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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended April 30, 2010


o		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 000-24381

HASTINGS ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)


Texas (State or other jurisdiction of incorporation or organization)		75-1386375 (I.R.S. Employer Identification No.)


3601 Plains Boulevard, Amarillo, Texas (Address of principal executive offices)		79102 (Zip Code)

(806) 351-2300
(Registrant’s telephone number, including area code)

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.

Yes þ No o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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 definitions of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 30, 2010

Common Stock, $.01 par value per share		9,304,338 shares

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

HASTINGS ENTERTAINMENT, INC.

Consolidated Balance Sheets
April 30, 2010 and January 31, 2010
(Dollars in thousands, except par value)


	April 30,			January 31,
	2010			2010
	(Unaudited)
Assets

Current assets:
Cash and cash equivalents	$	4,620		$	8,863
Merchandise inventories, net		152,804			148,149
Deferred income taxes		6,777			7,804
Prepaid expenses and other current assets		9,364			10,120

Total current assets		173,565			174,936
Rental assets, net of accumulated depreciation of $19,802 and $21,444 at April 30, 2010 and January 31, 2010, respectively		13,432			13,127
Property, equipment and improvements, net of accumulated depreciation of $193,700 and $190,607 at April 30, 2010 and January 31, 2010, respectively		45,616			47,695
Deferred income taxes		2,974			1,310
Intangible assets, net		391			391
Other assets		1,366			1,341

Total Assets	$	237,344		$	238,800


Liabilities and Shareholders’ Equity
Current liabilities:
Trade accounts payable	$	69,973		$	58,068
Accrued expenses and other liabilities		26,177			28,128

Total current liabilities		96,150			86,196
Long term debt		26,435			38,174
Other liabilities		6,262			6,272

Shareholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value; 75,000,000 shares authorized; 11,944,544 shares issued and 9,304,338 shares outstanding at April 30, 2010; 11,944,544 shares issued and 9,463,838 shares outstanding at January 31, 2010		119			119
Additional paid-in capital		36,978			36,920
Retained earnings		87,902			86,884
Accumulated other comprehensive income		68			37
Treasury stock, at cost 2,640,206 shares and 2,480,706 shares at April 30, 2010 and January 31, 2010, respectively		(16,570	)		(15,802	)

Total Shareholders’ Equity		108,497			108,158

Total Liabilities and Shareholders’ Equity	$	237,344		$	238,800

See accompanying notes to unaudited consolidated financial statements.

HASTINGS ENTERTAINMENT, INC.

Unaudited Consolidated Statements of Earnings
For the Three Months Ended April 30, 2010 and 2009
(Dollars in thousands, except per share amounts)


	Three Months Ended April 30,
	2010			2009
Merchandise revenue	$	108,125		$	104,096
Rental revenue		20,779			21,597
Gift card breakage revenue		194			—

Total revenues		129,098			125,693

Merchandise cost of revenue		74,426			70,994
Rental cost of revenue		7,705			7,713

Total cost of revenues		82,131			78,707


Gross profit		46,967			46,986

Selling, general and administrative expenses		45,436			43,898
Pre-opening expenses		—			2


Operating income		1,531			3,086

Other income (expense):
Interest expense		(132	)		(295	)
Other, net		20			18


Income before income taxes		1,419			2,809

Income tax expense		401			1,107


Net income	$	1,018		$	1,702


Basic income per share	$	0.11		$	0.17


Diluted income per share	$	0.11		$	0.17


Weighted-average common shares outstanding:
Basic		9,432			9,729
Dilutive effect of stock awards		236			29


Diluted		9,668			9,758

See accompanying notes to unaudited consolidated financial statements.

HASTINGS ENTERTAINMENT, INC.

Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended April 30, 2010 and 2009
(Dollars in thousands)


	Three Months Ended
	April 30,
	2010			2009
Cash flows from operating activities:
Net income	$	1,018		$	1,702
Adjustments to reconcile net income to net cash provided by operating activities:
Rental asset depreciation expense		2,654			3,610
Purchases of rental assets		(5,980	)		(4,459	)
Property and equipment depreciation expense		4,321			4,850
Deferred income taxes		(637	)		(507	)
Loss on rental assets lost, stolen and defective		470			202
Loss on disposal of other assets		19			169
Non-cash stock-based compensation		143			51
Changes in operating assets and liabilities:
Merchandise inventories		(2,105	)		(145	)
Prepaid expenses and other current assets		756			433
Trade accounts payable		12,092			12,775
Accrued expenses and other current liabilities		(1,951	)		(6,135	)
Other assets and liabilities, net		(4	)		823

Net cash provided by operating activities		10,796			13,369


Cash flows from investing activities:
Purchases of property, equipment, and improvements		(2,260	)		(3,054	)

Net cash used in investing activities		(2,260	)		(3,054	)


Cash flows from financing activities:
Borrowings under revolving credit facility		93,421			124,060
Repayments under revolving credit facility		(105,160	)		(133,297	)
Purchase of treasury stock		(959	)		(94	)
Change in cash overdraft		(187	)		(4,679	)
Proceeds from exercise of stock options		106			—

Net cash used in financing activities		(12,779	)		(14,010	)


Net decrease in cash and cash equivalents		(4,243	)		(3,695	)
Cash and cash equivalents at beginning of period		8,863			7,449

Cash and cash equivalents at end of period	$	4,620		$	3,754

See accompanying notes to unaudited consolidated financial statements.

