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Movie Gallery Exploring Delivery Alternatives

19 Feb, 2004 By: Holly J. Wagner

Riding high on a successful year that included a 21 percent expansion of its store base, Movie Gallery is exploring movie “delivery alternatives” ranging from “alternative retail delivery of DVD to movie trading concepts within existing stores to digital delivery of content into the home and other locations,” executives said today.

The year left the chain in a stronger financial position and projecting growth in the store base of about 12 percent per year. It will also initiate its first dividend payment.

Ahead of its conference call with analysts today, the company reported a 5.5 percent increase in same-store rental revenues and a 6 percent increase in same-store sales for the fourth quarter ended Jan. 4.

The stock price for the nation's third-largest rental chain jumped $1 on the news in early trading.

“Movie Gallery's fourth-quarter results represented a great finish to a year of strong performance. As reported earlier, our revenue growth for the quarter reflected a 6 percent increase in same-store sales, with a 5.5 percent increase in same-store rental revenues,” said chairman and CEO Joe Malugen. “We also benefited from a 21 percent expansion in our store base to 2,158 stores at the end of 2003 from 1,784 stores at the end of 2002. This growth included the impact of opening 78 internally developed stores during the fourth quarter, acquiring 36 stores and closing six stores. For the full year, we opened 241 internally developed stores, compared with our original target range for the year of 175 to 200 stores; acquired 170 stores and closed 37 stores.”

"In spite of this substantial store development and acquisition activity, our cash flow enabled us to self-finance this expansion and complete the year with $53.7 million in cash and cash equivalents, up 35.9 percent from the end of 2002. While we expect to self-finance our planned expansion of the store base in 2004, our strong balance sheet, with no debt and total stockholders' equity of $320.1 million at year-end, supports our confidence in our ability to implement our growth strategies for the foreseeable future." Revenues for the fourth quarter and fiscal year ended January 4 increased 27.9 percent to $195.5 million for the fourth quarter from $152.8 million for the same quarter of 2002. Net income was $17.4 million or 52 cents per diluted share, for the fourth quarter of 2003 up from a net loss of $3.9 million or 12 cents per diluted share, for 2002.

For 2003, revenues increased 30.9 percent to $692.3 million from $528.9 million for 2002. Net income rose 136.2 percent to $49.4 million from $20.9 million. Net income per diluted share for 2003 rose 120.9 percent to $1.48 from 67 cents for 2002. Adjusted net income per diluted share increased 22.7 percent to $1.62 from $1.32. Adjusted net income for both years excludes the non-cash impact of the accounting change for rental inventory amortization and the non-cash impact of stock option compensation expense. Adjusted net income for 2002 also excludes a charge related to a legal settlement.

The company's guidance for the first quarter and full-year 2004 anticipates that, for the first six months of 2004, the experiments in other delivery systems will lower adjusted net income by about 5 cents per diluted share.

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