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8-K - FORM 8-K - HASTINGS ENTERTAINMENT INC | c21465e8vk.htm |
Exhibit 99.1
NEWS RELEASE
Hastings
|
CONTACT: | Dan Crow | ||
Entertainment, Inc.
|
Vice President and | |||
Chief Financial Officer | ||||
(806) 677-1422 | ||||
www.goHastings.com |
Hastings Entertainment, Inc. Reports Results for the Second
Quarter of Fiscal 2011
Quarter of Fiscal 2011
AMARILLO, Texas, August 15, 2011Hastings Entertainment, Inc. (NASDAQ: HAST), a leading
multimedia entertainment retailer, today reported results for the three and six months ended July
31, 2011. Net loss was approximately $4.1 million, or $0.47 per diluted share, for the three
months ended July 31, 2011 compared to a net loss of approximately $0.1 million, or $0.01 per
diluted share, for the three months ended July 31, 2010. Net loss was approximately $3.6 million,
or $0.42 per diluted share, for the six months ended July 31, 2011 compared to net earnings of $0.9
million, or $0.10 per diluted share, for the six months ended July 31, 2010.
Operating loss and adjusted operating loss were approximately $5.1 million for the second quarter
of fiscal 2011 compared to operating income and adjusted operating income of approximately $13,000
for the second quarter of fiscal 2010. Adjusted operating income (loss) excludes gift card
breakage revenue and stock compensation expense. Operating loss was approximately $4.1 million for
the six months ended July 31, 2011 compared to operating income of approximately $1.5 million for
the same period in the prior year. Adjusted operating loss was approximately $3.9 million for the
current six month period compared to adjusted operating income of approximately $1.5 million for
the same period in the prior year. Earnings before interest, taxes, property and equipment
depreciation expense and amortization (EBITDA) was approximately ($0.5 million) for the second
quarter of fiscal 2011 compared to approximately $4.3 million for the second quarter of fiscal
2010. Adjusted EBITDA, which excludes gift card breakage revenue and stock compensation expense,
was approximately ($0.4 million) for the second quarter of fiscal 2011 compared to approximately
$4.3 million for the second quarter of fiscal 2010. EBITDA was approximately $4.7 million for the
six months ended July 31, 2011 compared to approximately $10.2 million for the same period in the
prior year. Adjusted EBITDA was approximately $4.9 million for the current six month period
compared to approximately $10.2 million for the same period in the prior year.
Reconciliations of non-GAAP financial measures to comparable GAAP financial measures are included
in the tables following the financial statements in this release.
Our second quarter results were impacted by a continued weak slate, as well as lower quality of
new releases for movies, along with a weaker release slate of books, said John H. Marmaduke, Chief
Executive Officer and Chairman. Furthermore, we continue to be impacted by the shift toward the
digital delivery of books as well as the increasing growth of rental kiosks and subscription-based
services in movie rentals. Additionally, the current economic environment is impacting consumer
discretionary spending, thereby reducing store traffic. We continue to focus on controlling our
costs. For the second quarter, we reduced shrinkage expense by approximately $0.8 million, costs
to return products to vendors by $0.3 million and markdown expense by $0.2 million, compared to the
second quarter of fiscal 2010. During the second half of fiscal 2011, we will continue to focus on
cost reductions, which may include the closing of stores that are underperforming.
I am pleased to announce that on August 1, 2011, we opened our newest concept store. TRADESMART,
located in Littleton, Colorado, is a concept store born from the culture of recycling. TRADESMART,
with over 40,000 square feet, features over 400,000 predominantly used and new books, CDs, DVDs,
Blu-rays, video games, and video game systems, as well as consumer electronics, trends, skateboards
and paintball merchandise, and much, much more, available to purchase. TRADESMART also allows
customers to sell back entertainment products they have already enjoyed for cash or store credit.
By opening in a metropolitan market, we anticipate product buybacks originating at TRADESMART will
help support used inventory levels in our Hastings superstores.