Hastings Entertainment, Inc

Notes to Unaudited Consolidated Financial Statements

(Tabular amounts in thousands, except per share data or unless otherwise noted)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Hastings Entertainment, Inc. and its subsidiary (“Hastings,” the “Company,” “we,” “our,” or “us”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions in Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such principles and regulations of the Securities and Exchange Commission. All adjustments, consisting of normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair presentation of the results of interim periods. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for a full year because of, among other things, seasonality factors in the retail business. As is the case with many retailers, a significant portion of our revenues, and an even greater portion of our operating earnings, is generated in the fourth fiscal quarter, which includes the holiday selling season. The unaudited consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

The balance sheet at January 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

Our fiscal year ends on January 31 and is identified as the fiscal year for the immediately preceding calendar year. For example, the fiscal year that will end on January 31, 2011 is referred to as fiscal year 2010.

Hastings Entertainment, Inc
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)

2. Stock Based Compensation

We have various stock incentive plans, which allow us to issue stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards and other awards. Stock-based compensation is discussed more fully in Note 13 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

For each of the quarters ended April 30, 2010 and 2009, we recognized approximately $0.1 million of stock-based compensation expense. These amounts include expense related to incentive stock options, non-qualified stock options, restricted stock units, and performance-based restricted stock awards. For the three months ended April 30, 2009, there was no expense related to restricted stock units.

As of April 30, 2010, we had 156,917 shares available to grant stock-based compensation awards under our various stock incentive plans.

3. Long-term Debt

We have a syndicated secured Loan and Security Agreement with Bank of America (the “Facility”). On April 30, 2010 and January 31, 2010, the balances on the Facility were $26.4 million and $38.2 million, respectively. The amount outstanding under the Facility is limited by a borrowing base predicated on (i) eligible inventory, as defined in the Facility, and (ii) certain rental assets, net of accumulated depreciation less specifically defined reserves, and is limited to a ceiling of $100 million, less a $10 million availability reserve. We can borrow at various interest-rate options based on the prime rate or London Interbank Offered Rate (“LIBOR”) plus applicable margin depending on the level of our minimum availability. The borrowing base under the Facility is limited to an advance rate of 65% of eligible inventory and certain rental assets, which can be adjusted to reduce availability under the Facility. The lender may increase specifically defined reserves to reduce availability in the event of adverse changes in our industry or our financial condition that are projected to impact the value of our assets pledged as collateral. The lender must exercise reasonable judgment and act in good faith with respect to any changes in the specifically defined reserves. The Facility contains no financial covenants, prohibits the payment of dividends and includes certain other debt and acquisition limitations, allows for the repurchase of up to $27.3 million of our common stock and requires a minimum availability of $10 million at all times. The Facility is secured by substantially all of the assets of the Company and our subsidiary and is guaranteed by our subsidiary. Unless the Facility is amended and the maturity extended, the Facility matures on August 29, 2011. At April 30, 2010, we had $58.5 million in excess availability, after the $10 million availability reserve, under the Facility. The average rates of interest being charged under the Facility for the three months ended April 30, 2010 and 2009 were 1.9% and 3.0%, respectively.

We utilize standby letters of credit to support certain insurance policies. The aggregate amount of letters of credit at April 30, 2010, was approximately $0.9 million, which reduces the excess availability under the Facility.

Hastings Entertainment, Inc
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)

5. Fair Value Measurements

We account for certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. These levels are:

	•		Level 1 — Observable Inputs — quoted prices in active markets for identical assets and liabilities;

	•		Level 2 — Observable inputs other than the quoted prices in active markets for identical assets and liabilities — includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets; and

	•		Level 3 — Unobservable inputs — includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.

At April 30, 2010 and January 31, 2010, we had approximately $1.1 million and $1.0 million, respectively, in assets which are carried at fair value on a recurring basis. These assets consist of available-for-sale investments related to our non-qualified supplemental executive retirement plan (“SERP”). The fair value of these investments was determined using Level 1 inputs.

Our long-term debt is our only financial instrument with a fair value significantly different from the carrying amount. The fair value of our long-term debt is estimated using a discounted cash flow analysis that applies interest rates currently being offered on borrowings of similar amounts and terms to those currently outstanding while also taking into consideration our current credit worthiness. At April 30, 2010 and January 31, 2010, the estimated fair value of our long-term debt was approximately $25.7 million and $36.8 million, respectively. The carrying value of our long-term debt at April 30, 2010 and January 31, 2010 was approximately $26.4 million and $38.2 million, respectively.

6. Income Taxes

During the three months ended April 30, 2010, the Company recorded a discrete tax benefit of approximately $0.2 million related to amended state returns resulting from an Internal Revenue Service audit of the Company’s previously filed Federal tax returns. No discrete tax items were recorded during the three months ended April 30, 2009. Primarily as a result of this discrete tax benefit, the effective tax rate for the three months ended April 30, 2010 decreased to 28.3% compared to 39.4% for the same period in the prior year.

7. Litigation and Contingencies

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial position, results of operations or cash flows.

8. Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010 — 06 — Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This standard amends the disclosure guidance with respect to fair value measurements for both interim and annual reporting periods. Specifically, this standard requires new disclosures for significant transfers of assets or liabilities between Level 1 and Level 2 in the fair value hierarchy, separate disclosures for purchases, sales, issuance and settlements of Level 3 fair value items on a gross, rather than net basis, and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and Level 3 assets and liabilities. Except for the detailed disclosures of changes in Level 3 items, which will be effective for us as of February 1, 2011, the remaining new disclosure requirements were effective for us as of February 1, 2010. We adopted the provisions of this guidance, as applicable, beginning in the fiscal quarter ended April 30, 2010, with no material impact to our financial statements.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

