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Hastings Narrows Q3 Net Loss, But Is Wary About Rentals, Holiday Sales

24 Nov, 2003 By: Holly J. Wagner

Hastings Entertainment narrowed its third-quarter loss, but is bracing for rental declines even as the company revised its full-year guidance up on the strength of DVD and video game sales.

“Our net loss for the quarter was slightly better than our internal projections,” said Hastings VP and CFO Dan Crow. “Cost controls, margin management and costs of operating our distribution center, including the return of product, were better than our projections. However, these improvements were offset by lower-than-projected rental revenue, which is a high-margin category for us.”

The 148-store chain reported a loss of $3.8 million, or 34 cents per share, for the three months ended Oct. 31, 2003, compared with a net loss of $6.6 million, or 58 cents per share, for the same period last year. This year's losses included a $0.3 million, or 3 cents per share, for a new accounting rule related to recording slotting fees.

Total revenue for the third quarter increased approximately $2.2 million, or 2 percent, to $112.8 million, compared to $110.6 million during the third quarter of fiscal 2002. Executives attributed the increase to a 2.4 percent increase in merchandise comparable-store revenue built on DVD and video game sales.

DVDs for sale increased approximately 40 percent for the three months ended Oct. 31, compared with the same quarter last year, while video games for sale increased 34 percent.

Predictably, music comps are still on the decline, 6.3 percent vs. the same quarter last year, against a 7.4 percent drop in shipments for the music industry as a whole.

Video rental comps slipped 1.4 percent, and Crow said the company expects the decline to continue through the holidays.

Operating loss decreased approximately $2.9 million, to $3.3 million, for the three months ended Oct. 31, compared with approximately a $6.2 million loss in the same quarter last year. Crow credited continued improvements in cost controls, particularly those related to costs associated with the distribution and return of product, and higher rental video margins.

The results were ahead of projections, which prompted the company to raise its earnings guidance for the full year ending Jan. 31, 2004, to 45 cents to 50 cents a share, up from 27 cents to 32 cents per share.

“Although most forecasters are projecting a robust holiday season, we remain concerned about sales for the holiday season, particularly rental revenue, and this concern is a factor in our guidance,” Crow said.

Hastings shares gained 62 cents, or 16 percent, on the news.

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