Big-time bounce for Blockbuster
Company extends line of credit with some lendersBlockbuster's stock drop of a few weeks ago appears to have been a head fake -- and a tremendously profitable one for gutsy investors who took advantage of it.
On Thursday, the video-rental company assured investors it wouldn't be going bankrupt anytime soon because it extended its line of credit with some big lenders.
The refinancing news overshadowed some depressing earnings numbers. That's not surprising given that it was just two weeks ago that Blockbuster's shares were temporarily halted at 22 cents after it disclosed hiring Kirkland & Ellis to help firm up its capital position.
But on Thursday, Blockbuster shares closed at 89 cents, capping a 305% move higher in just 12 trading days.
One would have to revisit Sirius XM Radio for those kinds of profits on Wall Street nowadays. After that company settled its own capital issues -- courtesy of a cash infusion from Liberty Media -- the stock climbed 433% in 25 trading days, as of Thursday.
Blockbuster said it lost $360 million in the fourth quarter, compared with a $41 million profit a year ago. The loss was because of a noncash impairment charge of $435 million. Disregarding charges, it earned $80 million.
Revenue sank 12% to $1.38 billion because of a host of factors, including that there are fewer stores than a year ago and less-favorable foreign-exchange rates.
Blockbuster had $300 million in debt due in August that Wall Street was nervous it couldn't pay, but CEO Jim Keyes said Thursday that a revolving credit facility with JPMorgan Chase and two other lenders has been extended through September 2010. The extension is for about 65% of a roughly $250 million loan, and he said he is negotiating with other lenders for similar amendments.
Nevertheless, he warned that auditors were likely to include language in financial reports of Blockbuster being a "going concern risk" until financing is complete.
Because of Blockbuster's fragile capital position, it won't be investing too much in its digital delivery business but instead will seek partnerships, Keyes said.
Blockbuster, of course, faces fierce competition from Netflix and kiosk service Redbox, but its position as the giant in the bricks-and-mortar space is secure.
"The mom-and-pops are under quite a bit of pressure," Keyes said. He added that, in a recession, consumers will "rediscover that rental is a great value."
That being said, he bemoaned weak DVD titles of late but said movies popular in theaters now will help Blockbuster's business in the next quarter.
"This is great for our business -- in about three months," he said, mentioning such upcoming DVD titles as "Slumdog Millionaire," "Watchmen," "Paul Blart: Mall Cop" and "He's Just Not That Into You."