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Hastings Entertainment, Inc. Reports Results for the Third Quarter of Fiscal 2012



 Hastings Entertainment, Inc. Reports Results for the Third Quarter of Fiscal
                                     2012

- Reduced third quarter pre-tax loss by $1.4 million, or 15.1%, as compared to
the third quarter of fiscal year 2011.

- Reduced pre-tax loss by $3.5 million, or 25.2%, for the nine months ending
October 31, 2012, as compared to nine months ending October 31, 2011.

- Positive Free Cash Flow of $7.2 million for the nine months ending October
31, 2012 compared to negative $25.6 million for the nine months ending October
31, 2011.

- Debt reduced by $9.8 million from the beginning of fiscal year 2012.

PR Newswire

AMARILLO, Texas, Nov. 19, 2012

AMARILLO, Texas, Nov. 19, 2012 /PRNewswire/ -- Hastings Entertainment, Inc. 
(NASDAQ: HAST), a leading multimedia entertainment retailer, today reported
results for the three and nine months ended October 31, 2012.  Net loss was
approximately $8.0 million, or $0.98 per diluted share, for the three months
ended October 31, 2012 compared to a net loss of approximately $5.5 million,
or $0.65 per diluted share, for the three months ended October 31, 2011.  Net
loss was approximately $10.5 million, or $1.28 per diluted share, for the nine
months ended October 31, 2012 compared to net loss of $9.2 million, or $1.07
per diluted share, for the nine months ended October 31, 2011. 

Fiscal year 2011 net loss numbers included tax benefits of $3.9 million for
the three months ended October 31, 2011 and $4.7 million for the nine months
ended October 31, 2011. There were no tax benefits for the current quarter and
current year to date due to the valuation allowance that was established in
the fourth quarter of fiscal 2011. For further details on the valuation
allowance, see the comment on income tax expense in the section covering
financial results for the nine months ended October 31, 2012. Pre-tax loss
decreased approximately $1.4 million to $8.0 million for the three months
ended October 31, 2012, compared to a pre-tax loss of $9.4 million for the
three months ended October 31, 2011. Pre-tax loss decreased approximately $3.5
million to $10.4 million for the nine months ended October 31, 2012, compared
to a pre-tax loss of $13.9 million for the nine months ended October 31,
2011. 

Reconciliations of non-GAAP financial measures to comparable GAAP financial
measures are included in the tables following the financial statements in this
release.

"Our revenues continue to be impacted by the increasing popularity of digital
delivery, rental kiosks and subscription-based services. We also saw a
significant negative impact on rental revenues during the early part of the
current third quarter due to the Olympic Games. Additionally, the November
elections negatively impacted fall revenues," said John Marmaduke, Chief
Executive Officer and Chairman. "In spite of lower revenues, we continue to
reduce pre-tax losses which were $1.4 million less than last year for the
third quarter and $3.5 million, or 25%, lower for the nine months ended
October 31, 2012 when compared to the prior year.

"As of the end of the third quarter, we have introduced our new product
categories in forty-four stores. These categories include consumer
electronics, sports, exercise, vinyl and tablets and resulted in increases in
comparable revenues of 16.7% and 11.9% for the quarter and nine months,
respectively, in our Electronics Department. By the end of the year we will
have added these products in sixty-seven stores and look forward to a full
year's performance, as well as continued expansion in the remaining stores.

"With respect to games, the industry as a whole continues to struggle and is
down significantly due to a lack of new game platforms and game releases.

"Call of Duty-Black Ops 2, which launched midnight, November 5^th, is
performing well for us and we expect that it will be the largest entertainment
title for the year. Halo 4 is also performing well and Assassins Creed 3 is
exceeding our expectations. We expect sales for these three titles will
continue to be strong throughout the holiday season. Additionally, we expect
the launch of Wii U will drive game revenues for the holiday season.

"We continue to improve margin rates, improve store execution and reduce SG&A
expenses. Finally, by managing working capital, we were able to reduce debt by
$9.8 million during the first nine months of our current fiscal year."