Certain written and oral statements set forth below or made by Hastings with the approval of an authorized executive officer constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “intend,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future including statements relating to the business, expansion, merchandising and marketing strategies of Hastings, industry projections or forecasts, inflation, effect of critical accounting policies including lower of cost or market for inventory adjustments, the returns process, rental asset depreciation, store closing reserves, impairment or disposal of long-lived assets, revenue recognition, and vendor allowances, sufficiency of cash flow from operations and borrowings under our revolving credit facility and statements expressing general optimism about future operating results are forward-looking statements. Such statements are based upon our management’s current estimates, assumptions and expectations, which are based on information available at the time of the disclosure, and are subject to a number of factors and uncertainties, including, but 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; whether our assumptions turn out to be correct; our inability to attain such estimates and expectations; a downturn in market conditions in any industry relating to the products we inventory, sell or rent; the degree to which we enter into and maintain vendor relationships; the extremely challenging times that the U.S. and global economies are currently experiencing, the effects of which have had and will continue to have an adverse impact on spending by Hastings’ current retail customer base and potential new customers, and the possibility that general economic conditions could deteriorate further; volatility of fuel and utility costs; acts of war or terrorism inside the United States or abroad; unanticipated adverse litigation results or effects; and other factors which may be outside of our control; any of which could cause actual results to differ materially from those described herein. We undertake no obligation to affirm, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion should be read in conjunction with the unaudited consolidated financial statements of the Company and the related notes thereto appearing elsewhere in this report on Form 10-Q.

General

Incorporated in 1972, Hastings Entertainment, Inc. (the “Company,” “Hastings,” or “Hastings Entertainment”) is a leading multimedia entertainment retailer. We operate entertainment superstores that buy, sell, trade and rent various home entertainment products, including books, music, software, periodicals, movies on DVD and Blu-ray, video games, video game consoles and electronics. We also offer consumables and trends products such as apparel, t-shirts, action figures, posters, greeting cards and seasonal merchandise. As of April 30, 2010, we operated 147 superstores principally in medium-sized markets located in 20 states, primarily in the Western and Midwestern United States. We also operate a multimedia entertainment e-commerce web site offering a broad selection of books, software, video games, movies on DVD and Blu-ray, music, trends, and electronics. We fill orders for new and used product placed at the website and also through Amazon Marketplace using our proprietary goShip program, which allows us to ship directly from stores. We have one wholly-owned subsidiary, Hastings Internet, Inc. References herein to fiscal years are to the twelve-month periods that end in January of each following calendar year. For example, the twelve-month period ended January 31, 2011 is referred to as fiscal 2010.

Critical Accounting Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts

of revenues and expenses during the reporting period. Actual results could differ from those estimates. We believe the following critical accounting estimates comprise our more significant estimates and assumptions used in the preparation of our financial statements. Our significant estimates and assumptions are reviewed, and any required adjustments are recorded, on a monthly or quarterly basis.

Lower of Cost or Market for Merchandise Inventory. Our merchandise inventories are recorded at the lower of cost, which approximates the first-in, first-out (“FIFO”) method, or market. As with any retailer, economic conditions, cyclical customer demand and changes in purchasing or distribution can affect the carrying value of inventory. As circumstances warrant, we record the lower of cost or market inventory adjustments. In some instances, these adjustments can have a material effect on the financial results of an annual or interim period. In order to determine such adjustments, we evaluate the age, inventory turns and estimated market value and returnability of merchandise inventory by product category and record an adjustment if estimated market value is below cost.

Rental Asset Depreciation. We have established rental asset depreciation policies that match rental product costs with the related revenues. These policies require that we make significant estimates, based upon our experience, as to the ultimate amount and timing of revenue to be generated from our rental product. We utilize an accelerated method of depreciation because it approximates the pattern of demand for the product, which is higher when the product is initially released by the studios for rental and declines over time. In establishing salvage values for our rental product, we consider the sales prices and sales volume of our previously rented product and other used product.

We currently depreciate the cost of our rental assets on an accelerated basis over six months or nine months, except for rental assets purchased for the initial stock of a new store, which are depreciated on a straight-line basis over 36 months. Rental assets, which include DVDs, Books on CD and Video Games, are depreciated to salvage values ranging from $4 to $10. Rental assets purchased for less than established salvage values are not depreciated.

We also review the carrying value of our rental assets to ensure that estimated future cash flows exceed the carrying value. We periodically record adjustments to the value of previously rented product primarily for estimated obsolescence or excess product based upon changes in our original assumptions about future demand and market conditions. If future demand or actual market conditions are less favorable than our original estimates, additional adjustments, including adjustments to useful lives or salvage values, may be required. We continually evaluate the estimates surrounding the useful lives and salvage values used in depreciating our rental assets. Changes to these estimates resulting from changes in consumer demand, changes in customer preferences or the price or availability of retail products may materially impact the carrying value of our rental assets and our rental margins.

The costs of rental product purchased pursuant to revenue-sharing arrangements, which are recorded in rental cost of sales on the consolidated statements of earnings, typically include a lower initial product cost than traditional rental purchases with a certain percentage of the net rental revenues shared with studios over an agreed period of time. Any up-front costs exceeding the designated salvage value are amortized on an accelerated basis and revenue-sharing payments pursuant to the applicable arrangement are expensed as rental cost of sales as the related revenue is earned. Additionally, certain titles have performance guarantees. We analyze titles that are subject to performance guarantees and recognize an estimated expense for under-performing titles throughout the applicable period based upon our analysis of the estimated rental revenue shortfall. We revise these estimates on a monthly basis, based on actual results.

Impairment or Disposal of Long-Lived Assets. We evaluate under-performing stores on a quarterly basis to determine whether projected future cash flows over the remaining lease term are sufficient to recover the carrying value of the fixed asset investment in each individual store. If projected future cash flows are less than the carrying value of the fixed asset investment, an impairment charge is recognized if the estimated fair value is less than the carrying value of such assets. The carrying value of leasehold improvements as well as certain other property and equipment is subject to impairment write-down.

