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Blockbuster Quadruples Q4 Profit on Cost Cutting

6 Mar, 2008 By: Erik Gruenwedel

Across-the-board cuts that included a 10% reduction in company-owned stores resulted in Blockbuster Inc. posting fourth-quarter (ended Jan. 6) income of $38.1 million, compared to income of $8.3 million during the same period the previous year (ended Dec. 31, 2006).

The results appear to underscore new Blockbuster CEO Jim Keyes' effort to re-establish Blockbuster stores as the company's revenue driver.

Same-store sales (in locations open at least 12 months) in the United States declined just 0.9%, while worldwide comparable-store sales increased 2.9%, driven unilaterally by merchandise sales.

“We achieved … the first positive same-store sales comp [in November] in many years,” Keyes told analysts during a conference call.Blockbuster, for the first time, did not factor in online rental subscription revenue in same-store sales.

The CEO lauded Blu-ray Disc's format win, adding that the company has installed 2,000 Blu-ray demo/sales kiosks in stores to expedite consumer adoption.He said the company continued to work with studios to revise rental programs and rates that should improve margins and product availability on shelves.He cited the recent release of American Gangster, of which Blockbuster put as many as 230 copies in average stores, as a contributor to improved same-store results.Domestic rental comps fell 3.1% in the United States and 2.2% internationally. Blockbuster operated 4,005 stores in the United States and 2,068 international stores at the end of the quarter.DVD store rental revenue in the United States exceeded $503 million, with online subscriptions (Total Access) adding $141 million. Video game rentals topped $59 million, with used product adding $135 million.DVD sales exceeded $81 million, followed by game sales at $19.3 million and related merchandise sales at $50.7 million.Calling it one of the biggest ticket items in Blockbuster history, Keyes said the company would continue marketing through the first quarter a $599 PlayStation 3 bundle, which includes movies and games.

“We've sold more than 11,000 of these packages since the fourth quarter of last year,” Keyes said.The executive said Blockbuster had nearly completed integrating Movielink into the company's updated Web site and will begin rolling out the download service in the second quarter.

Keyes said Blockbuster will attempt to incorporate streaming to rental subscribers without incurring the $40 million expense rival Netflix revealed in incurred rolling out its service in 2007. He didn't elaborate how this might be achieved.

When asked about the burgeoning kiosk rental market, Keyes said Blockbuster continues to pursue the option while also leveraging download opportunities.

“We have some [kiosk] tests underway now to learn more about that channel,” he said.

Quarterly revenue topped $997 million versus more than $905 million in the previous period.

Internationally, DVD rentals topped $209 million, followed by used product ($36.4 million) and game rentals ($18.2 million). Video games sales surpassed $169 million, followed by DVD sales ($80.3 million) and related merchandise ($54.1 million).

The Dallas-based DVD rental chain in fiscal year 2007 lost $85.1 million on revenue of $5.5 billion, compared to $39.2 million in restated profit and revenue of $5.5 billion in fiscal 2006.

The company issued fiscal 2008 profit guidance from $5 million to $25 million. It also disclosed it was restating prior year statements due to errors in consolidated financial statements. Executives said they did not believe the restatements would “materially” affect previous results.

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