Hastings bookstore chain files for bankruptcy; debt to Diamond uncertain

As suggested by recent rumblings, Hastings, the third largest national bookstore chain after Barnes and Noble and Books-a-Million, hasfiled for bankruptcy following years of losses. The chain, which operates 123 stores, was purchased in 2014 by Joel Weinshanker, owner of Movie Stop. Despite efforts to diversify its offerings since then, it had mostly foundered with growing debts, as reported by PW’s Jim Milliot:

Earlier this month, Draw Another Circle announced its plans to liquidate the 39 MovieStop stores while also continuing to find ways to improve the prospects of Hastings. In 2014, Hastings had a loss of $10.9 million on sales of $420 million. Last year, the company’s loss rose to $16.6 million, while revenue dropped to $401.1 million. MotiveStop, meanwhile, lost $4.7 million on revenue of $32 million in 2015. First quarter sales at Hastings fell another 14%, compared to the first period of 2015.

In recent years, Hastings joined B&N and BAM in increasing their comics offerings, as graphic novels are one of the fastest growing book categories, and even offered some variant covers. However, it may have been too little too late as the Weinshanker era faltered:

Hastings, under Litwak, also embarked on a “refresh” program through which 20 outlets shifted their merchandising strategy to focus more on children’s, comics, electronics, consumables, recreation and hobbies businesses. (When Hastings was sold to Weinshanker, books was the company’s largest department with annual sales of about $100 million.) While Hastings executives said they were encouraged by the reaction to the new store focus, they were stymied by the fact that they did not have enough capital to roll out the new approach to more locations.

I’m told that Hastings bought mostly mainstream comics and didn’t buy too many indies. Although some have claimed they are Diamond’s single biggest account, Diamond did not make the list of top 30 unsecured creditors, which you can see below, indicating that Hastings owed Diamond less than $200,000, which, while not an amount of money anyone would want to lose, is hopefully less than catastrophic. Hastings stores were located mostly in smaller local markets in states such as New Mexico and Idaho. 

I’m told that some Hastings stores were less than organized, although checking out online photos most of the stores look perfectly navigable. You can see some photos with pointed commentary at this Yelp review of the Boise store. 


Here’s a list of Hastings top 30 creditors:

hastings_creditors.pdf

Click to access hastings_creditors.pdf

Here’s a letter and Faq to Hastings customers from their website posted today:


To Our Valued Customers,

At Hastings, our mission is to bring you the array of entertainment products, collectibles and basics that have made us a fixture in our local communities while also creating experiences that delight you and grow with you over the years. We have been working diligently to transform our stores with these objectives in mind and already have completed 20 refreshed stores with overwhelmingly positive reviews.

We believe we are on the right path, but we need additional financial support to fully execute our plan for the future. That is why we have initiated a comprehensive process to evaluate potential buyers for our business and, as part of that sale process, have filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code along with our corporate parent (Draw Another Circle) and sister brands (Movie Stop and SPImages). The Chapter 11 process will help to prepare our business for the intended sale while also providing additional protections and financing to allow us to serve you as usual.

Please be assured that Hastings stores and e-commerce business remain open and continue to bring you the superior selection of multimedia and entertainment products you have come to expect from us. In addition, our Passport program is continuing with all your accumulated benefits intact, and we continue to launch exciting new promotions on an ongoing basis.

At this time, we will be changing a few other programs, as outlined below:

* Hastings will no longer accept nor honor customer deposits for future movie purchases. Instead, existing deposits may be applied towards additional purchases in the store.

* Game rentals will no longer be available.

* Gift cards will expire on July 13, 30 days from today’s announcement.

* Hastings’ buyback program has been suspended.

We apologize for any inconvenience this news may cause. We have addressed more Frequently Asked Questions below and will continue to keep you updated as we work to identify a buyer. Whether its toys for the kids, on-trend merchandise for teens, electronics, comics, supplies for adults’ favorite hobbies or the opportunity to sip coffee while reading a new book, Hastings seeks to be a place where our communities come together and where everyone belongs.

We sincerely appreciate your business and hope to have the opportunity to serve you for many years to come.

Sincerely,

Jim Litwak

President & COO
Hastings Entertainment Inc.

Frequently Asked Questions for Customers

1. What is Chapter 11?
Chapter 11 is the section of the U.S. Bankruptcy Code that allows a company to continue to conduct business as usual while completing a financial and/or operational reorganization. For Hastings and SPImages, it means that we will be able to operate as usual while we evaluate potential buyers.

2. Why is Hastings filing for Chapter 11 protection?
Hastings has been working diligently to overcome challenges to our business, including the increasing number of competitors as well as declining demand for physical media properties such as music, movies, books, games and rentals, which once drove the majority of our sales. We have made significant progress with our remerchandising strategy and with other initiatives aimed at increasing profitability; however, these challenges combined with the financial strain caused by the Movie Stop and SPImages acquisitions, weakened our balance sheet to a point where we do not have the necessary cash on hand to continue operating our businesses or refresh all of our stores on a timely basis without new sources of financing. A sale process, facilitated by Chapter 11, will help us determine how we can best maximize the value of our assets for the benefit of our stakeholders.

3. Why is SPImages filing for Chapter 11 protection?
We have reached a point where we do not have the necessary cash on hand to continue operating our business. A sale process, facilitated by Chapter 11, will help us determine how we can best maximize the value of our assets for the benefit of our stakeholders.

4. How long is the sale process expected to take?
Hastings and SPImages expect to complete their respective sale processes within 30 days.

5. Will Hastings or SPImages go out of business?
The Chapter 11 process includes protections that will allow us to operate our business as usual while we evaluate potential buyers. We are hopeful that a buyer interested in our long-term potential will come forward with an offer that unlocks the full, future value of our assets for the benefit of all of our stakeholders.

6. How does this impact Hastings’ plan to continue remerchandising its stores?
Hastings has refreshed 20 of its entertainment superstores. We are hopeful that a buyer interested in continuing our remerchandising strategy will see the benefit of the related increases in sales and profitability and present an offer for the business.

7. Will my local Hastings store remain open?
Yes. All Hastings stores are opening as usual today. You should expect to find the same superior selection of multimedia and entertainment products with the same friendly and knowledgeable service.

8. Will the Passport program continue?
Yes. We fully expect to continue our Passport program with all of your accumulated benefits intact.

9. Will my store credit/gift card retain its full value?
Pending approval of the Bankruptcy Court, gift cards that were purchased before the Chapter 11 filing will retain their value for 30 days, or until July 13.

10. I recently placed a deposit for a movie that has not yet been released. Will that deposit be honored?
The movie deposit program has been suspended, but pending approval of the Bankruptcy Court, you may apply that deposit to other purchases in the store.

11. Is Hastings still offering customer buy-backs of books/music/movies/video games/electronics?
The buy-back program has been suspended.

12. Will my SPImages orders be delivered on time?
We are working closely with our suppliers to ensure all orders are delivered on schedule with the same high levels of quality and customer service.

13. Have you spoken with your suppliers? Do you expect any changes in your inventory as a result of the filing?
We are speaking with our suppliers throughout the day today and have every reason to expect they will continue to work with us based on the protections offered by the U.S. Bankruptcy Code and the additional financing we have secured.

14. Should I expect changes in pricing or promotions?
All of our pricing decisions will be made in the normal course of business, consistent with our past practices. This includes the decision to launch exciting new promotions on an ongoing basis.

15. Are you still accepting returns?
Yes. We are still accepting returns under the terms of our normal policies.