Blockbuster posts higher profit, shares rise

By Sue Zeidler

LOS ANGELES (Reuters) - Blockbuster Inc, the No. 1 U.S. movie rental chain, posted better-than-expected results on Thursday, saying cost cuts and restructuring would yield a full-year profit in 2008 and help it compete in an evolving marketplace against rivals such as Netflix Inc (NFLX.O).

Blockbuster shares rose nearly 10 percent after the earnings were first reported, but by midday, the stock erased its gains and was down 15 cents or nearly 5 percent at $2.89 a share on the New York Stock Exchange.

Blockbuster posted fourth-quarter earnings of $38.1 million, or 18 cents per share, compared with a year-earlier profit of $8.3 million, or 4 cents per share.

Excluding severance cost and other one-time items, profit totaled $54.9 million, or 26 cents per share, outpacing analysts' average forecast of 19 cents per share, according to Reuters Estimates.

Revenue rose 3.6 percent to $1.57 billion, driven by double-digit increases in merchandise sales and growth in rentals by mail. The company said worldwide same-store and by-mail revenues rose 7.4 percent from a year earlier.

On a conference call, Blockbuster Chief Executive Jim Keyes said the company will from now on present same-store sales without the impact of its by-mail subscription service, so analysts and investors will be able to see comparable numbers for both its store and by-mail operations.

Keyes said a key factor in its 2008 profitable outlook was a $100 million increase in profitability of its by-mail subscription channel.

In the third quarter, Blockbuster began implementing a plan to reduce annual costs by $45 million through job cuts and efforts to streamline stores and online services.

"Through aggressive cost reductions, the repositioning of our subscription programs and a renewed focus on store merchandising, we gained momentum in both sales and earnings," Keyes said in a statement. "We are well positioned to return the company to profitability in 2008."

Blockbuster forecast 2008 operating income of $113 million to $133 million and net income of $5 million to $25 million. For 2007, the company reported a loss of $85.1 million.

It estimated 2008 capital expenditures of about $130 million. It expects earnings before interest, taxes, depreciation and amortization for 2008 of $290 million to $310 million, citing three factors, including the $100 million increase in profitability of its by-mail subscription channel, $100 million in cost-savings and store enhancements and other retail strategic initiatives.

Blockbuster also said it would restate results for 2006 and 2005 to correct errors in accounting for expense accruals and foreign currency adjustments, but is not withdrawing reliance on those financial statements.

(Additional reporting by Michele Gershberg in New York; Editing by Andre Grenon)