Hastings Entertainment, Inc. Reports Net Income of $0.22 per Diluted Share for 1Q 2007 Compared to $0.17 per Diluted Share for 1Q 2006

Hastings Entertainment, Inc. Reports Net Income of $0.22 per Diluted Share for 1Q 2007 Compared to $0.17 per Diluted Share for 1Q 2006

AMARILLO, Texas, May 21 /PRNewswire-FirstCall/ -- Hastings Entertainment, Inc. (NASDAQ:HAST) , a leading multimedia entertainment retailer, today reported results for the three months ended April 30, 2007. Net income was $2.5 million, or $0.22 per diluted share, for the first quarter of fiscal year 2007 compared to net income of approximately $1.9 million, or $0.17 per diluted share, for the first quarter of fiscal year 2006.

"I am very encouraged with our results for the first quarter," said Chief Executive Officer John Marmaduke. "We were able to increase net earnings by 29% over a strong first quarter of fiscal 2006 in spite of an extremely difficult retail environment, particularly in the in-store rental and music categories. In our year-end earnings release dated March 26, 2007, I stated that our focus for fiscal 2007 would be on improving our merchandising and buying functions and we began to see positive results in the first quarter in our product mix, markdown expense, and gross profit. We will continue this focus throughout the year and I anticipate that this and other performance measures will continue to improve."

Financial Results for the First Quarter of Fiscal Year 2007

Revenues. Total revenues for the first quarter decreased $3.4 million, or 2.6%, to $128.0 million compared to $131.4 million for the first quarter of fiscal 2006. The following is a summary of our revenue results (dollars in thousands):

                        Three Months Ended April 30,                                    2007              2006                                  Percent           Percent     Increase/                                    of                of       (Decrease)                         Revenues  Total  Revenues   Total   Dollar  Percent    Merchandise revenue  $105,064   82.1%  $106,952   81.4%  $(1,888) -1.8%   Rental revenue         22,948   17.9%    24,460   18.6%   (1,512) -6.2%      Total revenues    $128,012  100.0%  $131,412  100.0%  $(3,400) -2.6%    Comparable-store    revenues ("Comp"):      Total               -3.9%      Merchandise         -3.2%      Rental              -6.9%   

Below is a summary of the Comp results for our major merchandise categories:

                                                Three Months Ended April 30,                                                2007                   2006    Movies                                        4.9%                  14.3%   Books                                        -1.3%                   3.1%   Music                                       -13.0%                  -7.8%   Video Games                                  -5.8%                   6.6%   Trends                                      -14.3%                   1.2%   Electronics                                  17.5%                  14.8%   Consumables                                   0.6%                  -1.2%   Hard Back Cafe                                9.0%                  35.0%    

Effective February 1, 2007, we realigned our merchandise product categories in order to more effectively manage our business. Some products were reclassified within reporting categories and new reporting categories were created for electronics, musical instruments, and wireless products. Comp results listed in the chart above, which report our eight largest product categories, reflect the new categorization for both fiscal 2007 and fiscal 2006.

Movie Comps increased 4.9% which was primarily attributable to continued strong sales of DVD boxed sets as well as previously-viewed DVDs. Book Comps fell slightly posting a negative Comp of 1.3% as a result of fewer sales in our value book offerings, offset partially by stronger sales of new-release hardbacks. Music Comps, which now exclude music accessories and music hardware, fell 13.0% primarily as a result of fewer premier artist CD releases. Video Game Comps declined 5.8% due to reduced sales of new XBOX and Sony PlayStation games. Comps for the Trends department, formerly called Boutique, fell 14.3% on lower sales of board games, novelty gifts, stationery, and journals.

Rental video Comps decreased 6.9% from the same period last year resulting from weaker titles, in-store rental weakness industry-wide, and a strategic reduction in late fees.

Gross Profit. For the first quarter, total gross profit dollars increased approximately $1.1 million, or 2.4%, to $47.7 million from $46.6 million for the same period last year, primarily as a result of improved margin rates in merchandise and rental, as well as lower markdowns and freight costs. These improvements were partially offset by increased shrinkage. As a percentage of total revenues, gross profit increased to 37.3% for the quarter compared to 35.5% for the same quarter in the prior year.

Selling, General and Administrative expenses ("SG&A"). SG&A remained stable at approximately $42.9 million for the current quarter compared to the same quarter in the prior year. As a percentage of total revenues, SG&A increased to 33.5% for the current quarter compared to 32.6% for the same quarter in the prior year due to lower revenues.

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 additional increases in the amounts of $2.5 million on April 4, 2005; $5.0 million on March 15, 2006; and $2.5 million on October 3, 2006. During the first quarter of fiscal year 2007, we purchased a total of 109,200 shares of common stock at a cost of approximately $726,267, for an average cost of approximately $6.65 per share. As of April 30, 2007, a total of 1,986,263 shares had been repurchased under the program at a cost of approximately $11.7 million, for an average cost of approximately $5.89 per share. As of April 30, 2007, approximately $3.3 million remains available for repurchases under the stock repurchase program.

