Hastings Entertainment, Inc. Reports Results for the Fourth Quarter of Fiscal 2013

Hastings Entertainment, Inc. Reports Results for the Fourth Quarter of Fiscal
                                     2013

PR Newswire

AMARILLO, Texas, March 24, 2014

AMARILLO, Texas, March 24, 2014 /PRNewswire/ -- Hastings Entertainment, Inc.
(NASDAQ: HAST), a leading multimedia entertainment retailer, today reported
results for the three months and fiscal year ended January 31, 2014. Net
income was approximately $2.3 million, or $0.29 per diluted share, for the
three months ended January 31, 2014 compared to net income of approximately
$1.2 million, or $0.15 per diluted share, for the three months ended January
31, 2013. Net loss was approximately $10.2 million, or $1.25 per diluted
share, for the fiscal year ended January 31, 2014 compared to a net loss of
$9.3 million, or $1.14 per diluted share, for the fiscal year ended January
31, 2013.

"As we have previously disclosed, one of our strategic initiatives is the
introduction of new product categories which include consumer electronics,
music electronics and accessories, vinyl, hobby, recreation and lifestyle and
tablets," said John H. Marmaduke, Chief Executive Officer and Chairman. "The
majority of these products are included in our Electronics category which had
a comparable sales increase of 5.2% for the fourth quarter of fiscal 2013
which is on top of a 15.1% comparable sales increase for the fourth quarter of
fiscal 2012. Several of the remaining new categories are included in our
Trends department which had a 25.1% increase for the fourth quarter of fiscal
2013 which is on top of a 6.2% increase for the fourth quarter of fiscal 2012.
This was driven by the stores that were reset during fiscal 2012 and
thirty-three stores reset by the end of December of fiscal year 2013. The
Electronic and Trends departments in these reset stores had significant
increases in revenueswhen compared to the rest of our superstores that have
not had a reset. We are greatly encouraged by the performance of these new
products. With the launch of the PlayStation 4 and Xbox One game consoles
our Video Game Comps increased 10.7% for the quarter which compares to a
decrease of 22.0% for the fourth quarter of fiscal 2012. Revenues for Music,
Books and Rental continue to be impacted by the popularity of digital
delivery, rental kiosks and subscription based services.

"In order to reduce our SG&A expenses in light of our lower revenue base, we
underwent a restructuring of our corporate store support center which included
staff reduction, department consolidation and the termination of four of our
eight corporate officers. The total cost of this restructuring was
approximately $1.4 million which we recognized during the first quarter of
fiscal 2013. Additionally, we closed ten underperforming stores in fiscal
2013. For the fiscal year we reduced selling, general and administrative
expenses by approximately $12.2 million excluding the restructuring charge."

Financial Results for the Fourth Quarter of Fiscal Year 2013

Revenues. Total revenues for the fourth quarter decreased approximately $5.2
million, or 3.7%, to $136.4 million compared to $141.6 million for the fourth
quarter of fiscal 2012. As of January 31, 2014, we operated ten fewer
Hastings superstores, as compared to January 31, 2013. The following is a
summary of our revenues results (dollars in thousands):

                 Three Months Ended January 31,
                 2014                 2013                 Increase/(Decrease)
                           Percent              Percent
                 Revenues  Of Total   Revenues  Of Total   Dollar     Percent
Merchandise    $ 122,511   89.8%    $ 125,992   89.0%    $ (3,481)    -2.8%
Revenue
Rental Revenue   13,820    10.1%      15,608    11.0%      (1,788)    -11.5%
Gift Card
Breakage
 Revenue       50        0.0%       40        0.0%       10         25.0%
 Total     $ 136,381   100.0%   $ 141,640   100.0%   $ (5,259)    -3.7%
Revenues
Stores open at   130                  140                  (10)       -7.1%
period end

Comparable-store revenues ("Comp")
 Total             1.2%
 Merchandise       2.2%
 Rental            -6.7%

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

              Three Months Ended January 31,
              2014            2013
Trends        25.1%           6.2%
Video Games   10.7%           -22.0%
Electronics   5.2%            15.1%
Movies        1.4%            -0.8%
Consumables   -0.6%           -1.7%
Hardback Cafe -3.7%           10.7%
Books         -8.2%           -4.5%
Music         -11.5%          -12.9%

