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) August 22, 2005

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)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

HASTINGS ENTERTAINMENT, INC.

Item 2.02. Results of Operations and Financial Condition.

On August 22, 2005, Hastings Entertainment, Inc. issued a press release regarding its financial results for the fiscal quarter ended July 31, 2005. A copy of the press release is attached hereto as Exhibit 99.1.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

In the same press release dated August 22, 2005, Hastings announced that Jeff A. Ostler, age 41, joined the company as Vice President of Operations, effective August 16, 2005. Mr. Ostler previously served as Division Vice President, Retail Operations of Dollar General Corporation and most recently as Vice President, Store Operations for Denninghouse, Inc., a Canadian corporation operating discount stores under the business name “Buck or Two.”

Mr. Ostler’s employment will be at-will. He will receive a salary of $130,000 per year and a signing bonus of $30,000. He will be eligible for an annual bonus ranging from 36% to 130% of eligible salary.

Mr. Ostler will receive stock option grants of 15,000.

Item 9.01. Financial Statements and Exhibits.

99.1 Press Release dated August 22, 2005.

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: August 23, 2005	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

Hastings Entertainment, Inc. CONTACT: Dan Crow
Vice President and
Chief Financial Officer
(806) 677-1422
www.gohastings.com PR05-119

Hastings Entertainment, Inc. Reports Net Income of $0.06 per Diluted Share
for 2Q 2005 Compared to $0.05 per Diluted Share 2Q 2004
Lowering Guidance for Fiscal Year 2005

AMARILLO, Texas, August 22, 2005—Hastings Entertainment, Inc. (NASDAQ: HAST), a leading multimedia entertainment superstore retailer, today reported results for the three and six months ended July 31, 2005. Net income for the second quarter of fiscal 2005 was approximately $0.7 million, or $0.06 per diluted share, compared to approximately $0.6 million, or $0.05 per diluted share for the second quarter of fiscal 2004. For the six months, net income was approximately $1.4 million, or $0.12 per diluted share in fiscal 2005 compared to net income of approximately $2.6 million, or $0.22 per share for fiscal 2004.

“We are pleased with our results in what proved to be a very challenging second quarter for many retailers,” said John H. Marmaduke, Chairman and Chief Executive Officer. “Retail revenues, particularly for companies in the video rental and music industries, experienced a significant slump. Hastings’ ability to turn a profit in this environment speaks to the soundness of our multimedia format with excellent product offerings across industry lines and effective cost controls relating to merchandise and rental costs, which are a component of Cost of Goods Sold. These cost controls were improved in fiscal 2004 and began to pay benefits to our bottom line in fiscal 2005.”

Marmaduke continued, “In addition, we are thrilled that Jeff Ostler has agreed to serve as Vice President of Operations, effective August 16, 2005. Jeff previously served as Division Vice President, Retail Operations for Dollar General Corporation in Nashville, Tennessee, and most recently as Vice President, Store Operations for Denninghouse, Inc., a Canadian corporation operating discount stores under the business name ‘Buck or Two.’ Jeff brings nearly 20 years of operational experience to Hastings and will be a positive addition to the Hastings management team.”

Financial Results for the Second Quarter of Fiscal Year 2005

Revenues. Total revenues for the second quarter increased $0.3 million, or 0.3%, to $122.7 million compared to $122.4 million for the second quarter of fiscal 2004, resulting primarily from the opening of new superstores. The following is a summary of our revenue results (dollars in thousands):

	Three Months Ended July 31,
	2005						2004					Increase/(Decrease)
				Percent of					Percent of
	Revenues			Total			Revenues		Total			Dollar			Percent
Merchandise revenue	$	100,038			81.5	%	$	97,396		79.6	%	$	2,642			2.7	%
Rental revenue		22,688			18.5	%		25,016		20.4	%		(2,328	)		-9.3	%
Total revenues	$	122,726			100.0	%	$	122,412		100.0	%	$	314			0.3	%
Comparable-store revenues:
Total		-0.8	%
Merchandise		1.7	%
Rental		-10.2	%

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

	Three Months Ended July 31,
	2005			2004
Books		1.2	%		-1.2	%
Video games		14.6	%		9.4	%
Boutique		11.8	%		1.6	%

Book Comps increased 1.2% during the current quarter primarily due to the July release of the sixth book in the Harry Potter series, while video games Comps rose 14.6% due to strong sales of new and used XBOX games as well as video game hardware. Our boutique product line showed an 11.8% Comp increase, headlined by the increased sales of body jewelry, novelty t-shirts, and action figures. Rental video Comps decreased 10.2% from the same period last year reflecting general rental weakness industry-wide.