Financial Results for the Third Quarter of Fiscal Year 2012

Revenues. Total revenues for the third quarter decreased approximately $7.3
million, or 6.7%, to $101.3 million compared to $108.6 million for the third
quarter of fiscal 2011.  As of October 31, 2012, we operated six fewer
Hastings superstores, as compared to October 31, 2011.  The following is a
summary of our revenues results (dollars in thousands):

 

Three Months Ended October 31,
                    2012                 2011                 Decrease
                              Percent              Percent
                    Revenues  Of Total   Revenues  Of Total   Dollar   Percent
Merchandise       $ 87,908    86.8%    $ 92,638    85.3%    $ (4,730)  -5.1%
Revenue
Rental Revenue      13,325    13.1%      15,841    14.6%      (2,516)  -15.9%
Gift Card
Breakage            87        0.1%       145       0.1%       (58)     -40.0%

   Revenue
     Total        $ 101,320   100.0%   $ 108,624   100.0%   $ (7,304)  -6.7%
Revenues

 

Comparable-store revenues ("Comp")
Total          -4.7%
Merchandise    -3.1%
Rental         -13.7%

 

Below is a summary of the Comp results for our major merchandise categories:

 

              Three Months Ended October 31,
              2012          2011
Electronics   16.7%         3.6%
Hardback Cafe 15.2%         6.7%
Trends        6.6%          11.1%
Consumables   1.2%          -6.6%
Movies        0.4%          -3.4%
Books         -1.4%         -4.5%
Music         -14.1%        -2.6%
Video Games   -20.8%        -9.4%

Electronics Comps increased 16.7% for the quarter primarily due to increased
sales in electronics hardware items, such as refurbished DVD players, tablet
accessories and musical instrument accessories. Hardback Cafe Comps increased
15.2% for the quarter primarily due to increased sales of blended, iced and
hot specialty cafe drinks. Trends Comps increased 6.6% for the quarter
primarily due to increased sales of boutique apparel, comics and recreational
sporting equipment. Consumables Comps increased 1.2% for the quarter primarily
due to increased sales of popcorn and candies. Movie Comps increased 0.4% for
the quarter primarily due to increased sales of Blu-ray movies and DVD
boxed-sets, partially offset by a decrease in previously viewed films. Book
Comps decreased 1.4% for the quarter primarily due to book signings and
promotional events taking place during the same quarter of the prior fiscal
year, partially offset by continued strong sales of the 50 Shades series. Book
Comps, excluding Nextbook sales, digital books and accessories decreased 2.4%
for the quarter. Music Comps decreased 14.1% primarily due to lower sales of
new CDs and the increasing popularity of digital delivery. Video Game Comps
decreased 20.8% during the quarter, primarily due to a weaker release schedule
and lower sales of video game consoles. Video game hardware sales have
decreased during the period due to anticipation of the new WiiU system being
released by Nintendo in November 2012 and the likelihood of other consoles
being released in 2013.

Rental Comps decreased 13.7% for the third quarter, primarily resulting from
fewer rentals of DVDs and video games, partially offset by an increase in
rentals of Blu-ray movies. Rental Movie Comps decreased 11.4% for the quarter
primarily due to competition from rental kiosks and subscription-based rental
services and a significant negative impact on rentals from the Olympic Games
during the early part of the quarter. Rental Video Game Comps decreased 30.4%
due to a weak release schedule and low demand in anticipation of new game
platform releases.

Gross Profit – Merchandise.  For the third quarter, total merchandise gross
profit dollars decreased approximately $0.2 million, or 0.7%, to $27.3 million
from $27.5 million for the same period in the prior year, primarily due to a
decrease in revenue, partially offset by increased margin rates. As a
percentage of total merchandise revenue, merchandise gross profit increased to
31.1% for the quarter compared to 29.6% for the same period in the prior year,
resulting primarily from a continued shift in mix of revenues by category and
lower shrink expense.

