8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) May 26, 2004

HASTINGS ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

TEXAS

(State or other jurisdiction of incorporation or organization)

000-24381	75-1386375
(Commission File Number)	(I.R.S. Employer Identification Number)
3601 Plains Blvd, Amarillo, Texas	79102
(Address of principal executive offices)	(Zip Code)

(806) 351-2300

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year,
if changed since last report)

TABLE OF CONTENTS

	Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
	Item 12. Results of Operations and Financial Condition.
SIGNATURES
Press Release

HASTINGS ENTERTAINMENT, INC.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

     (c) Exhibits:

Exhibit
Number	Description
99.1	Press release issued by Hastings Entertainment, Inc., dated May 24, 2004

Item 12. Results of Operations and Financial Condition.

On May 24, 2004, Hastings Entertainment, Inc. issued a press release announcing, among other things, its results for the fiscal quarter ended April 30, 2004 and revised financial guidance for fiscal year 2004. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

The information contained in this Current Report on Form 8-K, including the exhibit attached hereto, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. Furthermore, the information contained in this Current Report on Form 8-K shall not be deemed to be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended.

HASTINGS ENTERTAINMENT, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:	May 26, 2004	Hastings Entertainment, Inc.
		(Registrant)
		By:	/s/ Dan Crow
			Dan Crow
			Vice President,
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

EX-99.1

Exhibit 99.1

	CONTACT:	Dan Crow	PR04-107
Hastings		Vice President and Chief Financial Officer
Entertainment, Inc.		(806) 351-2300, ext. 6000
		www.gohastings.com

Hastings Entertainment, Inc. Reports Pre-Tax Income of $0.25 per Diluted Share for 1Q 2004 Compared to a Pre-Tax Loss of $0.09 per Share for 1Q 2003, Raises Guidance for Full Year 2004

AMARILLO, Texas, May 24, 2004—Hastings Entertainment, Inc. (NASDAQ: HAST), a leading multimedia entertainment superstore retailer, today reported results for the three months ended April 30, 2004. Net income was approximately $1.8 million, or $0.15 per diluted share, for the first quarter of fiscal year 2004 compared to a net loss of approximately $1.1 million, or $0.09 per share, for the first quarter of fiscal year 2003. Pre-tax income was approximately $3.0 million, or $0.25 per diluted share, for the first quarter of fiscal year 2004 compared to a pre-tax loss of approximately $1.1 million, or $0.09 per share, for the first quarter of fiscal year 2003.

Below is a tabular presentation comparing and reconciling net income (loss) and pre-tax income (loss), and related per diluted share amounts, for the three months ended April 30, 2004 and 2003 (dollars in thousands, except per share amounts):

	Three Months Ended April 30,
	2004			2003
Pre-tax income (loss)	$	2,989		$	(1,068	)
Income tax expense		(1,168	)		—
Net income (loss)	$	1,821		$	(1,068	)
Per diluted share amounts:
Pre-tax income (loss)	$	0.25		$	(0.09	)
Income tax expense		(0.10	)		—
Net income (loss)	$	0.15		$	(0.09	)

Financial Results for the First Quarter of Fiscal Year 2004

Revenues. Total revenues for the first quarter increased $10.1 million, or 8.6%, to $126.9 million compared to $116.8 million for the first quarter of fiscal 2003, resulting principally from an increase of 8.1% in comparable-store revenues (“Comps”). The following is a summary of our revenue results:

	Three Months Ended April 30,
	2004						2003						Increase/(Decrease)
				Percent						Percent
	Revenues			of Total			Revenues			of Total			Dollar		Percent
Merchandise revenue	$	101,102			79.6	%	$	91,456			78.3	%	$	9,646		10.5	%
Rental video revenue		25,835			20.4	%		25,381			21.7	%		454		1.8	%
Total revenues	$	126,937			100.0	%	$	116,837			100.0	%	$	10,100		8.6	%
Comparable-store revenues:
Total		8.1	%					1.9	%
Merchandise		10.5	%					-0.1	%
Rental		-0.2	%					9.5	%

