Like many retailers, Hastings (NASDAQ:HAST) depends on the critical fourth quarter for the bulk of its earnings. In each of the past three years, the company has raked in more profits during the make-or-break November-to-January period than the rest of the fiscal year combined. Of course, with year-to-date losses typically leading up to that point, that is not necessarily saying much.

Nevertheless, the multimedia entertainment retailer announced yesterday that the holiday shopping season was once again kind. Net income for the period jumped 46% to $7 million, or $0.61 per share, despite a slight drop in revenues to $171.5 million. Investors cheered the news, sending the shares up nearly 13% for the day.

The results helped salvage what was, for the most part, an utterly forgettable year. Revenues and earnings were both flat, give or take a few tenths of a point. Merchandise comps came in virtually unchanged. Inventory turns finished the year just where they started, at 1.8. About the only department to show much of a change was rental revenues, which fell another 8% for the year (and now represent just 15% of total sales).

Like rival "rentailer" Blockbuster (NYSE:BBI), the firm has sought to augment its flagging movie rental business with an expanding array of merchandise. Instead of popcorn and old DVDs, though, Hastings has stocked its superstores with a broad selection of books, music, video games, software, apparel, board games, greeting cards, and other sundry items.

Unfortunately, the combined sales of all those products totaled just $145.8 million last quarter -- the exact same amount rung up in the fourth quarter of 2004. Gains in one corner of the stores seem to be offset by weakness in another.

Book sales, for example, have been fairly strong recently, with an influx of used titles (which the company is test-marketing) pushing book comparable sales up 3.1% for the quarter -- in line with the 3.3% gain recently posted by industry leader Barnes & Noble (NYSE:BKS). At the same time, though, the proliferation of Apple's (NASDAQ:AAPL) iPods has taken a bite out of CD sales, though Hastings has sold quite a few of the players themselves.

The good news is that cost-cutting initiatives have helped margins expand nicely, particularly on the merchandise side. For the quarter, merchandise gross margins rose 350 basis points to 28.8%, and most of the additional gross income flowed straight through to the bottom line.

A few months ago, I recommended a cautious approach to the shares until the deteriorating rental picture began to level off and merchandise comps showed some signs of life. Those trends may already be underway, since management is forecasting that both segments will show same-store sales improvements this year. Better still, the top-line gains are expected to drive impressive earnings growth of between 18% and 29%.

Two weeks ago, management authorized a hefty buyback program to repurchase almost 9% of the outstanding shares. This is just another sign that this undervalued company -- which is trading at just two-thirds of its book value -- might be worth picking out of the bargain bin and dusting off.

Fool contributor Nathan Slaughter is a big fan of one-stop shopping (and value stocks), but he owns none of the companies mentioned.