Gross Profit – Rental.  For the third quarter, total rental gross profit
dollars decreased approximately $0.7 million, or 7.4%, to $8.8 million from
$9.5 million for the same period in the prior year, primarily due to a
decrease in revenue, partially offset by increased margin rates. As a
percentage of total rental revenue, rental gross profit increased to 66.4% for
the quarter compared to 60.2% for the same period in the prior year, primarily
due to a significant reduction in rental asset purchases based on lower
anticipated rental revenues which, in turn, resulted in lower depreciation.

Selling, General and Administrative Expenses ("SG&A").  As a percentage of
total revenue, SG&A increased to 43.4% for the third quarter compared to 42.5%
for the same period in the prior year due to deleveraging resulting from lower
revenues. SG&A decreased approximately $2.2 million during the quarter, or
4.8%, to $44.0 million compared to $46.2 million for the same quarter last
year. The decrease results primarily from a decrease of $1.2 million in store
labor costs, a $1.1 million decrease in occupancy costs, including
depreciation, and a $0.6 million decrease in store advertising expense,
partially offset by a $0.8 million increase in estimated bonuses under our
corporate officer and management bonus incentive programs, resulting from the
fact that minimal bonuses were estimated during the third quarter of 2011. The
decrease in occupancy expense and, to a certain extent, the decrease in store
labor costs, are primarily a result of operating six fewer superstores this
quarter compared to the same quarter in the prior year.

Interest Expense.  For the third quarter, interest expense decreased $0.1
million to $0.3 million compared to $0.4 million for the same quarter last
year, primarily due to lower average debt levels during the current quarter.
The average rate of interest charged for the third quarter decreased to 2.5%
compared to 2.7% for the same period in the prior year.

Income Tax Expense.  The effective tax rate for the third quarter was -0.5%
primarily due to Texas state income tax, which is based primarily on gross
margin. For further details, see the Income Tax Expense notes in the section
covering Financial Results for the Nine Months Ended October 31, 2012.

Financial Results for the Nine Months Ended October 31, 2012

Revenues.  Total revenues for the nine months ended October 31, 2012 decreased
approximately $22.4 million, or 6.5%, to $320.9 million compared to $343.3
million for the nine months ended October 31, 2011. The following is a summary
of our revenues results (dollars in thousands):

 

                   Nine Months Ended October 31,
                   2012                 2011                 Decrease
                             Percent              Percent
                   Revenues  Of Total   Revenues  Of Total   Dollar    Percent
Merchandise      $ 276,741   86.2%    $ 289,929   84.5%    $ (13,188)  -4.5%
Revenue
Rental Revenue     44,238    13.8%      52,792    15.4%      (8,554)   -16.2%
Gift Card
Breakage           (119)     0.0%       575       0.1%       (694)     NM

Revenue
     Total       $ 320,860   100.0%   $ 343,296   100.0%   $ (22,436)  -6.5%
Revenues

 

Comparable-store revenues ("Comp")
Total          -5.1%
Merchandise    -3.5%
Rental         -14.0%

 

Below is a summary of the Comp results for our major merchandise categories:

 

              Nine Months Ended October 31,
              2012          2011
Electronics   11.9%         1.8%
Hardback Cafe 10.9%         5.1%
Trends        9.7%          10.9%
Consumables   2.6%          -7.3%
Books         -0.3%         -7.8%
Movies        -1.5%         -7.1%
Music         -12.0%        -2.3%
Video Games   -21.8%        -3.6%

 

