-- Comparable store rental revenues for the quarter improved from negative 13.3% in the prior year to negative 1.6% for the current quarter.
-- Comparable store merchandise revenues for the quarter improved from negative 5.1% in the prior year to negative 1.6% for the current quarter.
-- Net cash provided by operations for the first nine months was $13.7 million compared to $7.7 million in the same period for the prior year.
-- Reduced long-term debt by $2.2 million over the first nine months compared to an increase of $18.3 million in the same period for the prior year, a $20.5 million improvement.
-- Merchandise inventories were $179.6 million at October 31, 2009 compared to $188.5 million as of the same date in the prior year.
AMARILLO, Texas, Nov. 16 /PRNewswire-FirstCall/ -- Hastings Entertainment, Inc. (Nasdaq: HAST), a leading multimedia entertainment retailer, today reported results for the three and nine months ended October 31, 2009. Net loss was approximately $3.4 million, or $0.36 per diluted share, for the third quarter of fiscal 2009 compared to net loss of approximately $3.7 million, or $0.36 per diluted share, for the third quarter of fiscal 2008. Net loss was approximately $2.1 million, or $0.22 per diluted share, for the nine months ended October 31, 2009, compared to net loss of approximately $7,000, or $0.00 per diluted share, for the same period in the prior year.
"The recession continued to negatively impact consumer spending; however, our total comparable revenues increased in September and merchandise and rental comparable revenues increased 2.0% and 4.1%, respectively, for the month of October," said John Marmaduke, Chief Executive Officer and Chairman. "Our core customer base remains stable; however, customer purchase behavior has shifted toward value priced merchandise which is evidenced by the fact that the sale of total units increased 6.9% for the quarter compared to the same period for the prior year. Our movie rental business was negatively impacted by the de-valuing of the price of a rental movie primarily as a result of the growth of rental kiosks that rent movies for a dollar per day. In response, we have implemented a promotion where thousands of movie titles in our stores now rent for $0.99 per week. This has lowered our rental revenue in the short-term; however, we are seeing a significant increase in units rented along with growth in new customer membership sign-ups. Units rented increased 10.0% in the third quarter over the comparable quarter in the prior year. We continue to focus on our balance sheet and reducing our costs. Our inventory was approximately $8.8 million less than a year ago and long-term debt was approximately $16.6 million less than a year ago. Additionally, cash flows from operations increased approximately $5.9 million over the prior year comparable period and capital expenditures were $11.9 million less than the prior year comparable period."
"We remain cautiously optimistic about the fourth quarter due to our value merchandising initiatives, improved store execution, and the closure of over 20 entertainment competitors in our markets."
Financial Results for the Third Quarter of Fiscal Year 2009
Revenues. Total revenues for the third quarter decreased approximately $1.9 million, or 1.7%, to $112.3 million compared to $114.3 million for the third quarter of fiscal 2008. The following is a summary of our revenues results (dollars in thousands):
Three Months Ended October 31,
------------------------------
2009 2008 Decrease
Percent Percent
of of
Revenues Total Revenues Total Dollar Percent
---------------- ---------------- ------ -------
Merchandise
revenue $94,434 84.1% $95,991 84.0% $(1,557) -1.6%
Rental revenue 17,903 15.9% 18,277 16.0% (374) -2.0%
------ ---- ------ ---- ---- ----
Total revenues $112,337 100.0% $114,268 100.0% $(1,931) -1.7%
======== ===== ======== ===== ======== ====
Comparable-store revenues ("Comp")
Total -1.6%
Merchandise -1.6%
Rental -1.6%
Below is a summary of the Comp results for our major merchandise categories:
Three Months Ended October 31,
2009 2008
---- ----
Hardback Cafe 16.5% 7.9%
Video Games 8.5% -14.8%
Electronics 5.1% 8.6%
Consumables 3.8% 13.1%
Books 0.2% 1.0%
Movies -3.1% -5.0%
Trends -4.1% 21.7%
Music -10.4% -19.5%
Prior year Comp sales have been revised to reflect current year classification of Comp sale categories. Hardback Cafe Comps increased 16.5% for the quarter, primarily as a result of four additional cafes open in existing stores during the quarter, as compared to the prior year, and increased sales of specialty cafe drinks. Video Game Comps increased 8.5% for the quarter, primarily due to strong sales of new and used video games for the Xbox 360 and Playstation 3 consoles, and increased sales of Nintendo DS games and hardware, partially offset by lower sales of older generation video games. Electronics department Comps increased 5.1% for the quarter, as a result of increased sales of MP3 players and accessories, Blu-ray DVD players, headphones and digital converter boxes, partially offset by lower sales of storage devices, including CD storage cases and recordable discs, and batteries. Consumable Comps increased 3.8% for the quarter, primarily due to increased sales of fountain drinks, and assorted gums and candies, including seasonal candy for Halloween and snacks cross-merchandised on our video rental wall. Books Comps increased 0.2% for the quarter. Increased sales of used trade paperbacks and hardbacks, and increased sales of value priced books, were offset by lower sales of new hardbacks and trade paperbacks. Movie Comps decreased 3.1% for the quarter, primarily due to lower sales of new DVDs and DVD boxed sets, partially offset by increased sales of Blu-ray DVDs. Trends Comps decreased 4.1% for the quarter, primarily due to lower sales of Webkinz plush products, collectible card games, graphic novels, and apparel, partially offset by increased sales of board games and action figures. Key drivers in apparel included bags, footwear, and eyewear. Music Comps decreased 10.4% for the quarter, primarily due to the lowering of price points on new and used CDs and a continued industry decline and reduced Music footprint in forty stores. Unit sales for Music increased 11.1% for the quarter. Merchandise Comps, excluding the sale of new music, increased 0.4% for the quarter.
