AMARILLO, Texas, March 26 /PRNewswire-FirstCall/ -- Hastings Entertainment, Inc. (NASDAQ:HAST), a leading multimedia entertainment retailer, today reported results for the three months and fiscal year ended January 31, 2007. Net income for the fourth quarter of fiscal 2006 was approximately $5.1 million, or $0.45 per diluted share, compared to approximately $7.0 million, or $0.61 per diluted share for the fourth quarter of fiscal 2005. Net income was approximately $5.0 million, or $0.44 per diluted share, in fiscal 2006 compared to net income of approximately $5.7 million, or $0.49 per diluted share, for fiscal 2005.
"We are disappointed with our results for the fourth quarter," said Chief Executive Officer John Marmaduke. "This holiday season was highly promotional, but I feel that our sales and merchandise margin shortfall, compared to our internal projections, are a result of specific merchandising initiatives, which occurred in the fourth quarter and are not indicative of our ability to produce increased earnings growth. We are focused specifically on improving our merchandising and buying functions in fiscal 2007 through, among other things, realignment of senior management in these areas. While we remain cautious in this challenging environment, we are optimistic about our outlook and believe we will be able to develop our brand and grow earnings in fiscal 2007." Financial Results for the Fourth Quarter of Fiscal Year 2006 Revenues. Total revenues for the fourth quarter of fiscal 2006 increased $2.7 million, or 1.6%, to $174.2 million compared to $171.5 million for the same period in the prior year. The following is a summary of our revenue results (dollars in thousands): Three Months Ended January 31,
2007 2006 Increase/(Decrease)
Percent Percent
Revenues of Total Revenues of Total Dollar Percent
Merchandise
revenue $148,787 85.4% $145,808 85.0% $2,979 2.0%
Rental
revenue 25,403 14.6% 25,686 15.0% (283) -1.1%
Total
revenues $174,190 100.0% $171,494 100.0% $2,696 1.6% Comparable-store
revenues:
Total 1.1%
Merchandise 1.6%
Rental -1.7%
Below is a summary of the Comp results for those categories:
Three Months Ended January 31,
2007 2006
Music -6.3% -2.4%
Books -0.8% 3.1%
Video for sale 11.7% 5.0%
Video games 3.4% -2.3%
Sidelines 7.5% -0.9%
Music Comps decreased 6.3%, which was primarily attributable to decreased sales of new and used CDs, partially offset by strong gains in the sales of consumer electronic hardware such as iPods. Book Comps decreased 0.8% as a result of decreased sales of new-release trade paperbacks, partially offset by increased sales of new-release hardbacks. Video for sale Comps increased 11.7% due to increased sales of new release DVDs, DVD box sets and used DVDs. Video game Comps increased 3.4% on strong hardware sales due to the release of the new Nintendo Wii and Sony PS3 gaming systems. Sidelines Comps increased 7.5%, primarily due to implementation of new plan-o-gramming, strong sales of action figures, and the addition of prepaid phone cards to our sales offerings.
Rental video Comps decreased 1.7% from the same period last year. The primary driver of the declining Comp was Rental Video Games, which experienced a soft product offering in anticipation of new systems debuting in the fourth quarter.
Gross Profit. For the fourth quarter, total gross profit dollars decreased approximately $2.4 million, or 4.1%, to $56.6 million from $59.0 million for the same period last year, primarily as a result of declining merchandise margin rates in music, sidelines, and video games, stemming from a highly promotional holiday season. As a percentage of total revenues, gross profit decreased to 32.5% for the quarter compared to 34.4% for the same quarter in the prior year.
Selling, General and Administrative expenses ("SG&A"). SG&A increased approximately $1.1 million to $47.2 million for the current quarter compared to $46.1 million for the same quarter in the prior year as the result of $0.7 million in increased asset impairment charges; $0.5 million related to a severance agreement; $0.4 million of increased occupancy costs as a result of the operation of a greater number of new, expanded and relocated superstores; and $0.3 million of higher store supply costs primarily resulting from the Company's new branding initiatives. These additional costs were partially offset by decreased advertising costs in the amount of $0.7 million. As a percentage of total revenues, SG&A increased to 27.1% for the current quarter compared to 26.9% for the same quarter in the prior year.