Electronics Comps increased 11.9% for the period primarily due to increased
sales in electronics accessories, such as headphones, wireless phone
accessories, tablet and iPhone accessories. Hardback Cafe Comps increased
10.9% for the period primarily due to increased sales of blended, iced and hot
specialty cafe drinks. Trends Comps increased 9.7% for the period primarily
due to increased sales of boutique apparel, comics and recreational sporting
equipment. Consumables Comps increased 2.6% for the period primarily due to
increased sales of licensed novelty candy items and soft drinks. Book Comps
decreased 0.3% for the period primarily due to book signings and promotional
events taking place during the same period of the prior fiscal year, partially
offset by continued strong sales of the 50 Shades series. Book Comps,
excluding Nextbook sales, digital books and accessories decreased 1.6% for the
period. Movie Comps decreased 1.5% for the period primarily due to decreased
sales in previously viewed films. Music Comps decreased 12.0% primarily due to
lower sales of new CDs and the increasing popularity of digital delivery.
According to Nielsen SoundScan numbers for the first nine calendar months of
2012, physical unit sales of the CD album format were down 14.5% while unit
sales of the digital album format were up 15.3%. Our physical unit sales of
CDs continue to outperform the industry, as they were only down 10.0% for the
nine months ended October 31, 2012. Video Game Comps decreased 21.8% during
the period, primarily due to lower sales of new and used video games and lower
sales of video game consoles. Video game hardware sales have decreased during
the period due to anticipation of the new WiiU system being released by
Nintendo in November 2012 and the likelihood of other consoles being released
in 2013.

Rental Comps decreased 14.0% during the period primarily due to fewer rentals
of movies and video games, partially offset by an increase in rentals of
Blu-ray movies. Rental Movie Comps decreased 11.6% primarily due to
competition from rental kiosks and subscription-based services and a
significant negative impact on rentals from the Olympic Games during the
period. Rental Video Game Comps decreased 28.9% primarily due to a weak
release schedule and low demand in anticipation of new game platform releases.

Gross Profit – Merchandise.  For the current nine months, total merchandise
gross profit dollars increased approximately $0.9 million, or 1.0%, to $89.6
million from $88.7 million for the same period in the prior year, primarily
due to an increase in margin rates, partially offset by a decrease in
revenues. As a percentage of total merchandise revenue, merchandise gross
profit increased to 32.4% for the current nine months, compared to 30.6% for
the same period in the prior year, primarily due to a shift in mix of revenues
by category and lower shrink expenses, partially offset by an increase in
freight expense.

Gross Profit – Rental.  For the current nine months, total rental gross profit
dollars decreased approximately $3.1 million, or 9.6%, to $29.2 million from
$32.3 million for the same period in the prior year primarily due to a
decrease in revenue, partially offset by an increase in margin rates. As a
percentage of total rental revenue, rental gross profit increased to 66.0% for
the current nine month period compared to 61.2% for the same period in the
prior year, primarily as a result of lower depreciation and shrink expense.

Selling, General and Administrative Expenses ("SG&A").  As a percentage of
total revenue, SG&A increased to 40.0% for the current nine months compared to
39.2% for the same period in the prior year primarily due to deleveraging
resulting from lower revenues. SG&A decreased approximately $6.3 million, or
4.7%, to $128.3 million compared to $134.6 million for the same period last
year. The main drivers of the decrease in SG&A included a $4.0 million
decrease in store labor costs, a $2.4 million decrease in occupancy costs,
including depreciation, and a $0.8 million decrease in advertising expense,
partially offset by a $1.9 million increase in earned and estimated bonuses
under our corporate officer and management bonus incentive programs, resulting
from the fact that minimal bonuses were earned and estimated during the same
period of 2011. The decrease in occupancy expense and, to a certain extent,
the decrease in store labor costs, are primarily a result of operating six
fewer superstores during the first nine months of fiscal year 2012 compared to
the same period in the prior year.

Interest Expense.  For the current nine months, interest expense remained
consistent at $0.9 million for the current nine month compared to the same
period in the prior year. The average rate of interest charged for the current
nine months decreased to 2.5% compared to 2.6% for the same period in the
prior year. 