Trends Comps increased 25.1% for the quarter, primarily due to increased sales
in novelty gifts and toys, boxed games, action figures, children's toys,
licensed and branded products and recreational and lifestyle products.
Licensed and branded products for which we experienced strong sales during the
quarter were Sons of Anarchy, Walking Dead and Doctor Who. The Trends
department also includes recreation and lifestyles products whose growth was
driven by the addition of hobby products to reset stores as well as pet
accessories and outdoor accessories. Hobby products showed significant growth
during the quarter led by sales of remote control vehicles and model kits.
Video Games Comps increased 10.7% for the quarter, primarily due to the launch
of the PlayStation 4 and Xbox One game consoles, as well as an increase in
consumer purchases of new and used games. Electronics Comps increased 5.2%
for the quarter, primarily due to increased sales of big screen televisions
and turntables. In addition, with the release of two new iPhone models we had
increased sales in phone accessories. Movies Comps increased 1.4% for the
quarter, primarily due to increased sales of new and used Blu-ray and
traditional DVDs, partially offset by a decrease in Midline new and used
DVDs. Consumables Comps decreased 0.6% for the quarter, primarily due to
lower sales of bottle drinks, fountain drinks and everyday consumable items,
partially offset by an increase in seasonal candies. Hardback Cafe Comps
decreased 3.7% for the quarter, primarily due to the closing of seven Hardback
Cafes which operated in comp stores. Books Comps decreased 8.2% for the
quarter, primarily due to a weaker release schedule for new books and a
decrease in trade paperback sales, as compared to the fourth quarter of fiscal
2012, which included higher sales from the Fifty Shades trilogy. Sales of
digital hardware also decreased for the quarter as compared to the same period
in the prior year. Music Comps decreased 11.5% for the quarter, primarily due
to a significant reduction in retail space in the 36 stores that were reset in
fiscal 2013 as well as the increasing popularity of digital delivery,
partially offset by the increased sales of new vinyl albums.

Rental Comps decreased 6.7% during the quarter, primarily due to fewer rentals
of traditional DVDs and video games, partially offset by an increase in
rentals of Blu-ray movies. Rental Movie Comps decreased 5.4% for the fourth
quarter as we continue to be affected by competitor rental kiosks and
subscription-based rental services. Rental Video Game Comps decreased 18.8%.

Gross Profit – Merchandise. For the fourth quarter, total merchandise gross
profit dollars decreased approximately $1.5 million, or 4.0%, to $36.4 million
from $37.9 million for the same quarter in the prior year primarily due to a
decrease in revenue and a slight decrease in margin rates. The decrease in
revenue was primarily attributed to operating fewer superstores this quarter
compared to the same period in the prior year. As a percentage of total
merchandise revenue, merchandise gross profit decreased to 29.7% for the
quarter compared to 30.1% for the same quarter in the prior year, resulting
primarily from a continued shift in mix of revenues by category and increased
merchandise markdowns, partially offset by lower freight expense, lower
expense to return products and lower shrinkage.

Gross Profit – Rental. For the fourth quarter, total rental gross profit
dollars decreased approximately $1.4 million, or 14.1%, to $8.5 million from
$9.9 million for the same quarter in the prior year, due to a decrease in
revenue partially attributed to operating fewer superstores this quarter
compared to the same quarter in the prior year. As a percentage of total
rental revenue, rental gross profit decreased to 61.2% for the quarter
compared to 63.2% for the same quarter in the prior year, primarily due to an
increase in revenues under revenue sharing agreements, which generally have
lower margins when compared to traditional agreements, partially offset by a
decrease in depreciation and shrink expense. Additionally, in an effort to
gain market share, we were more promotional during the holiday season which
had a negative impact on our margin rate.

Selling, General and Administrative Expenses ("SG&A"). As a percentage of
total revenue, SG&A decreased to 31.0% for the fourth quarter compared to
32.6% for the same period in the prior year due to a significant reduction in
SG&A expenses. SG&A decreased approximately $4.0 million during the quarter,
or 8.7%, to $42.2 million compared to $46.2 million for the same quarter last
year. The majority of the decrease results primarily from a $1.0 million
reduction in store labor expense, a $0.7 million reduction in depreciation
expense and a $0.5 million reduction in store advertising expense, all of
which were primarily the result of operating fewer superstores this quarter
compared to the same period in the prior year. Several other SG&A expenses
had smaller decreases or increases during the quarter which netted to an
additional $1.8 million decrease for the fourth quarter.

Interest Expense. For both the fourth quarter of fiscal 2013 and fiscal 2012,
interest expense was approximately $0.3 million. Interest rates for both
quarters averaged 2.5%.