Financial Results for the Full Fiscal Year Ended January 31, 2007 Revenues. Total revenues for fiscal 2006 increased $10.4 million, or 1.9%, to $548.3 million compared to $537.9 million for the same period in the prior year. The following is a summary of our revenue results (dollars in thousands): Fiscal Year Ended January 31,
2007 2006 Increase/(Decrease)
Percent Percent
Revenues of Total Revenues of Total Dollar Percent
Merchandise
revenue $454,142 82.8% $444,291 82.6% $9,851 2.2%
Rental
revenue 94,190 17.2% 93,640 17.4% 550 0.6%
Total
revenues $548,332 100.0% $537,931 100.0% $10,401 1.9% Comparable-store
revenues:
Total 1.8%
Merchandise 2.2%
Rental 0.2%
Below is a summary of the Comp results for our merchandise categories:
Fiscal Year Ended January 31,
2007 2006
Music -6.2% -1.8%
Books 0.0% -0.2%
Video for sale 12.9% 1.9%
Video games 9.0% 5.2%
Sidelines 1.4% 5.2%
Music Comps decreased 6.2%, which was primarily attributable to fewer premier artist CD releases as well as decreased sales of used CDs. These declines were partially offset by increased sales of music hardware, including iPods and other MP3 players. Book Comps were essentially flat. Strong sales of mass market and used books offset the negative impact of fewer new-release hardback sales caused by the release of the sixth book in the Harry Potter series in fiscal 2005 but no series releases in fiscal 2006. Video for sale Comps rose 12.9% due to increased sales of new release DVDs, DVD box sets and used DVDs. Video game Comps rose 9.0% on strong hardware sales due to the release of the new Nintendo Wii and Sony PS3 gaming systems as well as strong sales of Microsoft XBOX 360 games. Our Sidelines Comp increase of 1.4% was headlined by increases in action figures and prepaid phone cards, partially offset by decreased sales of apparel.
Rental video Comps increased 0.2% 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 11.7% from the same period last year.
Gross Profit. For the fiscal year ended January 31, 2007, total gross profit dollars decreased approximately $0.7 million, or 0.4%, to $188.4 million from $189.1 million for the prior fiscal year. As a percentage of total revenues, gross profit decreased to 34.4% for the fiscal year compared to 35.2% for the prior fiscal year.
Selling, General and Administrative expenses ("SG&A"). SG&A increased approximately $0.8 million to $177.5 million for the fiscal year ended January 31, 2007, compared to $176.7 million for the prior fiscal year. As a percentage of total revenues, SG&A increased to 32.4% for the twelve months ended January 31, 2007, compared to 32.8% for the fiscal year ended January 31, 2006.
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 fourth quarter of fiscal year 2006, we purchased a total of 42,600 shares of common stock at a cost of approximately $279,549, or $6.56 per share. As of January 31, 2007, a total of 1,877,063 shares had been purchased under the program at a cost of approximately $10.9 million, for an average cost of approximately $5.81 per share. As of January 31, 2007, approximately $4.1 million remains available for repurchases under the stock repurchase program.
