We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.

The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.

These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.

When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?

Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.

Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.

Home / Markets / Industries / Retail

Monday, May 19, 2008

Hastings Entertainment, Inc. Announces Record First Quarter Earnings

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Comtex

AMARILLO, Texas, May 19, 2008 /PRNewswire-FirstCall via COMTEX/ ----Hastings Entertainment, Inc. (Nasdaq: HAST), a leading multimedia entertainment retailer, today reported results for the three months ended April 30, 2008. Net income was approximately $3.0 million, or $0.28 per diluted share, for the first quarter of fiscal 2008 compared to net income of $2.5 million, or $0.22 per diluted share, for the first quarter of fiscal 2007.

"I'm excited by the record profits our new management team delivered on top of a very strong first quarter during fiscal 2007," said Chief Executive Officer John Marmaduke. "BUY, SELL, TRADE, RENT creates a new retailing synergy by offering greater value and selection from a seamless assortment of new and used products, while monetizing our customers' unwanted entertainment. We have an opportunity to take advantage of weakened competitors with our new and used Entertainment Superstore, while additionally delivering exceptional value to our customers in a difficult economic environment."

Financial Results for the First Quarter of Fiscal Year 2008

 Revenues. Total revenues for the first quarter increased $3.9 million, or 3.1%, to $131.9
   million compared to $128.0 million for the first quarter of fiscal 2007. The following is a summary of our revenues results
   (dollars in thousands): Three Months Ended April 30, 2008 2007 Percent Percent Increase/(Decrease) Revenues of Total Revenues
   of Total Dollar Percent Merchandise revenue $108,317 82.1% $105,064 82.1% $3,253 3.1% Rental revenue 23,619 17.9% 22,948 17.9%
   671 2.9% Total revenues $131,936 100.0% $128,012 100.0% $3,924 3.1% Comparable-store revenues ("Comp"): Total 4.2% Merchandise
   4.3% Rental 3.8% Below is a summary of the Comp results for our major merchandise categories: Three Months Ended April 30,
   2008 2007 Trends 36.8% -14.3% Video Games 29.8% -5.8% Electronics 26.8% 17.5% Hardback Cafe 14.2% 9.0% Consumables 12.5% 0.6%
   Books 5.6% -1.3% Movies 3.2% 4.9% Music -16.0% -13.0%

Trends Comps increased 36.8% primarily due to strong sales of Webkinz plush products, as well as strong apparel and seasonal sales. Key drivers in the apparel category included jewelry, bags, and hats. Key drivers in the seasonal category included Valentine's Day and Easter products. Video Game Comps increased 29.8% primarily due to strong sales of new hit titles released during the first quarter, including Grand Theft Auto IV, Mario Kart Wii, Super Smash Bros. Brawl, Army of Two, and Turok, as well as increased sales of used games, gaming systems and gaming accessories including Sony PS3 and Nintendo Wii controllers. Electronics department Comps increased 26.8% for the quarter, which was attributable to strong sales of refurbished iPods and MP3 player related accessories, as well as increased sales of third-party gift cards. Books Comps increased 5.6% during the first quarter, primarily due to increased sales of new trade paperback books, as well as strong sales of used hardback and trade paperback books. Hit titles driving book sales during the quarter included New Earth, by author Eckhart Tolle, and The Last Lecture, by author Randy Pausch. Movie Comps increased 3.2%, primarily due to increased sales of both new and used DVDs, Blu-ray format movies, and used DVD box sets. Hit movies released during the quarter, including I Am Legend, Alvin and the Chipmunks, American Gangster, and No Country For Old Men, helped drive the sales of new DVDs and Blu-ray. These increases were partially offset by lower sales of new DVD boxed sets and previously-viewed titles. Music Comps fell 16.0% for the quarter directly as a result of continued industry declines as consumers looked to other forms of music alternatives, primarily through digital downloads. Merchandise Comps, excluding the sales of Music, increased 10.4% during the quarter.

Rental video Comps increased 3.8% from the same period last year primarily as a result of increased video game rentals resulting from the release of strong hit titles during the first quarter. We continue to respond to a shift of consumer preference towards buying DVDs and games instead of renting, and as a result, the combined sales and rental of movies and video games resulted in a Comp increase of 8.0%.

