Hastings Entertainment, Inc. Reports Net Income of $0.54 per Diluted Share for 4Q 2007 Compared to $0.45 per Diluted Share for 4Q 2006

Hastings Entertainment, Inc. Reports Net Income of $0.54 per Diluted Share for 4Q 2007 Compared to $0.45 per Diluted Share for 4Q 2006

AMARILLO, Texas, March 24 /PRNewswire-FirstCall/ -- Hastings Entertainment, Inc. (NASDAQ:HAST) , a leading multimedia entertainment retailer, today reported results for the three months and fiscal year ended January 31, 2008. Net income was $5.8 million, or $0.54 per diluted share, for the fourth quarter of fiscal year 2007 compared to $5.1 million, or $0.45 per diluted share, for the fourth quarter of fiscal year 2006. Net income was approximately $10.2 million, or $0.93 per diluted share, in fiscal 2007 compared to net income of approximately $5.0 million, or $0.44 per diluted share, for fiscal 2006.

"I am very pleased with our results for the fourth quarter," said Chief Executive Officer John Marmaduke. "The retail industry faced its weakest holiday sales period since 2002, followed by a sluggish January. In spite of a challenging retail environment, our sales remained relatively flat. Through our continued focus on margin management and cost controls we were able to increase our pre-tax profits by 12%, or $1.0 million for the quarter and 84%, or $6.9 million for the full fiscal year, as compared to fiscal 2006."

"Retailing will be difficult in fiscal 2008 due to the state of our economy. However, we fully expect to grow our pretax earnings by approximately 16%. Music will remain a challenging environment in fiscal 2008. We are responding to this challenge by reformatting 35 stores to reduce the retail space dedicated to the Music department by 15% to 20%. This reduction will allow us to introduce new products and expand inventory in other departments, including Trends and Children's products. These changes will provide our customers with excitement and help them to discover their entertainment, as well as drive incremental sales throughout fiscal 2008."

Financial Results for the Fourth Quarter of Fiscal Year 2007

Revenues. Total revenues for the fourth quarter decreased $2.7 million, or 1.5%, to $171.5 million compared to $174.2 million for the fourth quarter of fiscal 2006. The following is a summary of our revenue results (dollars in thousands):

                            Three Months Ended January 31,                                 2008              2007           Increase/                                   Percent           Percent    (Decrease)                          Revenues of Total Revenues of Total Dollar  Percent   Merchandise revenue    $147,334   85.9%  $148,787   85.4%  $(1,453) -1.0%   Rental revenue           24,159   14.1%    25,403   14.6%   (1,244) -4.9%     Total revenues       $171,493  100.0%  $174,190  100.0%  $(2,697) -1.5%    Comparable-store    revenues ("Comp"):     Total                   -1.0%     Merchandise             -0.4%     Rental                  -4.5%     

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

                                               Three Months Ended January 31,                                                   2008              2007   Video Games                                     24.5%              3.3%   Hard Back Cafe                                  15.0%             10.2%   Electronics                                     13.5%             45.3%   Consumables                                      9.3%             -6.9%   Trends                                           8.2%             -3.5%   Books                                            0.9%             -1.4%   Movies                                          -2.9%             11.9%   Music                                          -18.7%            -11.9%     

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.

Video Game Comps increased 24.5%, which was attributable to strong sales of gaming hardware, including XBOX 360, Nintendo Wii, and Playstation 3, as well as increased sales of new games for these systems. Electronics department Comps increased 13.5% from the same period last year, primarily due to strong sales of accessories for iPods and MP3 players, along with increased sales of third-party gift cards. Comps for the Trends department, formerly called Boutique, rose 8.2% due to strong sales of apparel and action figures, as well as an increased assortment of merchandise. Key categories driving apparel during the fourth quarter included backpacks and hats. Book Comps increased 0.9% during the fourth quarter, primarily due to increased sales of used and value books, partially offset by lower sales of new hardbacks. Movie Comps decreased 2.9%, which was primarily attributable to lower sales of new and boxed set DVDs, partially offset by increased sales of used DVDs. The lower sales of new DVDs were primarily due to a weaker offering of new releases. While there were more movies released during the fourth quarter as compared to the previous year, many of these titles were sequels that did not perform as well as anticipated. Music Comps, which now exclude music accessories and music hardware, fell 18.7% directly as a result of continued industry declines. Merchandise Comps, excluding the sale of Music, increased 4.5% during the fourth quarter.

