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

December 11, 2012 | About:

10qk

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Hastings Entertainment Inc. (HAST) filed Quarterly Report for the period ended 2012-10-31.

Hastings Entertainment, Inc. has a market cap of $16.4 million; its shares were traded at around $2.3211 . Hastings Entertainment, Inc. had an annual average earning growth of 0.2% over the past 10 years.

Highlight of Business Operations:

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.

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 Café Comps increased 10.9% for the period primarily due to increased sales of blended, iced and hot specialty café 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.

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

compared to $9.2 million for same period in fiscal 2011. Purchases of rental assets decreased $9.9 million to $8.4 million during the current period from $18.3 million during the same period in fiscal 2011 in anticipation of lower rental revenues. Consequently, rental asset depreciation expense decreased $3.9 million to $4.5 million during the current period from $8.4 million during the same period in fiscal 2011. Merchandise inventories increased $12.0 million for the current period, compared to an increase of $27.6 million during the same period in fiscal 2011, primarily due to lower anticipated merchandise revenues and operating fewer stores. Prepaid expenses and other current assets decreased $5.5 million during the current period, compared to an increase of $3.3 million during the same period in fiscal 2011, primarily due to the receipt of federal income tax receivable and a reduction in accounts receivable. Accrued expenses and other current liabilities increased $1.3 million for the current period, compared to an increase of $0.2 million during the same period in fiscal 2011, primarily due to increased accrued salaries, partially offset by a decrease in deferred income. Other assets and liabilities decreased $0.4 million for the current period, compared to an increase of $0.5 million during the same period in fiscal 2011, primarily due to a reduction in long-term lease obligations. For fiscal 2012, we estimate net cash provided by operations of approximately $11.0 to $13.0 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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