“We are extremely pleased with our results for the first quarter of fiscal 2004,” said John H. Marmaduke, Chairman and Chief Executive Officer. “In my letter to our shareholders contained in our Fiscal Year 2003 Summary Annual Report, I discussed management initiatives and system enhancements that, while completed in fiscal 2003, would show their first full year of benefit in fiscal 2004. We believe our focus in these areas is a significant contributor to increases in revenue and profits for the first quarter of fiscal 2004.”

The higher merchandise Comps were primarily the result of Comp increases in our video for sale, book and music categories. Below is a summary of the Comp results for those categories:

	Three Months Ended April 30,
	2004			2003
Video for sale		24.6	%		22.7	%
Books		8.0	%		-5.4	%
Music		5.9	%		-11.8	%

Gross Profit. For the first quarter, total gross profit dollars increased approximately 15.8% to $44.5 million from $38.5 million for the same period last year, primarily as a result of higher revenues and increases in merchandise margin rates. As a percentage of total revenues, gross profit increased to 35.1% for the quarter compared to 32.9% for the same quarter in the prior year.

Selling, general and administrative expenses (“SG&A”). SG&A increased approximately $2.2 million to $41.2 million for the current quarter compared to $39.0 million for the same quarter in the prior year, due primarily to higher human resource and occupancy costs associated with the operation of a greater number of new, expanded and relocated superstores. As a percentage of total revenues, SG&A decreased to 32.4% for the current quarter compared to 33.3% for the same quarter in the prior year.

Stock Repurchase

On September 18, 2001, we announced a stock repurchase program of up to $5.0 million of our common stock. During the first quarter of fiscal year 2004, we purchased a total of 29,500 shares at a cost of approximately $191,000, or $6.48 per share. As of April 30, 2004, a total of 825,923 shares had been purchased under the program at a cost of approximately $3.964 million, for an average cost of $4.80 per share.

Fiscal Year 2004 Guidance

“In our press release dated March 29, 2004, we issued guidance of $0.70 to $0.76 per diluted share on a pre-tax income basis and $0.44 to $0.48 per share on a diluted net income basis,” said Dan Crow, Vice President of Finance and Chief Financial Officer. “Our revenue and gross profit rate for the first quarter exceeded our internal forecast, which is the basis for our guidance. Consequently, we are raising our guidance to a range of $0.80 to $0.85 per diluted share on a pre-tax income basis and a range of $0.50 to $0.53 per share on a diluted net income basis.”

This guidance, as indicated below under “Safe Harbor Statement,” reflects current estimates, assumptions and expectations, based on information available on the date of this press release. This guidance is subject to uncertainty, as the information upon which it is based will change over time and may change substantially as the fiscal year progresses. We undertake no obligation to update this guidance for such changes, but intend to review such guidance on a fiscal quarterly basis to determine whether we are currently on track with such guidance. Weighted average diluted shares outstanding at April 30, 2004 were approximately 11.8 million.

New Stores

Since September 17, 2003, which is the date we last reported our new superstore activity, we have opened superstores with our new 3-Across layout in the following communities:

			Selling
Community	Population		Square Footage		Date Opened
Canyon, TX		13,000		10,000		10/20/03
Clovis, NM		33,000		18,000		11/17/03
Canon City, CO		15,000		18,000		04/26/04
Emporia, KS		27,000		15,000		05/17/04

Hastings’ 3-Across store format enables us to merchandise more product, provide better customer service, satisfy a more diverse customer base and promote more logical product adjacencies for improved customer traffic flow.

