Market Shift to Digital Hurts Hastings Sales in Q2

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Aug 15 – Aug 21, 2011 Edition Market Shift to Digital Hurts Hastings Sales in Q2

AMARILLO, TX/Authorlink News via PRNewswire/August 15, 2011– Hastings Entertainment, Inc. (NASDAQ: HAST), a leading multimedia entertainment retailer, today reported results for the three and six months ended July 31, 2011. Net loss was approximately $4.1 million for the three months ended July 31, 2011 compared to a net loss of approximately $0.1 million for the three months ended July 31, 2010. Net loss was approximately $3.6 million for the six months ended July 31, 2011 compared to net earnings of $0.9 million for the six months ended July 31, 2010.

Operating loss and adjusted operating loss were approximately $5.1 million for the second quarter of fiscal 2011 compared to operating income and adjusted operating income of approximately $13,000 for the second quarter of fiscal 2010. Operating loss was approximately $4.1 million for the six months ended July 31, 2011 compared to operating income of approximately $1.5 million for the same period in the prior year. Adjusted operating loss was approximately $3.9 million for the current six month period compared to adjusted operating income of approximately $1.5 million for the same period in the prior year. Earnings before interest, taxes, property and equipment depreciation expense and amortization (“EBITDA”) were approximately ($0.5 million) for the second quarter of fiscal 2011 compared to approximately $4.3 million for the second quarter of fiscal 2010. Adjusted EBITDA, which excludes gift card breakage revenue and stock compensation expense, was approximately ($0.4 million) for the second quarter of fiscal 2011 compared to approximately $4.3 million for the second quarter of fiscal 2010. EBITDA was approximately $4.7 million for the six months ended July 31, 2011 compared to approximately $10.2 million for the same period in the prior year. Adjusted EBITDA was approximately $4.9 million for the current six month period compared to approximately $10.2 million for the same period in the prior year.

“Our second quarter results were impacted by a continued weak slate, as well as lower quality of new releases for movies, along with a weaker release slate of books,” said John H. Marmaduke, Chief Executive Officer and Chairman. “Furthermore, we continue to be impacted by the shift toward the digital delivery of books as well as the increasing growth of rental kiosks and subscription-based services in movie rentals. Additionally, the current economic environment is impacting consumer discretionary spending, thereby reducing store traffic. We continue to focus on controlling our costs. For the second quarter, we reduced shrinkage expense by approximately $0.8 million, costs to return products to vendors by $0.3 million and markdown expense by $0.2 million, compared to the second quarter of fiscal 2010. During the second half of fiscal 2011, we will continue to focus on cost reductions, which may include the closing of stores that are underperforming. ”

“I am pleased to announce that on August 1, 2011, we opened our newest concept store. TRADESMART, located in Littleton, Colorado, is a concept store born from the culture of recycling. TRADESMART, with over 40,000 square feet, features over 400,000 predominantly used and new books, CDs, DVDs, Blu-rays, video games, and video game systems, as well as consumer electronics, trends, skateboards and paintball merchandise, and much, much more, available to purchase. TRADESMART also allows customers to sell back entertainment products they have already enjoyed for cash or store credit. By opening in a metropolitan market, we anticipate product buybacks originating at TRADESMART will help support used inventory levels in our Hastings superstores.”

“Our first concept store Sun Adventure Sports, which opened in July 2010, was profitable for the first six months this year. We plan to open a second Sun Adventure Sports store in the Lubbock, Texas market during the third quarter. Sun Adventure Sports offers a variety of sports and outdoors products such as bikes and accessories, skateboards, athletic apparel and shoes.”

“Due to the uncertainty in the economic environment and our financial results for the second quarter, we expect our earnings per share for the full fiscal year to be below the current guidance range. Additionally, expectations for sluggish economic growth and a prolonged recovery make it very difficult to forecast earnings. Consequently, Hastings is withdrawing its fiscal 2011 guidance, issued on March 21, 2011, and will not be providing any further guidance, specifically comparable store sales, net income and net income per diluted share, for the current fiscal year.”

“During the second quarter, we entered into an amendment which increased our existing credit facility with Bank of America, N.A and lowered our interest rates. This amendment will enable us to lower our anticipated cost of capital and enhance our financial flexibility. We will continue to focus on maintaining a strong balance sheet and will be well positioned to weather the current economic environment.”