Wow, I didn't think it would be good, I predicted a loss of $5 MM for this quarter. But, I didn't think it would be quite this bad. No leadership from management, or any ideas or initiatives covering how they are going to turn this thing around. They did say they were going to continue to focus on controlling costs, and then immediately launched into talk about closing more stores.
So no new ideas for the future, other than continuing to close more stores. That can't make investors or anybody working for Hastings feel very good.
Here were the most concerning things to me:
-- Nine-months performance this year vs. last year: $7.1 MM less in profit
-- Their quote on Tradesmart, "The volume of buybacks, put pressure on our buyback process, which resulted in a significant increase in store labor." Translation -- "We bought back a ton of product, but none of it sold. Overall sales were poor at best in this 40,000 sq. ft. behemoth causing our labor to go through the roof."
-- Merch margins decreased from 31.1% down to 29.6% - this includes used product which generates profit margins of 60 - 70%.
-- Rental margins decreased from 63.5% down to 60.2%, with no real note of why there was such a decrease. At least mention you are trying a different pricing model, or some material reason for the decrease.
-- SG&A actually INCREASED! Both on a percentage basis (42.5% TY vs. 40.7% LY), and dollars (spent $0.5MM more!). Sounds like the geniuses at the federeal government are running this company. Revenues are going down, but they continue to spend more money.
-- Loss of $1.1 MM in cash since the beginning of the year.
-- Merchandise inventories ballooned $14 MM ($182MM TY vs. $168 MM LY)
-- Long term debt increased $10 MM
-- In Net Cash from Opeartions they lost $18 MM versus the prior year.
-- They had to borrow $17 MM more on their revolving credit facility to prop things up and make they look like they were at least okay.
-- $24.6 MM of their net cash was provided by financing activities, versus $116,000 the year before.
I know the stock is trading at an insanely low value, but maybe there is a reason for that. Can anyone tell me why they think, given the last nine months of data, they would want to buy this stock? There are too many inside investors with stock, who will only drive the price down as they sell more off. What outside investor is going to want to get in on this stock, when this looks like a company in freefall?
Yes, this could be a profitable chain again, someday, but how many stores will they have to close in order to get there? I would say at least 100 stores. Can those 40 that remain generate enough revenue to offset the crushing debts that will come from the other 100 stores that they close?
Please, someone stop the bleeding! Either get a new management team that will make the moves necessary to somehow pull this chain back from the brink, or close up shop now, and quit with the charade. As long as John Marmaduke is in power, this company will continue to decline, until it is circling the drain.
The store associates are scared. I have spoken with associates from 3 different stores and they are uncertain of their future and feel they cannot trust what the executives are telling them. There is talk from Marmaduke to the investors about cutting costs and closing stores, yet he and the other executives are telling the store associates that they will be focusing on remodeling the front ends of many stores in Q1 of next year. I tend to not believe the remodel stories as I was with Hastings for many years and heard that fantasy tale more times than I can remember. I agree with so many of the other posts on here that Marmaduke needs to be relieved of his position if there is any hope for Hastings. All of you are right when you say the teams under him are afraid to stand up to him. It's his way or you are out on your backside. Plain and simple. Talk to the field if you want the reality of where Hastings is going. Good luck to all of you that are hanging on to this sinking ship.
Q3 is always a tough quarter for Hastings. Yes they are usually growing inventory.
BUT, with sales which are off 3% in Merch, and 12% in rental (which drives merch traffic), why did inventory balloon up to $182 MM? That's up over $14 MM compared to $168 MM the same period the previous year.
I could understand if they were at the same inventory level as last year; similar quarter, similar build. But that they let it increase by $14 MM, when revenues are down as much as they are, makes no business sense.
Even if Q4 is better than expected for them, it will not be so good as to generate an extra $20 MM in revenue. That is the number it would take, at their current margin rate, to get rid of that additional $14 MM worth of inventory they have on the books.
Their EBAY store may be performing well, and that's good. But they need it to perform as well as AMAZON, NOW!
Then they need about 20 - 30 more websites that can generate just as much revenue as Amazon. Websites which don't exist, mind you. Without these imaginary sites, there will be nothing to replace the revenue lost from the stores they are closing.
Will they have less expenses, after those stores are gone? Yes. But it appears that any expense reduction will go straight into more spending (SG&A up $0.5 MM in Q3) and covering expensive lease breakage fees.
Bold moves have to be made quickly and decisively to turn this around. The first would be getting rid of John Marmaduke, but I am very doubtful that will happen.
I completely understand and agree. It is far worse than just him, though. The Board of Directors won't stand up to him, and aren't protecting the company, its investors, or its employees.
Also, there are other executives taking huge paychecks and bonuses below him that won't stand up to him, either. They are all "YES" men. They do what he wants, not because it is the right thing, but to shut him up so they don't have to listen to him continually harp on about the same point.
This company is in trouble because of the lack of leadership of John Marmaduke, and the fact that no one, with any kind of power, will stand up to him.
You are right on... The SGA won't drop. They can't lever down at all at this point, and likely have upward pressure on wage rates, etc.
Yea.. This just pushed my button yesterday. There are thousands of employees that will lose their job because of the ignorance of Marmaduke. It is a 1%/99% thing.. Thousands of employees will lose their job for showing up and working hard every day. The CEO continues to strip out cash from the company from inflated pay and options, until there will be nothing left.
Just sad.... Even for investors.. There are people like Nick.. who are invested heavily here.. I assume they have families and such..and he's going to lose his investment.
No tolerance for the little silver spoon leader who can't lead.
I agree with stores being too big. As we have discussed before a smaller store may be the way to go. From looking at the last ten years October as always been a losing Quarter, due to inventory build. The EBAY store seems to be gaining sales and it appears it will be as strong as Amazon in another year. Just from looking at customer feedback.
They keep closing stores, and SG&A keeps going up, both in percentage and in actual dollars spent. So maybe I said expenses will go up. But, regardless, that's where I get expenses being the same.
That's good that web sales are half that of a store. Let's hope they can create about 6 - 10 more web stores to offset the real ones they are losing.
John Marmaduke is out of touch, their stores are too big, their web sales are too reliant on Amazon Marketplace, they continue to grow inventory, and they turn inventory far too slowly. Put all of those things together, and it doesn't tell a good story.
Wow, Gsander, I expected you'd have a comment. I just didn't expect that much passion.
You may be generous predicting a loss of $15 MM next year. They will continue to close stores, thus decreasing the revenue pool, and expenses will remain constant or rise.
John Marmaduke is too proud to step down, and the board are all his friends so they won't replace him. This company's days are numbered.
Bottom line, 100% agree with Bridge's comments...
How can a company not take action against a leadership team that allowed these results? Let SGA dollars grow when revenue is declining 5%; Let inventory climb 8% higher than LY with this sales outlook? Let margin rates decline without a strategic driver?? Spend millions buying back shares.
Comments about the company 'not being stagnant' are a joke.
Fundamentally.. a complete lack of direction. They will lose $15m next year,
This marmaduke guy truly is horrible. Just way in over his head. Maybe his dad should have hired someone with experience?
BUT don't worry!! Shortage is better and they have an Ebook Reader now!!! :)