EX-99.1 2 d41516exv99w1.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 		 
PR06-136
 
           
Hastings Entertainment, Inc. Raises Guidance for Fiscal Year 2006 on
Improved Financial Performance
Reports Net Loss of $0.20 per Diluted Share for 3Q 2006 Compared to $0.24
per Diluted Share for 3Q 2005
AMARILLO, Texas, November 20, 2006—Hastings Entertainment, Inc. (NASDAQ: HAST), a leading multimedia entertainment retailer, today reported results for the three and nine months ended October 31, 2006. Net loss was $2.2 million, or $0.20 per diluted share, for the third quarter of fiscal year 2006 compared to net loss of approximately $2.7 million, or $0.24 per diluted share, for the third quarter of fiscal year 2005. For the first nine months of the fiscal year, net loss was approximately $0.1 million, or $0.01 per diluted share in fiscal 2006 compared to net loss of approximately $1.3 million, or $0.11 per share for the same period in 2005.
“Our financial results for the first nine months has exceeded our year-to-date forecast which has allowed us to raise our Fiscal 2006 guidance,” said John Marmaduke, Chairman and Chief Executive Officer. “Our decision to increase Boutique and Electronic merchandise markdowns in the second quarter let us accelerate a new merchandising plan which contributed to improved Comp sales during the third quarter. Many of our product categories posted quarterly Comp sales which exceeded industry averages and I feel we have positioned the Company for continued revenue and income growth in the fourth quarter.”
Financial Results for the Third Quarter of Fiscal Year 2006
Revenues. Total revenues for the third quarter increased $5.0 million, or 4.4%, to $119.6 million compared to $114.6 million for the third quarter of fiscal 2005. The following is a summary of our revenue results (dollars in thousands):
                                                 
    Three Months Ended October 31,        
    2006     2005     Increase/(Decrease)  
            Percent of             Percent of              
    Revenues     Total     Revenues     Total     Dollar     Percent  
Merchandise revenue
   $ 98,221       82.1 %   $ 93,581       81.7 %   $ 4,640       5.0 %
Rental revenue
     21,415       17.9 %     21,006       18.3 %     409       1.9 %
 
                                    
Total revenues
   $ 119,636       100.0 %   $ 114,587       100.0 %   $ 5,049       4.4 %
 
                                    
         
Comparable-store revenues (“Comps”):
        
Total
     3.8 %
Merchandise
     4.1 %
Rental
     2.7 %

 

 

Below is a summary of the Comp results for major merchandise categories:
                 
    Three Months Ended October 31,
    2006   2005
Music
     -4.4%     -2.4%
Books
     2.1%     -2.7%
Video for sale
     16.9%     -1.4%
Video games
     11.1%     -9.4%
Boutique
     -0.3%     -1.7%
Music Comps decreased 4.4%, which was primarily attributable to fewer premier artist CD releases as well as decreased sales of used CDs. Book Comps increased 2.1% as a result of increased sales of new release hardbacks and new and used paperbacks. Video for sale Comps increased 16.9% due to increased sales of new release DVDs, DVD box sets and used DVDs. Video game Comps increased 11.1% due primarily to increased sales of Microsoft XBOX 360 hardware and games, as well as increased sales of video game accessories.
Rental Comps increased 2.7% from the same period last year due to improved marketing initiatives and a slate of stronger box office titles. Rental Comps were boosted by DVD Movies, which increased 11.8% from the same period last year.
Gross Profit. For the third quarter, total gross profit dollars increased approximately $0.8 million, or 2.0%, to $41.8 million from $41.0 million for the same period last year, primarily as a result of increased sales. As a percentage of total revenues, gross profit decreased to 34.9% for the quarter compared to 35.8% for the same quarter in the prior year. The decrease in margin rates was primarily attributable to increases in markdowns and shrinkage.
Selling, General and Administrative expenses (“SG&A”). SG&A decreased approximately $0.3 million to $44.6 million for the current quarter compared to $44.9 million for the same quarter in the prior year. As a percentage of total revenues, SG&A decreased to 37.3% for the current quarter compared to 39.2% for the same quarter in the prior year due to improved leveraging of expenses with higher revenues.
Financial Results for the Nine Months Ended October 31, 2006
Revenues. Total revenues for the first nine months of fiscal 2006 increased $7.7 million, or 2.1%, to $374.1 million compared to $366.4 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):
                                                 
