EXHIBIT 99.1
NEW RELEASE
HASTINGS CONTACT: DAN CROW PR03-97
ENTERTAINMENT, INC. Vice President and
CHIEF FINANCIAL OFFICER
(806) 351-2300, ext. 6000
www.gohastings.com
Hastings Entertainment, Inc. Reports Results for the First Quarter of Fiscal
2003
AMARILLO, Texas, May 21, 2003--Hastings Entertainment, Inc. (NASDAQ: HAST), a
leading multimedia entertainment superstore retailer, today reported results for
the three months ended April 30, 2003. The Company incurred a net loss of ($1.1)
million, or ($0.09) per diluted share, for the first quarter of fiscal 2003
compared to net income of $0.6 million, or $0.05 per diluted share, for the
first quarter of fiscal 2002. These results include the effect of adopting
Emerging Issues Task Force Consensus No. 02-16 (EITF 02-16), which governs the
accounting by a customer for certain consideration received from a vendor. The
adoption of EITF 02-16 increased the first quarter 2003 net loss by
approximately $0.5 million, or $0.05 per diluted share.
Total revenues for the first quarter increased approximately $4.0 million, or
3.5%, to $116.8 million compared to $112.8 million during the first quarter of
fiscal 2002. This increase was primarily due to an increase in comparable-store
revenues (Comps) for rental video of 9.5% and an increase in the number of
stores operating at April 30, 2003 to 146 compared to 141 at April 30, 2002.
Merchandise Comps were basically flat at (0.1%) for the first quarter of fiscal
2003 when compared to the first quarter of 2002. This result was driven
primarily by a decline in our music Comps of (11.8%) as the music industry
overall posted a decline of approximately 10% in units shipped for the first
three months of the calendar year and continues to battle on-line and physical
music piracy. In addition, book Comps declined (5.4%), which was below our
internal projections, reflecting a general book-retail industry downturn during
the first quarter of fiscal 2003 and contributed to our soft merchandise Comps.
John H. Marmaduke, President and Chief Executive Officer commented, "We also
believe that the war in Iraq and general economic conditions contributed to our
lower-than-planned merchandise Comps."
The increase in rental video Comps was primarily the result of titles released
during the first quarter of fiscal 2003 having significantly stronger box-office
revenues than those titles released during the first quarter of fiscal 2002,
which resulted in higher rental transactions.
Video games for sale continued to be our fastest growing category on a
percentage basis with a gross revenue increase of 98.2% for the first three
months of fiscal 2003 compared to the first three months of fiscal 2002.
"Despite video game industry groups releasing disappointing sales for the first
three calendar months of 2003, the focus on our new 3-Across layout for new and
remodeled stores allows us to position ourselves for 'gamers' to turn to
Hastings as their complete source for games and entertainment," said Marmaduke.
In addition, DVD for sale continued to show increases during the first quarter
of fiscal 2003 with gross revenues climbing 47.2% compared to the first quarter
of fiscal 2002. This increase is layered on top of an increase of 56.3% for the
three months ended April 30, 2002 compared to the three months ended April 30,
2001.
Financial Results for the First Quarter of Fiscal 2003
For the first quarter, total gross profit dollars increased 2.2% to $38.5
million from $37.6 million for the same period last year. As a percentage of
total revenues, gross profit decreased slightly to 32.9% for first quarter of
fiscal 2003 compared to 33.3% for the first quarter of fiscal 2002 primarily as
a result of an increase in freight expense, which even though $1.4 million
higher than the first quarter of fiscal 2002, was in-line with our internal
projections.
Selling, general and administrative expenses for the quarter ended April 30,
2003 increased $2.4 million to $39.0 million, or 33.4% of total revenue, up from
$36.6 million, or 32.4% of total revenue for the quarter ended April 30, 2002.
This increase was primarily the result of an increase in advertising costs of
approximately $1.5 million during the first three months of fiscal 2003 compared
to the same period in fiscal 2002 primarily comprised of approximately $0.9
million from the adoption of EITF 02-16 and $0.6 million from increased
advertising expenditures in an attempt to offset the impact of the war and soft
merchandise sales during the first quarter of fiscal 2003. The remaining
increase in selling, general and administrative expenses was primarily due to
costs associated with remodeling and expansion of our superstores.
No income tax effect was recorded during the first quarters of fiscal 2003 and
2002 due to adjustments in the valuation allowance related to the net deferred
tax asset.
GUIDANCE
"In our press release dated March 26, 2003, we disclosed guidance of $0.30 to
$0.35 per diluted share for the fiscal year ending January 31, 2004," said Dan
Crow, Vice President and Chief Financial Officer. "We have now completed our
analysis of the effects of EITF 02-16 and estimate the net impact on our results
of operations will be approximately ($0.9) million or ($0.08) per diluted share
for the year. However, because our net loss for the first quarter of fiscal 2003
was less than our internal projections, we are lowering our guidance only $0.03
per diluted share to a range of $0.27 to $0.32."
