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UPDATE: Movie Gallery Posts a Same-Store Sales Record

8 May, 2003 By: Joan Villa

Sales of new and used movie product and growing DVD rentals catapulted Movie Gallery's first-quarter same-store revenue by 10.5 percent over the year-ago period — the retailer's highest gain since going public in mid-1994.

Movie Gallery attributed the success to continued DVD growth that reached 49 percent of total movie revenue, a recent $6 million investment in catalog DVD and a strong home video release schedule in the 13-week period ended April 6 versus 2002's first quarter.

The chain also reported a lift from winter weather in late February and early March and higher game revenue that now exceeds 10 percent of overall sales. Finally, the former Video Update stores acquired in December 2001, included in the same-store comps, are contributing “above average revenue increases” due to better product selection and improved customer service, according to CEO and chairman Joe Malugen.

The Dothan, Ala.-based chain's store base increased to 1,823 stores by April 6, a 24 percent increase over last year, and will likely reach 2,000 locations “very soon,” Malugen said.

“DVD penetration continues to expand and provides for half of the demand in movie rental,” he said. “We expect DVD to grow from 45 percent at year-end 2002 to over 60 percent by the end of this year.”

Sales of new movies were up about 70 percent year-over-year as the 1,875-store chain brought in new DVD for sale that it didn't have last year, emphasizing high intent-to-own movies that made more than $75 million at the box office and children's titles.

Top hits such as Signs, Sweet Home Alabama, My Big Fat Greek Wedding and The Ring also drove the strong revenue, particularly since the chain bolstered unit facings of those popular offerings by 30 percent in the quarter, he said. The retailer is revenue-sharing more than 50 percent of its stock of DVDs, said EVP J. Steven Roy.

Movie Gallery has also initiated a revenue-sharing test on one game title during the second quarter, Malugen added.

“We will evaluate the results to determine how this strategy works and what adjustments are necessary, if any,” he said.

Although the chain operates in many markets near Wal-Marts that tend to deeply discount hot new DVD releases, Malugen said he is not concerned about the competition.

“We're not a mass merchant. We're basically a convenience store chain,” he said. “Therefore we're able to get convenience-store pricing. Consumers will pay a little more because of the convenience of coming to our store.”

Malugen said Movie Gallery is “on target” to open 175 to 200 new stores during the year and has raised the chain's earnings guidance for full-year revenue to between $645 million and $665 million. The previous range was $635 million to $655 million.

The chain expects second-quarter same-store sales to be in the 2 percent to 5 percent range due to slightly weaker box office comparisons this year versus 2002, Malugen said.

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