Income Taxes. The effective tax rate for the fourth quarter was 2.7%
primarily due to Texas state income tax, which is based primarily on gross
margin.

Financial Results for the Fiscal Year Ended January 31, 2014

Revenues. Total revenues for the fiscal year ended January 31, 2014 decreased
approximately $26.5 million, or 5.7%, to $436.0 million compared to $462.5
million for the fiscal year ended January 31, 2013. The following is a
summary of our revenues results (dollars in thousands):

                 Fiscal Year Ended January 31,
                 2014                 2013                 Increase/(Decrease)
                           Percent              Percent
                 Revenues  Of Total   Revenues  Of Total   Dollar      Percent
Merchandise    $ 382,578   87.8%    $ 402,735   87.1%    $ (20,157)    -5.0%
Revenue
Rental Revenue   53,043    12.2%      59,846    12.9%      (6,803)     -11.4%
Gift Card
Breakage
 Revenue       341       0.1%       (80)      0.0%       421         NM
 Total     $ 435,962   100.0%   $ 462,501   100.0%   $ (26,539)    -5.7%
Revenues
Stores open at   130                  140                  (10)        -7.1%
period end

Comparable-store revenues ("Comp")
 Total             -2.8%
 Merchandise       -2.0%
 Rental            -7.7%

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

              Fiscal Year Ended January 31,
              2014              2013
Trends        15.2%             8.7%
Electronics   9.9%              12.9%
Movies        2.2%              -1.1%
Hardback Cafe 1.1%              11.1%
Consumables   -2.5%             1.5%
Video Games   -2.9%             -21.8%
Books         -10.7%            -1.3%
Music         -12.5%            -12.0%

Trends Comps increased 15.2% for fiscal 2013, primarily due to strong sales in
toys and gifts, action figures, comic books, licensed and branded products and
recreational and lifestyle products. Licensed and branded products for which
we experienced strong sales during the period were Walking Dead, Star Wars and
Doctor Who. The Trends department also includes recreation and lifestyles
products whose growth was driven by the addition of hobby products, pet
accessories and outdoor accessories to reset stores as well as the growth in
the existing categories of skateboards and disc golf. Hobby products showed
significant growth during fiscal 2013 led by sales of remote control vehicles
and model kits. Electronics Comps increased 9.9% for fiscal 2013, primarily
due to increased sales in hardware categories, such as televisions, turntables
and speaker systems. Strong growth was also realized in refurbished
electronics. Movies Comps increased 2.2% for fiscal 2013, primarily due to
increased sales of new and used Blu-ray, traditional and boxed set DVDs,
partially offset by new, previously viewed and used Midline DVDs. Hardback
Cafe Comps increased 1.1%, due to higher sales of iced and hot specialty cafe
drinks, partially offset by a decrease in retail products such as mugs and
baked goods. Consumables Comps decreased 2.5%, primarily due to decreased
sales in popcorn, candies, and fountain drinks. Video Games Comps decreased
only 2.9% for fiscal 2013, primarily due to the release of the PlayStation 4
and the Xbox One game consoles in the fourth quarter as well as increased
sales in new and used games. Books Comps decreased 10.7%, primarily due to a
weaker release schedule for new books and a decrease in trade paperback and
hardback sales, as compared to fiscal 2012, which included strong sales from
the Fifty Shades and Hunger Games trilogies. In addition, sales of digital
hardware decreased significantly for fiscal 2013 as compared to fiscal 2012.
Music Comps decreased 12.5% for the period, primarily due to a significant
reduction in retail space in the 36 stores that were reset in fiscal 2013 as
well as the increasing popularity of digital delivery, partially offset by the
increased sales of new and used vinyl albums.

Rental Comps decreased 7.7% for fiscal 2013 primarily resulting from fewer
rentals of traditional DVDs and video games, partially offset by an increase
in rentals of Blu-ray movies. Rental Movie Comps decreased 6.3% primarily due
to competition from rental kiosks and subscription-based rental services.
Rental Video Game Comps decreased 19.8%.

Gross Profit – Merchandise. For fiscal 2013, total merchandise gross profit
dollars decreased approximately $7.6 million, or 6.0%, to $119.9 million from
$127.5 million for the same period in the prior year primarily due to a
decrease in revenue which is primarily attributed to operating fewer
superstores for the same period in the prior year. As a percentage of total
merchandise revenue, merchandise gross profit slightly decreased to 31.4% for
fiscal 2013, compared to 31.7% for fiscal 2012, primarily due to a shift in
mix of revenues by category and higher markdown expenses, partially offset by
lower freight expense, lower expense to return products and lower shrinkage.