Income Tax Expense.  The effective tax rate for the first nine months of
fiscal 2012 was -1.7% primarily due to Texas state income tax, which is based
primarily on gross margin. During the fourth quarter of fiscal 2011, we
established a valuation allowance. A valuation allowance is required if it is
more likely than not that a deferred tax asset will not be realized. In
assessing the need for a valuation allowance, we considered all available
positive and negative evidence, including our ability to carry back operating
losses to prior periods, projected future taxable income, tax planning
strategies and the reversal of deferred tax liabilities. Based on this
analysis, we determined that it was more likely than not that our deferred tax
assets will not be realized and continue to believe that it is more likely
than not that these assets will not be realized. As such, we evaluated and
increased the valuation allowance to approximately $11.5 million at October
31, 2012. Our effective rate is significantly lower than statutory rates due
to the valuation allowance. We will reassess the valuation quarterly, and if
future evidence allows for a partial or full release of the valuation
allowance, a tax benefit will be recorded accordingly.

Stock Repurchases

On September 18, 2001, we announced a stock repurchase program of up to $5.0
million of our common stock.  As of April 30, 2011, the Board of Directors had
approved increases in the program totaling $32.5 million.  During the third
quarter of fiscal 2012, we purchased a total of 73,000 shares of common stock
at a cost of $143,692, or $1.97 per share. As of October 31, 2012, a total of
5,509,449 shares had been repurchased under the program at a cost of
approximately $31.6 million, for an average cost of approximately $5.73 per
share. As of October 31, 2012 a total of $5.9 million remained available under
the stock repurchase program.

Store Activity

Since September 11, 2012, which was the last date we reported store activity,
we have not had any store openings or closings.

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; the effect of inclement weather on the ability of
consumers to reach our stores; and other factors which may be outside of the
company's control. 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. 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, and trends and consumer electronics merchandise, with the
rental of videos and video games in a superstore format. We currently operate
137 superstores, averaging approximately 24,000 square feet, primarily in
medium-sized markets throughout the United States. We also operate three
concept stores, Sun Adventure Sports, with locations in Amarillo, Texas and
Lubbock, Texas, and TRADESMART, in Littleton, Colorado.

We 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 our
filings with the Securities and Exchange Commission.

 

Consolidated Balance Sheets
(Dollars in thousands)
                                       October 31,   October 31,   January 31,
                                       2012          2011          2012
                                       (unaudited)   (unaudited)
Assets
Current assets
   Cash and cash equivalents         $ 3,455       $ 5,092       $ 4,172
   Merchandise inventories, net        166,941       181,996       151,366
   Deferred income taxes               —             6,655         —
   Prepaid expenses and other          9,720         15,017        15,229
current assets
         Total current assets          180,116       208,760       170,767
Rental assets, net                     12,314        14,143        12,634
Property and equipment, net            34,450        41,443        39,449
Deferred income taxes                  —             1,186         —
Intangible assets, net                 244           391           244
Other assets                           2,222         2,241         2,380
Total assets                         $ 229,346     $ 268,164     $ 225,474
Liabilities and shareholders' equity
Current liabilities
   Trade accounts payable            $ 74,510      $ 85,364      $ 51,268
   Accrued expenses and other          27,431        26,332        26,150
current liabilities
         Total current liabilities     101,941       111,696       77,418
Long-term debt, excluding current      43,513        54,942        53,279
maturities
Deferred income taxes                  47            —             42
Other liabilities                      8,052         6,788         8,677
Shareholders' equity
   Preferred stock                     —             —             —
   Common stock                        119           119           119
   Additional paid-in capital          36,658        37,028        36,231
   Retained earnings                   60,488        79,424        71,010
   Accumulated other comprehensive     194           97            118
income
   Treasury stock, at cost             (21,666)      (21,930)      (21,420)
         Total shareholders' equity    75,793        94,738        86,058
Total liabilities and shareholders'  $ 229,346     $ 268,164     $ 225,474
equity

 

