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Posted on Tue, Oct. 21, 2003
Blockbuster Profits Up, Revenue Down
DAVID KOENIG
Associated Press
DALLAS - Blockbuster Inc. reported higher profits in the third quarter, but shares of the video-rental giant slumped on news that same-store revenue fell 7.5 percent because of light rental traffic.
Blockbuster, the largest movie-rental chain, said Tuesday that cost-cutting measures helped the company earn $63.7 million, or 35 cents per share in the July-September period, compared with $51 million, or 28 cents per share, a year earlier.
That topped the expectation of analysts surveyed by Thomson First Call, who had forecast 32 cents per share.
Revenue was $1.38 billion, a decline of $2 million from a year earlier. Rental revenues fell 2.4 percent to $1.10 billion.
Blockbuster repeated that it expects to earn $1.40 per share for all of 2003 - a 35 percent gain over last year but less than the $1.44 per share forecast of analysts.
Worldwide same-store revenues will fall by low-single digits for the fourth quarter and the full year, the company said.
In trading Tuesday, Blockbuster shares fell $2.28, or nearly 11 percent, to close at $19.22 on the New York Stock Exchange.
Chairman and chief executive John Antioco said same-store revenues fell because of a decline in low-margin transactions and lighter-than-anticipated rentals. He said gross profit margin rose by 5 percentage points due to higher profits on both rentals and sales.
Antioco said Blockbuster was able to charge higher prices than a year ago on promotions such as a bundling "Finding Nemo" with 7-week rental deals. He also said the company has expanded revenue-sharing agreements with major studios to cover 60 percent of its movie inventory, providing Blockbuster with more copies to maxmimize revenue from hits.
Analysts said Blockbuster was hurt in the summer by a shortage of smash rentals and should do better during the holidays with new releases such as "Pirates of the Caribbean" and "The Matrix Reloaded" and game sales.
Michael Pachter, an analyst for Wedbush Morgan Securities, said Blockbuster turned in impressive profit margins despite a soft market. He praised the company's decision to play down sales of low-margin items such as game consoles and DVD players, which contributed to the decline in same-store revenue.
"They made a conscious decision to not chase sales at the expense of margin. That is a good thing," Pachter said. "They are acting in shareholders' interest."
But Robert DeLean, an analyst with Morgan Keegan & Co., said the decline in same-store comparisons had raised concern about Blockbuster's ability to compete against discounters like Wal-Mart Stores Inc. and Best Buy Co. Inc., online DVD rental service Netflix Inc. and video-on-demand.
"If they continue to lose ground on the (same-store) comps, then obviously these competing technologies are eating into their market share," DeLean said.
David C. Joyce, an analyst with Guzman & Co., said he expected discounters to keep undercutting Blockbuster on price, causing the chain to continue experimenting with promotions and pricing strategy. "Blockbuster can't chase price competition, so they need promotions," Joyce said.
For the first nine months of the year, Blockbuster earned $205.4 million, or $1.16 per share, compared to a net loss of $1.66 billion, or $10.01 in the same period last year. Revenue rose to $3.39 billion from $3.30 billion.
Blockbuster plans to add 380 company-operated stores this year. It has 8,700 locations worldwide.