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UPDATE: Hollywood Q2 Sales Beat Expectations

5 Jul, 2001 By: Joan Villa


Hollywood Entertainment Corp. eked out a 1% increase in same-store sales in the second quarter ended June 30, handily beating the company’searlier projections of declining sales in the 4%-to-5% range.

“Beating our same-store sales projection by 5% is one more sign of a change in direction for the company’s performance,” Hollywood president Mark Wattles said in a statement. “While the turnaround of our company is far from complete, we are feeling much more confident in our ability to executeour plan.”

Following a first quarter of flat same-store sales comparisons, Wattles expected negative growth particularly because last year’s second quarter was filled with high-performing titles such as The Sixth Sense, Star Wars:Episode 1 - The Phantom Menace and American Beauty. However, on afirst-quarter earnings call with analysts, Wattles also asserted that Hollywood has upped its purchasing since March to correct previous shortages of product, particularly in stocking DVD rental titles.

Analyst Jennifer Jordan with Wells Fargo Van Kasper believes the 1% same-store sales growth reflects the change in purchasing as well as other operational improvements.

The boost is a result of “better-than-expected management,” she says. “Thefundamental thing is they’re focused on driving operations.”

In addition, the 1,800-store chain has also benefited from a recent loan restructuring that lowers the company’s debt payment and frees up cash for new release purchasing.

“They have more capital to put back into the stores,” Jordan says. “The other thing they seem to have done better is more targeted direct mail and better marketing.”

Now that the loan restructuring is complete, Hollywood has reshuffledexecutives to put the emphasis on turning a profit and maximizing cash flow by strengthening day-to-day management. To that end, former c.f.o. David Martin resigned and was replaced by Jim Marcum as c.f.o. and executive v.p. Scott Schultze, previously executive v.p. and chief administrative officer, was named executive v.p and chief operating officer.

Jordan was not surprised at the changes, since she says Martin’s specialty was dealing with credit difficulties. Last month Hollywood announced it hadcompleted negotiations with its 19-lender group to restructure the chain’s loan agreement and significantly reduce debt payments.

“It’s good timing for Hollywood to turn now and get someone who’s really about operations,” says Jordan of the personnel shifts. “Let Scott Schultze (who was managing the day-to-day financials) go back to what he does best, which is manage stores and oversee the business.”


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