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DVD, Games Slow Losses at Hastings

21 Nov, 2002 By: Hive News

Hastings Entertainment, Inc. credited store makeovers and a 14.2 percent hike in same-store video rentals for the bulk of a 7.2 percent increase in revenues for the third quarter of fiscal 2002, ended Oct. 31.

Total revenues for the quarter increased $7.5 million to $110.6 million compared to $103.1 million a year ago, primarily attributed to a 6.1 percent increase in comparable store revenues, including increases in merchandise comps of 4 percent and the video rental increase.

Executives touted success in the DVD and video game categories, citing gross revenue increases of 67 percent and 171 percent, respectively, for the third quarter compared to the same period last year.

For the nine months ended Oct. 31, DVD and video game categories grew 57 percent and 167 percent, respectively. These increases built on increases of 135 percent and 53 percent, respectively, for the nine months ended Oct. 31, 2001 compared to the nine months ended Oct. 31, 2000.

Relocated and expanded stores using the newly developed "3-Across" floor plan, which divides each store into three product groups, recorded double-digit comp increases for the nine months ended Oct. 31 and are generally in line with revenue plans, executives said.

For the nine months ended Oct. 31, total revenues increased $16.1 million to $338.5 million, or 5.0 percent, compared to $322.4 million for the same period last year. Total comp revenues increased 5.4 percent and included increases in merchandise comps of 5.3 percent and rental video comps of 5.9 percent.

Operating loss before interest expense and interest and other income for the three months ended Oct. 31 was $6.2 million, or $1.2 million more than the same period last year. As a result of higher revenues, gross profit dollars increased by $2 million.

But a 110 basis point decline in the gross margin rate and an increase in the volume of products returned to vendors, kept the increase from offsetting increases in variable costs, principally store labor and advertising, which increased approximately $1.1 million and $0.9 million, respectively.

Additionally, the chain recorded increases of approximately $0.7 million in corporate overhead primarily related to software and systems upgrades and higher human resource costs and approximately $0.5 million in costs related to new store and store expansion activity.

"Although total merchandise comps increased 4 percent, music and software revenue were below our internal forecast for the third quarter," said VP and CFO Dan Crow. "Additionally, the volume of product returned to vendors was significantly higher than forecasted which resulted in higher expenses associated with such returns, including freight, warehouse labor, markdowns and return fees charged by vendors. These two factors primarily contributed to our net loss for the third quarter being higher than our internal forecast. We began to see positive results from improvement of the return and inventory replenishment processes in the month of October and we fully expect continued improvements going forward."

Hastings Entertainment, Inc. sells books, music, software, periodicals, new and used DVDs, videos and video games and rents videos, DVDs and video games in 146 superstores primarily in small to medium-sized markets throughout the United States. It also operates www.gohastings.com , an e-commerce Web site selling new and used entertainment.

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