I'm always skeptical when it comes to companies that take their time in telling you the whole story.
This morning's second-quarter report out of media retailer Hastings Entertainment (NASDAQ:HAST) is a perfect example. The superstore chain is quick to let you know that earnings exploded to $0.17 a share, but you have to dig three long paragraphs deep to find that the top line inched just 2% higher to $125.9 million during the period.
The funny thing about skepticism, though, is that sometimes it's the company that gets the last laugh. Sure, we have to take the bottom line in stride. Earning $0.17 a share after producing a profit of just $0.02 per share a year earlier is amazing on the surface. Even after you back out a $0.08-per-share gain for a favorable tax settlement -- and you should back that out -- the company's $0.09-per-share showing is way ahead of the $0.05 a share that Wall Street was expecting.
It's an encouraging report, even at the top. Comps rose 2.2% higher during the period. Rental comps were off by 6%, but you couldn't expect much there given the way standalone DVD rental chains such as Blockbuster (NYSE:BBI) and Movie Gallery (NASDAQ:MOVI) are struggling these days.
CD comps were off a sharp 14%, but that isn't much of a surprise either. The industry's gradual migration to digital delivery is old hat by now. Even Virgin sold off the last of its company-owned music stores in North America over the weekend.
What is surprising is that several key categories such as DVDs, video games, and electronics posted double-digit gains at the same-store level. How did DVD sales surge 10.6% higher in a quarter while DVD rentals tanked? Boxed sets of television shows certainly helped, though it's undeniable that the popularity of mail-delivered services such as Blockbuster's Total Access and Netflix (NASDAQ:NFLX) is eating into that segment.
Hastings is obviously OK with that, given the margin improvement everywhere else. Besides, it's just 17% of the retailer's business. Hastings covers a lot of ground. From books to action figures, weakness in any one category isn't going to hold it back.
The retailer is also an intriguing value as an investment here. It is clearly profitable, even far removed from the seasonally potent holidays. The company is now looking to earn between $0.63 a share and $0.68 a share this year. Back out that $0.08-per-share tax benefit and Hastings is trading at just 10-11 times this year's bottom line. It is also fetching a significant discount to its improving book value of $8.92 a share.
You certainly don't find valuations like that in category leaders such as Barnes & Noble (NYSE:BKS), GameStop (NYSE:GME), or Best Buy (NYSE:BBY), yet Hastings allows you to diversify your retail exposure at a fraction of the multiples that the heavy hitters are commanding.
So here's a toast to skepticism denied. Well played, Hastings.
For more on the changing media landscape, check out:
GameStop, Best Buy, and Netflix have all been recommended to Motley Fool Stock Advisor newsletter subscribers. Are you a skeptic like me? Try the newsletter on for size with a free 30-day trial subscription offer.
Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. Sadly, he doesn't live near any of the 153 Hastings superstore locations. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. Best Buy is an Inside Value pick. The Fool has a disclosure policy.