Rental Comps decreased 4.5% from the same period last year, due to fewer titles released with gross box office revenues in the range of $20 million to $80 million, which typically represent our strongest renters, along with a shift of consumer preference towards buying DVDs and games instead of renting. We have responded successfully to this shift. As a result, the combined sales and rental of movies and video games resulted in a Comp increase of 3.0%.

Gross Profit - Merchandise. For the fourth quarter, total merchandise gross profit dollars increased approximately $2.7 million, or 6.8%, to $42.3 million from $39.6 million for the same period last year. Merchandise gross profit dollars increased through higher margin rates, which are primarily a result of price management as well as lower costs to return products, partially offset by increased markdowns. As a percentage of total merchandise revenues, merchandise gross profit increased to 28.7% for the quarter compared to 26.6% for the same quarter in the prior year.

Gross Profit - Rental. For the fourth quarter, total rental gross profit dollars decreased approximately $1.8 million, or 10.7%, to $15.1 million from $16.9 million for the same period last year, primarily as a result of lower rental revenues along with higher costs of guarantee payments to studios under revenue sharing agreements. As a percentage of total rental revenues, rental gross profit decreased to 62.4% for the quarter compared to 66.7% for the same quarter in the prior year.

Selling, General and Administrative expenses ("SG&A"). As a percentage of total revenues, SG&A increased to 27.5% for the fourth quarter compared to 27.1% for the same quarter in the prior year, primarily due to lower revenues. SG&A remained constant at $47.2 million for fiscal 2007 as compared to fiscal 2006. Increases in store labor costs, stock compensation expense, and consulting fees related to Section 404 of the Sarbanes-Oxley Act were offset by lower store impairment charges and advertising expense.

Financial Results for the Fiscal Year Ended January 31, 2008

Revenues. Total revenues for fiscal 2007 decreased $0.6 million, or 0.1%, to $547.7 million compared to $548.3 million for the same period in the prior year. The following is a summary of our revenue results (dollars in thousands):

                             Fiscal Year Ended January 31,                                  2008              2007           Increase/                                    Percent           Percent    (Decrease)                           Revenues of Total Revenues of Total Dollar Percent   Merchandise revenue     $458,076   83.6%  $454,142   82.8%  $3,934   0.9%   Rental revenue            89,609   16.4%    94,190   17.2%  (4,581) -4.9%     Total revenues        $547,685  100.0%  $548,332  100.0%   $(647) -0.1%    Comparable-store    revenues:     Total                    -0.1%     Merchandise               0.8%     Rental                   -4.8%     

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

                                                Fiscal Year Ended January 31,                                                    2008              2007   Electronics                                      20.3%             27.3%   Video Games                                      17.3%              8.7%   Hard Back Cafe                                   10.9%             25.6%   Trends                                            8.1%             -3.3%   Movies                                            4.0%             13.1%   Books                                             2.1%              0.4%   Consumables                                       3.8%             -1.6%   Music                                           -15.3%             -9.3%     

Electronics department Comps increased 20.3% compared to the same period last year, primarily as a result of strong sales of iPods, MP3 players and related accessories, as well as increased sales of third-party gift cards. Video Game Comps increased 17.3% primarily due to strong sales of video game hardware, including XBOX 360, Nintendo Wii, and PlayStation 3 consoles, as well as strong sales of new games for these gaming systems. Comps for the Trends department rose 8.1% due to improved plan-o-gramming throughout the department and an improved assortment of products. Key categories driving Trends included strong sales of apparel, such as backpacks, bags and hats, as well as action figures, collectible card games, and seasonal merchandise. These drivers were partially offset by lower sales of board games and puzzles resulting from reduced levels of inventory carried for these products. Movie Comps increased 4.0%, which was primarily due to strong sales of used DVDs along with increased sales of next generation formats, led by Blu-ray. Book Comps increased 2.1% during fiscal 2007 primarily due to the July release of the seventh and final book in the Harry Potter series as well as strong sales of used books. Music Comps fell 15.3%, directly as a result of continued industry declines. Merchandise Comps, excluding the sale of Music, increased 6.0% during fiscal 2007.