    Nine Months Ended October 31,        
    2006     2005     Increase/(Decrease)  
            Percent of             Percent of              
    Revenues     Total     Revenues     Total     Dollar     Percent  
Merchandise revenue
   $ 305,355       81.6 %   $ 298,483       81.5 %   $ 6,872       2.3 %
Rental revenue
     68,787       18.4 %     67,954       18.5 %     833       1.2 %
                                   
Total revenues
   $ 374,142       100.0 %   $ 366,437       100.0 %   $ 7,705       2.1 %
                                   
         
Comparable-store revenues (“Comps”):
        
Total
     2.2 %
Merchandise
     2.1 %
Rental
     2.8 %

 

 

The higher merchandise Comps were primarily the result of changes in the following categories:
                 
    Nine Months Ended October 31,
    2006   2005
Music
     -6.1 %     -1.5 %
Books
     0.4 %     -1.6 %
Video for sale
     13.5 %     0.3 %
Video games
     12.8 %     10.9 %
Boutique
     -1.9 %     8.8 %
Music Comps decreased 6.1%, which was primarily attributable to a weaker release schedule and fewer used CD sales compared to the same period in the prior year, partially offset by increased sales of music hardware. Book Comps increased 0.4% as a result of increased sales of used books, partially offset by decreased sales of new release hardbacks. Video for sale Comps increased 13.5% due to increased sales of new release DVDs, DVD box sets and used DVDs. Video game Comps increased 12.8% 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 and Electronics departments, which involves selling through certain existing inventory to make room for new assortments. As a result, Boutique Comps decreased 1.9%, primarily due to decreased sales of t-shirts and footwear.
Rental Comps increased 2.8% from the same period last year due to improved marketing initiatives and a stronger slate of box office titles. Rental Comps were boosted by DVD Movies, which increased 14.3% from the same period last year.
Gross Profit. For the nine months ended October 31, 2006, total gross profit dollars increased approximately $1.7 million, or 1.3%, to $131.9 million from $130.2 million for the same period last year, primarily as a result of increased sales. As a percentage of total revenues, gross profit decreased to 35.2% for the nine months ended October 31, 2006 as compared to 35.5% for the same period in the prior year.
Selling, General and Administrative expenses (“SG&A”). SG&A decreased approximately $0.4 million to $130.2 million for the nine months ended October 31, 2006 compared to $130.6 million for the same period in the prior year. As a percentage of total revenues, SG&A decreased to 34.8% for the nine months ended October 31, 2006 as compared to 35.6% for the same period in the prior year due to improved leveraging of expenses with higher revenues.
Stock Repurchase
On September 18, 2001, we announced a stock repurchase program of up to $5.0 million of our common stock. Since that time, the Board of Directors has approved additional increases in the amounts of $2.5 million on April 4, 2005; $5.0 million on March 15, 2006; and $2.5 million on October 3, 2006. During the third quarter of fiscal year 2006, we purchased a total of 262,800 shares of common stock at a cost of approximately $1,773,800, for an average cost of approximately $6.75 per share. As of October 31, 2006, a total of 1,834,463 shares had been repurchased under the program at a cost of approximately $10.7 million, for an average cost of approximately $5.83 per share. As of October 31, 2006, approximately $4.3 million remains available for repurchases under the stock repurchase program.

 

 

Store Activity
Since August 21, 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
Lawrence, KS
   Remodel     74,951       27,792       8/19/2006  
Boise, ID
   Remodel     191,667       17,640       10/7/2006  
Amarillo, TX
   Relocation     176,999       24,234       10/20/2006  
Fiscal Year 2006 Guidance
“Our financial results for the first nine months are better than our internal forecast, which is the basis for our guidance,” said Dan Crow, Vice President and Chief Financial Officer. “Additionally, we are anticipating a positive retail environment for the holiday season. Consequently, we are raising our guidance of net income per diluted share for the full fiscal year ending January 31, 2007 from $0.58 to $0.63 to a range of $0.65 to $0.70.”
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
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. 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 our filings with the Securities and Exchange Commission.