Rental Comps decreased 1.6% for the quarter, primarily due to increased promotions offered during the current quarter and the lowering of thousands of movie titles in our stores to a $0.99 per week rental price point. Rental Video Game Comps increased 6.1% for the quarter while Rental Video Comps decreased 2.7%.
Gross Profit - Merchandise. For the third quarter, total merchandise gross profit dollars increased approximately $0.4 million, or 1.4%, to $29.6 million from $29.2 million for the same period last year, primarily as a result of increased merchandise margin rates, partially offset by lower merchandise revenues. As a percentage of total merchandise revenue, merchandise gross profit increased to 31.3% for the quarter compared to 30.5% for the same period in the prior year, resulting from continued improvements in inventory management.
Gross Profit - Rental. For the third quarter, total rental gross profit dollars decreased approximately $0.6 million, or 5.0%, to $11.4 million from $12.0 million for the same period in the prior year, as the result of lower rental revenues primarily due to the lowering of thousands of movie titles in our stores to a $0.99 per week price point. As a percentage of total revenue, rental gross profit decreased to 63.9% for the quarter compared to 65.8% for the same period in the prior year, primarily due to lower revenues.
Selling, General and Administrative Expenses ("SG&A"). As a percentage of total revenue, SG&A increased to 40.7% for the third quarter compared to 40.1% for the same quarter in the prior year due to deleveraging resulting from lower revenues. SG&A decreased approximately $0.2 million during the quarter, or 0.4%, to $45.7 million compared to $45.9 million for the same quarter last year. Reductions across most expense categories, resulting from improved expense management, offset increases in store occupancy costs associated with the operation of new, expanded, and relocated stores.
Interest Expense. For the third quarter, interest expense decreased approximately $0.4 million, or 66.7%, to $0.2 million, compared to $0.6 million during fiscal 2008 resulting primarily from lower interest rates, and lower average debt levels during the period. The average rate of interest charged for the quarter decreased to 1.94% compared to 4.08% for the same period in the prior year.
Tax Expense. During the third quarter, the Company recorded a discrete tax charge of approximately $0.4 million related to amended state and federal tax returns resulting from an Internal Revenue Service audit of the Company's previously filed tax returns. During the three months ended October 31, 2008, the Company recorded a discrete tax charge of approximately $0.7 million related to an Internal Revenue Service audit of the Company's previously filed tax returns.
