Blockbuster Q4 better than expected

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NEW YORK -- Blockbuster reported fourth-quarter financial results Thursday that exceeded expectations, and the video rental giant said it will swing to a profit this year.

The firm increased its fourth-quarter profit nearly fourfold thanks to cost cuts and first successes with retooled subscription programs.

Chairman and CEO James Keyes also lauded an increased focus on retail sales as well as improvements in the company's core rental business.

He told The Hollywood Reporter that Blockbuster brought in a positive year-over-year rental revenue comparison for November -- its first in years. Keyes credited his team's work with studios to ensure copy depths of key releases, which tend to experience particularly high demand in the first two to three weeks after their release.

"We have to win back credibility with the studios and help our partners grow their profitability, too," he said, adding he hopes to work out longer-term win-win contract arrangements over time.

Keyes also reiterated he wants to significantly increase Blockbuster's retail sales of DVDs, especially tentpole releases. The company has started putting them up on its new-release displays, which formerly focused on rental titles only.

Management didn't provide much detail on its mail rental DVD business beyond saying operating cash flow here could improve by $100 million this year.

Keyes predicted "big upside" from Blu-ray Disc DVDs because of an extended rental life cycle for them, and he said rental kiosks that Blockbuster has started rolling out could over time offer digital downloads as well.

Dallas-based Blockbuster reported a quarterly profit of $41 million, up from $11.2 million a year ago. Excluding severance costs and other special items, Blockbuster's fourth-quarter profit rose from $21.2 million, or 11 cents per share, to $54.9 million, or 26 cents per share.

Revenue rose 3.6% year-over-year to $1.6 billion, exceeding the Wall Street consensus expectation. Revenue from stores open for at least one year rose 6.1%, driven by an 11.7% gain in retail sales and a 5.3% gain in store and by-mail rentals.

Blockbuster forecast a 2008 profit of $5 million-$25 million, compared with a 2007 loss of $85.1 million. It also projected earnings before interest, taxes, depreciation and amortization of $290 million-$310 million. The company didn't provide revenue guidance. For 2007, revenue hit $5.5 billion, an increase of 0.3%.

"Through aggressive cost reductions, the repositioning of our subscription programs and a renewed focus on store merchandising, we gained momentum in both sales and earnings," Keyes said. "We are well-positioned to return the company to profitability in 2008."

Blockbuster shares closed down 10.2% on Thursday at $2.73.
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