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Hastings Entertainment, Inc. Reports Operating Results (10-Q)

September 11, 2012 | About:
10qk

10qk

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Hastings Entertainment, Inc. (HAST) filed Quarterly Report for the period ended 2012-07-31.

Hastings Entertainment, Inc. has a market cap of $15.8 million; its shares were traded at around $1.95 . Hastings Entertainment, Inc. had an annual average earning growth of 0.2% over the past 10 years.

Highlight of Business Operations:

Hardback Café Comps increased 12.1% for the quarter, primarily due to increased sales in blended and iced specialty café drinks and fruit smoothies. Trends Comps increased 11.2% for the quarter, primarily due to increased sales of apparel and accessories, novelty items, and comics. Key drivers in the apparel and accessories category included licensed apparel and accessories, novelty fashion accessories, and body jewelry. Key drivers in the novelty items category included tchotchke impulse items, barware, and the expansion of tween and movie related merchandise. Key drivers in the comics category included the chain roll out of a comic subscription program, Hastings exclusive variant comics, and strong licensed comics, including Avengers vs. X-Men, Batman and the Walking Dead series. Consumable Comps increased 7.9% due to the success of the monthly candy suggestive sell item and the expansion licensed novelty candy items. Electronics Comps increased 5.4% for the quarter, primarily due to increased sales of headphones, wireless phone accessories, tablet accessories, musical instrument accessories, and new hardware, partially offset by declining sales in refurbished iPods, musical instruments, storage, and recordable media. Book Comps increased 2.5% for the quarter, primarily due to strong trade paperback sales driven by the 50 Shades series, as well as strong used book sales, partially offset by declining hardcover sales due to a weak release schedule and the continued adoption of digital books in fiction categories. Book Comps, excluding Nextbook sales, digital books, and accessories increased 1.2% for the quarter. Movie Comps increased 0.4% for the quarter, primarily due to increased sales of new and used Blu-ray movies, partially offset by declining sales in new and used DVD movies, including boxed sets. Music Comps decreased 11.6% for the quarter, primarily resulting from lower sales of new and used products and the continued shift to lower priced promotional goods. Video Game Comps decreased 22.8% for the quarter, primarily due to lower sales of video game consoles, new gaming

Selling, General and Administrative Expenses (SG&A). As a percentage of total revenue, SG&A increased to 41.4% for the second quarter compared to 40.5% for the same period in the prior year due to deleveraging resulting from lower revenues. SG&A decreased approximately $1.7 million during the quarter, or 3.8%, to $43.0 million compared to $44.7 million for the same quarter last year. The decrease results primarily from a decrease of $1.2 million in store labor costs, a decrease of approximately $0.6 million in occupancy costs, including depreciation, and reductions in the majority of controllable expenses. The decrease was partially offset by an increase in bonuses under our corporate officer and management bonus incentive programs, resulting from the fact that no bonuses were earned during the second 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 seven fewer superstores this quarter compared to the same period in the prior year.