Our first concept store Sun Adventure Sports, which opened in July 2010, was profitable for the
first six months this year. We plan to open a second Sun Adventure Sports store in the Lubbock,
Texas market during the third quarter. Sun Adventure Sports offers a variety of sports and
outdoors products such as bikes and accessories, skateboards, athletic apparel and shoes.
Due to the uncertainty in the economic environment and our financial results for the second
quarter, we expect our earnings per share for the full fiscal year to be below the current guidance
range. Additionally, expectations for sluggish economic growth and a prolonged recovery make it
very difficult to forecast earnings. Consequently, Hastings is withdrawing its fiscal 2011
guidance, issued on March 21, 2011, and will not be providing any further guidance, specifically
comparable store sales, net income and net income per diluted share, for the current fiscal year.
During the second quarter, we entered into an amendment which increased our existing credit
facility with Bank of America, N.A and lowered our interest rates. This amendment will enable us
to lower our anticipated cost of capital and enhance our financial flexibility. We will continue
to focus on maintaining a strong balance sheet and will be well positioned to weather the current
economic environment.
Financial Results for the Second Quarter of Fiscal Year 2011
Revenues. Total revenues for the second quarter decreased approximately $8.6 million, or 7.2%, to
$110.5 million compared to $119.1 million for the second quarter of fiscal 2010. As of July 31,
2011, we operated two fewer superstores, as compared to July 31, 2010. The following is a summary
of our revenues results (dollars in thousands):
Three Months Ended July 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Percent | Percent | Increase (Decrease) | ||||||||||||||||||||||
Revenues | Of Total | Revenues | Of Total | Dollar | Percent | |||||||||||||||||||
Merchandise Revenue |
$ | 92,828 | 84.0 | % | $ | 98,588 | 82.8 | % | $ | (5,760 | ) | -5.8 | % | |||||||||||
Rental Revenue |
17,423 | 15.8 | % | 20,349 | 17.1 | % | (2,926 | ) | -14.4 | % | ||||||||||||||
Gift Card Breakage
Revenue |
284 | 0.2 | % | 194 | 0.1 | % | 90 | 46.4 | % | |||||||||||||||
Total Revenues |
$ | 110,535 | 100.0 | % | $ | 119,131 | 100.0 | % | $ | (8,596 | ) | -7.2 | % | |||||||||||
Comparable-store revenues (Comp)
Total |
-8.1 | % | ||
Merchandise |
-6.6 | % | ||
Rental |
-15.1 | % |
Below is a summary of the Comp results for our major merchandise categories:
Three Months Ended July 31, | ||||||||
2011 | 2010 | |||||||
Trends |
9.9 | % | 11.0 | % | ||||
Electronics |
5.6 | % | 0.8 | % | ||||
Hardback Café |
3.8 | % | 10.0 | % | ||||
Video Games |
-5.1 | % | 23.3 | % | ||||
Music |
-5.7 | % | -7.5 | % | ||||
Books |
-9.4 | % | -1.8 | % | ||||
Consumables |
-9.7 | % | 4.1 | % | ||||
Movies |
-11.4 | % | 9.3 | % |
Trends Comps increased 9.9% for the quarter primarily driven by increased sales of apparel, action
figures, comics, novelty items and collectible card games such as Magic: The Gathering. Key
drivers in the apparel category included jewelry and hats. Key drivers in the novelty category
included assorted tween merchandise, movie memorabilia items, and lighting and barware.
Electronics Comps increased 5.6% for the quarter resulting from increased sales of refurbished
iPods and headphones, partially offset by lower sales of other MP3 accessories. Hardback Café
Comps increased 3.8% due to increased sales of specialty café drinks, primarily blended and iced
drinks. Video Game Comps decreased 5.1% primarily due to lower sales of video game consoles, new
Nintendo Wii video games, and older generation video games. These decreases were partially offset
by increased sales of new and used games for the Microsoft XBOX 360 and Sony Playstation. Music
Comps decreased 5.7% for the quarter due to lower sales of new and used CDs. Books Comps
decreased 9.4% for the quarter primarily due to lower sales of new and used mass market books and
trade paperbacks, new hardbacks and magazines, partially offset by increased sales of used
hardbacks and value books. Sales of new books, which decreased 8.1% for the quarter, were impacted
by a weaker slate of titles released during the current quarter and the increasing popularity of
electronic book readers. Sales of used books, which decreased 12.1% for the quarter, were also
impacted by the weaker slate of new book release which in turn led to a less favorable inventory of
used titles. These decreases were partially offset by a 2.1% increase in sales of value books.
