Blockbuster stock falls after Q2 announcement

Shares of rental giant sheds more than 10%

"The demise of Blockbuster has been greatly exaggerated," CEO Jim Keyes said Thursday while discussing second-quarter financial results.

Wall Street wasn't buying it, though, and shares of the movie-rental giant shed more than 10%, making Blockbuster the worst performing stock on The Hollywood Reporter Showbiz 50 index. The swoon wiped out a big gain the day before.

Blockbuster said it lost $41.3 million in the quarter, up from a $34.2 million loss last year when they had an $81.4 million gain from the sale of Gamestation. Even without Gamestation, revenue rose 3% to $1.3 billion.

Keyes complained that Wall Street mistreats Blockbuster each time a new movie-delivery system gains a little traction, and he promised that his company, too, will benefit from these emerging technologies.

Examples include the integration of Movielink into its Total Access DVD-by-mail service; an ongoing test of the DVD kiosk business; and development of a set-top box for delivering movies on demand.

But Keyes also focused on the 8,000 stores that Blockbuster operates. While many analysts consider them an albatross around the neck of the company, Keyes called them a competitive advantage.

"Our stores remain relevant," he said.

His proof was that Blockbuster managed to grow same-store sales in the U.S. by 14%, helped by DVD rental on that basis up 6% and merchandise sales "up huge," Keyes said.

Blockbuster has been beefing up its merchandise offerings -- toys and art based on movies, video games and consoles, etc. -- and intended to spur that effort by acquiring Circuit City on the cheap, though that effort failed.

Keyes also said Blockbuster is bracing for a weak DVD release schedule in August by adding "all things Batman" to store shelves, taking advantage of the phenomenal success of "The Dark Knight."

He also reiterated his commitment to next-generation DVD technology, promising to "fill the shelves with Blu-ray product."

Blockbuster also upped its full-year guidance, predicting it will earn up to $36 million.

Keyes noted that Blockbuster stores are enjoying more pricing power than some might have predicted, having raised its net average rental 40 cents to $3.20.

He credited a renewed focus on availability of new releases, and he said if studios will help out in that regard, he'd be open to adjusting revenue-splits to their advantage.

"Even with a price increase and less advertising, we increased our store traffic and our comps. It shows the power of giving customers what they want when they want it," Keyes said.