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Blockbuster Cuts Loss on Less Stores

27 Apr, 2006 By: Erik Gruenwedel

Blockbuster Inc.'s ongoing belt tightening appears to be paying dividends — in the United States, anyway.

The Dallas-based No. 1 video rental company posted a net loss of $1.9 million for the first quarter of 2006 (ended March 31), compared to a loss of $57.5 million during the same period last year.

Revenue dropped 7.7%, to $1.43 billion, from $1.55 billion last year, in part due in to a 236-store net decline and a reduction in lower-margin retail sales.

The closures included 211 Blockbuster locations and 45 stores operated under other brands. Internationally, Blockbuster shuttered 45 stores, including eight non-Blockbuster branded businesses, and converted 47 corporate stores in Australia to franchises. The company opened 112 new stores domestically.

The company said revenue decreases were partially offset by a 2.1% increase in U.S. same-store sales and Blockbuster Online reaching 1.3 million subscribers. The company saw a 3.1% increase in same-store rentals — the first positive comp since the first quarter of 2003. Blockbuster Online revenues are included in domestic same-store sales, according to a company spokesperson.

Same-store video game rentals declined 6.8% due primarily to a lack of new titles, as the market prepares for new game platforms from Sony and Nintendo, which are not scheduled to be available until later this year.

Not surprisingly, worldwide revenue dropped 16.2% and international same-store sales decreased 9%, as Blockbuster has made no secret of its desire to scale back select foreign operations, including a previous announcement to shutter more than 90 stores in Spain this year.

Blockbuster cut general and administrative (G&A) costs for the quarter by $70 million, which was partially offset by severance costs, lease termination expenses and charges associated with leaving the Spanish market.

“Our-first quarter results reflect the actions we have taken to improve our overall profitability and cash flow,” said John Antioco, Blockbuster chairman and CEO. “We believe we will outperform the rental industry in 2006 and beyond.”

Antioco said the elimination of late fees at corporate stores has resulted in a 11% increase in active members, compared to non-franchise stores that continued charging late fees over the past two years.

Finally, the CEO reiterated his confidence regarding Netflix's recent patent-infringement lawsuit against Blockbuster Online.

“We would have not gone into this business if we weren't confident of our business prospects and the legality of our offering,” Antioco said. “The fact that Netflix waited 19 months after the launch of Blockbuster Online … yet during this time never contacted us with any concerns indicates to us this is an attempt by Netflix to distract us from competitive engagement.”

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