Financial Results for the Nine Months Ended October 31, 2009
Revenues. Total revenues for the nine months ended October 31, 2009 decreased approximately $16.7 million, or 4.5%, to $355.2 million compared to $371.9 million for the same period in fiscal 2008. Included in fiscal 2008 was approximately $2.0 million in revenues resulting from an additional day of sales due to the leap year. Excluding this extra day of sales, total revenues for the nine months ended October 31, 2009, decreased approximately $14.7 million, or 4.0%. The following is a summary of our revenues results (dollars in thousands):
Nine Months Ended October 31,
-----------------------------
2009 2008 Decrease
Percent Percent
of of
Revenues Total Revenues Total Dollar Percent
----------------- ---------------- ------ -------
Merchandise
revenue $295,896 83.3% $308,168 82.9% $(12,272) -4.0%
Rental revenue 59,327 16.7% 63,702 17.1% (4,375) -6.9%
------ ---- ------ ---- ------ ----
Total revenues $355,223 100.0% $371,870 100.0% $(16,647) -4.5%
======== ===== ======== ===== ======== ====
Comparable-store revenues ("Comp")
Nine Months Ended October 31,
2009
2009 2008 (excludes leap day)
------ ------ ------------------
Total -5.5% -0.5% -4.9%
Merchandise -5.1% -0.2% -4.6%
Rental -7.3% -2.3% -6.6%
Below is a summary of the Comp results for our major merchandise categories:
Nine Months Ended October 31,
2009
2009 2008 (excludes leap day)
------ ------ ------------------
Hardback Cafe 13.9% 9.5% 14.5%
Consumables 3.8% 12.0% 4.5%
Electronics 0.9% 17.2% 1.5%
Trends -0.3% 23.1% 0.1%
Books -0.4% 1.6% 0.1%
Movies -5.7% 0.3% -5.2%
Video Games -8.6% 5.4% -8.1%
Music -13.9% -15.7% -13.5%
The following discussion of merchandise and rental Comp sales excludes the additional day of sales in fiscal 2008 due to the leap year. Prior year Comp sales have been revised to reflect current year classification of Comp sale categories.
Hardback Cafe Comps increased 14.5% for the period, primarily as a result of increased sales of specialty cafe drinks and four additional cafes open in existing stores during the period, as compared to the prior year. Consumable Comps increased 4.5% for the period, primarily due to increased sales of assorted candies and gums, including sales of seasonal candy and candy and snacks cross-merchandised on our video rental wall. Electronics Comps increased 1.5% for the period, primarily resulting from strong sales of digital converter boxes, Blu-ray DVD players and MP3 players, partially offset by lower sales of refurbished iPods. Trends Comps increased 0.1% for the period. Increased sales of action figures, apparel, and board games were partially offset by lower sales of Webkinz plush products and collectible card games. Key drivers in apparel included t-shirts, licensed sports apparel, and accessories. Books Comps increased 0.1% for the period. Increased sales of value priced books, used hardbacks, and used trade paperbacks were partially offset by lower sales of new hardbacks and trade paperbacks, and magazines. Movies Comps decreased 5.2% for the period, primarily due to lower sales of new and used DVDs and DVD boxed sets, partially offset by increased sales of new and used Blu-ray movies. Video Games Comps decreased 8.1% for the period, primarily due to lower sales of video game consoles and older generation video games, partially offset by increased sales of used video games for the Microsoft XBOX 360, Sony Playstation 3 and Nintendo Wii consoles. Music Comps decreased 13.5% for the period, primarily due to the lowering of price points on new and used CDs and a continued industry decline and reduced Music footprint in forty stores. Merchandise Comps, excluding the sale of new music, decreased 2.5% during the period.
Rental Comps decreased 6.6% for the first nine months of fiscal 2009, primarily resulting from fewer rentals of DVDs and increased promotions offered during the current period, partially offset by increased rentals of Blu-ray movies and video games. Comparable promotional coupons increased significantly for the first nine months of fiscal 2009, which contributed to the decrease in Rental Comps. Rental Video Game Comps increased 5.1% for the period while Rental Movie Comps decreased 8.9%.
Gross Profit - Merchandise. For the current nine months, total merchandise gross profit dollars decreased approximately $1.1 million, or 1.2%, to $93.2 million from $94.3 million for the same period in the prior year primarily due to a decrease in merchandise revenues, partially offset by an increase in merchandise margin rates. As a percentage of total merchandise revenue, merchandise gross profit increased to 31.5% for the nine months ended October 31, 2009, compared to 30.6% for the same period in the prior year, primarily resulting from continued improvements in inventory management.
Gross Profit - Rental. For the current nine months, total rental gross profit dollars decreased approximately $3.6 million, or 8.6%, to $38.3 million from $41.9 million for the same period in the prior year as the result of lower rental revenues primarily due to the lowering of thousands of movie titles in our stores to a $0.99 per week price point. As a percentage of total rental revenue, rental gross profit decreased to 64.5% for the nine months ended October 31, 2009, compared to 65.8% for the same period in the prior year due primarily to lower revenues.
Selling, General and Administrative Expenses ("SG&A"). As a percentage of total revenue, SG&A increased to 37.6% for the current nine months compared to 36.0% for the same period in the prior year. SG&A decreased approximately $0.4 million during the nine months ended October 31, 2009, or 0.3%, to $133.5 million compared to $133.9 million for the same period last year. Reductions across most expense categories, resulting from improved expense management, offset increases in store occupancy costs associated with the operation of new, expanded, and relocated stores and increased advertising costs.