Gross Profit - Merchandise. For the first quarter, total merchandise gross profit dollars increased approximately $1.3 million, or 4.0%, to $33.4 million from $32.1 million for the same period last year, primarily as a result of higher revenues. As a percentage of total merchandise revenue, merchandise gross profit increased to 30.8% for the quarter compared to 30.5% for the same period in the prior year.

Gross Profit - Rental. For the first quarter, total rental gross profit dollars remained constant at $15.6 million. Higher rental revenues were offset by lower margin rates. As a percentage of total rental revenue, rental gross profit decreased to 66.3% for the quarter compared to 68.2% for the same period in the prior year, which was primarily due to increased rental asset depreciation expense for the quarter, as compared to the prior year.

Selling, General and Administrative Expenses ("SG&A"). As a percentage of total revenue, SG&A decreased to 33.1% for the first quarter compared to 33.5% for the same quarter in the prior year, primarily as a result of leverage from higher revenues. SG&A increased approximately $0.8 million during the first quarter, or 1.9%, to $43.7 million compared to $42.9 million for the same quarter last year. The increase in SG&A was primarily related to increased store labor costs and stock compensation expense.

Stock Repurchase

On September 18, 2001, we announced a stock repurchase program of up to $5.0 million of our common stock. Since that time, the Board of Directors has approved increases in the program in the amounts of $2.5 million on April 4, 2005; $5.0 million on March 15, 2006; $2.5 million on October 3, 2006; and $7.5 million on November 20, 2007. During the first quarter of fiscal 2008, we purchased a total of 158,041 shares of common stock at a cost of approximately $1,289,796, or $8.16 per share. As of April 30, 2008, a total of 2,813,791 shares had been repurchased under the program at a cost of approximately $18.6 million, for an average cost of approximately $6.59 per share. As of April 30, 2008, approximately $3.9 million remains available under the stock repurchase program.

Fiscal Year 2008 Guidance

"Net income for the quarter was substantially better then our internal forecast, which is the basis for our guidance," said Dan Crow, Vice President and Chief Financial Officer. "From an internal perspective, we are confident about our ability to grow our earnings for the remainder of the year; however, we are concerned about the uncertain economic outlook for the remainder of the year. Consequently, we are reaffirming our guidance of net income per diluted share ranging from $0.95 to $1.00 for the full fiscal year ended January 31, 2009."

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; and other factors which may be outside of the company's control. 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, as well as trends merchandise, with the rental of videos and video games in a superstore format. We currently operate 153 superstores, averaging approximately 20,000 square feet, primarily in medium-sized markets throughout the United States.

We also operate http://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 our filings with the Securities and Exchange Commission.