This guidance for the fiscal year ending January 31, 2004, as indicated below
under "Safe Harbor Statement," reflects current estimates, assumptions and
expectations, based on information available on the date of this press release.
This guidance is subject to uncertainty, as the information upon which it is
based will change over time and may change substantially as the fiscal year
progresses. We undertake no obligation to update this guidance for such changes,
but intend to review such guidance on a fiscal quarterly basis to determine
whether we are currently in line with such guidance.
SAFE HARBOR STATEMENT
Certain written and oral statements set forth above or made by Hastings or with
the approval of an authorized executive officer of the Company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Generally, the words "believe," "expect,"
"intend," "anticipate," "project," "will" and similar expressions identify
forward-looking statements, which generally are not historical in nature. All
statements which address operating performance, events or developments,
particularly guidance for fiscal year 2003, that we expect or anticipate will
occur in the future, including statements relating to performance of our
multimedia format, earnings per share and statements expressing general optimism
about future operating results, are forward-looking statements. Such statements
are based upon Company management's current estimates, assumptions and
expectations, which are based on information available at the time of this
disclosure, and are subject to a number of factors and uncertainties, including,
but not limited to, our inability to attain such estimates, assumptions and
expectations, a downturn in market conditions in any industry, including the
current economic state of retailing, relating to the products we inventory, sell
or rent, and the effects of or changes in economic conditions in the U.S.,
including the impact of the war with Iraq, on the markets in which we operate.
We undertake no obligation to affirm, publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
About Hastings
Founded in 1968, Hastings Entertainment, Inc. is a leading multimedia
entertainment retailer that combines the sale of books, music, software,
periodicals, new and used DVDs, videos and video games with the rental of
videos, DVDs and video games in a superstore format. We currently operate 146
superstores, averaging approximately 20,000 square feet, primarily in small to
medium-sized markets throughout the United States.
Hastings also operates 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, access to filings
with the Securities Exchange Commission and a link to current officer
certifications of financial information.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<Table>
<Caption>
April 30, April 30, January 31,
2003 2002 2003
------------ ------------ ------------
(Unaudited) (Unaudited)
Assets
Current Assets
Cash $ 2,895 $ 6,330 $ 4,447
Merchandise inventories, net 137,596 146,000 148,395
Income tax receivable 569 5,377 552
Other current assets 6,108 5,258 5,969
------------ ------------ ------------
Total current assets 147,168 162,965 159,363
Property and equipment, net 76,000 66,463 76,283
Deferred income taxes 971 1,091 971
Intangible assets, net 696 631 717
Other assets 188 12 188
------------ ------------ ------------
Total assets $ 225,023 $ 231,162 $ 237,522
============ ============ ============
Liabilities and Shareholders' Equity
Current liabilities
Current maturities on capital lease obligations $ 199 $ 169 $ 193
Trade accounts payable 67,963 72,392 75,712
Accrued expenses & other current liabilities 31,020 27,319 32,543
------------ ------------ ------------
Total current liabilities 99,182 99,880 108,448
Long-term debt, excluding current maturities 44,074 47,909 46,519
Other liabilities 3,668 5,448 3,399
Commitments and contingencies -- -- --
Shareholders' equity:
Preferred stock -- -- --
Common stock 119 119 119
Additional paid-in capital 36,740 36,884 36,749
Retained earnings 44,191 43,937 45,259
Treasury stock, at cost (2,951) (3,015) (2,971)
------------ ------------ ------------
Total shareholders' equity 78,099 77,925 79,156
------------ ------------ ------------
Total liabilities and shareholders' equity $ 225,023 $ 231,162 $ 237,522
============ ============ ============
</Table>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data) (Unaudited)
<Table>
<Caption>
Three months ended
April 30,
------------------------------
2003 2002
------------ ------------
Merchandise revenue $ 91,456 $ 89,982
Rental video revenue 25,381 22,863
------------ ------------
Total revenues 116,837 112,845
Merchandise cost of revenue 68,481 66,188
Rental video cost of revenue 9,903 9,049
------------ ------------
Total cost of revenues 78,384 75,237
------------ ------------
Gross profit 38,453 37,608
Selling, general and administrative expenses 38,976 36,583
Pre-opening expenses 113 18
------------ ------------
Operating income (loss) (636) 1,007
Other income (expense):
Interest expense (490) (500)
Interest income -- --
Other, net 58 62
------------ ------------
Income (Loss) before income taxes (1,068) 569
Income tax benefit -- --
