Blockbuster Looks Forward to 2008

Jim Keyes cut his teeth squeezing profits out of quickie marts and low cost snacks. After about eight months trying to get Blockbuster (BBI) back on track, the former 7-11 chief and his management tactics may finally be working.

Thursday Blockbuster reported earnings of $38.1m, or 18 cents a share on revenue of $1.57b. Less severance related charges and other onetime costs, earnings came in at $54.9m (26 cents a share). The numbers are a drastic improvement over the $8.3m (4 cents a share) earned during the same period last year. The results also outpaced consensus analyst estimates of about 19 cents a share.

Much of the near term improvement is the result of cost cutting measures including scaling back advertising expenses (decreased about 26%) and closing down about 750 stores.

Keyes acknowledged as much in a statement attributing sales and earnings momentum to “aggressive cost reductions, the repositioning of our subscription programs and a renewed focus on store merchandising.” He also said in the analysts call that improvements in stock availability helped lead to “same store sales increases for the first time in a long time.”

So far, more than $50m in expenses have been trimmed. The bankruptcy of the nation’s number two rental chain, Movie Gallery (MOVI), didn’t hurt either.

Looking forward to 2008, Blockbuster is forecasting net income of $5m to $25m and operating income of $113 to $133million. That’s a noticeable improvement from 2007’s loss of $85.1m. It could also be a sign that Blockbuster, after losing money in ten of the last eleven years, is finally cleaning up its act.

In related housekeeping, Blockbuster also said they’ll restate earnings for 2005, 2006 and 2007 to correct errors in accounting for expense accrual and foreign currency adjustments. The revisions should amount to a few million dollars for each of the years.