Blockbuster posts Q4 loss of $435M as woes deepen

Thu, 02/25/2010 - 7:05am
The Associated Press

DALLAS (AP) – Blockbuster Inc. suffered a fourth-quarter loss of $435 million as its video rental stores struggled to attract consumers who are increasingly getting their movies through the mail, vending machines and high-speed Internet connections.

The setback announced Wednesday reflected a dismal holiday season, usually one of Blockbuster's busiest times of the year.

The company, based in Dallas, boosted its ad spending in December in hopes of luring more customers into its stores, but the investment didn't pay off.

In a key measure of a retailer's health, sales in Blockbuster stores open in the U.S. for the past year plunged by 16 percent in the fourth quarter.

Blockbuster's woes contrasted with a sharp upturn in business for DVD-by-mail pioneer Netflix Inc., which added 1.16 million subscribers during the final three months of 2009 to generate a fourth-quarter profit of $31 million.

Most of Blockbuster's fourth-quarter loss, which translated into $2.24 per share, stemmed from charges to account for the crumbling value of its franchise. Blockbuster lost $360 million, or $1.89 per share, at the same time in 2008.

If not for the non-cash charges in the latest quarter, Blockbuster said it would have lost 24 cents per share. That figure was still higher than the loss of 17 cents per share anticipated by analysts surveyed by Thomson Reuters.

Blockbuster's fourth-quarter revenue plunged 18 percent to $1.08 billion – in line with analyst estimates.

The downturn has renewed concerns about whether Blockbuster will be able to bring in enough money to repay its debts, which totaled $964 million entering this year. Those worries have bruised Blockbuster's already battered stock.

The shares fell 4 cents in Wednesday's extended trading after closing the regular session at 36 cents, down 2 cents. The company said it may seek shareholder approval for a reverse stock split to lift the value of its shares above $1 and preserve its listing on the New York Stock Exchange. It also is considering a recapitalization that could involve giving its lenders stock in exchange for reducing its debt.

Movie Gallery Inc., the owner of Blockbuster rival Hollywood Video, filed for bankruptcy protection earlier this month because it stores weren't bringing in enough money to cover its debt. It marks Movie Gallery's second bankruptcy reorganization in less than three years.

As it scrambles to adapt to the new ways people are renting video, Blockbuster has accelerated its plans to close as many as 545 of its U.S. stores this year.

The company shut down 253 of its U.S. stores last month and plans to close another 150 stores in April. The company closed 374 of its U.S. stores last year, leaving it with 3,525 entering 2010.

To help fill the void, Blockbuster is setting up more video rental kiosks similar to those operated by Coinstar Inc.'s Redbox, another rival that has been chipping away at Blockbuster's market share.

Blockbuster added 2,000 kiosks last year and plans to set up another 7,000 of the vending machines this year in a partnership with NCR Corp.

The company also is offering to mail DVDs that customers can't find in stores in an effort to compete with Netflix. Blockbuster is battling video-on-demand service by renting movies and TV shows through the Internet.

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