Blockbuster Shares Inch Above $1 as Earnings Beckon

By : Erik Gruenwedel | Posted: 11 May 2009
egruenwedel@questex.com

Shares of Blockbuster Inc. May 11 continued to inch upward for the second business day, prompting belief the Dallas-based No. 1 DVD rental company is righting its beleaguered business model.

Blockbuster, which reports first-quarter (ended April 4) financials May 14, saw its shares climb 4 cents (5 cents after hours) to close at $1.14 per share. The stock closed May 8 at $1.04 per share — the first time it had ended above $1 since Feb. 9.

Shares have fluctuated wildly over the past 52 weeks, from $3.55 per share to as little as 13 cents in March when rumors flared Blockbuster was going to file for Chapter 11 bankruptcy protection.

The chain is quietly pursuing the successful distribution strategies employed by rival Netflix. It has a by-mail option (Total Access) that includes dropping off rentals in-store for fresh titles, and after acquiring download service Movielink, revamped Blockbuster OnDemand now offers a 25% discount on first time movie streams, including new releases.

The company also reported adjusted net income of $79.3 million in the previous quarter (before writing off a non-cash charge of $435 million for the impairment of goodwill and other long-lived assets). Same-store sales for the year increased for the first time in eight years.

“It’s a sign of increasing confidence with Blockbuster, along with the rest of the market,” said Edward Woo, research analyst with Wedbush Morgan Securities in Los Angeles, which covers Blockbuster.

He said slowly improving credit issues — underscored by last week’s generally positive stress test results by US banks — bodes well for companies who have credit issues or have to rely on the banks for new and adjusted credit facilities such as Blockbuster.

“I think there will be a greater focus on [Blockbuster’s] reduced rent expenses, either by closing stores or renegotiating leases,” Woo said.

The analyst said Blockbuster’s continued foray into rental kiosks was bolstered recently when partner NCR announced it would acquire rival TNR Holdings Corp., which operates The New Release and MovieCube kiosks.

“I expect them to announce further progress on this front … on Thursday,” he said.