Gross Profit – Rental. For fiscal 2013, total rental gross profit dollars
decreased approximately $5.1 million, or 13.0%, to $34.0 million from $39.1
million for the same period in the prior year primarily due to a decrease in
revenue which is partially attributed to operating fewer superstores for the
same period in the prior year. As a percentage of total rental revenue,
rental gross profit decreased to 64.0% for fiscal 2013 compared to 65.3% for
the prior year, primarily due to an increase in revenues under revenue sharing
agreements, which generally have lower margins when compared to traditional
agreements. The rate decrease in partially offset by a decrease in
depreciation and shrink expense.

Selling, General and Administrative Expenses ("SG&A"). As a percentage of
total revenue, SG&A decreased to 37.5% for fiscal year 2013 compared to 37.7%
for fiscal year 2012, due to a significant reduction in SG&A expenses. SG&A
decreased approximately $10.8 million, or 6.2%, to $163.7 million compared to
$174.5 million for the same period last year. The majority of the decrease
results primarily from a $3.3 million reduction in store labor expense, a $2.3
million reduction in depreciation expense, a decrease of $1.7 million in store
advertising expense and a decrease of $0.6 million in store supplies, all of
which were primarily the result of operating fewer superstores during this
fiscal year compared to last fiscal year. There was a $1.9 million reduction
in corporate salary expense due to lower bonus payouts and the restructuring
that took place in the first quarter of fiscal 2013. Several other SG&A
expenses had smaller decreases or increases during the year which netted to an
additional $1.0 million decrease for fiscal 2013.

Interest Expense. For fiscal 2013, interest expense increased approximately
$0.1 million, or 8.3%, to $1.3 million, compared to $1.2 million for fiscal
2012. The increase results primarily from higher debt levels. Interest rates
for both periods averaged 2.5%.

Income Taxes. During fiscal 2013, the Company recorded a discrete tax benefit
of approximately $0.5 million from the recognition of a tax position due to a
change in state administrative practices. No discrete items were recorded
during fiscal 2012.

As the Company has a net operating loss and a net deferred tax asset, which
has been offset by a full valuation allowance at the end of fiscal 2013, there
is no tax liability, with the exception of Texas state income tax; therefore,
considering the discrete tax benefit described above and the Texas state
income tax, the effective tax rate for fiscal year 2013 is (2.3%). The
valuation allowance is approximately $14.3 million as of January 31, 2014. We
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.

Store Activity

Since December 6, 2013, which was the last date we reported store activity, we
have the following activity to report.

  oStore closed in Borger, Texas in February 2014

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
126 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, located in Amarillo, Texas and Lubbock,
Texas, and TRADESMART, located 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)
                                                    January 31,   January 31,
                                                    2014          2013
                                                    (unaudited)
Assets
Current assets
 Cash and cash equivalents                      $ 3,753       $ 3,730
 Merchandise inventories, net                     152,138       145,337
 Prepaid expenses and other current assets        10,394        10,427
 Total current assets                       166,285       159,494
Rental assets, net                                  10,227        11,353
Property and equipment, net                         29,212        32,099
Intangible assets, net                              244           244
Other assets                                        677           2,792
Total assets                                      $ 206,645     $ 205,982
Liabilities and shareholders' equity
Current liabilities
 Trade accounts payable                         $ 57,236      $ 54,928
 Accrued expenses and other current liabilities   28,359        27,396
 Total current liabilities                  85,595        82,324
Long-term debt, excluding current maturities        51,749        41,805
Deferred income taxes                               60            50
Other liabilities                                   5,239         7,828
Shareholders' equity
 Preferred stock                                  —             —
 Common stock                                     119           119
 Additional paid-in capital                       36,412        36,375
 Retained earnings                                48,460        58,642
 Accumulated other comprehensive income           347           247
 Treasury stock, at cost                          (21,336)      (21,408)
 Total shareholders' equity                 64,002        73,975
Total liabilities and shareholders' equity        $ 206,645     $ 205,982