Store Activity

Since March 26, 2007, which was the date we last reported store activity, we have had additional store activity as follows:

                                           Selling Square    Community       Type     Population       Footage      Date Opened   Conroe, TX    Relocation    36,811          26,770        4/27/2007     Fiscal Year 2007 Guidance  

"Net income for the quarter was substantially better than 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 earnings for the remainder of the year; however, we are concerned about general economic conditions, particularly the price of gasoline, which has a measurable negative impact on retail sales. Consequently, we are reaffirming our guidance of net income per diluted share ranging from $0.55 to $0.60 for the full fiscal year ending January 31, 2008."

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 are not necessarily historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including statements regarding our future merchandise margins and our general guidance for fiscal year 2007, 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

Hastings Entertainment, Inc. is a leading multimedia entertainment retailer that combines the sale of new and used CDs, books, videos and video games, as well as boutique merchandise, with the rental of videos and video games in a superstore format. We currently operate 154 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, which makes available to our customers new and used entertainment products. 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 to our filings with the Securities and Exchange Commission.

   Consolidated Balance Sheets   (Dollars in thousands)                                             April 30,   April 30,  January 31,                                             2007         2006        2007                                          (unaudited) (unaudited)                   Assets   Current Assets      Cash                              $      5,227  $    6,979  $    3,837      Merchandise inventories, net           164,437     160,107     167,277      Deferred income taxes, current           3,009       4,692       3,891      Other current assets                    10,677       7,380      10,633            Total current assets             183,350     179,158     185,638    Rental assets, net                         11,235      12,729      11,931   Property and equipment, net                54,958      58,444      57,422   Deferred income taxes, non-current          2,583       1,751       1,765   Intangible assets, net                        403         432         411   Other assets                                  289         189         331    Total assets                         $    252,818    $252,703    $257,498    Liabilities and Shareholders' Equity   Current liabilities      Current maturities on capital       lease obligations                $         --     $    54     $    --      Trade accounts payable                  68,224      71,971      76,518      Accrued expenses and other current       liabilities                            34,688      33,289      37,179            Total current liabilities        102,912     105,314     113,697    Long-term debt, excluding current    maturities                                46,750      46,140      41,922   Other liabilities                           4,466       4,472       4,326    Shareholders' equity      Preferred stock                             --          --          --      Common stock                               119         119         119      Additional paid-in capital              36,845      35,986      36,906      Retained earnings                       68,131      63,391      66,485      Other comprehensive income                  35         163          67      Treasury stock, at cost                 (6,440)     (2,882)     (6,024)            Total shareholders' equity        98,690      96,777      97,553    Total liabilities and shareholders'    equity                              $    252,818 $   252,703 $   257,498      Consolidated Statements of Operations   (Dollars in thousands, except per share data)                                                       Three months ended                                                          April 30,                                                    2007              2006                                                (unaudited)       (unaudited)     Merchandise revenue                       $   105,064       $   106,952    Rental video revenue                           22,948            24,460       Total revenues                             128,012           131,412     Merchandise cost of revenue                    72,997            75,569    Rental video cost of revenue                    7,300             9,221       Total cost of revenues                      80,297            84,790        Gross profit                                47,715            46,622     Selling, general and administrative     expenses                                      42,936            42,873    Pre-opening expenses                               --                --       Operating income                              4,779             3,749    Other income (expense):      Interest expense                               (714)             (664)      Other, net                                       33                69    Income before income taxes                       4,098             3,154    Income tax expense                               1,614             1,229    Net income                                      $2,484            $1,925    Basic income per share                           $0.23             $0.17    Diluted income per share                         $0.22             $0.17      Balance Sheet and Other Ratios (A)   (Dollars in thousands, except per share amounts)                                                  April 30,         April 30,                                                  2007              2006    Merchandise inventories, net               $   164,437       $   160,107   Inventory turns, trailing 12 months(B)            1.73              1.80    Long-term debt                             $    46,750       $    46,140   Long-term debt to total capitalization (C)        32.1%             32.3%    Book value (D)                             $    98,690       $    96,777   Book value per share (E)                         $8.81             $8.33                                                    Three Months Ended April 30,                                                   2007               2006   Comparable-store revenues (F):      Total                                        -3.9%              2.6%      Merchandise                                  -3.2%              3.0%      Rental                                       -6.9%              0.9%     (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 as of period end.    (F) 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.  Effective February 1, 2007, coupons have       been allocated to individual product departments for purposes of       determining comparable-store revenues.  Fiscal 2006 Comps were       restated for the similar coupon allocations by department to aid in       comparability.  

First Call Analyst:
FCMN Contact:

Source: Hastings Entertainment, Inc.

CONTACT: Dan Crow, Vice President and Chief Financial Officer of
Hastings Entertainment, Inc., +1-806-677-1422

Web site: http://www.gohastings.com/

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Profile: International Entertainment