AMARILLO, Texas, Aug. 22 /PRNewswire-FirstCall/ -- Hastings Entertainment, Inc. (Nasdaq: HAST), a leading multimedia entertainment superstore retailer, today reported results for the three months ended July 31, 2003. Net income was $0.2 million, or $0.02 per diluted share, compared to a net loss of ($1.6) million, or ($0.14) per diluted share, for the three months ended July 31, 2002. The current year results include the effect of Emerging Issues Task Force Consensus No. 02-16 (EITF 02-16), which governs the accounting by a customer for certain consideration received from a vendor. The effect of EITF 02-16, which was adopted during the first quarter of fiscal 2003, decreased net income for the second quarter of 2003 by approximately $0.2 million, or $0.02 per diluted share. The results for the second quarter of fiscal 2002 include a $2.5 million non-recurring charge for the settlement of shareholder class action lawsuits and non-recurring income of approximately $1.3 million as a result of interest earned on income tax refunds filed for fiscal years 1995 through 1998. Excluding these items, the net loss for the second quarter of fiscal 2002 would have been approximately ($0.4) million, or ($0.03) per diluted share.

Total revenues for the second quarter of fiscal 2003 increased approximately $0.4 million, or 0.3%, to $115.4 million compared to $115.0 million during the second quarter of fiscal 2002. This increase was due to an increase in rental video comparable-store revenues (Comps) of 4.0% primarily resulting from an increase in our rental video pricing. Offsetting the Comp increase in rental video was a decline in merchandise Comps of (1.5%), which we feel reflects the general state of retailing. Music Comps declined (14.3%) for the second quarter. The music industry reported a decline of approximately (9%) in units shipped for the year and continues to battle on-line and physical music piracy. Partially offsetting the decline in music was an increase in our book Comps of 1.4%.

Video games for sale continued to be our fastest growing category on a percentage basis with a gross revenue increase of 70% for the three months ended July 31, 2003 compared to the three months ended July 31, 2002. In addition, DVD for sale continued to increase during the second quarter of fiscal 2003 with gross revenues climbing 32% compared to the second quarter of fiscal 2002. This increase follows a 47% increase in DVD sales for the three months ended July 31, 2002 compared to the three months ended July 31, 2001.

Financial Results for the Second Quarter of Fiscal 2003

Despite lower than anticipated revenue results, operating income (net income before income taxes, interest expense and other income) increased approximately $0.5 million to $0.6 million for the first three months of fiscal 2003 compared to approximately $78,000 (excluding the non-recurring charge for settling class action lawsuits) for the three months ended July 31, 2002. This increase is primarily the result of higher rental video margins and continued improvements in cost controls, particularly those related to costs associated with the distribution and return of product.

Guidance

"Our operating performance for the first six months was better than our internal projections, specifically in areas of margin management and costs of our distribution center, including the return of product," said Dan Crow, Vice President and Chief Financial Officer. "However, the state of the economy certainly had a negative impact on our merchandise revenues which were below our internal projections. During the first three weeks of August, merchandise revenues began to pick up; however, we remain cautiously optimistic with respect to economic conditions at this point in time. Consequently, we are not changing our guidance of a range of $0.27 to $0.32 per diluted share which we announced on May 21, 2003."

This guidance for the fiscal year ending January 31, 2004, as indicated below under "Safe Harbor Statement," reflects current estimates, assumptions and expectations based on information available to us on the date of this press release. This guidance is subject to uncertainty, as the information upon which it is based will change over time and may change substantially as the fiscal year progresses. We undertake no obligation to update this guidance for such changes, but intend to review such guidance on a fiscal quarterly basis to determine whether we are currently in line with such guidance.

Safe Harbor Statement

Certain written and oral statements set forth above or made by Hastings or with the approval of an authorized executive officer of the Company constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, the words "believe," "expect," "intend," "anticipate," "project," "will" and similar expressions identify forward-looking statements which generally are not historical in nature. All statements that address operating performance, events or developments (particularly guidance for fiscal year 2003) that we expect or anticipate will occur in the future, including statements relating to performance of our multimedia format, earnings per share and statements expressing general optimism about future operating results, are forward-looking statements. Such statements are based upon Company management's current estimates, assumptions and expectations, which are based on information available at the time of this disclosure, and are subject to a number of factors and uncertainties, including, but not limited to, our inability to attain such estimates, assumptions and expectations, a downturn in market conditions in any industry, including the current economic state of retailing (relating to the products we inventory, sell or rent) and the effects of or changes in economic conditions in the U.S. or the markets in which we operate. 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.