Consumables Comps decreased 9.7% for the quarter primarily driven by lower sales of bottled drinks
and promotional candies. Movies Comps decreased 11.4% for the quarter primarily due to lower sales
of new and used DVDs and DVD boxed sets, partially offset by increased sales of new and used
Blu-ray movies. Our top three selling movies during the current quarter generated approximately
20% less revenue than the top three selling movies during the comparable period in the prior year.
Rental Comps decreased 15.1% for the quarter, primarily due to fewer rentals of DVDs partially
offset by increased rentals of Blu-ray movies and a slight increase in rentals of video games.
Rental Video Comps decreased 16.4% for the quarter and units rented decreased 16.9%. Rental Video
Comps were negatively impacted by a lower quality of new releases during the current period and by
competitor rental kiosks and subscription-based rental services. Rental Video Game Comps decreased
0.4%, and units rented decreased 3.3%
Gross Profit Merchandise. For the second quarter, total merchandise gross profit dollars
decreased approximately $2.8 million, or 8.8%, to $28.9 million from $31.7 million for the same
period in the prior year, primarily due to lower revenues, along with lower margin rates. As a
percentage of total merchandise revenue, merchandise gross profit decreased to 31.2% for the
quarter compared to 32.2% for the same period in the prior year, resulting primarily from increased
promotions during the quarter and a shift in mix of revenues by category as compared to the prior
year, partially offset by lower shrinkage expense, lower costs to return products and lower
markdown expense. The decrease in shrinkage expense is a direct result of our comprehensive store
audit program that assesses store level execution and controls designed to reduce shrink, with a
strong focus on our high-shrinkage stores.
Gross Profit Rental. For the second quarter, total rental gross profit dollars decreased
approximately $2.2 million, or 17.3%, to $10.5 million from $12.7 million for the same period in
the prior year, primarily due to lower revenues. As a percentage of total rental revenue, rental
gross profit decreased to 60.5% for the quarter compared to 62.6% for the same period in the prior
year, also primarily due to lower revenues.
Selling, General and Administrative Expenses (SG&A). As a percentage of total revenue, SG&A
increased to 40.5% for the second quarter compared to 37.5% for the same period in the prior year
due to deleveraging resulting from lower revenues. SG&A increased approximately $0.1 million
during the quarter, or 0.2%, to $44.7 million compared to $44.6 million for the same quarter last
year. The main drivers increasing SG&A included an increase in maintenance costs of approximately
$0.2 million, an increase of approximately $0.3 million in store occupancy costs, and an increase
of approximately $0.2 million in new store expenses due to the opening of our new concept store,
TRADESMART. These increases were primarily offset by a decrease in bonuses under our corporate
officer and management bonus incentive programs of approximately $0.3 million as compared to the
prior year due to the fact that no bonuses were earned for the first half of fiscal 2011.
Interest Expense. For the second quarter, interest expense increased approximately $0.1 million,
or 50.0%, to $0.3 million, compared to $0.2 million for the same period in the prior year,
primarily as a result of higher interest rates incurred during the quarter. The average rate of
interest charged for the second quarter increased to 2.6% compared to 2.1% for the same period in
the prior year.