Interest Expense. For the current nine months, interest expense decreased approximately $0.7 million, or 46.7%, to $0.8 million, compared to $1.5 million during fiscal 2008 resulting primarily from lower interest rates and lower average debt levels during the period. The average rate of interest charged for the period decreased to 2.46% compared to 4.26% for the same period in the prior year.
Tax Expense. During the nine months ended October 31, 2009, the Company recorded a discrete tax charge of approximately $0.4 million related to amended state and federal tax returns resulting from an Internal Revenue Service audit of the Company's previously filed tax returns. During the nine months ended October 31, 2008, the Company recorded a discrete tax charge of approximately $0.7 million related to an Internal Revenue Service audit of the Company's previously filed tax returns.
Stock Repurchase
On September 18, 2001, we announced a stock repurchase program of up to $5.0 million of our common stock. To date, the Board of Directors has approved increases in the program totaling $22.5 million. During the third quarter of fiscal 2009, we purchased a total of 140,112 shares of common stock at a cost of $581,271, or $4.15 per share. As of October 31, 2009, a total of 3,677,245 shares had been repurchased under the program at a cost of approximately $22.6 million, for an average cost of approximately $6.15 per share. As of October 31, 2009, approximately $4.7 million remains available under the stock repurchase program.
Store Activity
Since August 17, 2009, which was the last date we reported store activity, we have had the following store activity:
-- Store closed in Ames, Iowa on October 1, 2009.
Fiscal Year 2009 Guidance
"Net loss for the third quarter was approximately $0.7 million higher then our internal forecast, which is the basis for our guidance," said Dan Crow, Vice President and Chief Financial Officer. "Consequently, we are lowering our guidance of net earnings per share ranging from $0.37 to $0.42 to a range of $0.32 to $0.37 for the full fiscal year ending January 31, 2010. Although there is continued uncertainty in the current retail environment with respect to the holiday selling season, we are more optimistic with respect to our internal forecast for the fourth quarter then we were a quarter ago. This is based on our revenue performance during September and October and the number of new releases which are slated for the fourth quarter."
Safe Harbor Statement
This press release contains "forward-looking statements." Hastings Entertainment, Inc. is including this statement for the express purpose of availing itself of the protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. These forward-looking statements are based on currently available information and represent the beliefs of the management of the company. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks include, but are 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; unanticipated adverse litigation results or effects; the effects of a continued deterioration in economic conditions in the U.S. or the markets in which we operate our stores; and other factors which may be outside of the company's control. Please refer to the company's annual, quarterly, and periodic reports on file with the Securities and Exchange Commission for a more detailed discussion of these and other risks that could cause results to differ materially.
About Hastings
Founded in 1968, Hastings Entertainment, Inc. is a leading multimedia entertainment retailer that combines the sale of new and used books, videos, video games and CDs, as well as trends merchandise, with the rental of videos and video games in a superstore format. We currently operate 150 superstores, averaging approximately 21,000 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)
October 31, October 31, January 31,
2009 2008 2009
------------ ----------- -----------
(unaudited) (unaudited)
Assets
Current Assets
Cash and cash
equivalents $6,022 $4,228 $7,449
Merchandise
inventories, net 179,642 188,469 147,957
Deferred income taxes 11,013 9,846 11,180
Prepaid expenses and
other current assets 12,206 11,041 11,224
------ ------ ------
Total current assets 208,883 213,584 177,810
Rental assets, net 14,188 15,200 15,463
Property and
equipment, net 50,728 57,381 56,585
Deferred income taxes 878 3,090 2,434
Intangible assets, net 391 391 391
Other assets 962 847 1,020
--- --- -----
Total assets $276,030 $290,493 $253,703
======== ======== ========
Liabilities and
Shareholders' Equity
Current liabilities
Trade accounts payable $93,690 $90,558 $61,823
Accrued expenses and
other liabilities 34,841 38,040 40,614
------ ------ ------
Total current
liabilities 128,531 128,598 102,437
Long-term debt,