Income Taxes. In determining net income, we make certain estimates and judgments in the calculation of tax expense and the resulting tax liabilities and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense. We record deferred tax assets and liabilities for future income tax consequences that are attributable to differences between financial

statement carrying amounts of assets and liabilities and their income tax bases. We base the measurement of deferred tax assets and liabilities on enacted tax rates that we expect will apply to taxable earnings in the year when we expect to settle or recover those temporary differences. We recognize the effect on deferred tax assets and liabilities on any change in income tax rates in the period that includes the enactment date.

The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood, on a cumulative basis, of being realized upon ultimate settlement. We recognize interest and penalties relating to any uncertain tax positions as a component of income tax expense.

Share-Based Compensation. Determining the amount of share-based compensation to be recorded in the statement of earnings requires us to develop estimates that are used in calculating the grant-date fair value of stock options. In determining the fair value of stock options, we use the Black-Scholes valuation model, which requires us to make estimates of the following assumptions:

	•		Expected volatility — The estimated stock price volatility is derived based upon our historical stock prices over the expected life of the option.

	•		Expected life of the option — The estimate of an expected life is calculated based on historical data relating to grants, exercises and cancellations, as well as the vesting period and contractual life of the option.

	•		Risk-free interest rate — The risk-free interest rate is based on the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected life of the option.

Our stock price volatility and expected option lives involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes pricing model and, ultimately, the expense that will be recognized over the vesting period of the option.

We recognize compensation expense only for the portion of options that are expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

In addition to stock options, we award restricted stock awards, including restricted stock units and performance-based restricted stock awards. The grant date fair value of restricted stock awards is equal to the average of the opening and closing stock price on the day on which they are granted. For performance-based restricted stock awards, compensation expense is recognized if management deems it probable that the performance conditions will be met. Management must use its judgment to determine the probability that a performance condition will be met. If actual results differ from management’s assumptions, future results could be materially impacted.

Gift Card Breakage Revenue. We sell gift cards through each of our stores and through our web site www.goHastings.com. The gift cards we sell have no stated expiration dates or fees and are subject to potential escheatment rights in some of the jurisdictions in which we operate. Gift card liabilities are recorded as deferred revenue at the time of sale of such cards with the costs of designing, printing and distributing the cards recorded as expense as incurred. Historically, the liability was relieved and revenue was recognized only upon redemption of the gift cards. Beginning in the fourth quarter of fiscal 2009, we had sufficient historical data to analyze gift card redemption patterns and a final determination of the escheatment laws applicable to our operations. As a result, during the fourth quarter of fiscal 2009, we began recognizing revenue for the estimated breakage on gift cards we previously issued and sold. Subsequent to the initial change in estimate related to gift card breakage, gift card breakage revenue is recognized as gift cards are redeemed, based upon an analysis of the aging and utilization of gift cards, our determination that the likelihood of future redemption is remote and our determination that such balances are not subject to escheatment laws applicable to our operations.

Results of Operations

The following tables present our statement of earnings data, expressed as a percentage of revenue, and the number of superstores open at the end of the periods presented herein.


	Three Months Ended
	April 30,
	2010			2009
Merchandise revenue		83.8	%		82.8	%
Rental revenue		16.1			17.2
Gift card breakage revenue		0.1			—

Total revenues		100.0			100.0

Merchandise cost of revenue		68.8			68.2
Rental cost of revenue		37.1			35.7

Total cost of revenues		63.6			62.6


Gross profit		36.4			37.4

Selling, general and administrative expenses		35.2			34.9
Pre-opening expenses		—			—


Operating income		1.2			2.5

Other income (expense):
Interest expense		(0.1	)		(0.2	)
Other, net		—			—


Income before income taxes		1.1			2.3

Income tax expense		0.3			0.9


Net income		0.8	%		1.4	%

Summary of Superstore Activity


	Three Months Ended					Year Ended
	April 30,					January 31,
	2010			2009		2010
Beginning number of stores		149			153		153
Openings		—			—		—
Closings		(2	)		—		(4	)

Ending number of stores		147			153		149

Financial Results for the First Quarter of Fiscal Year 2010

Both operating income and adjusted operating income for the first quarter were approximately $1.5 million as compared to approximately $3.1 million in the first quarter of the prior year. Adjusted operating income excludes gift card breakage revenue and stock compensation expense. Earnings before interest, taxes, property and equipment depreciation expense and amortization (“EBITDA”) was approximately $5.9 million for the first quarter of fiscal 2010 as compared to approximately $8.0 million for the same period in the prior year. Adjusted EBITDA, which excludes gift card breakage revenue and stock compensation expense, was approximately $5.8 million for the first quarter of fiscal 2010 compared to approximately $8.0 million for the same period in the prior year.

