Blockbuster’s Q2 loss narrows, misses Street view

Fri, 08/14/2009 - 8:05am
Rachel Metz, AP Technology Writer

SAN FRANCISCO (AP) – Blockbuster Inc. said Thursday its second-quarter loss narrowed as the struggling video rental chain cut costs amid declines in revenue.

The results, however, missed analyst estimates, sending shares of the company down nearly 20 percent in after-hours trading.

Blockbuster, which has been fighting competition from rivals like DVD-by-mail service Netflix Inc. and DVD-rental kiosk operator Redbox, said it lost $39.7 million, or 21 cents per share, in the quarter that ended July 5. The Dallas-based company's loss totaled $44.7 million, or 23 cents per share, in the same quarter last year.

When excluding one-time items, Blockbuster lost 19 cents per share, greater than the 12 cents per share expected by analysts polled by Thomson Reuters.

Revenue fell nearly 22 percent to $1.02 billion, missing the $1.12 billion analysts were looking for. The company's revenue from rentals sank 19 percent to $789.2 million, while merchandise sales fell nearly 31 percent to $224.9 million.

Blockbuster said its same-store sales – which refers to sales at stores open at least a year – fell 17.8 percent during the quarter. This resulted from a 13.3 percent drop in video rentals and a 37.9 percent drop in retail sales.

The company blamed the decline on factors like the weak economy and rising competition.

In a conference call with analysts, Blockbuster CEO James Keyes said that, as in the first quarter, the company kept on hold plans to boost the availability of DVDs it rents, despite the risk that this would benefit competitors.

"We believe our time and our resources are better deployed building the infrastructure that will allow us to compete more effectively over the long term," he said.

Keyes said the company plans to increase the number of DVDs available in stores during the current quarter. The second half of the year is also expected to include a stronger slate of DVD rentals, including movies like "Star Trek," "Angels and Demons" and "Transformers: Revenge of the Fallen."

Blockbuster cut expenses by 17 percent in the second quarter to $562.5 million, and chief financial officer Thomas Casey told analysts that the company is still on track to cut about $200 million in expenses this year.

The company has shuttered 276 stores so far this year, giving it a current total of 7,129 stores worldwide.

Blockbuster completed funding of a $250 million loan during the quarter. This may have alleviated some concerns about its financial footing since the company had raised the possibility in an April regulatory filing that it might not get its credit line extended.

In an interview, Keyes said the company had to respond to the changing economic environment and retail landscape during the quarter.

"We did what we set out to do," he said.

Wedbush Morgan Securities analyst Michael Pachter said the quarter was a bad one. Besides the economy, he thinks Redbox in particular hurt the company's rental figures.

Redbox, which offers $1-per-night video rentals, currently operates 17,900 kiosks in the U.S. and plans to have 8,500 more this year. It is a subsidiary of Bellevue, Wash.-based Coinstar Inc.

Blockbuster has been trying to catch up with the company by rolling out its own kiosks at grocery stores and other retail locations: Keyes said during the analyst call that it will have 500 kiosks up and running by the end of the month and 2,500 by the end of the year. Another 7,000 are planned to be operational by the end of next August.

Blockbuster is also trying to keep pace with Alviso, Calif.-based Netflix by running its own DVD-rental-by-mail business, along with a more recently launched service that delivers video rentals through Internet connections for customers that want to watch shows immediately.

The company cut its guidance for 2009 adjusted EBITDA – earnings before interest, taxes, depreciation and amortization – to a range of $270 million to $290 million. This compares with an earlier outlook of $305 million to $325 million.

For the full year, Blockbuster expects results to range between a loss of $15 million or a profit as great as $5 million.

Shares fell 17 cents, or 19.8 percent, to 69 cents in extended trading after the results were released. In regular trading earlier Thursday, shares gained 2 cents, or 2.4 percent, to close at 86 cents.

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