Rental Comps decreased 4.8% from the same period last year due to a weaker slate of box office releases compared to the prior year along with a shift of consumer preference toward buying DVDs and games instead of renting. We have responded to this shift. As a result, the combined sales and rental of movies and video games resulted in a Comp increase of 3.4%.

Gross Profit - Merchandise. For fiscal 2007, total merchandise gross profit dollars increased approximately $8.5 million, or 6.6%, to $136.6 million from $128.1 million for the same period last year. Merchandise gross profit dollars increased primarily due to increased margin rates, which are primarily a result of continued price management. As a percentage of total merchandise revenues, gross profit increased to 29.8% for fiscal 2007 from 28.2% for the same period in the prior year.

Gross Profit - Rental. For fiscal 2007, total rental gross profit dollars decreased approximately $1.8 million, or 3.0%, to $58.5 million from $60.3 million for the same period last year. Rental gross profit dollars decreased primarily due to lower revenues. As a percentage of total rental revenues, rental gross profit increased to 65.3% for fiscal 2007 compared to 64.0% for the same period in the prior year. Rental margin rates are primarily a function of depreciation, which in turn is a function of rental purchases over approximately a six month period.

Selling, General and Administrative expenses ("SG&A"). As a percentage of total revenues, SG&A decreased to 32.3% for the twelve months ended January 31, 2008 compared to 32.4% for the same period in the prior year. SG&A decreased approximately $0.5 million to $177.0 million for fiscal 2007 compared to $177.5 million for the same period last year due to lower advertising and store impairment charges, partially offset by increased store labor costs and stock compensation expense.

Income Tax Expense. The effective tax rate for fiscal 2007 was 32.6% as compared to 39.3% for fiscal 2006. The Company recognized a benefit in the amount of $0.9 million related to a favorable settlement of a prior year's state tax liability.

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 fourth quarter of fiscal year 2007, we purchased a total of 262,587 shares of common stock at a cost of approximately $2,410,892, or $9.18 per share. As of January 31, 2008, a total of 2,655,750 shares had been repurchased under the program at a cost of approximately $17.3 million, for an average cost of approximately $6.50 per share. As of January 31, 2008, approximately $5.2 million remains available in the stock repurchase program.

Store Activity

Since November 19, 2007, which was the date we last reported store activity, we have had additional store activity as follows:

