'Continued progress' in Movie Gallery's Q4

Cuts loss; plans kiosks, stores and controlled spending on subscribers

NEW YORK -- Video rental operator Movie Gallery Inc. reported a narrowed fourth-quarter loss of $15.1 million and said Monday that it plans to open a low-cost "friends and family" online DVD rental service this year.

The Dothan, Ala.-based company's latest loss compared with a $546.5 million loss a year ago.

Revenue fell 1.9% year-over-year to $663.3 million.

Same-store revenue decreased 2.9% as the firm's Movie Gallery-branded stores fell 0.3% and its Hollywood stores were down 4.1%.

Management expressed bullishness for the future, citing digital extensions of its traditional business.

"This is an exciting time and an inflection point in the history of our company," said Joe Malugen, Movie Gallery chairman, president and CEO. "Our stores provide solid cash flow and are the foundation of our business, but increasingly we expect that technology will allow us to offer new and different options for Movie Gallery customers."

He cited a recent deal to acquire MovieBeam as a key move that gives his firm "access to an innovative platform that we expect to drive future revenue growth and diversification."

Malugen said Movie Gallery will "not spend outrageous amounts" on promoting its future online rental service or signing up customers.

However, management admitted that some of its store visitors in a recent survey said they have been finding older movies via online rental sites.

Malugen said the firm also will roll out more rental kiosks this year, expecting to add about 200. The company plans to open about 50 stores in 2007 and close fewer than last year.

Movie Gallery did not provide formal guidance for 2007 on Monday, but Malugen predicted "continued progress," and management emphasized that the first quarter was very strong.

For full-year 2006, Movie Gallery's total revenue hit $2.5 billion, up 25% from 2005, which only included 36 weeks of the company's acquired Hollywood Entertainment brand.

The company's revenue in 2006 consisted of $871 million from Movie Gallery, $1.35 billion from Hollywood Video and $325 million from Game Crazy, the video rental firm said.

Same-store revenue for the fiscal year decreased 3.7%, with Movie Gallery branded stores down 0.1% and Hollywood stores down 5.4%.

The company emphasized that a recent refinancing of a senior secured credit facility, reduced capital spending in 2006, the shutdown of 230 underperforming stores and continued slowness in new store openings during the next several years have improved its overall financial flexibility.

Management also said that the Movie Gallery-Hollywood merger has created $50 million in cost savings since it went into effect in April 2005.

Shares of Movie Gallery closed down 0.8% on Monday at $4.81.