Consolidated Statements of Operations
(In thousands, except per share data)
                         Three months ended          Nine months ended
                         October 31,                 October 31,
                         2012          2011          2012          2011
                         (unaudited)   (unaudited)   (unaudited)   (unaudited)
Merchandise revenue    $ 87,908      $ 92,638      $ 276,741     $ 289,929
Rental revenue           13,325        15,841        44,238        52,792
Gift card breakage       87            145           (119)         575
revenue
   Total revenues        101,320       108,624       320,860       343,296
Merchandise cost of      60,571        65,177        187,150       201,186
revenue
Rental cost of revenue   4,482         6,299         15,035        20,470
   Total cost of         65,053        71,476        202,185       221,656
revenues
   Gross profit          36,267        37,148        118,675       121,640
Selling, general and
administrative           43,957        46,180        128,282       134,607
expenses
Pre-opening expenses     —             30            —             242
   Operating loss        (7,690)       (9,062)       (9,607)       (13,209)
Other income
(expense):
   Interest expense,     (301)         (405)         (871)         (894)
net
   Other, net            34            93            129           230
   Loss before income    (7,957)       (9,374)       (10,349)      (13,873)
taxes
Income tax expense       42            (3,851)       174           (4,708)
(benefit)
   Net loss            $ (7,999)     $ (5,523)     $ (10,523)    $ (9,165)
Basic loss per share   $ (0.98)      $ (0.65)      $ (1.28)      $ (1.07)
Diluted loss per share $ (0.98)      $ (0.65)      $ (1.28)      $ (1.07)
Weighted-average
common shares

   outstanding:
     Basic               8,165         8,508         8,214         8,605
     Dilutive effect     —             —             —             —
of stock awards
     Diluted             8,165         8,508         8,214         8,605

 

Consolidated Statements of Cash Flows
(Dollars in thousands)
                                                 Nine Months Ended October 31,
                                                 2012             2011
                                                 (unaudited)      (unaudited)
Cash flows from operating activities:
 Net loss                                      $ (10,523)      $  (9,165)
 Adjustments to reconcile net loss to net 

   cash provided by (used in) operations:
     Rental asset depreciation expense           4,466            8,422
     Purchases of rental assets                  (8,350)          (18,277)
     Property and equipment depreciation         11,374           12,803
expense
     Deferred income taxes                       5                (158)
     Loss on rental assets lost, stolen and      605              1,069
defective
     Loss on disposal of other assets            182              218
     Non-cash stock-based compensation           539              759
  Changes in operating assets and liabilities:
     Merchandise inventories, net                (11,977)         (27,586)
     Prepaid expenses and other current assets   5,509            (3,275)
     Trade accounts payable                      21,034           21,789
     Accrued expenses and other current          1,282            223
liabilities
     Excess tax benefit from stock-based         —                (15)
compensation
     Other assets and liabilities, net           (392)            458
        Net cash provided by (used in)           13,754           (12,735)
operating activities
Cash flows from investing activities:
    Purchases of property and equipment          (6,557)          (12,878)
        Net cash used in investing activities    (6,557)          (12,878)
Cash flows from financing activities:
    Net borrowings (repayments) under            (9,766)          23,176
revolving credit facility
    Purchase of treasury stock                   (357)            (1,624)
    Change in cash overdraft                     2,209            3,020
    Deferred financing costs paid                —                (68)
    Proceeds from exercise of stock options      —                37
    Excess tax benefit from stock-based          —                15
compensation
        Net cash provided by (used in)           (7,914)          24,556
financing activities
Net decrease in cash                             (717)            (1,057)
Cash at beginning of period                      4,172            6,149
Cash at end of period                          $ 3,455         $  5,092

 

Balance Sheet and Other Ratios ( A )
(Dollars in thousands, except per share amounts)
                                               October 31,   October 31,

                                               2012          2011
Merchandise inventories, net                 $ 166,941     $ 181,996
Inventory turns, trailing 12 months ( B )      1.84          1.89
Long-term debt                               $ 43,513      $ 54,942
Long-term debt to total capitalization ( C )   36.5%         36.7%
Book value ( D )                             $ 75,793      $ 94,738
Book value per share ( E )                   $ 9.23        $ 11.01

 