Financial Results for the Six Months Ended July 31, 2011
Revenues. Total revenues for the six months ended July 31, 2011 decreased approximately $13.5
million, or 5.5%, to $234.7 million compared to $248.2 million for the six months ended July 31,
2010. The following is a summary of our revenues results (dollars in thousands):
Six Months Ended July 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Percent | Percent | Increase (Decrease) | ||||||||||||||||||||||
Revenues | Of Total | Revenues | Of Total | Dollar | Percent | |||||||||||||||||||
Merchandise Revenue |
$ | 197,291 | 84.1 | % | $ | 206,713 | 83.3 | % | $ | (9,422 | ) | -4.6 | % | |||||||||||
Rental Revenue |
36,951 | 15.7 | % | 41,128 | 16.6 | % | (4,177 | ) | -10.2 | % | ||||||||||||||
Gift Card Breakage
Revenue |
430 | 0.2 | % | 388 | 0.1 | % | 42 | 10.8 | % | |||||||||||||||
Total Revenues |
$ | 234,672 | 100.0 | % | $ | 248,229 | 100.0 | % | $ | (13,557 | ) | -5.5 | % | |||||||||||
Comparable-store revenues (Comp)
Total |
-5.6 | % | ||
Merchandise |
-4.7 | % | ||
Rental |
-10.4 | % |
Below is a summary of the Comp results for our major merchandise categories:
Six Months Ended July 31, | ||||||||
2011 | 2010 | |||||||
Trends |
10.9 | % | 9.9 | % | ||||
Hardback Café |
4.6 | % | 12.9 | % | ||||
Electronics |
1.1 | % | 2.7 | % | ||||
Video Games |
-0.9 | % | 24.4 | % | ||||
Music |
-2.1 | % | -6.1 | % | ||||
Consumables |
-7.8 | % | 6.8 | % | ||||
Movies |
-8.8 | % | 10.3 | % | ||||
Books |
-9.3 | % | -1.5 | % |
Trends Comps increased 10.9% for the period primarily driven by increased sales of apparel, new and
used comics, As Seen on TV products such as Pillow Pets and shaped rubber bands, and collectible
card games such as Magic: The Gathering. Key drivers in the apparel category for the period
included hats, jewelry and bags. Hardback Café Comps increased 4.6% due to increased sales of
specialty café drinks. Electronics Comps increased 1.1% for the period resulting from increased
sales of refurbished iPods, partially offset by lower sales of Blu-ray players. Video Game Comps
decreased 0.9% primarily due to lower sales of new Nintendo Wii games and used video game consoles
partially offset by increased sales of new and used games for the Microsoft XBOX 360 and gaming
accessories. Sales of new Nintendo Wii games were directly impacted by low allocations of Nintendo
first-party titles. Music Comps decreased 2.1% for the period due to lower sales of used CDs and
music DVDs, partially offset by a slight increase in sales of new CDs. Consumables Comps decreased
7.8% for the period primarily driven by lower sales of bottled and fountain drinks. Movies Comps
decreased 8.8% for the period primarily due to lower sales of new and used DVDs and DVD boxed sets,
partially offset by increased sales of new and used Blu-ray movies. Movie sales were negatively
impacted by a 17% drop in box office value of movies that came to Blu-ray and DVD during the
current period as compared to the same period in the prior year, along with a lower quality of new
releases during the current period. Books Comps decreased 9.3% for the period primarily due to
lower sales of new mass market books, hardbacks and trade paperbacks and lower sales of magazines.
Sales of new and used books were impacted by a weaker slate of titles released during the period
and the increasing popularity of electronic book readers. These decreases were partially offset by
a slight lift in used hardback sales and value books.
Rental Comps decreased 10.4% for the period, primarily due to fewer rentals of DVDs partially
offset by an increase in rentals of Blu-ray movies and video games. Rental Video Comps decreased
12.1% for the period and units rented decreased 12.9%. Rental Video Comps sales were negatively
impacted by fewer titles released in the $20 million to $80 million gross box office range, which
typically represent our best renters, by a lower quality of new releases during the current period
and by competitor rental kiosks and subscription-based rental services. Rental Video Game Comps
increased 3.8%, and units rented decreased 0.3%.
