Hastings Entertainment Inc. has a market cap of $36 million; its shares were traded at around $4.14 with a P/E ratio of 41.4 and P/S ratio of 0.1. Hastings Entertainment Inc. had an annual average earning growth of 6.5% over the past 10 years.
Highlight of Business Operations:Trends Comps increased 11.9% for the quarter primarily driven by increased sales of new and used comics, apparel, As Seen on TV products including Pillow Pets, and strong sales of shaped rubber bands and collectible card games, such as Magic: The Gathering. The increase in new and used comic sales is primarily due to an expanded comic footprint in 126 stores. Key drivers in the apparel category included hats, jewelry, and bags. Hardback Café Comps increased 5.2% due to increased sales of specialty café drinks. Video Game Comps increased 2.5% primarily due to increased sales of video game consoles, used video games for the Microsoft XBOX 360, Nintendo Wii, and Sony Playstation 3, new and used video gaming accessories and new Microsoft XBOX 360 video games. These increases were partially offset by lower sales of new Sony Playstation 3 and Nintendo Wii video games. Sales of new Nintendo Wii games were impacted by low allocations of Nintendo first party titles. Music Comps increased 1.3% for the quarter due to increased sales of new CDs partially offset by lower sales of used CDs. Sales of new music, which have been in decline for several years, were up 4.6% for the first quarter. Sales of new music were positively impacted by the fact that we are now able to offer many new release CDs for less than $10. We have worked closely with vendors to negotiate lower product costs which significantly mitigate the negative impact on gross margins resulting from lower price points. Electronics Comps decreased 1.9% for the quarter resulting from lower sales of Blu-ray players and recordable media, partially offset by increased sales of iPods and MP3 players and increased sales of PC Accessories. Sales of Blu-ray players were negatively impacted by a lower average selling price during the current quarter as compared to the same period in the prior year. Consumables Comps decreased 6.0% for the quarter primarily driven by lower sales of fountain drinks and bottled drinks. Movies Comps decreased 6.5% for the quarter primarily due to lower sales of new DVDs, partially offset by increased sales of new and used DVD boxed set and used Blu-ray movies. Movie sales were negatively impacted by a 25% drop in box office value of movies that came to Blu-ray and DVD during the first quarter as compared to the same period in the prior year. Our top three selling movies during the current quarter generated approximately 54% less revenue than the top three selling movies during the comparable period in the prior year. Books Comps decreased 9.1% for the quarter primarily due to lower sales of new and used mass market books, trade paperbacks and hardbacks. Sales of new books, which decreased 8.6% for the quarter, were impacted by several books that were made into movies during the first quarter of fiscal 2010. The movie tie-ins helped drive sales of related books. Some titles with movie tie-ins during the first three months of fiscal 2010 included Rick Riordans Percy Jackson and the Olympians series, and Dear John and The Last Song by Nicholas Sparks. There were no comparable strong movie tie-ins during the current quarter. Sales of new books were also impacted by a weaker slate of new book releases as compared to the same period in the prior year and the increasing popularity of electronic book readers. One initiative we are currently working on to help address the increasing popularity of electronic book readers is to begin selling electronic books via our website, www.goHastings.com, by the end of the third quarter of fiscal 2011. Sales of used books, which decreased 19.6% for the quarter, were also impacted by the weaker slate of new book release which in turn led to a less favorable inventory of used titles. These decreases were partially offset by increased sales of value books, which increased 8.7% for the period.
Rental Comps decreased 5.8% for the quarter, primarily due to fewer rentals of DVDs and books on CD partially offset by increased rentals of games and Blu-ray movies. Rental Video Comps decreased 7.0% for the quarter and units rented decreased 9.0%. Rental Video Comps sales were negatively impacted by fewer titles released in the $20 million to $80 million gross box office range, which typically represent our best renters. Rental Video Game Comps increased 7.7%, and units rented increased 2.8%. We are currently exiting the Book on CD category of our rental business.
Gross Profit Merchandise. For the first quarter, total merchandise gross profit dollars decreased approximately $1.4 million, or 4.2%, to $32.3 million from $33.7 million for the same period in the prior year, primarily due to lower revenues. As a percentage of total merchandise revenue, merchandise gross profit decreased to 31.0% for the quarter compared to 31.2% for the same period in the prior year, resulting primarily from increased costs to return products partially offset by lower shrinkage expense. The decrease in shrinkage expense is a direct result of our comprehensive store audit program that assesses store level execution and controls designed to reduce shrink, with a strong focus on our high-shrinkage stores.
Gross Profit Rental. For the first quarter, total rental gross profit dollars decreased approximately $0.9 million, or 6.9%, to $12.2 million from $13.1 million for the same period in the prior year, primarily due to lower revenues. As a percentage of total rental revenue, rental gross profit decreased to 62.7% for the quarter compared to 62.9% for the same period in the prior year.
Interest Expense. For the first quarter, interest expense increased approximately $0.1 million, or 100%, to $0.2 million, compared to $0.1 million for the same period in the prior year, primarily as a result of higher interest rates incurred under our Amended and Restated Loan and Security Agreement partially offset by lower average debt levels outstanding during the quarter. The average rate of interest charged for the quarter increased to 2.6% compared to 1.9% for the same period in the prior year.
Income Tax Expense. During the three months ended April 30, 2010, the Company recorded a discrete tax benefit of approximately $0.2 million related to amended state returns resulting from an Internal Revenue Service audit of the Companys previously filed Federal tax returns. No discrete tax items were recorded during the three months ended April 30, 2011. Primarily as a result of this discrete tax benefit, the effective tax rate for the first quarter of fiscal 2011 increased to 47.1% compared to 28.3% for the first quarter of fiscal 2010.
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