excluding current
maturities 42,291 58,914 44,507
Other liabilities 6,009 4,601 4,723
Shareholders' equity
Preferred stock - - -
Common stock 119 119 119
Additional paid-in
capital 36,801 36,587 36,651
Retained earnings 77,821 75,885 79,951
Accumulated other
comprehensive income
(loss) 20 (55) (67)
Treasury stock, at
cost (15,562) (14,156) (14,618)
------- ------- -------
Total shareholders'
equity 99,199 98,380 102,036
------ ------ -------
Total liabilities and
shareholders' equity $276,030 $290,493 $253,703
======== ======== ========
Consolidated Statements of Earnings
(In thousands, except per share data)
Three months ended Nine months ended
October 31, October 31,
2009 2008 2009 2008
---- ---- ---- ----
(unaudited)(unaudited) (unaudited)(unaudited)
Merchandise revenue $94,434 $95,991 $295,896 $308,168
Rental revenue 17,903 18,277 59,327 63,702
------ ------ ------ ------
Total revenues 112,337 114,268 355,223 371,870
Merchandise cost of
Revenue 64,869 66,748 202,651 213,893
Rental cost of revenue 6,464 6,249 21,069 21,806
----- ----- ------ ------
Total cost of revenues 71,333 72,997 223,720 235,699
Gross profit 41,004 41,271 131,503 136,171
Selling, general and
administrative expenses 45,731 45,860 133,508 133,902
Pre-opening expenses - 98 3 111
--- -- --- ---
(4,727) (4,687) (2,008) 2,158
Operating income (loss)
Other income (expense):
Interest expense, net (211) (561) (778) (1,488)
Other, net 17 117 96 159
-- --- -- ---
(4,921) (5,131) (2,690) 829
Income (loss) before
income taxes (1,485) (1,475) (560) 836
------ ------ ---- ---
Income tax expense
(benefit) $(3,436) $(3,656) $(2,130) $(7)
======= ======= ======= ===
Net loss $(0.36) $(0.36) $(0.22) $(0.00)
Basic loss per share ====== ====== ====== ======
Diluted loss per share $(0.36) $(0.36) $(0.22) $(0.00)
====== ====== ====== ======
Weighted-average common
shares
outstanding:
Basic 9,574 10,114 9,658 10,241
Dilutive effect of stock
awards - - - -
--- --- --- ---
Diluted 9,574 10,114 9,658 10,241
===== ====== ===== =====
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Nine Months Ended
October 31,
2009 2008
---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(2,130) $(7)
Adjustments to reconcile net loss to
net
cash provided by operations:
Rental asset depreciation expense 9,185 10,060
Purchases of rental assets (15,805) (21,284)
Property and equipment depreciation
expense 14,327 15,018
Deferred income taxes 1,723 (6,739)
Loss on rental assets lost, stolen and
defective 606 874
Loss on disposal of other assets 379 730
Non-cash stock-based compensation 224 48
Changes in operating assets and
liabilities:
Merchandise inventories (24,562) (8,524)
Other current assets (982) 1
Trade accounts payable 35,029 15,991
Accrued expenses and other liabilities (5,773) 1,497
Excess tax benefit from stock option
exercises - (132)
Other assets and liabilities, net 1,431 200
----- ---
Net cash provided by operating
activities 13,652 7,733
------ -----
Cash flows from investing activities:
Purchases of property, equipment and
improvements (8,683) (20,559)
------ -------
Net cash used in investing activities (8,683) (20,559)
------ -------
Cash flows from financing activities:
Net borrowings (repayments) under
revolving credit facility (2,216) 18,298
Purchase of treasury stock (1,018) (3,887)
Change in cash overdraft (3,162) (1,797)
Proceeds from exercise of stock
options - 326
Excess tax benefit from stock option
exercises - 132
--- ---
Net cash provided by (used in)
financing activities (6,396) 13,072
------ ------
Net (decrease) increase in cash (1,427) 246
Cash at beginning of period 7,449 3,982
----- -----
Cash at end of period $6,022 $4,228
====== ======
Balance Sheet and Other Ratios ( A )
(Dollars in thousands, except per share amounts)
October 31, October 31,
2009 2008
---- ----
Merchandise inventories, net $179,642 $188,469
Inventory turns, trailing 12
months ( B ) 1.91 1.65
Long-term debt $42,291 $58,914
Long-term debt to total
capitalization ( C ) 29.9% 37.5%
Book value ( D ) $99,199 $98,380
Book value per share ( E ) $10.27 $9.37
Three Months Ended Nine Months Ended
October 31, October 31,
2009
2009 2008 2009 2008 (excludes
leap day)
---- ---- ---- ---- ---------
Comparable-store
revenues ( F ):
Total -1.6% -6.5% -5.5% -0.5% -4.9%
Merchandise -1.6% -5.1% -5.1% -0.2% -4.6%
Rental -1.6% -13.3% -7.3% -2.3% -6.6%
( 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 for the nine month period ended October
31, 2009 and 2008, respectively.
( 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 are included and closed
stores are removed from each comparable period for the purpose of
calculating comparable-store revenues.
SOURCE Hastings Entertainment, Inc.
Dan Crow, Vice President and Chief Financial Officer of Hastings Entertainment, Inc., +1-806-677-1422
