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Hollywood Video Expects to See Decline in Q3 Results

4 Oct, 2004 By: Erik Gruenwedel

As expected, Hollywood Entertainment Corp. said same-store rentals for Hollywood Video for the third quarter ended Sept. 30 are expected to drop 8 percent.

The Portland, Ore.-based rentailer also expects to realize a 3 percent drop in same-store sales of movies and video games, the latter at its in-store Game Crazy units.

In January, founder and CEO Mark Wattles proclaimed a risk to projected flat-line same-store rental comps for the 2004 fiscal year and said he expected sellthrough of video games and movies to offset shrinking rentals.

It remains to be seen how the quarterly results would affect stalled attempts by Wattles to take the company private in a deal with private investors worth about $890 million.

“[This] will make the odds of that deal going through a little bit thinner,” said Dennis McAlpine, analyst with McAlpine & Associates. “While we decry the slightly negative comps, Blockbuster has had those for a year. Unless the numbers are big, it is certainly not dreadful for anybody.”

Hollywood, unlike rival Movie Gallery, made no mention of the recent hurricanes in Florida as a possible cause for sales and rental declines.

In a statement, Hollywood said it was mulling “possible amendments” to the merger agreement with investor Leonard Green & Partners, including a reduction in the price.

The pending deal, which has been beset with a shareholder lawsuit, received another hit last month when a principal investor demanded, among other things, that Hollywood repay a $21 million loan (including interest) given to Wattles in 2000.

McAlpine said analysts remain in limbo.

“Right now, we are trying to figure out what Hollywood is,” he said. “Are they public, private, are they being sold? What's going on with the whole thing?”

The company said it would report complete quarterly results by Oct. 21.

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