About Hastings

Founded in 1968, Hastings Entertainment, Inc. is a leading multimedia entertainment retailer that combines the sale of books, music, software, periodicals, new and used DVDs, videos and video games with the rental of videos, DVDs and video games in a superstore format. We currently operate 147 superstores, averaging approximately 20,000 square feet, primarily in small to medium-sized markets throughout the United States.

Hastings also operates 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, access to filings with the Securities and Exchange Commission and a link to current officer certifications of financial information.

     Consolidated Balance Sheets
     (Dollars in thousands)

                                       July 31,       July 31,    January 31,
                                         2003           2002          2003
                                     (Unaudited)    (Unaudited)
                      Assets
    Current Assets
      Cash                              $3,637         $7,863        $4,447
      Merchandise inventories, net     139,871        137,512       148,395
      Income tax receivable                553          6,636           552
      Other current assets               5,830          5,231         5,969
        Total current assets           149,891        157,242       159,363

    Property and equipment, net         77,188         70,165        76,283
    Deferred income taxes                1,016          1,091           971
    Intangible assets, net                 674            616           717
    Other assets                           188             11           188

          Total assets                $228,957       $229,125      $237,522

       Liabilities and Shareholders' Equity
    Current liabilities
      Current maturities on capital
       lease obligations                  $206           $169          $193
      Trade accounts payable            67,817         72,476        75,712
      Accrued expenses & other current
       liabilities                      30,238         31,635        32,543
        Total current liabilities       98,261        104,280       108,448

    Long-term debt, excluding current
     maturities                         49,060         43,258        46,519
    Other liabilities                    3,501          5,145         3,399

    Commitments and contingencies          ---            ---           ---

    Shareholders' equity:
      Preferred stock                      ---            ---           ---
      Common stock                         119            119           119
      Additional paid-in capital        36,708         36,867        36,749
      Retained earnings                 44,378         42,315        45,259
      Treasury stock, at cost           (3,070)        (2,859)       (2,971)
        Total shareholders' equity      78,135         76,442        79,156

    Total liabilities and
     shareholders' equity             $228,957       $229,125      $237,522


    Consolidated Statements of Operations
    (Dollars in thousands, except per share data) (Unaudited)

                                Three months ended       Six months ended
                                     July 31,                July 31,
                                2003         2002         2003        2002

    Merchandise revenue        $89,547     $90,599     $181,003    $180,581
    Rental video revenue        25,850      24,439       51,231      47,302
      Total revenues           115,397     115,038      232,234     227,883

    Merchandise cost of
     revenue                    65,774      66,850      134,255     133,038
    Rental video cost of
     revenue                     9,137      10,116       19,040      19,165
      Total cost of revenues    74,911      76,966      153,295     152,203

      Gross profit              40,486      38,072       78,939      75,680

    Selling, general and
     administrative expenses    39,789      40,331       78,765      76,913
    Pre-opening expenses            68         163          181         181

      Operating income (loss)      629      (2,422)          (7)     (1,414)

    Other income (expense):
      Interest expense            (542)       (516)      (1,032)     (1,016)
      Interest income              ---       1,266          ---       1,266
      Other, net                   101          50          159         111

    Income (Loss) before
     income taxes                  188      (1,622)        (880)     (1,053)

    Income tax benefit             ---         ---          ---         ---

    Net income (loss)             $188     $(1,622)       $(880)    $(1,053)

    Basic income (loss)
     per share                   $0.02      $(0.14)      $(0.08)     $(0.09)

    Diluted income (loss)
     per share                   $0.02      $(0.14)      $(0.08)     $(0.09)

    Weighted-average common
     shares outstanding:
      Basic                     11,303      11,348       11,320      11,330
      Dilutive effect of
       stock options               101         ---          ---         ---
      Diluted                   11,404      11,348       11,320      11,330


    Consolidated Statements of Cash Flows
    (Dollars in thousands) (Unaudited)

                                Three months ended       Six months ended
                                     July 31,                July 31,
                                  2003      2002          2003       2002

    Cash flows from operating
     activities:
      Net income (loss)           $188     $(1,622)       $(880)    $(1,053)
      Adjustments to reconcile
       net income (loss) to net
       cash provided by
       operations:
        Depreciation expense     8,967       9,575       18,805      18,846
        Amortization expense        22          15           43          30
        Loss on rental videos,
         lost, stolen and
         defective               1,052       1,293        2,271       2,718
        Loss on disposal of
         other assets              341         102          640          66
        Non-cash compensation       80          75           90         150
      Changes in operating
       assets and liabilities:
        Merchandise inventory   (1,147)      9,905       10,780      13,200
        Other current assets       278          28          139         101
        Trade accounts payable    (146)         84       (7,895)    (10,941)
        Accrued expenses and
         other liabilities        (782)      4,316       (2,305)      1,842
        Income taxes receivable    (29)     (1,260)         (46)     (1,260)
        Other assets and
         liabilities, net         (167)       (303)         102        (721)
          Net cash provided by
           operations            8,657      22,208       21,744      22,978