Reconciliations of non-GAAP financial measures to comparable GAAP financial measures are included in the tables following this section along with a discussion of why management believes these measures provide meaningful information regarding the Company’s performance

Revenues. Total revenues for the first quarter increased approximately $3.4 million, or 2.7%, to $129.1 million compared to $125.7 million for the first quarter of fiscal 2009. Excluding gift card breakage revenue, total revenues for the first quarter of fiscal 2010 increased approximately $3.2 million, or 2.5%. Comparable store sales, which exclude gift card breakage revenue, increased approximately 4.9%. The following is a summary of our revenues results (dollars in thousands):


	Three Months Ended April 30,
	2010					2009					Increase (Decrease)
			Percent					Percent
	Revenues		Of Total			Revenues		Of Total			Dollar			Percent
Merchandise Revenue	$	108,125		83.8	%	$	104,096		82.8	%	$	4,029			3.9	%
Rental Revenue		20,779		16.1	%		21,597		17.2	%		(818	)		-3.8	%
Gift Card Breakage Revenue		194		0.1	%		—		0.0	%		194			—

Total Revenues	$	129,098		100.0	%	$	125,693		100.0	%	$	3,405			2.7	%

Comparable-store revenues (“Comp”)


Total	4.9	%
Merchandise	6.3	%
Rental	-1.7	%

Below is a summary of the Comp results for our major merchandise categories:


	Three Months Ended April 30,
	2010			2009
Video Games		25.2	%		-10.4	%
Hardback Café		15.6	%		8.5	%
Movies		11.1	%		-5.7	%
Consumables		9.4	%		4.5	%
Trends		8.9	%		6.0	%
Electronics		4.1	%		2.2	%
Books		-1.2	%		-0.2	%
Music		-4.8	%		-15.2	%

Prior year Comp sales have been revised to reflect current year classification of Comp sale categories. Video Game Comps increased 25.2% for the quarter, primarily due to strong sales of new and used video games for the Nintendo Wii, Playstation 3, and XBOX 360 platforms and increased video game hardware and accessory sales, partially offset by lower sales of older generation video games. Titles that helped drive sales during the quarter included God of War 3, Heavy Rain, Battlefield Bad Company 2, Final Fantasy XIII, and Dante’s Inferno. Hardback Café Comps increased 15.6% for the quarter, resulting from increased sales of specialty café drinks. Movie Comps increased

11.1% for the quarter, primarily resulting from increased sales of new and used Blu-ray DVDs, DVD boxed sets, and used DVDs. Consumables Comps increased 9.4% for the quarter, primarily due to strong sales of novelty drinks and fountain drinks. Trends Comps increased 8.9% for the quarter, primarily due to strong sales of “As Seen on TV” products such as the Kymaro and the Big Top Cupcake, strong sales of Hex Bugs, and an increase in sales of action figures, driven primarily by an increase in action figures sold over the internet. The increases were partially offset by lower sales of apparel products, including t-shirts and jewelry. Electronics Comps increased 4.1% for the quarter primarily due to strong sales of new and refurbished iPods, MP3 players, and related accessories including headphones, partially offset by lower sales of digital converter boxes. Book Comps decreased 1.2% for the quarter, primarily due to decreased sales of new trade paperbacks and hardbacks, partially offset by an increase in sales of used trade paperbacks and hardbacks. Sales of new hardbacks and trade paperbacks faced a challenging comparison due to strong sales of books from Stephenie Meyer’s The Twilight Saga series during fiscal 2009. Excluding The Twilight Saga series sales, book Comps for the first quarter of fiscal 2010 would have increased 3.2%. Strong performers during the quarter included young readers titles Percy Jackson by Rick Riordan and Diary of a Wimpy Kid by Jeff Kinney, and cooking titles Pioneer Woman by Ree Drummond, Home Cooking with Trisha Yearwood by Trisha Yearwood, and Joy of Cooking by Irma Rombauer. Music Comps decreased 4.8% for the quarter due to lower sales of new and used CDs, resulting directly from a continued industry decline as well as a reduced footprint in twenty-seven stores. Merchandise Comps, excluding the sale of new music, increased 8.2% for the quarter.

Rental Comps decreased 1.7% for the first quarter, primarily due to lower price points, partially offset by fewer promotions offered during the current quarter. Units rented increased approximately 9.7% for the quarter as compared to the prior year. Rental Video Game Comps decreased 2.7% for the period, while Rental Movie Comps decreased 1.3%.

Gross Profit – Merchandise. For the first quarter, total merchandise gross profit dollars increased approximately $0.6 million, or 1.8%, to $33.7 million from $33.1 million for the same period in the prior year, primarily due to higher revenues, partially offset by decreased margin rates. Lower margin rates were partially due to a significant increase in products sold through our proprietary goShip program on the internet that had lower margins than products sold at the stores. As a percentage of total merchandise revenue, merchandise gross profit decreased to 31.2% for the quarter compared to 31.8% for the same period in the prior year, resulting from increased freight costs and shrinkage, partially offset by lower markdown expense. Increased freight costs resulted from increased shipments related to our goShip program.

Gross Profit – Rental. For the first quarter, total rental gross profit dollars decreased approximately $0.8 million, or 5.8%, to $13.1 million from $13.9 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 decreased to 62.9% for the quarter compared to 64.3% for the same period in the prior year primarily as a result of lower rental revenue as well as increased shrinkage.

Selling, General and Administrative Expenses (“SG&A”). As a percentage of total revenue, SG&A increased to 35.2% for the first quarter compared to 34.9% for the same quarter in the prior year. SG&A increased approximately $1.5 million, or 3.4%, to $45.4 million compared to $43.9 million for the same quarter last year primarily as a result of increased store advertising costs along with increased associate benefit costs (primarily increases in associate health insurance and workers compensation insurance), partially offset by lower depreciation expense.

Interest Expense. For the first quarter, interest expense decreased approximately $0.2 million, or 66.7%, to $0.1 million, compared to $0.3 million for the same period in the prior year primarily as a result of lower interest rates and lower average debt levels outstanding during the period. The average rate of interest charged for the quarter decreased to 1.9% compared to 3.0% for the same period in the prior year.

Income Tax Expense. During the three months ended April 30, 2010, the Company recorded a discrete tax benefit of approximately $0.2 million related to amended state returns resulting from an IRS audit of the Company’s previously filed Federal tax returns. No discrete tax items were recorded during the three months ended April 30, 2009. Primarily as a result of this discrete tax benefit, the effective tax rate for the three months ended April 30, 2010 decreased to 28.3% compared to 39.4% for the same period in the prior year.