Gross Profit Merchandise. For the current six months, total merchandise gross profit dollars
decreased approximately $4.1 million, or 6.3%, to $61.3 million from $65.4 million for the same
period in the prior year, primarily due to lower revenues, along with lower margin rates. As a
percentage of total merchandise revenue, merchandise gross profit decreased to 31.1% for the
current six months, compared to 31.6% for the same period in
the prior year, primarily due to increased promotions and increased costs to return products,
partially offset by lower shrinkage expense and lower markdown expense. The decrease in shrinkage
expense is a direct result of our comprehensive store audit program that assesses store level
execution and controls designed to reduce shrink, with a strong focus on our high-shrinkage stores.
Gross Profit Rental. For the current six months, total rental gross profit dollars decreased
approximately $3.0 million, or 11.6%, to $22.8 million from $25.8 million for the same period in
the prior year primarily due to lower revenues. As a percentage of total rental revenue, rental
gross profit decreased to 61.6% for the current six month period compared to 62.8% for the same
period in the prior year, also primarily as a result of lower rental revenues.
Selling, General and Administrative Expenses (SG&A). As a percentage of total revenue, SG&A
increased to 37.7% for the current six months compared to 36.3% for the same period in the prior
year primarily due to deleveraging resulting from lower revenues. SG&A decreased approximately
$1.7 million, or 1.9%, to $88.4 million compared to $90.1 million for the same period last year.
The main drivers of the decrease in SG&A included a decrease in bonuses under our bonus incentive
programs of approximately $0.6 million, a decrease in associate health insurance costs of
approximately $0.4 million, and a decrease in advertising expenses of approximately $0.6 million.
Interest Expense. For the current six months, interest expense increased approximately $0.2
million, or 66.7%, to $0.5 million, compared to $0.3 million for the same period in the prior year
primarily as a result of higher interest rates. The average rate of interest charged for the
current six months increased to 2.6% compared to 2.0% for the same period in the prior year.
Stock Repurchases
On September 18, 2001, we announced a stock repurchase program of up to $5.0 million of our common
stock. As of April 30, 2011, the Board of Directors had approved increases in the program totaling
$32.5 million. During the second quarter of fiscal 2011, we purchased a total of 68,400 shares of
common stock at a cost of $321,170, or $4.70 per share. As of July 31, 2011, a total of 4,876,440
shares had been repurchased under the program at a cost of approximately $30.2 million, for an
average cost of approximately $6.20 per share. As of July 31, 2011 a total of $7.3 million
remained available under the stock repurchase program.
Store Activity
Since May 16, 2011, which was the last date we reported store activity, we have the following
activity to report.
| Store closed in Newnan, Georgia on June 14, 2011. |
In addition to our Hastings superstores, we opened a TRADESMART in Littleton, CO, on August 1,
2011. TRADESMART, a concept store born from the culture of recycling, is our first store in the
Denver market.
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; the effects of a continued deterioration in economic conditions in the U.S. or the markets
in which we operate our stores; the effect of inclement weather on the ability of consumers to
reach our stores; and other factors which may be outside of the companys control. 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. Please refer to the companys 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 books, videos, video games and CDs, and trends and consumer
electronics merchandise, with the rental of videos and video games in a superstore format. We
currently operate 145 superstores, averaging approximately 24,000 square feet, primarily in
medium-sized markets throughout the United States. We also operate two concept stores, Sun
Adventure Sports, in Amarillo, Texas and TRADESMART, in Littleton, Colorado.
We
operate 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 to our filings
with the Securities and Exchange Commission.