Gross Profit. For the second quarter, total gross profit dollars increased approximately $1.4 million, or 3.2%, to $45.1 million from $43.7 million for the same period last year, primarily as a result of increases in both merchandise and rental margin rates. As a percentage of total revenues, gross profit increased to 36.7% for the quarter compared to 35.7% for the same quarter in the prior year.

Selling, General and Administrative expenses (“SG&A”). SG&A increased approximately $1.2 million to $43.4 million for the current quarter compared to $42.2 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. Additionally, we recognized an asset impairment charge of $0.2 million and expenses of approximately $0.3 million in connection with implementation of controls and procedures to comply with Section 404 of the Sarbanes-Oxley Act. As a percentage of total revenues, SG&A increased to 35.3% for the current quarter compared to 34.5% for the same quarter in the prior year.

Financial Results for the Six Months Ended July 31, 2005

Revenues. Total revenues for the first six months of fiscal 2005 increased $2.5 million, or 1.0%, to $251.8 million compared to $249.3 million for the same period in the prior year, resulting primarily from the opening of new superstores. The following is a summary of our revenue results (dollars in thousands):

	Six Months Ended July 31,
	2005						2004					Increase/(Decrease)
				Percent of					Percent of
	Revenues			Total			Revenues		Total			Dollar			Percent
Merchandise revenue	$	204,902			81.4	%	$	198,498		79.6	%	$	6,404			3.2	%
Rental revenue		46,948			18.6	%		50,851		20.4	%		(3,903	)		-7.7	%
Total revenues	$	251,850			100.0	%	$	249,349		100.0	%	$	2,501			1.0	%
Comparable-store revenues:
Total		-0.5	%
Merchandise		1.6	%
Rental		-8.2	%

The higher merchandise Comps were primarily the result of changes in the following categories:

	Six Months Ended July 31,
	2005			2004
Video for sale		1.2	%		25.4	%
Video games		22.8	%		8.0	%
Boutique		14.4	%		3.4	%

Video for sale Comps rose 1.2% due to higher DVD sales, offset by declining VHS sales. Video games Comps rose 22.8% due to strong sales of new and used XBOX games as well as video game hardware. Our boutique Comp increase of 14.4% was headlined by the increased sales of body jewelry, novelty t-shirts, and action figures. Rental video Comps decreased 8.2% from the same period last year reflecting general rental weakness industry-wide.

Gross Profit. For the current six months, total gross profit dollars increased approximately $0.8 million, or 0.9%, to $89.1 million from $88.3 million for the same period last year, primarily as a result of higher revenues. As a percentage of total revenues, gross profit remained stable at 35.4% for the six months ended July 31, 2005 compared to the same period in the prior year.

Selling, General and Administrative expenses (“SG&A”). SG&A increased approximately $2.6 million to $85.7 million for the current six month period compared to $83.1 million for the same period 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 increased to 34.0% for the six months ended July 31, 2005 compared to 33.3% for the six months ended July 31, 2004.

Stock Repurchase

On September 18, 2001, we announced a stock repurchase program of up to $5.0 million of our common stock. On April 4, 2005, the Board of Directors approved an increase of $2.5 million to the program. During the second quarter of fiscal year 2005, we purchased a total of 183,290 shares at a cost of approximately $1,089,000, or $5.94 per share. As of July 31, 2005, a total of 1,197,363 shares had been purchased under the program at a cost of approximately $6.3 million, for an average cost of approximately $5.26 per share.

Store Activity

Since May 24, 2005, which was the date we last reported superstore activity, we have had additional superstore activity as follows:

				Selling Square
Community	Type	Population		Footage		Date Opened
Ogden, UT	Relocation		77,226		19,060		6/17/2005
Bryan, TX	Expansion		65,660		21,827		7/1/2005

Fiscal Year 2005 Guidance

“Although our net income for the first and second quarters was consistent with our internal forecast, we are revising our guidance downward from $0.55 to $0.58 earnings per diluted share to $0.47 to $0.50 for fiscal year 2005,” said Dan Crow, Vice President of Finance and Chief Financial Officer. “We expect the downturn in the rental industry experienced in the first half of Fiscal 2005 to continue through the remainder of the fiscal year. Accordingly, we have lowered our internal projections of rental revenue in the second half of Fiscal 2005. This impact is partially offset by increased margin rates, resulting from improved operating efficiencies.

