Top executives at Hastings Entertainment, which announced early last month that it would have to restate results downward by $23 million-$25 million because of financial reporting problems (News, Mar. 13), told PW that the problems were under control and that the company expects to be profitable this year.
"Hastings is well capitalized and has a solid business plan," noted John Marmaduke, chairman, president and CEO of the multimedia retailer, which operates some 150 stores in small and medium-size markets in the Plains and Rocky Mountain states.
In response to a series of class-action lawsuits filed by at least six firms alleging fraud, Marmaduke said, "We will defend ourselves vigorously, and we expect to be successful." He called the lawsuits "unwarranted."
The law firms, all of which specialize in consumer fraud class-action lawsuits, include Milberg Weiss, which has offices in California, New York and Florida; Schiffrin & Barroway, Bala Cynwyd, Pa. (near Philadelphia); Finkelstein & Krinsk, San Diego; Steven Cauley, Little Rock, Ark.; and the Desmond Law Firm, West Palm Beach, Fla.
The suits seek to represent anyone who bought Hastings stock between June 12, 1998, the day the company went public, and March 7, 2000, the day the company announced that it had undervalued the cost of merchandise. The Milberg Weiss suit--representative of the others--chronicles a series of releases by the company, which, the firm maintains, were "false and misleading and misrepresented and/or failed to disclose€¦ material adverse information."
The suit appears to charge that Hastings and its top officers intentionally deceived the public and "knowingly tolerated Hastings's inadequate accounting controls and consequently lacked any reasonable basis for the financial results reported by them."
Chief financial officer Tom Nugent told PW that the financial problems centered on about 1% of total store receipts not being entered into the system properly over a five-year period. The problems were broad based and not related to any particular category of product or vendor. The amounts were slightly higher at stores with greater turnover among receiving staff.
"It's a training issue," Nugent said, adding that it is now being addressed, in part, by two new training videos.
Nugent emphasized that the company's balance sheet is strong and continues to get stronger, and that there is $100 million in shareholder equity. Hastings has no difficulties with its listing on NASDAQ; the company has more than $36 million available on its $60 million revolving credit agreement, and it is working with its senior lender to change the terms of its notes so that Hastings will stay in compliance with them. The lender, a major insurance company, has been "very supportive," Nugent said.
Hastings plans to have restated current-year earnings by May 1, when its 10k filing is due with the Securities & Exchange Commission. The earnings of some recent quarters will be restated in the same filing; the company will then work backward restating previous years' results.
Hastings plans to open five stores this year and expand or relocate four. It will also do "some form of remodeling" on 15 other stores, Marmaduke noted. The company is going back to its original smaller-market store strategy and had been planning its slow growth before the financial problems were discovered.
