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Gallery Comps Drop 9 Percent

11 Oct, 2005 By: Holly J. Wagner

Movie Gallery today reported a 9 percent decrease in same-store revenues for the third quarter, faulting the weak release slate and overall flattening demand.

Rentals at stores operating under the Movie Gallery brand were down 10.8 percent and sellthrough was up 2.5 percent; at Hollywood Video-branded stores, rentals were down 10.1 percent and sellthrough was off 3 percent. Chainwide, rentals were off 10.3 percent and sellthrough was down 2.2 percent.

"We continue to believe that we have either increased or maintained our market share — even in the urban markets where we compete head-to-head with some of the more aggressive competitors," said CEO Joe Malugen. "Having said that, industry conditions remain challenging due to the weak recent home video release schedule, the maturation of both the DVD life-cycle and current game platforms, and the overabundance of DVD titles — including television shows and rereleases — now on the market."

Malugen said the company is looking forward to a stronger fourth quarter release slate and "we remain confident in the combined company's long-term prospects."

Wedbush Morgan Securities analyst Michael Pachter maintained his "buy" rating and $24 price target on Movie Gallery stock, which was trading at $8.38, down 12 cents, in midday trading.

"These results were in line with [the company's] prior guidance for comps to bebetween minus 8 percent and minus 10 percent. Our estimate was for a minus 10 percent comp," he wrote. "The company continued to cite a very competitive environment and weak home video market for the weakness. We note that investors may question why comps were so weak as compared with Blockbuster's minus 1 percent rental comps for the third quarter."

Analysts are still looking for more detailed guidance from the company, he said.

Movie Gallery is scheduled to release third quarter results Nov. 10.

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