In addition, we now set forth the following guidance regarding net income (loss) per diluted share for the remaining quarters of fiscal 2005:

Quarter ended October 31, 2005	($0.13) to ($0.16)
Quarter ended January 31, 2006	$0.48 to $0.51

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, including statements regarding our future merchandise margins and our general guidance for fiscal year 2005, 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 153 superstores, averaging approximately 20,000 square feet, primarily in small to medium-sized markets throughout the United States.

We also operate 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 to filings with the Securities and Exchange Commission, which include officer certifications filed as exhibits to interim and annual filings.

Consolidated Balance Sheets
(Dollars in thousands)

	July 31,			July 31,			January 31,
	2005			2004			2005
	(unaudited)			(unaudited)
				(as restated)
Assets
Current assets
Cash	$	8,286		$	5,911		$	9,543
Merchandise inventory		143,552			150,087			153,554
Deferred income taxes, current		3,141			2,018			3,198
Other current assets		6,772			7,827			6,945
Total current assets		161,751			165,843			173,240
Property and equipment, net		76,007			76,279			80,010
Deferred income taxes, non-current		2,528			2,841			308
Intangible assets, net		497			586			542
Other assets		63			16			16
Total assets	$	240,846		$	245,565		$	254,116
Liabilities and Shareholders’ Equity
Current liabilities
Current maturities on capital lease obligations	$	254		$	191		$	243
Trade accounts payable		63,986			73,058			86,082
Accrued expenses & other current liabilities		34,750			34,841			36,166
Total current liabilities		98,990			108,090			122,491
Long-term debt, excluding current maturities		49,654			48,292			39,603
Other liabilities		2,067			2,598			2,248
Commitments and contingencies		—			—			—
Shareholders’ equity:
Preferred stock		—			—			—
Common stock		119			119			119
Additional paid-in capital		36,137			36,409			36,382
Retained earnings		57,196			52,557			55,771
Treasury stock, at cost		(3,317	)		(2,500	)		(2,498	)
Total shareholders’ equity		90,135			86,585			89,774
Total liabilities and shareholders’ equity	$	240,846		$	245,565		$	254,116

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

	Three Months Ended						Six Months Ended
	July 31,						July 31,
	2005			2004			2005			2004
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
				(as restated)						(as restated)
Merchandise revenue	$	100,038		$	97,396		$	204,902		$	198,498
Rental revenue		22,688			25,016			46,948			50,851
Total revenues		122,726			122,412			251,850			249,349
Merchandise cost of revenue		69,383			69,427			145,463			141,323
Rental cost of revenue		8,243			9,238			17,248			19,768
Total cost of revenues		77,626			78,665			162,711			161,091
Gross profit		45,100			43,747			89,139			88,258
Selling, general and administrative expenses		43,376			42,189			85,703			83,130
Pre-opening expenses		3			240			92			334
Operating income		1,721			1,318			3,344			4,794
Other income (expense):
Interest expense		(649	)		(449	)		(1,142	)		(814	)
Other, net		42			68			143			176
Income before income taxes		1,114			937			2,345			4,156
Income tax expense		443			305			920			1,562
Net income	$	671		$	632		$	1,425		$	2,594
Basic income per share	$	0.06		$	0.06		$	0.12		$	0.23
Diluted income per share	$	0.06		$	0.05		$	0.12		$	0.22
Weighted-average common shares outstanding:
Basic		11,436			11,413			11,456			11,389
Dilutive effect of stock options		297			644			366			529
Diluted		11,733			12,057			11,822			11,918