Consolidated Balance Sheets
(Dollars in thousands)
(Dollars in thousands)
July 31, | July 31, | January 31, | ||||||||||
2011 | 2010 | 2011 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
$ | 7,277 | $ | 6,427 | $ | 6,149 | ||||||
Merchandise inventories, net |
158,067 | 153,560 | 146,636 | |||||||||
Deferred income taxes |
6,237 | 6,461 | 6,022 | |||||||||
Prepaid expenses and other current assets |
12,756 | 11,197 | 11,742 | |||||||||
Total current assets |
184,337 | 177,645 | 170,549 | |||||||||
Rental assets, net |
13,056 | 13,134 | 13,129 | |||||||||
Property and equipment, net |
41,092 | 44,527 | 41,588 | |||||||||
Deferred income taxes |
421 | 3,362 | 1,668 | |||||||||
Intangible assets, net |
391 | 391 | 391 | |||||||||
Other assets |
2,267 | 1,362 | 2,358 | |||||||||
Total assets |
$ | 241,564 | $ | 240,421 | $ | 229,683 | ||||||
Liabilities and shareholders equity |
||||||||||||
Current liabilities |
||||||||||||
Trade accounts payable |
$ | 62,690 | $ | 59,236 | $ | 60,555 | ||||||
Accrued expenses and other current liabilities |
25,424 | 25,825 | 26,124 | |||||||||
Total current liabilities |
88,114 | 85,061 | 86,679 | |||||||||
Long-term debt, excluding current maturities |
45,955 | 43,874 | 31,766 | |||||||||
Other liabilities |
6,712 | 6,228 | 6,512 | |||||||||
Shareholders equity |
||||||||||||
Preferred stock |
| | | |||||||||
Common stock |
119 | 119 | 119 | |||||||||
Additional paid-in capital |
36,935 | 36,672 | 36,673 | |||||||||
Retained earnings |
84,947 | 87,820 | 88,589 | |||||||||
Accumulated other comprehensive income |
118 | 50 | 107 | |||||||||
Treasury stock, at cost |
(21,336 | ) | (19,403 | ) | (20,762 | ) | ||||||
Total shareholders equity |
100,783 | 105,258 | 104,726 | |||||||||
Total liabilities and shareholders equity |
$ | 241,564 | $ | 240,421 | $ | 229,683 | ||||||
Consolidated Statements of Operations
(In thousands, except per share data)
(In thousands, except per share data)
Three months ended | Six months ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Merchandise revenue |
$ | 92,828 | $ | 98,588 | $ | 197,291 | $ | 206,713 | ||||||||
Rental revenue |
17,423 | 20,349 | 36,951 | 41,128 | ||||||||||||
Gift card breakage revenue |
284 | 194 | 430 | 388 | ||||||||||||
Total revenues |
110,535 | 119,131 | 234,672 | 248,229 | ||||||||||||
Merchandise cost of revenue |
63,889 | 66,869 | 136,009 | 141,295 | ||||||||||||
Rental cost of revenue |
6,886 | 7,607 | 14,171 | 15,312 | ||||||||||||
Total cost of revenues |
70,775 | 74,476 | 150,180 | 156,607 | ||||||||||||
Gross profit |
39,760 | 44,655 | 84,492 | 91,622 | ||||||||||||
Selling, general and
administrative expenses |
44,717 | 44,642 | 88,427 | 90,078 | ||||||||||||
Pre-opening expenses |
154 | | 212 | | ||||||||||||
Operating income (loss) |
(5,111 | ) | 13 | (4,147 | ) | 1,544 | ||||||||||
Other income (expense): |
||||||||||||||||
Interest expense, net |
(287 | ) | (189 | ) | (489 | ) | (321 | ) | ||||||||
Other, net |
118 | 25 | 137 | 45 | ||||||||||||
Income (loss) before income taxes |
(5,280 | ) | (151 | ) | (4,499 | ) | 1,268 | |||||||||
Income tax expense (benefit) |
(1,225 | ) | (69 | ) | (857 | ) | 332 | |||||||||
Net income (loss) |
$ | (4,055 | ) | $ | (82 | ) | $ | (3,642 | ) | $ | 936 | |||||
Basic income (loss) per share |
$ | (0.47 | ) | $ | (0.01 | ) | $ | (0.42 | ) | $ | 0.10 | |||||
Diluted income (loss) per share |
$ | (0.47 | ) | $ | (0.01 | ) | $ | (0.42 | ) | $ | 0.10 | |||||
Weighted-average common shares
outstanding: |
||||||||||||||||
Basic |
8,600 | 9,090 | 8,655 | 9,258 | ||||||||||||
Dilutive effect of stock awards |
| | | 290 | ||||||||||||
Diluted |
8,600 | 9,090 | 8,655 | 9,548 | ||||||||||||
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Dollars in thousands)
Six Months Ended July 31, | ||||||||
2011 | 2010 | |||||||
(unaudited) | (unaudited) | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (3,642 | ) | $ | 936 | |||
