Blockbuster Misses Estimates on Weak Retail Sales

Shares of Blockbuster fell 4% in pre-market trading after the video-rental retailer posted a worse-than-expected loss, as the company continues to close stores worldwide. Blockbuster said it would cut jobs in an effort to save $45M/year and improve profitability. Losses from continuing operations rose to $34.8 million ($0.20/share), from -$23 million (-$0.14/share) a year ago. Analysts expected a loss of $0.18/share. Revenue fell 5.7% to $1.24 billion from $1.31 billion. A decline in retail revenue was partially offset by increased revenue from Blockbuster's online DVD rental service. Total subscribers were about 3.1 million. "Our goal is to continue to increase our membership base by providing even more ways for customers to get the entertainment they want through our stores, through the mail and through new technologies," CEO Jim Keyes said (full earnings call transcript later today). In August Blockbuster acquired Movielink LLC, an online movie downloading service owned by major Hollywood studios for what one source said was less than $20M, a move it hopes will allow it to begin exploring the downloadable movie market (full story). The company was formed by a joint effort of major movie studios, including MGM, Paramount, Sony, Universal and Warner Bros., in 2002. After sinking more than $100M into the venture without much to show for their efforts, the studios were reluctant to spend more money to promote the service, leading to the sale. Keyes said Blockbuster would increase awareness of the product by promoting it to its existing customer base. Wedbush Morgan analyst Michael Pachter called the acquisition a 'defensive' move by Blockbuster to "keep up with Netflix. In the long run, if they are successful in neutralizing Netflix, this will work out."

Sources: Press release, Reuters, AP
Commentary: Analysts Still Wary of Blockbuster's Threat To Netflix • Netflix, Blockbuster To Grab Spoils From Movie Gallery's Demise • Wouldn't Touch Blockbuster With A Ten-Foot Pole
Stocks to watch: BBI. Competitors: NFLX
Earnings call transcript: Blockbuster Q1 2007

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