Hastings' earnings drop 63% in Q2

UPDATE: Lower report blamed on new used DVD prices, no Harry Potter book

By Jennifer Netherby -- Video Business, 8/18/2008

AUG. 18 | A change in pricing on its previously-viewed movies and no Harry Potter book release this year dragged Hastings Entertainment earnings down 63% to $700,000 in the second quarter, the company reported Monday.

Part of the drop was blamed on a new lower pricing strategy the retailer began in July on previously-viewed movies, which caused it to take a $200,000 write-down in the quarter and miss internal forecasts.

"Consumers today are very conscious about price points," Hastings VP and chief financial officer Dan Crow said. "We’re lowering our price points and are quicker to lower price points as time goes by."

The company did a survey of previously-viewed DVD sales and found that although consumers still buy movies for $13 to $14, not as many are as in the past. In late June, Hastings started lowering the price quicker and saw sales pick up.

"We’re just getting a little bit more aggressive, because consumers are strapped for cash these days," Crow said.

Hastings has sold some recent releases for as low as $1.99 as previously-viewed.

Revenue for the second quarter ended July 31 was off a slight 0.2% to $125.7 million.

Rental revenue was up 2% to $21.8 million during the quarter, while the movie category was up 2.6% and videogame revenue grew 4.6%. Electronics made the greatest gain, up 25.7% over the previous year due to strong sales of refurbished iPods, MP3 players and related accessories, the company said.

Comparable store sales were up 0.6%, not quite the 2.2% increase in stores the previous year.

“Our comparable store revenue showed healthy growth during the second quarter, in light of a challenging retail environment," CEO John Maramaduke said in a statement announcing results.

Marmaduke said that with more stores getting a new layout for the coming year, the company will be better able to merchandise seasonal, trend and allied product for the rest of 2008.

“Additionally, we are excited to see the results of our improved value and used book initiatives taken during the first half of fiscal 2008,” he said. “I feel confident these initiatives will enhance sales and profits for the second half of this fiscal year."

Book sales were off 1.1% from the previous year, with nothing strong enough to compete with last year’s release Harry Potter and the Deathly Hallows.

For the six months ended July 31, net income was down 18% to $3.6 million. Revenue for the period was up 1.5% to $257.6 million.

The retailer’s 2007 earnings benefited from a tax income benefit that reduced its taxes by $900,000 during the first half.