Trends Comps increased 11.4% for the period, primarily due to increased sales of apparel and accessories, novelty items, and comics. Key drivers in the apparel and accessories category included licensed apparel and accessories, novelty fashion accessories, and body jewelry. Key drivers in the novelty items category included tchotchke impulse items, barware, and the expansion of tween and movie related merchandise. Key drivers in the comics category included the chain roll out of a comic subscription program, Hastings exclusive variant comics, and strong licensed comics, including Avengers vs. X-Men, Batman and the Walking Dead series. Electronics Comps increased 8.8% for the period, primarily due to increased sales of headphones, wireless phone accessories, tablet accessories, musical instrument accessories, and new hardware, partially offset by declining sales in refurbished iPods, musical instruments, storage, and recordable media. Hardback Café Comps increased 8.7% for the period, primarily due to increased sales in blended and iced specialty café drinks and fruit smoothies. Consumable Comps increased 3.2% for the period, due to the success of the monthly candy suggestive sell item and the expansion of licensed novelty candy items. Book Comps increased 0.3% for the period, primarily due to strong paperback sales driven by the 50 Shades series and strong used book sales, partially offset by declining hardcover sales due to a weak release schedule and the continued adoption of digital books in fiction categories. Book Comps, excluding Nextbook sales, digital books, and accessories decreased 1.0% for the period. Movie Comps decreased 2.2% for the period, primarily due to declining sales in new and used DVDs, including boxed sets, partially offset by increased sales of new and used Blu-ray movies. Music Comps decreased 10.8% for the period, primarily resulting from lower sales of new and used CDs, along with a weaker slate of new release music during the period. The decrease in physical unit sales was 9.1% for the period, outperforming the industry by 2.7%, according to Nielsen SoundScan numbers for the January 1 July 7, 2012 time frame. Video Game Comps decreased 22.1% for the period, primarily due to lower sales of video game consoles, new gaming accessories, and new video games, partially offset by increased sales in used video game hardware and accessories. Sales in the video game industry, as a whole, continue to struggle and are down significantly due to a lack of new video game releases and weak console sales.

Selling, General and Administrative Expenses (SG&A). As a percentage of total revenue, SG&A increased to 38.4% for the current six months compared to 37.7% for the same period in the prior year primarily due to deleveraging resulting from lower revenues. SG&A decreased approximately $4.1 million, or 4.6%, to $84.3 million compared to $88.4 million for the same period last year. The main drivers of the decrease in SG&A included a $2.8 million decrease in store labor costs, a $1.3 million decrease in occupancy expense, including depreciation, and a reduction in the majority of controllable expenses. The decrease was partially offset by an increase in bonuses under our corporate officer and management bonus incentive programs, resulting from the fact that no bonuses were earned for the first half of fiscal 2011. The decrease in occupancy expense and, to a certain extent, the decrease in store labor costs, are primarily a result of operating seven fewer superstores this year compared to the same period in the prior year.

Operating Activities. Net cash provided by operating activities totaled approximately $20.8 million for the six months ended July 31, 2012, compared to cash used by operating activities of $4.2 million for the six months ended July 31, 2011. Net loss for the current period was approximately $2.5 million compared to a net loss of $3.6 million for same period in fiscal 2011. Purchases of rental assets decreased $7.4 million to $4.8 million during the current period from $12.2 million during the same period in fiscal 2011 in anticipation of lower rental revenues. Consequently, rental asset depreciation expense decreased $2.8 million to $3.1 million during the current period from $5.9 million during the same period in fiscal 2011. Merchandise inventories decreased approximately $11.2 million for the current period, compared to an increase of $6.0 million during the same period in fiscal 2011 primarily due to lower anticipated merchandise revenues. Trade accounts payable decreased $0.5 million for the current period compared to an increase of $1.8 million during the same period in fiscal 2011, primarily due to a variance in the timing of payments to vendors. Merchandise inventories, net of trade accounts payable decreased approximately $10.7 million for the current period compared to an increase of $7.7 million for the same period in the prior year primarily due to decrease in store inventories and differences of timing of payments to vendors. Prepaid expenses and other current assets decreased approximately $5.0 million for the current period compared to an increase of $1.0 million during the same period of fiscal 2011 primarily due to the reduction in federal income tax receivable. Accrued expenses and other liabilities increased approximately $1.2 million during the current period compared to a decrease of $0.7 million during the same period in fiscal 2011 primarily due to an increased accrual in bonuses under our corporate officer and management bonus incentive program. For fiscal 2012, we estimate net cash provided by operations of approximately $12.0 to $14.0 million as compared to a net use of cash of approximately $4.5 million in fiscal 2011. The expected increase from fiscal 2011 net cash used in operations to estimated fiscal 2012 net cash provided by operations results primarily from projected changes in various balance sheet accounts, primarily lower inventories and a projected decrease in net loss for fiscal 2012.

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