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: Quote, Profile, Research, Stock Buzz).

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.