EXHIBIT 99.1
NEWS RELEASE
(HASTINGS ENTERTAINMENT, INC. LETTERHEAD)
Hastings Entertainment, Inc. Reports Results for the Second Quarter of Fiscal
2003
AMARILLO, Texas, August 22, 2003--Hastings Entertainment, Inc. (NASDAQ: HAST), a
leading multimedia entertainment superstore retailer, today reported results for
the three months ended July 31, 2003. Net income was $0.2 million, or $0.02 per
diluted share, compared to a net loss of ($1.6) million, or ($0.14) per diluted
share, for the three months ended July 31, 2002. The current year results
include the effect of 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 effect of EITF 02-16, which was adopted during the
first quarter of fiscal 2003, decreased net income for the second quarter of
2003 by approximately $0.2 million, or $0.02 per diluted share. The results for
the second quarter of fiscal 2002 include a $2.5 million non-recurring charge
for the settlement of shareholder class action lawsuits and non-recurring income
of approximately $1.3 million as a result of interest earned on income tax
refunds filed for fiscal years 1995 through 1998. Excluding these items, the net
loss for the second quarter of fiscal 2002 would have been approximately ($0.4)
million, or ($0.03) per diluted share.
Total revenues for the second quarter of fiscal 2003 increased approximately
$0.4 million, or 0.3%, to $115.4 million compared to $115.0 million during the
second quarter of fiscal 2002. This increase was due to an increase in rental
video comparable-store revenues (Comps) of 4.0% primarily resulting from an
increase in our rental video pricing. Offsetting the Comp increase in rental
video was a decline in merchandise Comps of (1.5%), which we feel reflects the
general state of retailing. Music Comps declined (14.3%) for the second quarter.
The music industry reported a decline of approximately (9%) in units shipped for
the year and continues to battle on-line and physical music piracy. Partially
offsetting the decline in music was an increase in our book Comps of 1.4%.
Video games for sale continued to be our fastest growing category on a
percentage basis with a gross revenue increase of 70% for the three months ended
July 31, 2003 compared to the three months ended July 31, 2002. In addition, DVD
for sale continued to increase during the second quarter of fiscal 2003 with
gross revenues climbing 32% compared to the second quarter of fiscal 2002. This
increase follows a 47% increase in DVD sales for the three months ended July 31,
2002 compared to the three months ended July 31, 2001.
Financial Results for the Second Quarter of Fiscal 2003
Despite lower than anticipated revenue results, operating income (net income
before income taxes, interest expense and other income) increased approximately
$0.5 million to $0.6 million for the first three months of fiscal 2003 compared
to approximately $78,000 (excluding the non-recurring charge for settling class
action lawsuits) for the three months ended July 31, 2002. This increase is
primarily the result of higher rental video margins and continued improvements
in cost controls, particularly those related to costs associated with the
distribution and return of product.
GUIDANCE
"Our operating performance for the first six months was better than our internal
projections, specifically in
areas of margin management and costs of our distribution center, including the
return of product," said Dan Crow, Vice President and Chief Financial Officer.
"However, the state of the economy certainly had a negative impact on our
merchandise revenues which were below our internal projections. During the first
three weeks of August, merchandise revenues began to pick up; however, we remain
cautiously optimistic with respect to economic conditions at this point in time.
Consequently, we are not changing our guidance of a range of $0.27 to $0.32 per
diluted share which we announced on May 21, 2003."
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 to us 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 that 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. or 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 147
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 and Exchange Commission and a link to current officer
certifications of financial information.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<Table>
<Caption>
July 31, July 31, January 31,
2003 2002 2003
------------ ------------ ------------
(Unaudited) (Unaudited)
Assets
Current Assets
Cash $ 3,637 $ 7,863 $ 4,447
Merchandise inventories, net 139,871 137,512 148,395
Income tax receivable 553 6,636 552
Other current assets 5,830 5,231 5,969
------------ ------------ ------------
Total current assets 149,891 157,242 159,363
Property and equipment, net 77,188 70,165 76,283
Deferred income taxes 1,016 1,091 971
Intangible assets, net 674 616 717
Other assets 188 11 188
------------ ------------ ------------
Total assets $ 228,957 $ 229,125 $ 237,522
============ ============ ============
Liabilities and Shareholders' Equity
Current liabilities
Current maturities on capital lease obligations $ 206 $ 169 $ 193
Trade accounts payable 67,817 72,476 75,712
Accrued expenses & other current liabilities 30,238 31,635 32,543
------------ ------------ ------------
Total current liabilities 98,261 104,280 108,448
Long-term debt, excluding current maturities 49,060 43,258 46,519
Other liabilities 3,501 5,145 3,399
Commitments and contingencies -- -- --
Shareholders' equity:
Preferred stock -- -- --
Common stock 119 119 119
Additional paid-in capital 36,708 36,867 36,749
Retained earnings 44,378 42,315 45,259
Treasury stock, at cost (3,070) (2,859) (2,971)
------------ ------------ ------------
Total shareholders' equity 78,135 76,442 79,156
------------ ------------ ------------
Total liabilities and shareholders' equity $ 228,957 $ 229,125 $ 237,522
============ ============ ============
</Table>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data) (Unaudited)
<Table>
<Caption>
Three months ended Six months ended
