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Hurry In to Hastings

After postponing fourth-quarter earnings earlier this week, everything-under-one-roof retailer Hastings (Nasdaq: HAST  ) finally unveiled its year-end numbers this morning -- and shareholders are probably wishing the delay had been even longer. For the quarter, net income plummeted to $4.8 million ($0.40) from $12.3 million a year ago. In a classic example of how a cheap stock can always get cheaper, the shares, which were already trading at a trailing price-to-earnings ratio of around 5 (no, that's not a typo), got a 10% haircut in early trading.

Part of the problem is evident in the company's forward P/E, which, based on today's fiscal 2005 earnings guidance of $0.55-$0.58 per share, is near 11, twice as high as the trailing P/E. From the disparity, you can probably figure out that Hastings is having more than a few problems with the bottom line. just in case you didn't deduce that from the 60% drop year-over-year in Q4 earnings.

Still, this is a company with real earnings, positive cash flows, and more than half a billion dollars in sales. It probably doesn't deserve to be hovering near penny-stock territory.

Fans of one-stop shopping love Hastings Superstores, where they can "buy, sell, trade, or rent" -- which just so happens to be the company's new marketing slogan -- a wide range of new and used books, music, and videos. Combined, these operations produced revenues of $173.1 million in the last quarter, a 6.1% increase from the year before.

Merchandise comps for the quarter climbed a solid 6.6%, driven by significant sales gains in DVDs and video games of 27.5% and 47%, respectively. Same-store book sales rose 1.5% for the year, falling between similar gains of 0.6% at Borders Group (NYSE: BGP  ) and 3.1% at Barnes & Noble (NYSE: BKS  ) .

But these numbers were partially offset by the approaching demise of VHS movies, whose sales were down by two-thirds. And the strength on the rest of the merchandise side is being hurt by continued weakness in rentals, whose quarterly and full-year comps dropped 6.4% and 4.5%. Blockbuster (NYSE: BBI  ) has reported the same trend, with an 8% increase in retail comps and a 2.9% decrease in rental comps, producing overall flat same-store sales. Fortunately for Hastings, rentals represent less than one-fifth of revenues, compared with three-fourths at Blockbuster. Still, those sales pack a punch, with substantially higher gross margins of nearly 60%, and the continued slide in rentals is taking a toll on Hastings' bottom-line results.

With many movie buffs opting to buy rather than rent their favorite movies, and still others turning to the convenience of online renting through Blockbuster or Netflix (Nasdaq: NFLX  ) , I wouldn't expect this pattern to turn around anytime soon. Nevertheless, with expectations for earnings growth in the mid-teens this year, the stock, which trades at a tidy discount to its book value and sports an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of only around 2, might look intriguing to value investors.

Fool Contributor Nathan Slaughter owns none of the companies mentioned.

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