Safe Harbor Statement

Certain written and oral statements set forth above or made by Hastings or with the approval of an authorized executive officer of the Company constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, the words “believe,” “expect,” “intend,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements which are not necessarily historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, particularly with respect to items contained in our guidance for fiscal year 2004, are forward-looking statements. Such statements are based upon Company management’s current estimates, assumptions and expectations, which are based on information available at the time of this disclosure, and are subject to a number of factors and uncertainties, including, but not limited to, our inability to attain such estimates, assumptions and expectations, a downturn in market conditions in any industry, including the current economic state of retailing (relating to the products we inventory, sell or rent) and the effects of or changes in economic conditions in the U.S. or the markets in which we operate. 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.

About Hastings

Founded in 1968, Hastings Entertainment, Inc. is a leading multimedia entertainment retailer that combines the sale of books, music, software, periodicals, new and used DVDs, videos and video games with the rental of videos, DVDs and video games in a superstore format. We currently operate 150 superstores, averaging approximately 20,000 square feet, primarily in small to medium-sized markets in 20 states, primarily in the Western and Midwestern United States.

Hastings also operates an e-commerce Internet Web site that makes available to our customers new and used entertainment products, and unique, contemporary gifts. The site features exceptional product and pricing offers as well as an Investor Relations section with links to past press release information and filings with the Securities and Exchange Commission, including officer certification of financial information listed as exhibits to such filings.

Consolidated Balance Sheets
(Dollars in thousands)

	April 30,			April 30,			January 31,
	2004			2003			2004
	(unaudited)			(unaudited)
Assets
Current Assets
Cash	$	4,297		$	2,895			7,124
Merchandise inventories, net		144,755			137,596			138,552
Income tax receivable		195			569			511
Deferred income taxes, current		1,935			—			1,779
Prepaid expenses and other current assets		6,763			6,108			6,585
Total current assets		157,945			147,168			154,551
Property and equipment, net		78,061			76,000			79,633
Deferred income taxes, net of valuation allowance at April 30, 2003		—			971			1,246
Intangible assets, net		608			696			630
Other assets		16			188			188
Total assets	$	236,630		$	225,023			236,248
Liabilities and Shareholders’ Equity
Current liabilities
Current maturities on capital lease obligations	$	168		$	199			221
Trade accounts payable		76,900			67,963			82,072
Accrued expenses and other current liabilities		29,230			31,020			34,308
Total current liabilities		106,298			99,182			116,601
Long-term debt, excluding current maturities		38,513			44,074			29,623
Deferred income taxes		78			—			—
Other liabilities		3,039			3,668			3,031
Commitments and contingencies		—			—			—
Shareholders’ equity:
Preferred stock		—			—			—
Common stock		119			119			119
Additional paid-in capital		36,557			36,740			36,598
Retained earnings		54,830			44,191			53,009
Treasury stock, at cost		(2,804	)		(2,951	)		(2,733	)
Total shareholders’ equity		88,702			78,099			86,993
Total liabilities and shareholders’ equity	$	236,630		$	225,023			236,248

Consolidated Statements of Operations (unaudited)
(Dollars in thousands, except per share data)

	Three months ended
	April 30,
	2004			2003
Merchandise revenue	$	101,102		$	91,456
Rental video revenue		25,835			25,381
Total revenues		126,937			116,837
Merchandise cost of revenue		71,896			68,481
Rental video cost of revenue		10,530			9,903
Total cost of revenues		82,426			78,384
Gross profit		44,511			38,453
Selling, general and administrative expenses		41,171			38,976
Pre-opening expenses		94			113
Operating income (loss)		3,246			(636	)
Other income (expense):
Interest expense		(365	)		(490	)
Other, net		108			58
Income (loss) before income taxes		2,989			(1,068	)
Income tax expense		1,168			—
Net income (loss)	$	1,821		$	(1,068	)
Basic income (loss) per share	$	0.16		$	(0.09	)
Diluted income (loss) per share	$	0.15		$	(0.09	)

Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)

