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Movie Gallery Downgraded

13 Mar, 2006 By: Jessica Wolf

The short-term future for Movie Gallery looks a bit bleak, according to New York-based Moody's Investors Service.

Friday, March 10, the analyst firm downgraded its debt rating on the No. 2 rental chain — which operates 4,700 Movie Gallery, Hollywood Video and Game Crazy locations across the country — due to its own cash requirements and overall negative trends across the industry.

“Given the degree to which Movie Gallery will need to further utilize its $75 million revolver in order to be able to meet all of its cash requirements during 2006, the company's liquidity cushion is likely to be tight,” the Moodys report stated.

The downgrade report cited industry wide factors like on-line pricing competition, Blockbuster's no-late-fee program, a “lackluster” release slate, increasing consumer sellthrough mentality and low Wal-Mart DVD pricing as lining up against Movie Gallery.

The chain does stand to benefit from the rollout of high-definition discs and increasing market fragmentation, according to the report.

“However, these benefits are unlikely to cause any improvement in the company's performance anytime soon,” the report reads. “Moody's expects Movie Gallery to actively pursue a reduction in capital expenditures, expense savings, and non core asset sales.”

By close of market Monday, Movie Gallery (MOVI) stock was down by $0.01 (0.48%), to $2.06 per share.

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