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Gallery Expects Net Loss of $556 Million in 2005

20 Mar, 2006 By: Holly J. Wagner

Movie Gallery expects to report an operating loss of $476.4 million on revenue of $1.99 billion for 2005, based on unaudited results disclosed in a filing with the Securities and Exchange Commission March 20.

The company's estimated net loss will be $556.3 million, or $17.65 per share, including a charge of nearly $528 million for impaired goodwill and other intangibles. The figures compare to $791.2 million in revenue, $87.6 million in operating income and $49.5 million in net income for 2004.

The figures are subject to change, according to the filing.

Gallery disclosed last week that it would delay filing its annual report for last year because of the difficulty of integrating its books with Hollywood Video's and its just-renegotiated debt covenants. The report is expected to be filed by the end of the month.

Analysts at Wedbush Morgan Securities maintained their “hold” rating on Movie Gallery stock, which spiked briefly last week on news that the chain would seek to sublet excess space, but has been trading in the mid-$2 range since. But since the company has reported little about its cost-cutting initiatives, analyst Michael Pachter was reluctant to give management a nod.

“These figures compare to our estimates for revenues of $690 million and operating income of $50 million. Without further detail, it is difficult to determine whether the operating income shortfall was attributable to restructuring charges, higher-than-expected operating expense, lower –than-expected margins, or a combination of these items,” wrote. “We note, however, that the company's interest expense for the quarter exceeded its operating income, leading us to conclude that it will report a loss (before special items) for the quarter.”

Pachter added that the company “has made little progress toward realizing its savings goals” and it appears Gallery, like other chains, is struggling with very weak industry fundamentals.

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