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Hastings Q4 Profit Falls, Movie Sales Rise

21 Mar, 2011 By: Erik Gruenwedel

Hastings Entertainment Inc. reported fourth-quarter (ended Jan. 31) profit of $3.8 million, down 58% from profit of $9 million during the previous-year period. For the fiscal year, profit fell more than 75% to $1.7 million, compared with $6.9 million during the previous year.

Amarillo, Texas-based Hastings, which operates 146 entertainment retail stores in the Southwest, attributed the profit declines largely to changes in how it accounts for gift card “breakage,” in addition to a separate insurance claim proceed.

Breakage is a term that refers to value on prepaid debit gift cards that have been sold but that never were redeemed or used by the cardholder. Revenue from breakage is almost entirely profit, since companies need not provide any goods or services for unredeemed gift cards.

Without the aforementioned "gains" during the fourth quarter of 2009, net income would have been $3 million — $800,000 less than in the just-concluded quarter.

Same-store movie sales increased 1.1% in the quarter primarily due to increased sales of new and used Blu-ray Disc movies and new DVD boxed sets, and partially offset by lower sales of new DVDs.

Rental comps decreased 2.1% in the quarter, primarily due to fewer rentals of DVDs, books on CD and video games, and partially offset by increased rentals of Blu-ray movies. Rental video comps decreased 1.5% for the quarter, and rental video game comps decreased 1.1%.

Rental revenue in the quarter dropped 2.8% largely due to the popularity of the lower-revenue 49-cent overnight movie rentals, which nonetheless contributed to an increase in same-store rentals for the first two months of the quarter. The third month (January) was down significantly due to severe winter storms that negatively effected rentals in the majority of U.S. markets. Hastings also said it is exiting the rental book-on-CD business.

CEO John Marmaduke said the 49-cent rental program, which applies to about 7,000 catalog titles, contributed to a 20% revenue growth in catalog titles in the third quarter of 2010 and a 13% revenue growth in the fourth quarter.

Video sale comps decreased 12.2% primarily due to lower sales of new games for the Nintendo Wii resulting from low allocations of Nintendo first-party titles, and lower sales of video game consoles and older-generation video games. These decreases were partially offset by increased sales of used Microsoft Xbox 360 games and new and used video gaming accessories.

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