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

	Three Months Ended						Six Months Ended
	July 31,						July 31,
	2005			2004			2005			2004
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
				(as restated)						(as restated)
Cash flows from operating activities:
Net income	$	671		$	632		$	1,425		$	2,594
Adjustments to reconcile net income to net cash provided by operations
Rental asset depreciation		3,723			5,127			8,227			10,992
Property, equipment and improvement depreciation		4,871			4,787			9,654			9,393
Amortization expense		23			22			45			44
Deferred income taxes		(1,052	)		(1,183	)		(2,163	)		74
Loss on rental assets, lost, stolen and defective		1,390			1,191			2,675			2,444
Loss on disposal of other assets		228			282			313			469
Non-cash compensation		—			60			—			60
Changes in operating assets and liabilities:
Merchandise inventory		6,088			(3,607	)		13,250			(7,795	)
Prepaid expenses and other current assets		(20	)		(869	)		173			(731	)
Trade accounts payable		(12,261	)		(3,842	)		(22,096	)		(9,014	)
Accrued expenses and other liabilities		3,238			4,243			(1,416	)		(826	)
Other assets and liabilities, net		(124	)		(441	)		(228	)		(261	)
Net cash provided by operations		6,775			6,402			9,859			7,443
Cash flows from investing activities:
Purchases of rental assets		(4,891	)		(6,952	)		(11,360	)		(15,303	)
Purchases of property and equipment		(5,449	)		(7,734	)		(8,754	)		(11,976	)
Net cash used in investing activities		(10,340	)		(14,686	)		(20,114	)		(27,279	)
Cash flows from financing activities:
Borrowings under revolving credit facility		131,777			135,305			272,575			279,401
Repayments under revolving credit facility		(126,068	)		(125,448	)		(262,395	)		(260,657	)
Payments under capital lease obligations		(59	)		(55	)		(118	)		(105	)
Purchase of treasury stock		(1,089	)		(261	)		(1,611	)		(452	)
Proceeds from exercise of stock options		14			357			547			436
Net cash provided by financing activities		4,575			9,898			8,998			18,623
Net increase (decrease) in cash		1,010			1,614			(1,257	)		(1,213	)
Cash at beginning of period		7,276			4,297			9,543			7,124
Cash at end of period	$	8,286		$	5,911		$	8,286		$	5,911

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

	July 31,			July 31,			January 31,
	2005			2004			2005
Merchandise inventories, net	$	143,552		$	150,087		$	153,554
Inventory turns, trailing 12 months (B)		1.85			1.92			1.84
Long-term debt	$	49,654		$	48,292		$	39,603
Long-term debt to total capitalization (C)		35.5	%		35.8	%		30.6	%
Book value (D)	$	90,135		$	86,585		$	89,774
Book value per share (E)	$	7.62		$	7.27		$	7.52

	Three Months Ended July 31,						Six Months Ended July 31,
	2005			2004			2005			2004
EBITDA (F)	$	10,380		$	11,322		$	21,413		$	25,399
Adjusted EBITDA (F)	$	5,489		$	4,370		$	10,053		$	10,096
Comparable-store revenues (G):
Total		-0.8	%		4.0	%		-0.5	%		6.0	%
Merchandise		1.7	%		6.8	%		1.6	%		8.7	%
Rental		-10.2	%		-5.5	%		-8.2	%		-2.9	%

(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 July 31, 2005 divided by average merchandise inventory for the twelve months ended July 31, 2005.
(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 period end.
(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 assets” and could be viewed as an indicator of our ability to service debt following the procurement of rental 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 July 31,				Six Months Ended July 31,
	2005		2004		2005		2004
Net income	$	671	$	632	$	1,425	$	2,594
Interest expense		649		449		1,142		814
Income tax expense		443		305		920		1,562
Rental depreciation expense		3,723		5,127		8,227		10,992
Property, equipment & improvement depreciation		4,871		4,787		9,654		9,393
Amortization expense		23		22		45		44
EBITDA	$	10,380	$	11,322	$	21,413	$	25,399

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

	Three Months Ended July 31,						Six Months Ended July 31,
	2005			2004			2005			2004
Net income	$	671		$	632		$	1,425		$	2,594
Interest expense		649			449			1,142			814
Income tax expense		443			305			920			1,562
Rental depreciation expense		3,723			5,127			8,227			10,992
Property, equipment & improvement depreciation		4,871			4,787			9,654			9,393
Amortization expense		23			22			45			44
Purchase of rental assets		(4,891	)		(6,952	)		(11,360	)		(15,303	)
Adjusted EBITDA	$	5,489		$	4,370		$	10,053		$	10,096

(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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