 

 

Consolidated Balance Sheets
(Dollars in thousands)
                         
    October 31,     October 31,     January 31,  
    2006     2005     2006  
    (unaudited)     (unaudited)          
Assets
                        
Current Assets
                        
Cash
   $ 3,072     $ 5,477     $ 3,617  
Merchandise inventories, net
     186,291       164,373       165,049  
Deferred income taxes, current
     4,105       3,322       4,234  
Other current assets
     6,780       6,569       7,016  
 
                  
Total current assets
     200,248       179,741       179,916  
 
        
Rental assets, net
     12,615       13,223       12,606  
Property and equipment, net
     59,530       62,509       60,013  
Deferred income taxes, non-current
     2,175       2,315       1,492  
Intangible assets, net
     418       475       454  
Other assets
     118       51       180  
 
                  
Total assets
   $ 275,104     $ 258,314     $ 254,661  
 
                  
Liabilities and Shareholders’ Equity
                        
Current liabilities
                        
Current maturities on capital lease obligations
   $ —     $ 132     $ 94  
Trade accounts payable
     87,350       84,471       88,991  
Accrued expenses and other current liabilities
     32,163       29,462       38,323  
 
                  
Total current liabilities
     119,513       114,065       127,408  
 
        
Long-term debt, excluding current maturities
     59,656       51,954       28,057  
Other liabilities
     4,263       4,769       4,503  
Shareholders’ equity
                        
Preferred stock
     —       —       —  
Common stock
     119       119       119  
Additional paid-in capital
     35,829       36,076       36,076  
Retained earnings
     61,370       54,465       61,466  
Other comprehensive income
     100       —       141  
Treasury stock, at cost
     (5,746 )     (3,134 )     (3,109 )
 
                  
Total shareholders’ equity
     91,672       87,526       94,693  
 
                  
Total liabilities and shareholders’ equity
   $ 275,104     $ 258,314     $ 254,661  
 
                  

 

 

Consolidated Statements of Operations
(Dollars in thousands, except per share data)
                                 
    Three Months Ended     Nine Months Ended  
    October 31,     October 31,  
    2006     2005     2006     2005  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
 
                                
Merchandise revenue
   $ 98,221     $ 93,581     $ 305,355     $ 298,483  
Rental revenue
     21,415       21,006       68,787       67,954  
 
                        
Total revenues
     119,636       114,587       374,142       366,437  
 
                                
Merchandise cost of revenue
     70,337       65,422       216,868       212,271  
Rental cost of revenue
     7,499       8,116       25,399       23,978  
 
                        
Total cost of revenues
     77,836       73,538       242,267       236,249  
 
                        
 
                                
Gross profit
     41,800       41,049       131,875       130,188  
 
                                
Selling, general and administrative expenses
     44,572       44,867       130,231       130,570  
Pre-opening expenses
     15       —       94       92  
 
                        
 
                                
Operating income (loss)
     (2,787 )     (3,818 )     1,550       (474 )
 
                                
Other income (expense):
                                
Interest expense, net
     (900 )     (778 )     (2,304 )     (1,920 )
Other, net
     55       66       599       209  
 
                        
 
                                
Loss before income taxes
     (3,632 )     (4,530 )     (155 )     (2,185 )
 
                                
Income tax benefit
     (1,432 )     (1,799 )     (59 )     (879 )
 
                        
 
                                
Net loss
   $ (2,200 )   $ (2,731 )   $ (96 )   $ (1,306 )
 
                        
 
                                
Basic loss per share
   $ (0.20 )   $ (0.24 )   $ (0.01 )   $ (0.11 )
 
                        
 
                                
Diluted loss per share
   $ (0.20 )   $ (0.24 )   $ (0.01 )   $ (0.11 )
 
                        
 
                                
Weighted-average common shares outstanding:
                                
Basic
     11,176       11,367       11,312       11,426  
Dilutive effect of stock options
     —       —       —       —  
 
                        
 
                                
Diluted
     11,176       11,367       11,312       11,426  
 
                        

 

 

Balance Sheet and Other Ratios (A)
(Dollars in thousands, except per share amounts)
                         
    October 31,     October 31,     January 31,  
    2006     2005     2006  
Merchandise inventories, net
   $ 186,291     $ 164,373     $ 165,049  
Inventory turns, trailing 12 months (B)
     1.74       1.84       1.83  
 
                        
Long-term debt
   $ 59,656     $ 51,954     $ 28,057  
Long-term debt to total capitalization (C)
     39.4 %     37.2 %     22.9 %
 
                        
Book value (D)
   $ 91,672     $ 87,526     $ 94,693  
Book value per share (E)
   $ 8.10     $ 7.66     $ 8.11  
                                 
    Three Months Ended October 31,   Nine Months Ended October 31,
    2006   2005   2006   2005
Comparable-store revenues (F):
                                
Total
     3.8 %     -4.5 %     2.2 %     -1.8 %
Merchandise
     4.1 %     -3.1 %     2.1 %     0.0 %
Rental
     2.7 %     -10.1 %     2.8 %     -8.8 %
(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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