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Blockbuster Posts $13.9 Million Q1 Profit

7 May, 2012 By: Erik Gruenwedel

National rental chain will shutter additional 100 underperforming stores in the second quarter

Blockbuster LLC May 7 reported operating income of more than $13.9 million on revenue of nearly $334 million during the first quarter (ended March 31). It was the highest operating income since Dish Network acquired Blockbuster out of bankruptcy on April 26, 2011.

Blockbuster said revenue for the first time included monies generated in the United Kingdom, Mexico and Denmark totaling $71 million, $41 million and $13 million, respectively. Indeed, Blockbuster's international store footprint is now almost even with domestic.

Blockbuster downsized its national retail footprint to about 1,000 stores in the quarter from a base of 1,500 stores after the Dish acquisition. It said it would shutter an additional 100 underperforming stores in the second quarter.

"You need to keep in mind that the Blockbuster international business is close to the same size as the domestic business," said Dish CFO Robert Olson in a call with analysts. "So 1/3 of the domestic stores closing translates into a far smaller number overall of the Blockbuster business."

Dish management said it was able to enhance Blockbuster results by redirecting inventories from shuttered stores to the remaining storefront.

“We continue to evaluate the impact of certain factors, including, among other things, competitive pressures, the scale of our Blockbuster retail operations and other issues impacting the store-level financial performance of our Blockbuster retail stores,” Dish said in a 10Q regulatory filing. “These factors, or other reasons, could lead us to close additional Blockbuster retail stores.”

Dish has said it would continue to operate Blockbuster as a value-add to its satellite TV service, which includes 90-days of free Blockbuster@Home streaming or in-store service to new subscribers, provided the brand operates at a minimum break-even fiscal status. CEO Joe Clayton said Blockbuster@Home helped drive consumer adoption of pricier bundled programs.

"Our step-up selling strategy gained momentum as we improved our sales of our higher-margin, America's top 200 and 250 programming packages," Clayton said.

Olson said retention of Blockbuster@Home on a standalone basis among subscribers has performed similar to premium movie channels. He said it was too early to define exact retention data, considering the @Home platform was only launched in October.

“When the promotional period cools off a good number of [subscribers] stay,” Olson said.

Indeed, Blockbuster generated $1 million in net income and $628 million in revenue in the fourth quarter (October to December 2011). It reported net income of $3.3 million on revenue of $601 million from April 26 through Sept. 30.

Meanwhile, Dish said it added 104,000 net subscribers in the quarter to end the period with a base of slightly more than 14 million subs. Average monthly subscriber churn rate was 1.35% compared to 1.47% for the same period in 2011.

The satellite TV operator, which, unlike many cable operators, does not offer separate high-speed Internet and telephone service, said net income in the quarter topped $360 million — down nearly $190 million from net income of more than $540 million during the previous-year period.

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