Use of Non-GAAP Financial Measures

The Company is providing free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income as supplemental non-GAAP financial measures regarding the Company’s operational performance. The Company evaluates its historical and prospective financial performance, as well as its performance relative to its competitors, by using such non-GAAP financial measures. Specifically, management uses these items to further its own understanding of the Company’s core operating performance, which management believes represents the Company’s performance in the ordinary, ongoing and customary course of its operations. Therefore, management excludes from core operating performance those items, such as those relating to restructuring, investing, stock-based compensation expense and non-cash activities that management does not believe are reflective of such ordinary, ongoing and customary activities.

The Company believes that providing this information to its investors, in addition to the presentation of GAAP financial measures, allows investors to see the Company’s financial results “through the eyes” of management. The Company further believes that providing this information allows investors to both better understand the Company’s financial performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

Free Cash Flow

Management defines free cash flow as net cash provided by operating activities for the period less purchases of property, equipment and improvements during the period. Purchases of property, equipment and improvements during the period are netted with any proceeds received from insurance on casualty loss that are directly related to the reinvestment of new capital expenditures. The following table reconciles net cash provided by operating activities, a GAAP financial measure, to free cash flow, a non-GAAP financial measure (in thousands):


	Three months ended April 30,
	2010			2009

Net cash provided by operating activities	$	10,796		$	13,369
Purchase of property, equipment and improvements		(2,260	)		(3,054	)


Free cash flow	$	8,536		$	10,315

EBITDA and Adjusted EBITDA

EBITDA is defined as net income before interest expense (net), income tax expense, property and equipment depreciation expense and amortization. Adjusted EBITDA, as presented herein, is EBITDA excluding gift card breakage revenue and stock-based compensation expense. The following table reconciles net income, a GAAP financial measure, to EBITDA and adjusted EBITDA, non-GAAP financial measures (in thousands):


	Three months ended April 30,
	2010			2009

Net Income	$	1,018		$	1,702
Adjusted for
Interest expense, net		132			295
Income tax expense		401			1,107
Property and equipment depreciation expense		4,321			4,850

EBITDA		5,872			7,954

Gift card breakage revenue		(194	)		—
Stock-based compensation		143			51


Adjusted EBITDA	$	5,821		$	8,005

Adjusted Operating Income

Adjusted operating income is defined as operating income excluding gift card breakage revenue and stock based compensation expense. The following table reconciles operating income, a GAAP financial measure, to adjusted operating income, a non-GAAP financial measure (in thousands):


	Three months ended April 30,
	2010			2009

Operating income	$	1,531		$	3,086
Adjusted for
Gift card breakage revenue		(194	)		—
Stock-based compensation		143			51


Adjusted operating income	$	1,480		$	3,137

Free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income are considered non-GAAP financial measures under the SEC’s Regulation G and therefore should not be considered in isolation of, or as a substitute for, net income, operating income, cash flow from operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. The financial measures of non-GAAP free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income may vary among other companies. Therefore, our free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income may not be comparable to similarly titled measures used by other companies.

Liquidity and Capital Resources

We generate cash from operations from the sale of merchandise and the rental of products, most of which is received in cash and cash equivalents. Our primary sources of working capital are cash flow from operating activities including trade credit from vendors and borrowings under our revolving credit facility, with the most significant source in the first quarters of fiscal 2010 and 2009 being cash flow from operating activities. Other than our principal capital requirements arising from the purchasing, warehousing and merchandising of inventory and rental products, opening new stores and expanding or reformatting existing stores and updating existing and implementing new information systems technology, we have no anticipated material capital commitments, except for the stock buyback programs discussed more fully in Item 2 of Part II of this Quarterly Report on Form 10-Q. We believe our cash flow from operations and borrowings under our revolving credit facility will be sufficient to fund our ongoing operations, new stores, store expansions, and store reformations for the next twelve months.

At April 30, 2010, total outstanding debt was approximately $26.4 million. We project our outstanding debt level will be in the range of $37.5 million to $39.5 million by the end of fiscal 2010. At April 30, 2010, we had approximately $58.5 million in excess availability, after the $10 million availability reserve, under the Facility (as defined below).

Consolidated Cash Flows

Operating Activities. Net cash provided by operating activities totaled approximately $10.8 million for the three months ended April 30, 2010, compared to $13.4 million for the three months ended April 30, 2009. Net earnings for the quarter were approximately $1.0 million compared to net earnings of $1.7 million for the same period in fiscal 2009. Merchandise inventories increased $2.1 million for the quarter, compared to an increase of $0.1 million during the same period in fiscal 2009, primarily due to an increase in revenues. Accrued expenses and other liabilities decreased approximately $2.0 million during the quarter compared to a decrease of $6.1 million during the same period in fiscal 2009, primarily driven by the timing of payments of federal income taxes. During fiscal 2010, we estimate net cash provided by operations of approximately $17.0 to $19.0 million. The expected decrease from fiscal 2009 net cash provided by operations of $26.6 million to estimated fiscal 2010 net cash provided by operations results primarily from projected increases in the purchases of rental asset inventory during fiscal 2010.

Investing Activities. Net cash used in investing activities decreased approximately $0.8 million from $3.1 million for the three months ended April 30, 2009, to $2.3 million for the three months ended April 30, 2010. This decrease was primarily the result of planned reductions in our capital expenditures. For the full fiscal year 2010, the Company projects capital expenditures to be approximately $17.3 million, which includes approximately $1.6 million related to the reformatting of twenty stores to expand the footprint of our Comics category, and $0.7 million to expand the Comics footprint in another ten stores on a smaller scale, with remaining planned discretionary capital expenditures related to new stores, relocated stores and our internet site. The Company incurred approximately $11.3 million of capital expenditures during fiscal year 2009.

