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Movie Gallery To Invest $7 Million To Beef Up DVD

21 Jan, 2003 By: Joan Villa

Movie Gallery will spend $7 million to bolster DVD product in its 1,800 locations following same-store revenue growth of 6.2 percent for the fourth quarter ended Jan. 5.

The last two weeks of the year contributed to the strong finish, thanks in part to a New Year's Eve that produced “the largest rental revenues on a per-store basis in company history,” according to chairman and CEO Joe Malugen.

“This gives us confidence in consumers' overall satisfaction with the rental experience despite the overwhelming marketing push for the consumer to purchase movies during the holiday period,” he said.

Movie Gallery will spend $7 million on “older, high-demand DVD catalog product” that is expected to shave 5 cents off adjusted earnings per share in 2003, reported EVP and CFO J. Steven Roy.

“However, we believe this inventory will give our customers a low-cost alternative to watching those movies versus purchasing them and assist our top line,” he explained.

Due to the growth of DVD, the chain will also change the value and amortization schedule for games and VHS movies, which will result in a $34 million non-cash charge, $28 million of it in the fourth quarter and the remaining $6 million over the course of 2003.

The new policy is intended to reflect a shorter rental life and more closely match the amortization expense with the actual consumption of rental inventory, Roy said. New release VHS movies will be reduced to $2 per unit over a six-month life rather than the 36-month amortization schedule previously in place, while VHS catalog will be amortized over 24 months rather than 36 months. Games will have a salvage value of $5 per unit and will be written down over 12 months rather than 18 months.

In 2003, Movie Gallery plans to open between 175 and 200 new stores and anticipates full-year revenues of between $635 million and $655 million, up from 2002's approximate sales of $529 million. Revenue projections are based on same-store sales growth between 2 percent and 5 percent this year, Roy said.

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