EX-99.1 2 d40076exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
NEWS RELEASE
             
Hastings
Entertainment, Inc.
  CONTACT:   Dan Crow
 Vice President and
Chief Financial Officer
(806) 677-1422 www.gohastings.com 		  PR06-131
Hastings Entertainment, Inc. Reports Net Income of $0.02 per Diluted Share for 2Q 2006
Compared to $0.06 per Diluted Share for 2Q 2005
AMARILLO, Texas, August 21, 2006—Hastings Entertainment, Inc. (NASDAQ: HAST), a leading multimedia entertainment retailer, today reported results for the three and six months ended July 31, 2006. Net income was $0.2 million, or $0.02 per diluted share, for the second quarter of fiscal year 2006 compared to net income of approximately $0.7 million, or $0.06 per diluted share, for the second quarter of fiscal year 2005. For the six months, net income was approximately $2.1 million, or $0.18 per diluted share in fiscal 2006 compared to net income of approximately $1.4 million, or $0.12 per share for fiscal 2005.
“Our net income was in line with our internal forecast and we remain on our year-to-date forecast,” said John Marmaduke, Chairman and Chief Executive Officer. “We feel that our total and comparable revenue increase in spite of continued weakness in the music and in-store video rental industries and books having an unfavorable comparison against last year’s release of Harry Potter and the Half-Blood Prince attests to the strength of our multi-media business model. Our gross profit decline is attributable to an acceleration of clearance merchandise to accommodate new merchandising initiatives in books and sidelines, as well as aggressive marketing initiatives in video and game rentals.”
Financial Results for the Second Quarter of Fiscal Year 2006
Revenues. Total revenues for the second quarter increased $0.4 million, or 0.3%, to $123.1 million compared to $122.7 million for the second quarter of fiscal 2005. The following is a summary of our revenue results (dollars in thousands):
                                                 
    Three Months Ended July 31,        
    2006     2005     Increase/(Decrease)  
            Percent of             Percent of              
    Revenues     Total     Revenues     Total     Dollar     Percent  
Merchandise revenue
   $ 100,182       81.4 %   $ 100,038       81.5 %   $ 144       0.1 %
Rental revenue
     22,912       18.6 %     22,688       18.5 %     224       1.0 %
 
                                    
Total revenues
   $ 123,094       100.0 %   $ 122,726       100.0 %   $ 368       0.3 %
 
                                    
Comparable-store revenues (“Comps”):
         
Total
     0.5 %
Merchandise
     -0.2 %
Rental
     3.6 %

 

 

Below is a summary of the Comp results for major merchandise categories:
                 
    Three Months Ended July 31,  
    2006     2005  
Music
     -7.9 %     -0.9 %
Books
     -3.2 %     1.2 %
Video for sale
     9.8 %     -0.1 %
Video games
     22.2 %     14.6 %
Boutique
     -4.9 %     11.8 %
Music Comps decreased 7.9%, which was primarily attributable to fewer premier artist CD releases. Book Comps decreased 3.2% as a result of decreased sales of new release hardbacks and paperbacks, which primarily resulted from last year’s $1.7 million in sales of the sixth book in the Harry Potter series. This decrease was partially offset by increased sales in all used book categories. Video for sale Comps increased 9.8% due to increased sales of front-line new release DVDs, DVD box sets, and used DVDs. Video game Comps increased 22.2% due primarily to increased sales of Microsoft XBOX 360 hardware and games, as well as increased sales of video game accessories. The Company is in the process of implementing new plan-o-gramming in our Boutique department, which involves reducing SKU assortment as we sell through certain existing inventory. As a result, Boutique Comps decreased 4.9%, primarily due to decreased sales of t-shirts and footwear.
Rental video Comps increased 3.6% from the same period last year due to improved marketing initiatives and better box office titles.
Gross Profit. For the second quarter, total gross profit dollars decreased approximately $1.6 million, or 3.5%, to $43.5 million from $45.1 million for the same period last year, primarily as a result of lower margin rates. The decrease in margin rates was primarily attributable to lower margins on video rental as a result of an effort to gain market share through increased coupons as well as lower margins on traditional rental videos. As a percentage of total revenues, gross profit decreased to 35.3% for the quarter compared to 36.7% for the same quarter in the prior year.
Selling, General and Administrative expenses (“SG&A”). SG&A decreased approximately $0.6 million to $42.8 million for the current quarter compared to $43.4 million for the same quarter in the prior year. As a percentage of total revenues, SG&A decreased to 34.8% for the current quarter compared to 35.3% for the same quarter in the prior year.
Financial Results for the Six Months Ended July 31, 2006
Revenues. Total revenues for the first six months of fiscal 2006 increased $2.6 million, or 1.1%, to $254.5 million compared to $251.9 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,        
    2006     2005     Increase/(Decrease)  
            Percent of             Percent of              
    Revenues     Total     Revenues     Total     Dollar     Percent  
Merchandise revenue
   $ 207,134       81.4 %   $ 204,902       81.4 %   $ 2,232       1.1 %
Rental revenue
     47,372       18.6 %     46,948       18.6 %     424       0.9 %
 
