Blockbuster Posts $27.5M Q1 Profit14 May, 2009 By: Erik Gruenwedel
Blockbuster Inc. May 14 said reduced inventory and advertising spending contributed to first-quarter (ended April 5) net income of $27.5 million, compared to income of $45.7 million during the same period a year ago.
Same-store domestic rentals fell 12.3%, compared to an increase of 3.1% last year. Revenue declined nearly 11%, compared to a 3% rise last year. International same-store rental revenue fell 8.4%, compared to a 4.2% decline last year.
The results end a four-quarter run of successive same-store revenue gains.
Blockbuster chairman and CEO Jim Keyes, in a call with investors, said a combination of lackluster rental titles and strong box office tallies contributed to the decline in same-store rentals. He said 3 million more people went to watch movies in theaters weekly in the quarter compared to last year.
“We knew that [same-store] trajectory would not be possible to continue in 2009,” Keyes said.
Comps were also negatively affected as Blockbuster scaled back by 20% in-store availability of new releases to 2007 levels, due to concerns about credit refinancing.
Keyes said completion of the new credit revolver would increase new release stock availability in stores, including offering 200 titles for the May 12 release of 20th Century Fox Home Entertainment’s Taken.
“It is disappointing that we had to take our foot off the accelerator [regarding] inventory,” Keyes said. “[It is a] temporary setback … [and it is] unfortunate that we had to do it.”
The company said consumers rented fewer titles per visit, and coupled with lower pricing models (99 cents for catalog) being tested in about 600 corporate stores, that contributed to lower comp-store revenue. Keyes said rental fortunes would rebound as stronger box office titles are released in the rental channel.
“We are cautiously optimistic we will see [a positive] impact after May,” he said.
The CEO said initial results of its Blockbuster Premieres program showed promise following the pre-retail new release of E1 Entertainment’s Baby on Board, starring Heather Graham and Jerry O’Connell.
Blockbuster Premieres, which reportedly also include Screen Media’s Personal Effects and docudrama Battle in Seattle, will be available for rent exclusively for 30 days in stores, by mail or by digital download before their nationwide DVD release for rental and retail sale.
Films will be selected based on the quality of their casts and on the appeal to the broad types of audiences, according to spokesperson Randy Hargrove.
Keyes said Blockbuster would have 3,000 branded rental kiosks launched through NCR in operation by the end of the year, including 10 currently offering movie downloads on flash memory sticks.
Keyes said the technology currently exists to offer movies dispensed digitally from kiosks on memory sticks. Further rollout is predicated on studio agreement on a unified memory stick standard and DRM issues.
“We think it is the ultimate next step in portable DVDs,” he said.
Keyes said replicating Blu-ray picture and sound quality electronically is impossible for most flash media, which he said underscored the power of Blu-ray Disc.
“Blu-ray has a good opportunity to extend the lifecycle of the physical disc,” he said.
Blockbuster finalized funding of its $250 million credit facility. CFO Thomas Cassey said the company remained on track to generate $200 million in cost cutting, including $25 million through store closures, $118 million in revised lease agreements and $100 million in asset sales abroad.
Blockbuster Canada also received an asset-back loan of $21.4 million.
“We have ample liquidity,” Cassey said.
He said Blockbuster is determined to reduce its debt below $500 million from a current $881 million by 2010.
Declines in the number of stores operated globally, in addition to an $81.3 million negative impact due to foreign currency exchange rates, contributed to a 20% drop in quarterly revenue, to $1.12 billion from $1.39 billion last year.
Blockbuster ended the quarter with $107 million in available free cash.