                          Three Months Ended October Nine Months Ended October
                          31,                        31,
                          2012       2011            2012            2011
Comparable-store revenues
( F ):
Total                     -4.7%      -4.4%           -5.1%           -5.3%
Merchandise               -3.1%      -2.9%           -3.5%           -4.2%
Rental                    -13.7%     -11.8%          -14.0%          -10.8%

 

                 

( A ) Calculations may differ in the method employed from similarly titled
      measures used by other companies.
      Calculated as merchandise cost of goods sold for the period's trailing
( B ) 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.
      Defined as total shareholders' equity divided by weighted average
( E ) diluted shares outstanding for the nine months ended October 31, 2012
      and 2011, respectively.
      Stores included in the comparable-store revenues calculation are those
      stores that have been open for a minimum of 60 weeks. Also included are
( F ) stores that are remodeled or relocated during the comparable period.
      Sales via the internet and gift card breakage revenues are not included
      and closed stores are removed from each comparable period for the
      purpose of calculating comparable-store revenues.

           

Use of Non-GAAP Financial Measures

The Company is providing free cash flow, EBITDA and adjusted EBITDA as
supplemental non-GAAP financial measures regarding the Company's operational
performance. The Company evaluates its historical and prospective financial
performance, and its performance relative to its competitors, by using such
non-GAAP financial measures. Specifically, management uses these items to
further its own understanding of the Company's core operating performance,
which management believes represents the Company's performance in the
ordinary, ongoing and customary course of its operations. Therefore,
management excludes from core operating performance those items, such as those
relating to restructuring, investing, stock-based compensation expense and
non-cash activities that management does not believe are reflective of such
ordinary, ongoing and customary activities.

The Company believes that providing this information to its investors, in
addition to the presentation of GAAP financial measures, allows investors to
see the Company's financial results "through the eyes" of management. The
Company further believes that providing this information allows investors to
both better understand the Company's financial performance and to evaluate the
efficacy of the methodology and information used by management to evaluate and
measure such performance.

Free Cash Flow

Management defines free cash flow as net cash provided by operating activities
for the period less purchases of property, equipment and improvements during
the period. Purchases of property, equipment and improvements during the
period are netted with any proceeds received from insurance on casualty loss
that are directly related to the reinvestment of new capital expenditures. The
following table reconciles net cash provided by operating activities, a GAAP
financial measure, to free cash flow, a non-GAAP financial measure (in
thousands):

 

                                           Nine months ended October 31,
                                           2012                2011
Net cash provided by (used in) operating   $                   $              
activities                                  13,754              (12,735)
Purchase of property, equipment and        (6,557)             (12,878)
improvements, net
Free cash flow                             $                   $              
                                            7,197               (25,613)

 

EBITDA and Adjusted EBITDA
EBITDA is defined as net income (loss) before interest expense (net), income
tax expense (benefit), property and equipment depreciation expense and
amortization. Adjusted EBITDA, as presented herein, is EBITDA excluding gift
card breakage revenue, stock-based compensation expense and abandoned lease
expense. The following table reconciles net income (loss), a GAAP financial
measure, to EBITDA and adjusted EBITDA, non-GAAP financial measures (in
thousands):

 

                          Three months ended October Nine months ended October
                          31,                        31,
                          2012         2011          2012          2011
Net loss                  $            $             $             $          
                           (7,999)        (5,523)     (10,523)     (9,165)
Adjusted for
   Interest expense, net  301          405           871           894
   Income tax expense     42           (3,851)       174           (4,708)
(benefit)
   Property and equipment 3,667        4,129         11,374        12,803
depreciation expense
EBITDA                    (3,989)      (4,840)       1,896         (176)
   Gift card breakage     (87)         (145)         119           (575)
revenue
   Non-cash stock-based   168          120           539           759
compensation
   Abandoned lease        60           —             163           —
expense
Adjusted EBITDA           $            $             $             $          
                           (3,848)       (4,865)     2,717                  8

 

SOURCE Hastings Entertainment, Inc.

Website: http://www.gohastings.com
Contact: Dan Crow, Vice President and Chief Financial Officer,
+1-806-677-1422, www.goHastings.com
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