                                    
Total revenues
   $ 254,506       100.0 %   $ 251,850       100.0 %   $ 2,656       1.1 %
 
                                    
Comparable-store revenues (“Comps”):
         
Total
     1.5 %
Merchandise
     1.1 %
Rental
     2.9 %

 

 

The higher merchandise Comps were primarily the result of changes in the following categories:
                 
    Six Months Ended July 31,  
    2006     2005  
Music
     -6.9 %     -1.1 %
Books
     -0.4 %     -1.1 %
Video for sale
     11.9 %     1.2 %
Video games
     13.6 %     22.8 %
Boutique
     -2.6 %     14.4 %
Music Comps decreased 6.9%, which was primarily attributable to a weaker release schedule compared to the same period in the prior year, partially offset by increased sales of music hardware. Book Comps decreased 0.4% as a result of decreased sales of new release hardbacks, partially offset by increased sales of used books. Video for sale Comps increased 11.9% due to increased sales of front-line new release DVDs, DVD box sets, and used DVDs. Video game Comps increased 13.6% due primarily to increased sales of Microsoft XBOX 360 hardware and games, as well as increased sales of video game accessories. Boutique Comps decreased 2.6%, primarily due to decreased sales of t-shirts and footwear, partially offset by increased sales of action figures and other collectible toys.
Rental video Comps increased 2.9% from the same period last year due to improved marketing initiatives and better box office titles.
Gross Profit. For the current six months, total gross profit dollars increased approximately $1.0 million, or 1.1%, to $90.1 million from $89.1 million for the same period last year. As a percentage of total revenues, gross profit remained stable at 35.4% for the six months ended July 31, 2006 as well as for the same period in the prior year.
Selling, General and Administrative expenses (“SG&A”). SG&A remained stable at approximately $85.7 million for the six months ended July 31, 2006 compared to the same period in the prior year. As a percentage of total revenues, SG&A decreased to 33.7% for the six months ended July 31, 2006 compared to 34.0% for the six months ended July 31, 2005.
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 and on March 15, 2006, the Board of Directors approved an additional increase of $5.0 million. During the second quarter of fiscal year 2006, we purchased a total of 290,200 shares of common stock at a cost of approximately $2,165,101, or $7.46 per share. As of July 31, 2006, a total of 1,571,663 shares had been repurchased under the program at a cost of approximately $8.9 million, for an average cost of approximately $5.66 per share. As of July 31, 2006, approximately $3.6 million remains available in the stock repurchase program.
Store Activity
Since May 22, 2006, which was the date we last reported store activity, we have had additional store activity as follows:
                                 
                    Selling Square    
Community   Type   Population   Footage   Date Opened
Enid, OK
   Remodel     47,045       18,312       7/11/2006  
Albuquerque, NM
   New Store     448,607       17,788       7/31/2006  

 

 

Fiscal Year 2006 Guidance
“Net income for the quarter was in line with our internal forecast, which is the basis for our guidance,” said Dan Crow, Vice President and Chief Financial Officer. “Consequently we are reaffirming our guidance of net income per diluted share ranging from $0.58 to $0.63 for the full fiscal year ending January 31, 2007.”
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 2006, 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 new and used CDs, books, videos and video games, as well as boutique merchandise, with the rental of videos and video games in a superstore format. We currently operate 154 superstores, averaging approximately 20,000 square feet, primarily in 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 our filings with the Securities and Exchange Commission.

 

 

Consolidated Balance Sheets
(Dollars in thousands)
                         
    July 31,     July 31,     January 31,  
    2006     2005     2006  
    (unaudited)     (unaudited)          
Assets
                        
Current Assets
                        
Cash
   $ 5,296     $ 7,168     $ 3,617  
Merchandise inventories, net
     160,026       145,709       165,049  
Deferred income taxes, current
     4,031       3,141       4,234  
Other current assets
     7,443       6,772       7,016  
 
                  
Total current assets
     176,796       162,790       179,916  
 
                        
Rental assets, net
     11,218       10,658       12,606  
Property and equipment, net
     59,688       63,192       60,013  
Deferred income taxes, non-current
     2,781       2,528       1,492  
Intangible assets, net
     424       497       454  
Other assets
     170       63       180  
 
                  
 