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations: |
||||||||
Rental asset depreciation expense |
5,923 | 5,697 | ||||||
Purchases of rental assets |
(12,163 | ) | (12,129 | ) | ||||
Property and equipment depreciation expense |
8,674 | 8,624 | ||||||
Deferred income taxes |
1,025 | (709 | ) | |||||
Loss on rental assets lost, stolen and defective |
872 | 981 | ||||||
Loss on disposal of other assets |
59 | 26 | ||||||
Non-cash stock-based compensation |
639 | 337 | ||||||
Changes in operating assets and liabilities: |
||||||||
Merchandise inventories |
(5,988 | ) | 34 | |||||
Prepaid expenses and other current assets |
(1,014 | ) | (528 | ) | ||||
Trade accounts payable |
1,750 | 2,163 | ||||||
Accrued expenses and other current liabilities |
(685 | ) | (2,266 | ) | ||||
Excess tax benefit from stock-based compensation |
(15 | ) | (37 | ) | ||||
Other assets and liabilities, net |
241 | (52 | ) | |||||
Net cash provided by (used in) operating activities |
(4,324 | ) | 3,077 | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(8,239 | ) | (5,483 | ) | ||||
Net cash used in investing activities |
(8,239 | ) | (5,483 | ) | ||||
Cash flows from financing activities: |
||||||||
Net borrowings under revolving credit facility |
14,189 | 5,700 | ||||||
Purchase of treasury stock |
(979 | ) | (4,401 | ) | ||||
Change in cash overdraft |
385 | (995 | ) | |||||
Deferred financing costs paid |
68 | (549 | ) | |||||
Proceeds from exercise of stock options |
13 | 178 | ||||||
Excess tax benefit from stock-based compensation |
15 | 37 | ||||||
Net cash provided by (used in) financing activities |
13,691 | (30 | ) | |||||
Net increase (decrease) in cash |
1,128 | (2,436 | ) | |||||
Cash at beginning of period |
6,149 | 8,863 | ||||||
Cash at end of period |
$ | 7,277 | $ | 6,427 | ||||
Balance Sheet and Other Ratios (A)
(Dollars in thousands, except per share amounts)
(Dollars in thousands, except per share amounts)
July 31, | July 31, | |||||||
2011 | 2010 | |||||||
Merchandise inventories, net |
$ | 158,067 | $ | 153,560 | ||||
Inventory turns, trailing 12 months (B) |
1.93 | 1.98 | ||||||
Long-term debt |
$ | 45,955 | $ | 43,874 | ||||
Long-term debt to total capitalization (C) |
31.3 | % | 29.4 | % | ||||
Book value (D) |
$ | 100,783 | $ | 105,258 | ||||
Book value per share (E) |
$ | 11.64 | $ | 11.02 |
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Comparable-store revenues (F): |
||||||||||||||||
Total |
-8.1 | % | 4.5 | % | -5.6 | % | 4.7 | % | ||||||||
Merchandise |
-6.6 | % | 4.2 | % | -4.7 | % | 5.3 | % | ||||||||
Rental |
-15.1 | % | 6.1 | % | -10.4 | % | 2.1 | % |
(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 periods 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 for the six months ended July 31, 2011 and 2010, respectively. |
|
(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 and gift card breakage
revenues are not included and closed stores are removed from each comparable period for the
purpose of calculating comparable-store revenues. |
Use of Non-GAAP Financial Measures
The Company is providing free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income
(loss) as supplemental non-GAAP financial measures regarding the Companys operational performance.
The Company evaluates its historical and prospective financial performance, and its performance
relative to its competitors, by using such non-GAAP financial measures. Specifically, management
uses these items to further its own understanding of the Companys core operating performance,
which management believes represents the Companys performance in the ordinary, ongoing and
customary course of its operations. Therefore, management excludes from core operating performance
those items, such as those relating to restructuring, investing, stock-based compensation expense
and non-cash activities that management does not believe are reflective of such ordinary, ongoing
and customary activities.