Financing Activities. Cash flows from financing activities are primarily associated with borrowings and payments made under our revolving credit facility (described below under “Capital Structure”). For the three months ended April 30, 2010, cash used in financing activities was approximately $12.8 million compared to $14.0 million for the three months ended April 30, 2009, primarily resulting from net repayments to our credit facility during the quarter of approximately $11.7 million compared to net repayments of approximately $9.2 million for same period in the prior year. Changes in our cash overdraft position decreased from a use of $4.7 million for the three months ended April 30, 2009 to a use of $0.2 million for the three months ended April 30, 2010, due to the timing of payments issued to vendors during the period. The Company purchased approximately $1.0 million of treasury stock during the three months ended April 30, 2010 compared to $0.1 million during the three months ended April 30, 2009.

On December 4, 2009, we entered into a stock transfer agreement with the Marmaduke Family Limited Partnership (the “Partnership”). Under the stock transfer agreement, for a period of three years following the death of Mr. John H. Marmaduke, the Company’s President and Chief Executive Officer, the Partnership may tender for purchase to

the Company, and, if so tendered, the Company will be required to purchase, the number of shares of the Company’s common stock belonging to the Partnership that equal an aggregate fair market value of $5.0 million. During this three year period, the Partnership may elect to tender portions of such shares in various lots and parcels, at any time and from time to time, and any tender shall not exhaust or limit the Partnership’s right to tender an additional amount of such shares, subject to the limitations set within the stock transfer agreement. Under the stock transfer agreement, the Company is not obligated to purchase, and the Partnership does not have the right to tender, any amount of such shares with an aggregate fair market value in excess of $5.0 million. In the event that Mr. Marmaduke resigns as an officer or director of the Company prior to his death, the Partnership’s right to tender the shares to the Company shall terminate. The stock transfer agreement shall terminate on the earlier of February 9, 2019, or four years after the death of Mr. Marmaduke. The Company is currently the beneficiary of a $10 million key-man life insurance policy on Mr. Marmaduke; a portion of the proceeds of which would be used to complete any purchases of shares resulting from the stock transfer agreement.

Capital Structure. We have a syndicated secured Loan and Security Agreement with Bank of America (the “Facility”). The amount outstanding under the Facility is limited by a borrowing base predicated on (i) eligible inventory, as defined in the Facility, and (ii) certain rental assets, net of accumulated depreciation less specifically defined reserves and is limited to a ceiling of $100 million, less a $10 million availability reserve. We can borrow at various interest-rate options based on the prime rate or London Interbank Offered Rate (“LIBOR”), plus applicable margin depending upon the level of our minimum availability. The borrowing base under the Facility is limited to an advance rate of 65% of eligible inventory and certain rental assets, which can be adjusted to reduce availability under the Facility. The lender may increase specifically defined reserves to reduce availability in the event of adverse changes in our industry or our financial condition, that are projected to impact the value of our assets pledged as collateral. The lender must exercise reasonable judgment and act in good faith with respect to any changes in the specifically defined reserves. The Facility contains no financial covenants, prohibits the payment of dividends and includes certain other debt and acquisition limitations, allows for the repurchase of up to $27.3 million of our common stock and requires a minimum availability of $10 million at all times. The Facility is secured by substantially all of the assets of the Company and our subsidiary and is guaranteed by our subsidiary. Unless the Facility is amended and the maturity extended, the Facility matures on August 29, 2011. At April 30, 2010, we had $58.5 million in excess availability, after the $10 million availability reserve, under the Facility. We expect to have approximately $44.0 million in excess availability, after the $10 million availability reserve and outstanding letters of credit, at January 31, 2011. However, excess availability may be reduced in the future as changes in the borrowing base occur or the lenders increase availability reserves. The average rates of interest being charged under the Facility for the three months ended April 30, 2010, and the fiscal year ended January 31, 2010 were 1.9% and 2.4%, respectively.

We utilize standby letters of credit to support certain insurance policies. The aggregate amount of the letters of credit at April 30, 2010, was approximately $0.9 million, which reduces the excess availability under the Facility.

At April 30, 2010, our minimum lease commitments for the remainder of fiscal 2010 were approximately $17.4 million. Total existing minimum operating lease commitments for fiscal years 2010 through 2025 were approximately $147.5 million as of April 30, 2010.

Contractual obligations and off-balance sheet arrangements. We have contractual obligations associated with ongoing business and financing activities, which will result in cash payments in future periods. These obligations include long-term debt, operating leases and certain revenue-sharing agreements. As of April 30, 2010, other than operating leases and standby letters of credit, we had not entered into any off-balance sheet arrangements or third-party guarantees, nor does our business ordinarily require us to do so. At April 30, 2010, there have been no material changes in our contractual obligations or off-balance sheet arrangements from those reported in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