                        
Total assets
   $ 251,077     $ 239,728     $ 254,661  
 
                  
 
                        
Liabilities and Shareholders’ Equity
                        
Current liabilities
                        
Current maturities on capital lease obligations
   $ 14     $ 254     $ 94  
Trade accounts payable
     72,519       63,986       88,991  
Accrued expenses and other current liabilities
     34,738       32,186       38,323  
 
                  
Total current liabilities
     107,271       96,426       127,408  
 
                        
Long-term debt, excluding current maturities
     44,033       48,536       28,057  
Other liabilities
     4,385       4,631       4,503  
 
                        
Shareholders’ equity
                        
Preferred stock
     —       —       —  
Common stock
     119       119       119  
Additional paid-in capital
     35,776       36,137       36,076  
Retained earnings
     63,570       57,196       61,466  
Other comprehensive income
     152       —       141  
Treasury stock, at cost
     (4,229 )     (3,317 )     (3,109 )
 
                  
Total shareholders’ equity
     95,388       90,135       94,693  
 
                  
 
                        
Total liabilities and shareholders’ equity
   $ 251,077     $ 239,728     $ 254,661  
 
                  

 

 

Consolidated Statements of Operations
(Dollars in thousands, except per share data)
                                 
    Three Months Ended     Six Months Ended  
    July 31,     July 31,  
    2006     2005     2006     2005  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Merchandise revenue
   $ 100,182     $ 100,038     $ 207,134     $ 204,902  
Rental revenue
     22,912       22,688       47,372       46,948  
 
                        
Total revenues
     123,094       122,726       254,506       251,850  
 
                                
Merchandise cost of revenue
     70,962       70,146       146,531       146,849  
Rental cost of revenue
     8,679       7,480       17,900       15,862  
 
                        
Total cost of revenues
     79,641       77,626       164,431       162,711  
 
                        
 
                                
Gross profit
     43,453       45,100       90,075       89,139  
 
                                
Selling, general and administrative expenses
     42,786       43,376       85,659       85,703  
Pre-opening expenses
     79       3       79       92  
 
                        
 
                                
Operating income
     588       1,721       4,337       3,344  
 
                                
Other income (expense):
                                
Interest expense, net
     (740 )     (649 )     (1,404 )     (1,142 )
Other, net
     475       42       544       143  
 
                        
 
                                
Income before income taxes
     323       1,114       3,477       2,345  
 
                                
Income tax expense
     144       443       1,373       920  
 
                        
 
                                
Net income
   $ 179     $ 671     $ 2,104     $ 1,425  
 
                        
 
                                
Basic income per share
   $ 0.02     $ 0.06     $ 0.18     $ 0.12  
 
                        
 
                                
Diluted income per share
   $ 0.02     $ 0.06     $ 0.18     $ 0.12  
 
                        
 
                                
Weighted-average common shares outstanding:
                                
Basic
     11,370       11,436       11,382       11,456  
Dilutive effect of stock options
     318       297       272       366  
 
                        
 
                                
Diluted
     11,688       11,733       11,654       11,822  
 
                        

 

 

Balance Sheet and Other Ratios (A)
(Dollars in thousands, except per share amounts)
                         
    July 31,     July 31,     January 31,  
    2006     2005     2006  
Merchandise inventories, net
   $ 160,026     $ 145,709     $ 165,049  
Inventory turns, trailing 12 months (B)
     1.78       1.85       1.83  
 
                        
Long-term debt
   $ 44,033     $ 48,536     $ 28,057  
Long-term debt to total capitalization (C)
     31.6 %     35.0 %     22.9 %
 
                        
Book value (D)
   $ 95,388     $ 90,135     $ 94,693  
Book value per share (E)
   $ 8.19     $ 7.62     $ 8.11  
                                 
    Three Months Ended July 31,     Six Months Ended July 31,  
    2006     2005     2006     2005  
Comparable-store revenues (F):
                                
Total
     0.5 %     -0.8 %     1.5 %     -0.5 %
Merchandise
     -0.2 %     1.7 %     1.1 %     1.6 %
Rental
     3.6 %     -10.2 %     2.9 %     -8.2 %
(A)   Calculations may differ in the method employed from similarly titled measures used by other companies.
 
(B)   Calculated as merchandise cost of goods sold for the period’s trailing twelve months divided by average merchandise inventory over the same period.
 
(C)   Defined as long-term debt divided by long-term debt plus total shareholders’ equity (book value).
 
(D)   Defined as total shareholders’ equity.
 
(E)   Defined as total shareholders’ equity divided by weighted average diluted shares outstanding as of period end.
 
(F)   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, as well as coupons, are not included and closed stores are removed from each comparable period for the purpose of calculating comparable-store revenues.
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