The Company believes that providing this information to its investors, in addition to the
presentation of GAAP financial measures, allows investors to see the Companys financial results
through the eyes of management. The Company further believes that providing this information
allows investors to both better understand the Companys financial performance and to evaluate the
efficacy of the methodology and information used by management to evaluate and measure such
performance.
Free Cash Flow
Management defines free cash flow as net cash provided by operating activities for the period less
purchases of property, equipment and improvements during the period. Purchases of property,
equipment and improvements during the period are netted with any proceeds received from insurance
on casualty loss that are directly related to
the reinvestment of new capital expenditures. The following table reconciles net cash provided by
operating activities, a GAAP financial measure, to free cash flow, a non-GAAP financial measure (in
thousands):
Six months ended July 31, | ||||||||
2011 | 2010 | |||||||
Net cash provided by (used in) operating activities |
$ | (4,324 | ) | $ | 3,077 | |||
Purchase of property, equipment and improvements, net |
(8,239 | ) | (5,483 | ) | ||||
Free cash flow |
$ | (12,563 | ) | $ | (2,406 | ) | ||
EBITDA and Adjusted EBITDA
EBITDA is defined as net income (loss) before interest expense (net), income tax expense (benefit),
property and equipment depreciation expense and amortization. Adjusted EBITDA, as presented
herein, is EBITDA excluding gift card breakage revenue, stock-based compensation expense and store
asset impairments. The following table reconciles net income (loss), a GAAP financial measure, to
EBITDA and adjusted EBITDA, non-GAAP financial measures (in thousands):
Three months ended July 31, | Six months ended July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) |
$ | (4,055 | ) | $ | (82 | ) | $ | (3,642 | ) | $ | 936 | |||||
Adjusted for |
||||||||||||||||
Interest expense, net |
287 | 189 | 489 | 321 | ||||||||||||
Income tax expense (benefit) |
(1,225 | ) | (69 | ) | (857 | ) | 332 | |||||||||
Property and equipment depreciation expense |
4,519 | 4,303 | 8,674 | 8,624 | ||||||||||||
EBITDA |
(474 | ) | 4,341 | 4,664 | 10,213 | |||||||||||
Gift card breakage revenue |
(284 | ) | (194 | ) | (430 | ) | (388 | ) | ||||||||
Non-cash stock-based compensation |
337 | 194 | 639 | 337 | ||||||||||||
Adjusted EBITDA |
$ | (421 | ) | $ | 4,341 | $ | 4,873 | $ | 10,162 | |||||||
Adjusted Operating Income (Loss)
Adjusted operating income (loss) is defined as operating income (loss) excluding gift card breakage
revenue, stock based compensation expense and store asset impairments. The following table
reconciles operating income (loss), a GAAP financial measure, to adjusted operating income (loss),
a non-GAAP financial measure (in thousands):
Three months ended July 31, | Six months ended July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating income (loss) |
$ | (5,111 | ) | $ | 13 | $ | (4,147 | ) | $ | 1,544 | ||||||
Adjusted for |
||||||||||||||||
Gift card breakage revenue |
(284 | ) | (194 | ) | (430 | ) | (388 | ) | ||||||||
Non-cash stock-based compensation |
337 | 194 | 639 | 337 | ||||||||||||
Adjusted operating income (loss) |
$ | (5,058 | ) | $ | 13 | $ | (3,938 | ) | $ | 1,493 | ||||||
Free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income (loss) are considered
non-GAAP financial measures under the SECs Regulation G and therefore should not be considered in
isolation of, or as a substitute for, net income (loss), operating income (loss), cash flow from
operating activities, or any other measure of financial performance or liquidity presented in
accordance with GAAP. The financial measures of non-GAAP free cash flow, EBITDA, adjusted EBITDA,
and adjusted operating income (loss) may vary among other companies. Therefore, our free cash
flow, EBITDA, adjusted EBITDA, and adjusted operating income (loss) may not be comparable to
similarly titled measures used by other companies.