Strong Q4 Videogame Demand Offsets Weak CE, Music Sales at Hastings

A 22.8 percent rise in comparable store videogame category sales for Q4 ended Jan. 31 from the year-ago period helped offset weak CE and music sales, Hastings Entertainment said Monday. Total revenue increased 5.5 percent to $176.1 million, while profit grew to $9.1 million, 94 cents a share, from $4.1 million, or 41 cents.

Aiding the videogame growth were “strong sales of new and used videogames” for the PS3, Wii and Xbox 360, and increased hardware sales, which offset a decline in sales of games for older systems, Hastings said. Best-selling games included Activision’s Call of Duty: Modern Warfare 2, Left 4 Dead 2 and Mass Effect 2 from Electronic Arts, and Ubisoft’s Assassins Creed II, Hastings said. The result was better than Q4 fiscal 2008, when comparable store videogame sales fell 6.8 percent.

Q4 movie comparable store sales edged up 2.5 percent due to increased sales of new and used Blu-ray movies that offset weaker sales of new and used DVDs, Hastings said. Comparable store rental revenue from movies and games fell 5.2 percent, mainly because of lower prices, Hastings said. Comparable store videogame revenue fell 4.6 percent, while comparable store movie revenue fell 5.4 percent.

Q4 comparable store electronics sales fell 6.4 percent after increasing 0.8 percent in the year-ago period. The decline was caused by weaker sales of digital converter boxes and refurbished iPods, which Hastings said offset increased sales of new iPods and other MP3 players and related accessories. Blu-ray player unit sales increased an unspecified amount, but revenue fell “due to aggressive pricing,” the retailer said.

Comparable store music sales fared worst of all, down 8.9 percent, though that was an improvement over the 17.8 percent decline a year earlier. The decline this time was due mainly to price cutting on new and used CDs, as well as “a continued industry decline and reduced music footprint” in 41 Hastings stores, it said. Unit sales increased 4.6 percent. Excluding the sale of new music, Hastings said overall merchandise comparable store sales increased 5.4 percent in Q4. Including new music sales, overall merchandise comparable store sales grew only 3.5 percent.

CEO John Marmaduke called fiscal 2009 “a challenging year for retailers,” saying the economic crisis “impacted all four quarters.” The company’s “multimedia store model and relatively low price points for new and used merchandise and rentals and product trade-ins resonated with many new customers, as our unit volume growth indicates,” he said. Early in the year, the company “observed a shift in consumer purchase behavior towards value priced merchandise,” he said.

The retailer began initiative in the second half of fiscal 2009 under which it offered “thousands” of catalog movies for rental at only 99 cents each per week, Marmaduke said. It opted for that “due to the competitive movie rental environment and in response to our customers’ desire for value priced entertainment,” he said. “As a result, units rented for the second half of fiscal 2009” increased 6.6 percent from the prior year, and Hastings “gained overall market share, indicating customer satisfaction with our campaign,” he said. The retailer has “been testing various rental pricing programs to further gauge customers’ desires for value,” he said. Hastings has also seen more than 30 “rental competitor stores close in our markets within the last year,” he said, and predicted more rival store closings in fiscal 2010. Hastings “will continue to test new pricing strategies” and expects to gain more market share in fiscal 2010, he said.

Hastings revenue didn’t fare as well for fiscal 2009 overall, falling 1.4 percent to $531.3 million. Profit increased to $6.9 million, or 71 cents a share, from $4.1 million, or 39 cents. Videogame comparable store sales for the year increased 3.2 percent because of the same trends seen in Q4, but electronics were down 2 percent, movies were down 3.2 percent and music was down 12.6 percent, the company said. The CE decline was due to lower sales of refurbished iPods that failed to be offset by increased sales of new iPods and other MP3 players and related accessories, as well as strong digital converter box sales, Hastings said.

Online sales through the retailer’s goShip program soared more than 190 percent in fiscal 2009 from fiscal 2008, Marmaduke said. That program lets Hastings fill customer orders placed online at gohastings.com or through the Amazon Marketplace at each Hastings store, it said. The retailer expects goShip sales to continue growing in 2010, Marmaduke said.

"A key initiative for fiscal 2010 will be the expansion of our new and used comics category,” Marmaduke said. The retailer tested the category in two unspecified stores in fiscal 2009, and saw “strong results,” so it “will be further expanding this” to 20 stores by the end of Q2, he said. The retailer will also “continue to grow” its trends and other lifestyles categories, and add unspecified new product lines, he said.

Hastings predicted the “challenging environment will continue through most of fiscal 2010.” But the retailer said it was “encouraged by the increase in total comparable revenue” in Q4 that “continued through February 2010.” It plans to boost capital expenditures by about $5.5 million this year, it said. For fiscal 2010, it expects to report a “low single digit decrease” in overall comparable store revenue, profit of $3-3.5 million and earnings per-share of 32-37 cents, it said. Hastings plans to open two stores and close three. The retailer recently closed stores in Kennewick, Wash., and McAllen and Dumas, Texas, it said. Hastings now operates 147 stores in the U.S.