 Consolidated Balance Sheets (Dollars in thousands)
   April 30, April 30, January 31, 2008 2007 2008 (unaudited) (unaudited) Assets Current Assets Cash $4,003 $5,227 $3,982 Merchandise
   inventories, net 164,199 164,437 171,958 Deferred income taxes, current 3,590 3,009 3,441 Other current assets 10,384 10,677
   11,386 Total current assets 182,176 183,350 190,767 Rental assets, net 13,613 11,235 13,236 Property and equipment, net 51,006
   54,958 52,572 Deferred income taxes 2,831 2,583 2,756 Intangible assets, net 391 403 391 Other assets 1,143 289 499 Total
   assets $251,160 $252,818 $260,221 Liabilities and Shareholders' Equity Current liabilities Trade accounts payable $64,335
   $68,224 $76,364 Accrued expenses and other liabilities 35,682 34,688 36,675 Total current liabilities 100,017 102,912 113,039
   Long-term debt, excluding current maturities 42,686 46,750 40,616 Other liabilities 4,639 4,466 4,758 Shareholders' equity
   Preferred stock - - - Common stock 119 119 119 Additional paid-in capital 37,249 36,845 37,125 Retained earnings 78,881 68,131
   75,892 Other comprehensive income 3 35 (15) Treasury stock, at cost (12,434) (6,440) (11,313) Total shareholders' equity 103,818
   98,690 101,808 Total liabilities and shareholders' equity $251,160 $252,818 $260,221 Consolidated Statements of Earnings (Dollars
   in thousands, except per share data) Three Months Ended April 30, 2008 2007 (unaudited) (unaudited) Merchandise revenue $108,317
   $105,064 Rental revenue 23,619 22,948 Total revenues 131,936 128,012 Merchandise cost of revenue 74,952 72,997 Rental cost
   of revenue 7,971 7,300 Total cost of revenues 82,923 80,297 Gross profit 49,013 47,715 Selling, general and administrative
   expenses 43,694 42,936 Pre-opening expenses 2 - Operating income 5,317 4,779 Other income (expense): Interest expense (472)
   (714) Other, net 17 33 Income before income taxes 4,862 4,098 Income tax expense 1,873 1,614 Net income $2,989 $2,484 Basic
   income per share $0.29 $0.23 Diluted income per share $0.28 $0.22 Weighted-average common shares outstanding: Basic 10,362
   11,007 Dilutive effect of stock awards 296 192 Diluted 10,658 11,199 Consolidated Statements of Cash Flows (Dollars in thousands)
   April 30, April 30, 2008 2007 (unaudited) (unaudited) Cash flows from operating activities: Net income $2,989 $2,484 Adjustments
   to reconcile net income to net cash provided by operations: Rental asset depreciation expense 4,037 2,780 Purchases of rental
   video (8,363) (5,206) Property and equipment depreciation expense 4,867 4,876 Amortization - 8 Deferred income tax (224) 64
   Loss on rental videos lost, stolen and defective 297 292 Loss on disposal of other assets 188 11 Noncash stock-based compensation
   164 15 Changes in operating assets and liabilities: Merchandise inventory 11,412 5,669 Other current assets 1,002 (44) Trade
   accounts payable (10,563) (4,182) Accrued expenses and other liabilities (954) (3,329) Excess tax benefit from stock based
   compensation (39) - Other assets and liabilities, net (745) 150 Net cash provided by operating activities 4,068 3,588 Cash
   flows from investing activities: Purchases of property, equipment and improvements (3,490) (2,422) Net cash used in investing
   activities (3,490) (2,422) Cash flows from financing activities: Net borrowings (repayments) under revolving credit facility
   2,070 4,828 Purchase of treasury stock (1,294) (729) Change in cash overdraft (1,466) (4,112) Proceeds from exercise of stock
   options 94 237 Excess tax benefit from stock based compensation 39 - Net cash provided by (used in) financing activities (557)
   224 Net increase in cash 21 1,390 Cash at beginning of period 3,982 3,837 Cash at end of period $4,003 $5,227 Balance Sheet
   and Other Ratios (A) (Dollars in thousands, except per share amounts) April 30, April 30, 2008 2007 Merchandise inventories,
   net $164,199 $164,437 Inventory turns, trailing 12 months (B) 1.73 1.73 Long-term debt $42,686 $46,750 Long-term debt to total
   capitalization (C) 29.1% 32.1% Book value (D) $103,818 $98,690 Book value per share (E) $9.74 $8.81 Price to Earnings Ratio,
   trailing 12 months (F) 8.4 14.2 Three Months Ended April 30, 2008 2007 Comparable-store revenues (G): Total 4.2% -3.9% Merchandise
   4.3% -3.2% Rental 3.8% -6.9% (A) Calculations may differ in the method employed from similarly titled measures used by other
   companies. (B) Calculated as merchandise cost of goods sold for the period's trailing 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. (E) Defined as total shareholders' equity divided by weighted average diluted
   shares outstanding. (F) Defined as closing market value of the Company's common stock on the last day of the period divided
   by fully diluted earnings per share for the period's trailing twelve months. (G) Stores included in the comparable-store revenues
   calculation are those stores that have been open for a minimum of 60 weeks. Also included are stores that are remodeled or
   relocated during the comparable period. Sales via the Internet are included and closed stores are removed from each comparable
   period for the purpose of calculating comparable-store revenues.

SOURCE Hastings Entertainment, Inc.

http://www.gohastings.com/

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