July 31, July 31,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Merchandise revenue $ 89,547 $ 90,599 $ 181,003 $ 180,581
Rental video revenue 25,850 24,439 51,231 47,302
------------ ------------ ------------ ------------
Total revenues 115,397 115,038 232,234 227,883
Merchandise cost of revenue 65,774 66,850 134,255 133,038
Rental video cost of revenue 9,137 10,116 19,040 19,165
------------ ------------ ------------ ------------
Total cost of revenues 74,911 76,966 153,295 152,203
------------ ------------ ------------ ------------
Gross profit 40,486 38,072 78,939 75,680
Selling, general and administrative expenses 39,789 40,331 78,765 76,913
Pre-opening expenses 68 163 181 181
------------ ------------ ------------ ------------
Operating income (loss) 629 (2,422) (7) (1,414)
Other income (expense):
Interest expense (542) (516) (1,032) (1,016)
Interest income -- 1,266 -- 1,266
Other, net 101 50 159 111
------------ ------------ ------------ ------------
Income (Loss) before income taxes 188 (1,622) (880) (1,053)
Income tax benefit -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ 188 $ (1,622) $ (880) $ (1,053)
============ ============ ============ ============
Basic income (loss) per share $ 0.02 $ (0.14) $ (0.08) $ (0.09)
============ ============ ============ ============
Diluted income (loss) per share $ 0.02 $ (0.14) $ (0.08) $ (0.09)
============ ============ ============ ============
Weighted-average common shares outstanding:
Basic 11,303 11,348 11,320 11,330
Dilutive effect of stock options 101 -- -- --
------------ ------------ ------------ ------------
Diluted 11,404 11,348 11,320 11,330
============ ============ ============ ============
</Table>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
<Table>
<Caption>
Three months ended Six months ended
July 31, July 31,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 188 $ (1,622) $ (880) $ (1,053)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation expense 8,967 9,575 18,805 18,846
Amortization expense 22 15 43 30
Loss on rental videos, lost, stolen and defective 1,052 1,293 2,271 2,718
Loss on disposal of other assets 341 102 640 66
Non-cash compensation 80 75 90 150
Changes in operating assets and liabilities:
Merchandise inventory (1,147) 9,905 10,780 13,200
Other current assets 278 28 139 101
Trade accounts payable (146) 84 (7,895) (10,941)
Accrued expenses and other liabilities (782) 4,316 (2,305) 1,842
Income taxes receivable (29) (1,260) (46) (1,260)
Other assets and liabilities, net (167) (303) 102 (721)
------------ ------------ ------------ ------------
Net cash provided by operations 8,657 22,208 21,744 22,978
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of rental video (7,435) (8,308) (13,791) (16,032)
Purchases of property and equipment (5,241) (7,781) (11,085) (13,401)
------------ ------------ ------------ ------------
Net cash used in investing activities (12,676) (16,089) (24,876) (29,433)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Borrowings under revolving credit facility 122,338 117,426 240,560 247,600
Repayments under revolving credit facility (117,300) (122,035) (237,915) (237,521)
Payments under long-term debt and capital lease obligations (45) (42) (91) (82)
Purchase of treasury stock (235) -- (235) (168)
Proceeds from exercise of stock options 3 65 3 169
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 4,761 (4,586) 2,322 9,998
------------ ------------ ------------ ------------
Net increase (decrease) in cash 742 1,533 (810) 3,543
Cash at beginning of period 2,895 6,330 4,447 4,320
------------ ------------ ------------ ------------
Cash at end of period $ 3,637 $ 7,863 $ 3,637 $ 7,863
============ ============ ============ ============
</Table>
Balance Sheet, Cash Flow and Other Ratios (1)
(Dollars in thousands, except per share amounts)
<Table>
<Caption>
July 31, July 31,
2003 2002
------------ ------------
Merchandise inventories, net $ 139,871 $ 137,512
Inventory turns, trailing 12 months (2) 1.83 1.82
Long-term debt $ 49,060 $ 43,258
Long-term debt to total capitalization (3) 38.6% 36.1%
Book value (4) $ 78,135 $ 76,442
Book value per share (5) $ 6.90 $ 6.75
</Table>
<Table>
<Caption>
Three months ended July 31, Six months ended July 31,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
EBITDA (6) $ 9,719 $ 8,484 $ 19,000 $ 18,839
Adjusted EBITDA (6) $ 2,284 $ 176 $ 5,209 $ 2,807
Comparable-store total revenues (7) (0.3)% 4.9% 0.8% 5.1%
Comparable-store merchandise revenues (7) (1.5)% 5.0% (0.8)% 5.9%
Comparable-store rental revenues (7) 4.0% 4.6% 6.7% 2.2%
</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
July 31, 2003 divided by average merchandise inventory for the twelve
months ended July 31, 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 for the six-month period.
(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 July 31, Six months ended July 31,
--------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net income (loss) $ 188 $ (1,622) $ (880) $ (1,053)
Interest expense 542 516 1,032 1,016
Income tax expense (benefit) -- -- -- --
Depreciation expense 8,967 9,575 18,805 18,846
Amortization expense 22 15 43 30
------------ ------------ ------------ ------------
EBITDA $ 9,719 $ 8,484 $ 19,000 $ 18,839
============ ============ ============ ============
</Table>
The following table reconciles Adjusted EBITDA to our unaudited
consolidated financial statements contained herein:
<Table>
<Caption>
Three months ended July 31, Six months ended July 31,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net income (loss) $ 188 $ (1,622) $ (880) $ (1,053)
Interest expense 542 516 1,032 1,016
Income tax expense (benefit) -- -- -- --
Depreciation expense 8,967 9,575 18,805 18,846
Amortization expense 22 15 43 30
Purchase of rental video assets (7,435) (8,308) (13,791) (16,032)
------------ ------------ ------------ ------------
Adjusted EBITDA $ 2,284 $ 176 $ 5,209 $ 2,807
============ ============ ============ ============
</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.
***