Blockbuster turns profit

Same-store sales grow for the first time in five years

Blockbuster might have proved Thursday that rumors of the death of the video rental store have been greatly exaggerated.

The giant of its industry not only turned a healthy profit in its first quarter but also grew same-store sales in the U.S. for the first time in five years.

Still, investors were unimpressed with Thursday's early morning announcement and the stock fell two cents to $3.05.

The company earned $42.6 million in the quarter, compared with a loss of $51.8 million in the year-ago quarter. Revenue fell 5% to $1.39 billion because of the sale of 412 stores. The results missed expectations on the top line but bested them on the bottom line.

Blockbuster CEO James Keyes hailed the 2.9% same-store sales increase at domestic stores as proof that increased efforts to sell merchandise, as opposed to merely renting, is a worthy endeavor.

That, of course, is the thrust of Blockbuster's argument that it makes sense to merge with Circuit City, and Keyes said the company's due diligence in that regard is in full swing.

"We remain confident in our ability to transform Blockbuster with or without this transaction," Keyes told analysts Thursday.

Keyes said Blockuster has improved the availability of new releases, to 60% in-stock from less than 20% last year, but he seemed more interested in talking about merchandise sales than movie rentals.

At some stores, Blockbuster is not only selling DVDs and video games but also Sony PlayStation 3 consoles, Blu-ray players and other high-tech entertainment gadgets.

Keyes also noted that "Grand Theft Auto IV" is on track to be the biggest rental and retail title in Blockbuster's history, and he said the company begins testing next month a kiosk for the digital download of movies.