Consolidated Statements of Operations

(In thousands, except per share data)
                             Three months ended          Fiscal year ended
                             January 31,                 January 31,
                             2014          2013          2014          2013
                             (unaudited)   (unaudited)   (unaudited)
Merchandise revenue        $ 122,511     $ 125,992     $ 382,578     $ 402,735
Rental revenue               13,820        15,608        53,043        59,846
Gift card breakage revenue   50            40            341           (80)
 Total revenues            136,381       141,640       435,962       462,501
Merchandise cost of          86,112        88,100        262,639       275,251
revenue
Rental cost of revenue       5,368         5,744         19,071        20,779
 Total cost of revenues    91,480        93,844        281,710       296,030
 Gross profit              44,901        47,796        154,252       166,471
Selling, general and         42,226        46,178        163,698       174,461
administrative expenses
 Operating income (loss)   2,675         1,618         (9,446)       (7,990)
Other income (expense):
 Interest expense, net     (345)         (302)         (1,283)       (1,173)
 Other, net                69            17            302           147
 Income (loss) before      2,399         1,333         (10,427)      (9,016)
income taxes
Income tax expense           65            123           (244)         297
(benefit)
 Net income (loss)       $ 2,334       $ 1,210       $ (10,183)    $ (9,313)
Basic income (loss) per    $ 0.29        $ 0.15        $ (1.25)      $ (1.14)
share
Diluted income (loss) per  $ 0.29        $ 0.15        $ (1.25)      $ (1.14)
share
Weighted-average common
shares

 outstanding:
 Basic                   8,143         8,168         8,142         8,202
 Dilutive effect of      11            48            —             —
stock awards
 Diluted                 8,154         8,216         8,142         8,202







Consolidated Statements of Cash Flows

(Dollars in thousands)
                                                 Fiscal year ended January 31,
                                                 2014              2013
                                                 (unaudited)
Cash flows from operating activities:
Net loss                                      $ (10,183)      $   (9,313)
Adjustments to reconcile net loss to net

 cash provided by (used in) operations:
 Rental asset depreciation expense           3.920             6,187
 Purchases of rental assets                  (7,849)           (11,072)
 Property and equipment depreciation         12,552            14,948
expense
 Deferred income taxes                       10                8
 Loss on rental assets lost, stolen and      654               985
defective
 Loss on disposal or impairment of
property and equipment,                          607               1,411

 excluding rental assets
 Non-cash stock-based compensation           180               704
Changes in operating assets and liabilities:
 Merchandise inventories, net                (2,397)           11,209
 Prepaid expenses and other current assets   1,963             4,802
 Trade accounts payable                      861               1,895
 Accrued expenses and other current          (644)             1,246
liabilities
 Other assets and liabilities, net           (698)             (806)
 Net cash provided by (used in)           (1,024)           22,204
operating activities


Cash flows from investing activities:
 Purchases of property and equipment          (10,274)          (9,008)
 Net cash used in investing activities    (10,274)          (9,008)
Cash flows from financing activities:
 Borrowings under revolving credit           437,022           433,850
facility
Repayments under revolving credit facility       (427,078)         (445,324)
 Purchase of treasury stock                   (128)             (542)
 Cash dividends paid                          —                 (3,062)
 Change in cash overdraft                     1,447             1,765
 Deferred financing costs paid                —                 (325)
 Proceeds from exercise of stock options      58                —
 Net cash provided by (used in)           11,321            (13,638)
financing activities
Net increase (decrease) in cash                  23                (442)
Cash at beginning of period                      3,730             4,172
Cash at end of period                          $ 3,753         $   3,730

Balance Sheet and Other Ratios ( A )

(Dollars in thousands, except per share amounts)
                                               January 31,   January 31,

                                               2014          2013
Merchandise inventories, net                 $ 152,138     $ 145,337
Inventory turns, trailing 12 months ( B )      1.77          1.85
Long-term debt                               $ 51,749      $ 41,805
Long-term debt to total capitalization ( C )   44.7%         36.1%
Book value ( D )                             $ 64,002      $ 73,975
Book value per share ( E )                   $ 7.86        $ 9.02

                                 Three Months Ended  Fiscal Year Ended January
                                 January 31,         31,
                                 2014     2013       2014           2013
Comparable-store revenues ( F ):
 Total                         1.2%     -5.7%      -2.8%          -5.1%
 Merchandise                   2.2%     -5.1%      -2.0%          -3.7%
 Rental                        -6.7%    -10.1%     -7.7%          -12.9%



( 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 fiscal year ended January 31, 2014
      and 2013, 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.
      Gift card breakage revenues are not included, and closed stores are
      removed from each comparable period for the purpose of calculating
      comparable-store revenues.

SOURCE Hastings Entertainment, Inc.

Website: http://www.gohastings.com
Contact: Dan Crow, Vice President and Chief Financial Officer, Hastings
Entertainment, Inc., (806) 677-1422
 
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