   --  New store opened in Cordova, Tennessee, November 19, 2007.  This store       is our first in the Memphis area and contains 24,612 selling square       footage.     Fiscal Year 2008 Guidance    Year Ending January 31, 2009:      Comparable store revenue                              low single digits      Net income                                       $10.5 to $11.0 million      Net income per diluted share                             $0.95 to $1.00      Capital expenditures (1)                                    $24,800,000      Weighted average diluted shares outstanding                  11,000,000      New stores                                                            3      Average cost per new store (2)                               $1,700,000      Expanded/relocated stores                                             6      Average cost per expanded/relocated stores (2)               $1,100,000      (1) $5.3 million of capital expenditures are related to the reformatting       of 35 stores, including changes to the Music, Trends, and Children's       Book departments.    (2) Total cost to open a new store, including inventory, net of payables.       Total cost of expanded/relocated stores includes incremental       inventory, net of payables.     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 CDs, books, videos and video games, 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)                                               January 31,         January 31,                                                  2008                2007                                              (unaudited)                   Assets   Current Assets     Cash                                          $3,982             $3,837     Merchandise inventories, net                 171,958            167,277     Deferred income taxes, current                 3,441              3,891     Other assets                                  11,386             10,633       Total current assets                       190,767            185,638    Rental assets, net                              13,236             11,931   Property and equipment, net                     52,572             57,422   Deferred income taxes                            2,756              1,765   Intangible assets, net                             391                411   Other assets                                       499                331    Total assets                                  $260,221           $257,498          Liabilities and Shareholders' Equity   Current liabilities     Trade accounts payable                       $76,364            $76,518     Accrued expenses and other liabilities        36,675             37,179       Total current liabilities                  113,039            113,697    Long-term debt, excluding current maturities    40,616             41,922   Other liabilities                                4,758              4,326    Shareholders' equity     Preferred stock                                    -                  -     Common stock                                     119                119     Additional paid-in capital                    37,125             36,906     Retained earnings                             75,892             66,485     Other comprehensive income                       (15)                67     Treasury stock, at cost                      (11,313)            (6,024)       Total shareholders' equity                 101,808             97,553    Total liabilities and shareholders'    equity                                       $260,221           $257,498      Consolidated Statements of Earnings   (Dollars in thousands, except per share data)                                       Three Months Ended  Fiscal Year Ended                                         January 31,          January 31,                                        2008      2007       2008     2007                                    (unaudited)(unaudited)(unaudited)     Merchandise revenue                $147,334  $148,787   $458,076 $454,142   Rental revenue                       24,159    25,403     89,609   94,190     Total revenues                    171,493   174,190    547,685  548,332    Merchandise cost of revenue         105,021   109,157    321,438  326,025   Rental cost of revenue                9,088     8,463     31,107   33,862     Total cost of revenues            114,109   117,620    352,545  359,887      Gross profit                       57,384    56,570    195,140  188,445    Selling, general and    administrative expenses             47,231    47,236    177,028  177,467   Pre-opening expenses                    115         -        120       94      Operating income                   10,038     9,334     17,992   10,884    Other income (expense):     Interest expense                     (649)     (956)    (2,919)  (3,260)     Other, net                             38        43        123      642        Income before income taxes        9,427     8,421     15,196    8,266    Income tax expense                    3,608     3,306      4,951    3,247        Net income                       $5,819    $5,115    $10,245   $5,019    Basic income per share                $0.55     $0.46      $0.95    $0.45    Diluted income per share              $0.54     $0.45      $0.93    $0.44    Weighted-average common shares    outstanding:     Basic                              10,523    11,041     10,797   11,244     Dilutive effect of stock options      326       275        258      274      Diluted                            10,849    11,316     11,055   11,518      Consolidated Statements of Cash Flows   (Dollars in thousands)                                                 January 31,       January 31,                                                   2008               2007                                                (unaudited)    Cash flows from operating activities:     Net income                                   $10,245             $5,019     Adjustments to reconcile net income      to net cash provided by operations:       Rental asset depreciation expense           13,441             15,771       Purchases of rental video                  (27,276)           (28,689)       Property and equipment        depreciation expense                       19,400             19,865       Amortization                                    20                 43       Deferred income tax                           (541)                70       Loss on rental videos lost,        stolen and defective                        1,218              1,224       Loss on disposal of other assets               709              1,295       Noncash stock-based compensation               427                155     Changes in operating assets and      liabilities:       Merchandise inventory                        6,629             10,138       Other current assets                          (753)            (3,617)       Trade accounts payable                       2,224             (9,379)       Accrued expenses and other liabilities      (1,215)                22       Excess tax benefit from stock        based compensation                           (127)                 -       Other assets and liabilities, net              182               (402)       Net cash provided by        operating activities                       24,583             11,515    Cash flows from investing activities:     Purchases of property, equipment      and improvements                            (15,256)           (18,566)       Net cash used in investing activities      (15,256)           (18,566)    Cash flows from financing activities:     Net borrowings (repayments) under      revolving credit facility                    (1,306)            13,865     Payments under long-term debt and      capital lease obligations                         -                (94)     Purchase of treasury stock                    (6,336)            (4,237)     Change in cash overdraft                      (2,378)            (3,094)     Proceeds from exercise of stock options          711                831     Excess tax benefit from stock      based compensation                              127                  -       Net cash provided by (used        in) financing activities                   (9,182)             7,271    Net increase in cash                               145                220    Cash at beginning of period                      3,837              3,617    Cash at end of period                           $3,982             $3,837      Balance Sheet and Other Ratios (A)   (Dollars in thousands, except per share amounts)                                                January 31,     January 31,                                                   2008           2007   Merchandise inventories, net                  $171,958       $167,277   Inventory turns, trailing 12 months (B)           1.73           1.76    Long-term debt                                 $40,616        $41,922   Long-term debt to total capitalization (C)       28.5%          30.1%    Book value (D)                                $101,808        $97,553   Book value per share (E)                         $9.21          $8.47                                          Three Months Ended  Twelve Months                                           January 31,    Ended January 31,                                          2008     2007     2008     2007   Comparable-store revenues (F):      Total                              -1.0%     1.2%    -0.1%     1.9%      Merchandise                        -0.4%     1.7%     0.8%     2.3%      Rental                             -4.5%    -1.6%    -4.8%     0.2%     (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)  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