66,748 70,434213,893 216,417
Rental cost of revenue 6,249 7,433 21,806 22,019
Total cost of revenues72,997 77,867235,699 238,436
Gross profit 41,271 44,408136,171 137,756
Selling, general and
administrative expenses45,860 43,591133,902 129,797
Pre-opening expenses98 5111 5
Operating (loss) income (4,687)812 2,158 7,954
Other income (expense):
Interest expense(561) (733)(1,488) (2,270)
Other, net 117 32159 85
(Loss) income before income
taxes (5,131)111829 5,769
Income tax expense (benefit)(1,475) 38836 1,343
Net (loss) income $(3,656)$73$(7) $4,426
Basic (loss) income per share $(0.36) $0.01 $(0.00) $0.41
Diluted (loss) income per share $(0.36) $0.01 $(0.00) $0.40
Weighted-average common shares
outstanding:
Basic 10,114 10,747 10,241 10,889
Dilutive effect of stock
awards- 261 - 230
Diluted 10,114 11,008 10,241 11,119
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Nine Months Ended
October 31,
2008 2007
(unaudited) (unaudited)
Cash flows from operating activities:
Net (loss) income $(7) $4,426
Adjustments to reconcile net (loss) income to
net cash provided by operations:
Rental asset depreciation expense 10,060 8,909
Purchases of rental assets(21,284) (19,488)
Property and equipment depreciation expense15,01814,579
Amortization expense-19
Deferred income taxes (6,739) 316
Loss on rental assets lost, stolen and
defective874 849
Loss on disposal of other assets 730 430
Non-cash stock-based compensation 48 147
Changes in operating assets and liabilities:
Merchandise inventories(8,524) (4,374)
Other current assets1 (833)
Trade accounts payable 15,99115,301
Accrued expenses and other liabilities 1,497(4,985)
Excess tax benefit from stock option exercises (132)-
Other assets and liabilities, net 200 133
Net cash provided by operating activities 7,73315,429
Cash flows from investing activities:
Purchases of property, equipment and improvements (20,559) (11,150)
Net cash used in investing activities (20,559) (11,150)
Cash flows from financing activities:
Net borrowings under revolving credit facility 18,298 1,893
Purchase of treasury stock (3,887) (3,920)
Change in cash overdraft (1,797) (2,910)
Proceeds from exercise of stock options 326 530
Excess tax benefit from stock option exercises132 -
Net cash provided by (used in)
financing activities 13,072(4,407)
Net (decrease) increase in cash 246 (128)
Cash at beginning of period 3,982 3,837
Cash at end of period$4,228$3,709
Balance Sheet and Other Ratios (A)
(Dollars in thousands, except per share amounts)
October 31, October 31,
2008 2007
Merchandise inventories, net $188,469 $178,764
Inventory turns, trailing 12 months (B) 1.65 1.74
Long-term debt $58,914$43,815
Long-term debt to total capitalization (C) 37.5% 30.9%
Book value (D) $98,380$97,846
Book value per share (E) $9.37 $8.80
Price to Earnings Ratio, trailing 12 months (F)8.5 10.5
Three Months EndedNine Months Ended
October 31, October 31,
2008 2007 2008 2007
Comparable-store revenues (G):
Total -6.5% 2.8% -0.5% 0.3%
Merchandise -5.1% 3.8% -0.2% 1.3%
Rental -13.3%-1.4% -2.3% -6.6%
(A) Calculations may differ in the method employed from similarly titled
measures used by other companies.
(B) Calculated as merchandise cost of goods sold for the period's trailing
twelve months divided by average merchandise inventory over the same
period.
(C) Defined as long-term debt divided by long-term debt plus total
shareholders' equity (book value).
(D) Defined as total shareholders' equity.
(E) Defined as total shareholders' equity divided by weighted average
diluted shares outstanding for the nine month period.
(F) Defined as closing market value of the Company's common stock on the
last day of the period divided by fully diluted earnings per share for
the period's trailing twelve months.
(G) Stores included in the comparable-store revenues calculation are those
stores that have been open for a minimum of 60 weeks. Also included
are stores that are remodeled or relocated during the comparable
period. Sales via the Internet are included and closed stores are
removed from each comparable period for the purpose of calculating
comparable-store revenues.
SOURCE Hastings Entertainment, Inc.