Store Activity Since November 20, 2006, 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
College Station, TX Remodel 65,370 31,691 11/22/2006
Norman, OK Remodel 97,484 31,186 11/22/2006
Fiscal Year 2007 Guidance
Year Ending January 31, 2008:
Comparable store revenue low single digits
Net income $6.4 to $7.0 million
Net income per diluted share $0.55-$0.60
Capital expenditures $19,500,000
Weighted average diluted shares outstanding 11,600,000
New stores 3
Average cost per new store (1) $1,700,000
Expanded/relocated stores 8
Average cost per expanded/relocated stores (1) $1,100,000 (1) Total cost to open a new store, including inventory, net of payables. Total cost of expanded/relocated stores includes incremental
inventory, net of payables. Total cost of remodels to accommodate
used book initiatives includes incremental inventory, net of
payables. 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 2007, 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 http://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) January 31, January 31,
2007 2006
(unaudited) Assets
Current assets
Cash $3,837 $3,617
Merchandise inventory 167,277 165,049
Deferred income taxes, current 3,891 4,234
Other current assets 10,633 7,016
Total current assets 185,638 179,916 Property and equipment, net 69,353 72,619
Deferred income taxes, non-current 1,765 1,492
Intangible assets, net 411 454
Other assets 331 180 Total assets $257,498 $254,661
Liabilities and Shareholders' Equity
Current liabilities
Current maturities on capital
lease obligations $-- $94
Trade accounts payable 76,518 88,991
Accrued expenses & other current
liabilities 37,179 38,323
Total current liabilities 113,697 127,408 Long-term debt, excluding current
maturities 41,922 28,057
Other liabilities 4,326 4,503 Shareholders' equity
Preferred stock -- --
Common stock 119 119
Additional paid-in capital 36,906 36,076
Retained earnings 66,485 61,466
Other comprehensive income 67 141
Treasury stock, at cost (6,024) (3,109)
Total shareholders' equity 97,553 94,693 Total liabilities and shareholders' equity $257,498 $254,661
Consolidated Statements of Operations
(Dollars in thousands, except per share data) Three Months Ended Fiscal Year Ended
January 31, January 31,
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) Merchandise revenue $148,787 $145,808 $454,142 $444,291
Rental revenue 25,403 25,686 94,190 93,640
Total revenues 174,190 171,494 548,332 537,931 Merchandise cost of revenue 109,157 103,870 326,025 314,328
Rental cost of revenue 8,463 8,667 33,862 34,458
Total cost of revenues 117,620 112,537 359,887 348,786 Gross profit 56,570 58,957 188,445 189,145 Selling, general and
administrative expenses 47,236 46,114 177,467 176,684
Pre-opening expenses -- -- 94 92 Operating income 9,334 12,843 10,884 12,369 Other income (expense):
Interest expense (956) (696) (3,260) (2,616)
Other, net 43 190 642 399 Income before income taxes 8,421 12,337 8,266 10,152 Income tax expense 3,306 5,336 3,247 4,457 Net income $5,115 $7,001 $5,019 $5,695 Basic income per share $0.46 $0.61 $0.45 $0.50 Diluted income per share $0.45 $0.61 $0.44 $0.49 Weighted-average common shares
outstanding:
Basic 11,041 11,405 11,244 11,421
Dilutive effect of stock
options 275 148 274 246 Diluted 11,316 11,553 11,518 11,667
Balance Sheet and Other Ratios (A)
(Dollars in thousands, except per share amounts) January 31, January 31,
2007 2006
Merchandise inventories, net $167,277 $165,049
Inventory turns, trailing 12 months (B) 1.76 1.81 Long-term debt $41,922 $28,057
Long-term debt to total
capitalization (C) 30.1% 22.9% Book value (D) $97,553 $94,693
Book value per share (E) $8.47 $8.11
Three Months Ended Fiscal Year Ended
January 31, January 31,
2007 2006 2007 2006
Comparable-store
revenues (F):
Total 1.1% -0.6% 1.8% -1.4%
Merchandise 1.6% 0.1% 2.2% 0.1%
Rental -1.7% -4.2% 0.2% -7.5%
(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 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 are not included and
closed stores are removed from each comparable period for the purpose
of calculating comparable-store revenues. DATASOURCE: Hastings Entertainment, Inc.
CONTACT: Dan Crow, Vice President and Chief Financial Officer of Hastings Entertainment, Inc., +1-806-677-1422 Web site: http://www.gohastings.com/
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