	Three months ended
	April 30,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	1,821		$	(1,068	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation expense		10,710			9,838
Amortization expense		22			21
Loss on rental videos, lost, stolen and defective		1,253			1,219
Loss on disposal of other assets		187			299
Deferred income taxes		1,168			—
Non-cash compensation		—			10
Changes in operating assets and liabilities:
Merchandise inventory		(4,188	)		11,927
Prepaid expenses and other current assets		(178	)		(139	)
Trade accounts payable		(5,172	)		(7,749	)
Accrued expenses and other liabilities		(5,078	)		(1,523	)
Income taxes receivable/payable		316			(17	)
Other assets and liabilities, net		180			269
Net cash provided by operations		1,041			13,087
Cash flows from investing activities:
Purchases of rental video		(8,351	)		(6,356	)
Purchases of property and equipment		(4,242	)		(5,844	)
Net cash used in investing activities		(12,593	)		(12,200	)
Cash flows from financing activities:
Borrowings under revolving credit facility		144,096			118,222
Repayments under revolving credit facility		(135,209	)		(120,615	)
Payments under long-term debt and capital lease obligations		(50	)		(46	)
Purchase of treasury stock		(191	)		—
Proceeds from exercise of stock options		79			—
Net cash provided by (used in) financing activities		8,725			(2,439	)
Net decrease in cash		(2,827	)		(1,552	)
Cash at beginning of period		7,124			4,447
Cash at end of period	$	4,297		$	2,895

Balance Sheet, Cash Flow and Other Ratios (A)
(Dollars in thousands, except per share amounts)

	April 30,			April 30,
	2004			2003
Merchandise inventories, net	$	144,755		$	137,596
Inventory turns, trailing 12 months (B)		1.93			1.83
Long-term debt	$	38,513		$	44,074
Long-term debt to total capitalization (C)		30.3	%		36.1	%
Book value (D)	$	88,702		$	78,099
Book value per share (E)	$	7.52		$	6.89

	Three months ended April 30,
	2004			2003
EBITDA (F)	$	14,086		$	9,281
Adjusted EBITDA (F)	$	5,735		$	2,925
Comparable-store total revenues (G)		8.1	%		1.9	%
Comparable-store merchandise revenues (G)		10.5	%		-0.1	%
Comparable-store rental revenues (G)		-0.2	%		9.5	%

(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 twelve months ended April 30, 2004 divided by average merchandise inventory for the twelve months ended April 30, 2004.
(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 as of April 30, 2004.
(F)	It is important to note that EBITDA and Adjusted EBITDA are supplemental non-GAAP measures. EBITDA is defined as “net income before interest, taxes, depreciation and amortization” and is a widely used indicator of a company’s ability to service debt. Adjusted EBITDA is defined as “net income before interest, taxes, depreciation and amortization” less “expenditures for rental video assets” and could be viewed as an indicator of our ability to service debt following the procurement of rental video assets. Neither EBITDA nor Adjusted EBITDA are intended to represent or to be considered as alternatives to operating income or cash flows from operations.
	The following table reconciles EBITDA to our unaudited consolidated financial statements contained herein:

	Three months ended April 30,
	2004		2003
Net income (loss)	$	1,821	$	(1,068	)
Interest expense		365		490
Income tax expense		1,168		—
Depreciation expense		10,710		9,838
Amortization expense		22		21
EBITDA	$	14,086	$	9,281

The following table reconciles Adjusted EBITDA to our unaudited consolidated financial statements contained herein:

	Three months ended April 30,
	2004			2003
Net income (loss)	$	1,821		$	(1,068	)
Interest expense		365			490
Income tax expense		1,168			—
Depreciation expense		10,710			9,838
Amortization expense		22			21
Purchase of rental video assets		(8,351	)		(6,356	)
Adjusted EBITDA	$	5,735		$	2,925

(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 not included and closed stores are removed from each comparable period for the purpose of calculating comparable-store revenues.

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