    Cash flows from investing
     activities:
      Purchases of rental
       video                    (7,435)     (8,308)     (13,791)    (16,032)
      Purchases of property
       and equipment            (5,241)     (7,781)     (11,085)    (13,401)
          Net cash used in
           investing
           activities          (12,676)    (16,089)     (24,876)    (29,433)

    Cash flows from financing
     activities:
      Borrowings under
       revolving credit
       facility                122,338     117,426      240,560     247,600
      Repayments under
       revolving credit
       facility               (117,300)   (122,035)    (237,915)   (237,521)
      Payments under
       long-term debt and
       capital lease
       obligations                 (45)        (42)         (91)        (82)
      Purchase of treasury
       stock                      (235)        ---         (235)       (168)
      Proceeds from exercise
       of stock options              3          65            3         169
          Net cash provided
           by (used in)
           financing
           activities            4,761      (4,586)       2,322       9,998

    Net increase (decrease)
     in cash                       742       1,533         (810)      3,543
    Cash at beginning of
     period                      2,895       6,330        4,447       4,320
    Cash at end of period       $3,637      $7,863       $3,637      $7,863


    Balance Sheet, Cash Flow and Other Ratios (A)
    (Dollars in thousands, except per share amounts)

                              July 31,      July 31,
                                2003          2002

    Merchandise inventories,
     net                      $139,871    $137,512
    Inventory turns,
     trailing 12 months (B)       1.83        1.82

    Long-term debt             $49,060     $43,258
    Long-term debt to
     total capitalization (C)    38.6%       36.1%

    Book value (D)             $78,135     $76,442
    Book value per share (E)     $6.90       $6.75


                                Three months ended        Six months ended
                                     July 31,                 July 31,
                                2003         2002         2003        2002

    EBITDA (F)                  $9,719      $8,484      $19,000     $18,839

    Adjusted EBITDA (F)         $2,284        $176       $5,209      $2,807

    Comparable-store total
     revenues (G)                -0.3%        4.9%         0.8%        5.1%
    Comparable-store
     merchandise revenues (G)    -1.5%        5.0%        -0.8%        5.9%
    Comparable-store rental
     revenues (G)                 4.0%        4.6%         6.7%        2.2%

    (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 twelve months ended
        July 31, 2003 divided by average merchandise inventory for the twelve
        months ended July 31, 2003.
    (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
        shares outstanding for the six-month period.
    (F) It is important to note that EBITDA and Adjusted EBITDA are
        supplemental non-GAAP measures.  EBITDA is defined as "net income
        before interest, taxes, depreciation and amortization" and is a
        widely used indicator of a company's ability to service debt.
        Adjusted EBITDA is defined as "net income before interest, taxes,
        depreciation and amortization" less "expenditures for rental video
        assets" and could be viewed as an indicator of our ability to service
        debt following the procurement of rental video assets.  Neither
        EBITDA nor Adjusted EBITDA are intended to represent or to be
        considered as alternatives to operating income or cash flows from
        operations.

                                Three months ended        Six months ended
                                     July 31,                 July 31,
                                 2003        2002         2003        2002
    Net income (loss)             $188     $(1,622)       $(880)    $(1,053)
      Interest expense             542         516        1,032       1,016
      Income tax expense
       (benefit)                   ---         ---          ---         ---
      Depreciation expense       8,967       9,575       18,805      18,846
      Amortization expense          22          15           43          30
    EBITDA                      $9,719      $8,484      $19,000     $18,839

                               Three months ended         Six months ended
                                    July 31,                  July 31,
                                 2003       2002         2003         2002
    Net income (loss)             $188     $(1,622)       $(880)    $(1,053)
      Interest expense             542         516        1,032       1,016
      Income tax expense
       (benefit)                   ---         ---          ---         ---
      Depreciation expense       8,967       9,575       18,805      18,846
      Amortization expense          22          15           43          30
      Purchase of rental
       video assets             (7,435)     (8,308)     (13,791)    (16,032)
    Adjusted EBITDA             $2,284        $176       $5,209      $2,807

    (G) 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.  Sales via the
        internet are not included and closed stores are removed from each
        comparable period for the purpose of calculating comparable-store
        revenues.