Seasonality

As is the case with many retailers, a significant portion of our revenues, and an even greater portion of our operating income, is generated in the fourth fiscal quarter, which includes the holiday selling season. As a result, a substantial portion of our annual earnings has been, and will continue to be, dependent on the results of the fourth quarter,

which could be impacted by the extremely challenging times that the U.S. and global economies are currently experiencing, the conditions of which have had and will continue to have an adverse impact on spending by Hastings’ current retail customer base and potential new customers. Less than satisfactory net sales for such period could have a material adverse effect on the Company’s financial condition or results of operations for the year and may not be sufficient to cover any losses that may have been incurred in the first three quarters of the year. We experience reduced video rental activity in the spring because customers spend more time outdoors. Major world or sporting events, such as the Super Bowl, the Olympic Games or the World Series, also have a temporary adverse effect on revenues. Future operating results may be affected by many factors, including variations in the number and timing of superstore openings, the number and popularity of new book, music and video titles, the cost of the new release or “best renter” titles, changes in comparable-store revenues, competition, marketing programs, increases in the minimum wage, weather, special or unusual events and other factors that may affect our operations.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In the ordinary course of our business, we are exposed to certain market risks, primarily changes in interest rates. Our exposure to interest rate risk consists of variable rate debt based on the lender’s base rate or LIBOR plus a specified percentage, at our option. The annual impact on our results of operations of a 100 basis point interest rate change on the April 30, 2010, outstanding balance of the variable rate debt would be approximately $0.3 million. After an assessment of these risks to our operations, we believe that the primary market risk exposures (within the meaning of Regulation S-K Item 305) are not material and are not expected to have any material adverse impact on our financial position, results of operations or cash flows for the next fiscal year.

ITEM 4 – CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Management has implemented a process to monitor and assess both the design and operating effectiveness of internal control over financial reporting. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

There has not been any change in our internal control over financial reporting during our fiscal quarter ended April 30, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS.

ITEM 1A – RISK FACTORS.

Our Annual Report on Form 10-K for the fiscal year ended January 31, 2010 includes a detailed discussion of our risk factors. Since that time, there have been no material changes to our risk factors.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

A summary of our purchases of shares of common stock for the three months ended April 30, 2010 is as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

Approximate dollar

Total number of

value of shares that

Average

shares purchased

may yet be

Total number

price

as part of publicly

purchased under

of shares

paid per

announced plans

the plans or

Period

purchased (1)

or programs

programs (2)

March 1, 2010 through March 31, 2010

59,900

4.16

59,900

N/A

April 1, 2010 through April 30, 2010

129,600

5.48

129,600

N/A

Total

189,500

5.04

189,500

3,470,359


(1)		All shares were open-market purchases made under a repurchase plan publicly announced in a press release dated September 28, 2001. Our Board of Directors initially authorized the repurchase of up to $5.0 million of our common stock. To date, the Board of Directors has approved the repurchase of up to an additional $22.5 million of our common stock. Each such authorization to increase amounts was publicly announced in a press release. The repurchases satisfied the conditions of the safe harbor of Rule 10b-18 under the Exchange Act.

(2)		A total of 3,928,345 shares have been purchased under the repurchase plan at a total cost of approximately $23.8 million, or approximately $6.07 per share.

ITEM 6 – EXHIBITS.

The following exhibits are filed herewith or incorporated by reference as indicated as required by Item 601 of Regulation S-K. Any exhibits designated by an asterisk are management contracts and/or compensatory plans or arrangement required to be filed as exhibits to this Quarterly Report on Form 10-Q.


Exhibit
Number			Description of Documents
	3.1	(1)	Third Restated Articles of Incorporation of the Company.

	3.2	(2)	Amended and Restated Bylaws of the Company.

	4.1	(3)	Specimen of Certificate of Common Stock of the Company.

	4.2	(1)	Third Restated Articles of Incorporation of the Company (see 3.1 above).

	4.3	(2)	Amended and Restated Bylaws of the Company (see 3.2 above).

	31.1	(4)	Principal Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

	31.2	(4)	Principal Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

	32.1	(4)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, dated March 18,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.

(2)		Previously filed as an exhibit to the Company’s Form 8-K (File No. 000-24381) filed on January 17, 2008 and incorporated herein by reference.

(3)		Previously filed as an exhibit to the Company’s Registration Statement on Form S-1/A, dated May 19,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.

(4)		Filed herewith.

INDEX TO EXHIBITS


Exhibit
Number			Description of Documents
	3.1	(1)	Third Restated Articles of Incorporation of the Company.

	3.2	(2)	Amended and Restated Bylaws of the Company.

	4.1	(3)	Specimen of Certificate of Common Stock of the Company.

	4.2	(1)	Third Restated Articles of Incorporation of the Company (see 3.1 above).

	4.3	(2)	Amended and Restated Bylaws of the Company (see 3.2 above).

	31.1	(4)	Principal Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

	31.2	(4)	Principal Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

	32.1	(4)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, dated March 18,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.

(2)		Previously filed as an exhibit to the Company’s Form 8-K (File No. 000-24381) filed on January 17, 2008 and incorporated herein by reference.

(3)		Previously filed as an exhibit to the Company’s Registration Statement on Form S-1/A, dated May 19,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.

(4)		Filed herewith.


	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Consolidated Balance Sheets as of April 30, 2010 (Unaudited), and January 31, 2010		3

Unaudited Consolidated Statements of Earnings for the Three Months Ended April 30, 2010 and 2009		4

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2010 and 2009		5

Notes to the Unaudited Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		10

Item 3. Quantitative and Qualitative Disclosures about Market Risk.		20

Item 4. Controls and Procedures.		20

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.		21

Item 1A. Risk Factors.		21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		21

Item 6. Exhibits.		22

SIGNATURES		23

INDEX TO EXHIBITS		24
EX-31.1
EX-31.2
EX-32.1


	Three Months Ended April 30,
	2010		2009
Shares of common stock underlying options		326		820

Exercise price range per share	$	3.53 to $12.26	$	2.66 to $10.64


	HASTINGS ENTERTAINMENT, INC
Date: June 2, 2010	/s/ Dan Crow
	Dan Crow
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other associates who have a significant role in the registrant’s internal control over financial reporting.

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1.		I have reviewed this quarterly report on Form 10-Q of Hastings Entertainment, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:



Date: June 2, 2010	/s/ John H. Marmaduke
	John H. Marmaduke
	President and Chief Executive Officer (Principal Executive Officer)