Thursday, February 18, 2010

Blockbuster Inc.(NYSE: BBI): Q4 Earnings Preview 2009

Blockbuster Inc.(NYSE: BBI) is scheduled to release its fiscal fourth-quarter 2009 financial results for the period ending January 3, 2010 after the closing bell on Wednesday, February 24, 2010. Analysts, on average, expect the company to report a loss of 12 cents a share on revenue of $1.08 billion. In the year ago period, the company posted a loss of $1.89 per share on revenue of $968.70 million.

Blockbuster Inc., together with its subsidiaries, primarily operates and franchises entertainment-related stores. The company offers movies and video games for in-store rental, and sale and trade, as well as sells other entertainment-related merchandise. As of September 2, 2009, the company operated approximately 7,100 stores throughout the Americas, Europe, Asia, and Australia.

In the preceding fiscal-third quarter, the Dallas, Texas-based company posted a loss of $116.8 million, or $0.60 per share, compared to net loss of $20.6 million, or $0.11 per share, in the third quarter of 2008. Excluding costs associated with write-off of debt financing costs, store closures and severance, adjusted net loss applicable to common stockholders for the third quarter of 2009 totaled $38.3 million, or $0.20 per share compared to an adjusted net loss applicable to common stockholders of $17.8 million, or $0.09 per share, in the third quarter of 2008. Revenue slumped to $910.5 million from $1.16 billion. Analysts, on average, expected the company to report a loss of $0.11 per share on revenue of $1.01 billion for the quarter.

In an attempt to to boost all-important holiday sales, Blockbuster increased inventory and launched an aggressive advertising campaign during the fourth. However, in spite of these efforts, its performance during the holidays was well below expectations. Late in January, the company said that it now expects to report adjusted EBITDA for the 2009 year ended January 3, 2010 in the range of $195 million to $205 million, which corresponds to GAAP net loss in the range of $183 million to $193 million, excluding any impairment of goodwill and other long-lived assets.

Looking ahead to 2010, the company said it plans to further reduce costs and will remain conservative in use of capital expenditures.

Blockbuster has closed hundreds of stores in the past few years. In November the company said that it expects to close around 115 stores during the fourth quarter of 2009, which will be in addition to the 216 that have already been closed through the third quarter of this year. Earlier, the company had announced its plans to close up to 960 stores by the end of the year 2010.

The embattled company has seen its market share eroded in the past several years due to stiff competition from online DVD rental firm Netflix and Redbox kiosks. Coinstar’s RedBox self-service DVD kiosks offer movie rentals for $1 per day, while Netflix’s online DVD subscription allows customers to rent unlimited movies for $13.99 with two DVDs out at a time.Blockbuster has responded with its own $1-a-day movie kiosks, as well as with an online by-mail subscription service and instant movie downloading. But it appears that the innovations might be too little, too late. The company has continued to struggle with its heavy debt load and declining bricks-and-mortar business as it simultaneously attacks the digital space and kiosk business.

Recently, Standard & Poor's cut the video rental firm's corporate credit rating to CCC, it's lowest rating for a company that has not been ordered liquidated ("Extremely vulnerable financial security. Questionable ability to meet obligations unless favorable conditions prevail.") In a statement, S&P said, "The downgrade reflects our view that performance will remain very challenged and our concern that Blockbuster will not be able to transform its business model over the near term, as we had expected." strategy and plans to replace stores with kiosks and compete online with Blockbuster digital.

Industry experts feel that Blockbuster may soon become an irrelevant company with little chance of survival as it has not been really able to counter competition and adapt its business model as per the evolving industry dynamics and consumer preferences..

In terms of stock performance, Blockbuster shares have lost almost 70 percent over the past year. The company, shares of which closed Thursday at 36 cents, is facing a possible delisting threat from the New York Stock Exchange for having a stock price that has traded below $1 for more than 30 consecutive days.

Full Disclosure: None.
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