------------ ------------
Net income (loss) $ (1,068) $ 569
============ ============
Basic income (loss) per share $ (0.09) $ 0.05
============ ============
Diluted income (loss) per share $ (0.09) $ 0.05
============ ============
Weighted-average common shares outstanding:
Basic 11,338 11,311
Dilutive effect of stock options -- 538
------------ ------------
Diluted 11,338 11,849
============ ============
</Table>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
<Table>
<Caption>
Three months ended
April 30,
------------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (1,068) $ 569
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation expense 9,838 9,271
Amortization expense 21 15
Loss on rental videos, lost, stolen and defective 1,219 1,425
Loss on disposal of other assets 299 (36)
Non-cash compensation 10 75
Changes in operating assets and liabilities:
Merchandise inventory 11,927 3,295
Other current assets (139) 73
Trade accounts payable (7,749) (11,026)
Accrued expenses and other liabilities (1,523) (2,474)
Income taxes receivable (17) --
Other assets and liabilities, net 269 (418)
------------ ------------
Net cash provided by operations 13,087 769
------------ ------------
Cash flows from investing activities:
Purchases of rental video (6,356) (7,724)
Purchases of property and equipment (5,844) (5,620)
------------ ------------
Net cash used in investing activities (12,200) (13,344)
------------ ------------
Cash flows from financing activities:
Borrowings under revolving credit facility 118,222 130,174
Repayments under revolving credit facility (120,615) (115,486)
Payments under long-term debt and capital lease obligations (46) (40)
Purchase of treasury stock -- (168)
Proceeds from exercise of stock options -- 105
------------ ------------
Net cash provided by (used in) financing activities (2,439) 14,585
------------ ------------
Net increase (decrease) in cash (1,552) 2,010
Cash at beginning of period 4,447 4,320
------------ ------------
Cash at end of period $ 2,895 $ 6,330
============ ============
</Table>
Balance Sheet, Cash Flow and Other Ratios (1)
(Dollars in thousands, except per share amounts)
<Table>
<Caption>
April 30, April 30,
2003 2002
------------ ------------
Merchandise inventories, net $ 137,596 $ 146,000
Inventory turns, trailing 12 months (2) 1.83 1.85
Long-term debt $ 44,074 $ 47,909
Long-term debt to total capitalization (3) 36.1% 38.1%
Book value (4) $ 78,099 $ 77,925
Book value per share (5) $ 6.89 $ 6.58
</Table>
<Table>
<Caption>
Three months ended April 30,
------------------------------
2003 2002
------------ ------------
EBITDA (6) $ 9,281 $ 10,355
Adjusted EBITDA (6) $ 2,925 $ 2,631
Comparable-store total revenues (7) 1.9% 5.3%
Comparable-store merchandise revenues (7) -0.1% 6.8%
Comparable-store rental revenues (7) 9.5% -0.3%
</Table>
(1) Calculations may differ in the method employed from similarly titled
measures used by other companies.
(2) Calculated as merchandise cost of goods sold for twelve months ended
April 30, 2003 divided by average merchandise inventory for the twelve
months ended April 30, 2003.
(3) Defined as long-term debt divided by long-term debt plus total
shareholders' equity (book value).
(4) Defined as total shareholders' equity.
(5) Defined as total shareholders' equity divided by weighted average
shares outstanding.
(6) It is important to note that EBITDA and Adjusted EBITDA are
supplemental non-GAAP measures. EBITDA is defined as "net income before
interest, taxes, depreciation and amortization" and is a widely used
indicator of a company's ability to service debt. Adjusted EBITDA is
defined as "net income before interest, taxes, depreciation and
amortization" less "expenditures for rental video assets" and could be
viewed as an indicator of our ability to service debt following the
procurement of rental video assets. Neither EBITDA nor Adjusted EBITDA
are intended to represent or to be considered as alternatives to
operating income or cash flows from operations.
The following table reconciles EBITDA to our unaudited consolidated
financial statements contained herein:
<Table>
<Caption>
Three months ended April 30,
------------------------------
2003 2002
------------ ------------
Net income (loss) $ (1,068) 569
Interest expense 490 500
Income tax expense (benefit) -- --
Depreciation expense 9,838 9,271
Amortization expense 21 15
------------ ------------
EBITDA 9,281 10,355
============ ============
</Table>
The following table reconciles Adjusted EBITDA to our unaudited
consolidated financial statements contained herein:
<Table>
<Caption>
Three months ended April 30,
------------------------------
2003 2002
------------ ------------
Net income (loss) $ (1,068) 569
Interest expense 490 500
Income tax expense (benefit) -- --
Depreciation expense 9,838 9,271
Amortization expense 21 15
Purchases of rental video assets (6,356) (7,724)
------------ ------------
Adjusted EBITDA 2,925 2,631
============ ============
</Table>
(7) 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. Sales via the internet are not
included and closed stores are removed from each comparable period for
the purpose of calculating comparable-store revenues.
***