Blockbuster loss grew as sales dropped, shares fall

By Laura Isensee and Gina Keating

LOS ANGELES (Reuters) - Blockbuster Inc (BBI.N), the largest U.S. movie rental chain a larger-than-expected quarterly loss as revenue fell more than 20 percent, and its shares dropped 12 percent in after-hours trade.

Blockbuster spent the better part of the year in a round of capital raising and debt refinancing to alleviate a cash-flow crunch and is turning its attention to growth in the fourth quarter, Chairman and Chief Executive Jim Keyes told analysts.

Keyes reiterated that the company would stay focused on its stores and asked analysts for patience while new revenue sources, including rental kiosks, games-by-mail and on-demand rentals, take hold. None were expected to generate material revenue for months, Keyes said.

"These things are going to take awhile. These things are basically on trial purposes," Keyes said on a conference call regarding on-demand sales through TiVo. "Give us time. Sorry I can't give you much color."

Keyes attributed a 14.4 decline in quarterly same-store sales -- double what many analysts were expecting -- to a smaller inventory of available titles at Blockbuster stores, a weaker slate of movies in the quarter, the global recession and a rise in theater attendance.

Blockbuster reported a net loss of $116.8 million, or 60 cents per share, for its fiscal third quarter, ended October 4, compared with a loss of $17.8 million, or 9 cents per share, a year earlier.

Excluding items, Blockbuster's lost 25 cents per share, or more than double the 11-cent loss expected, on average, by analysts, according to Thomson Reuters I/B/E/S.

Third-quarter revenue fell about 24 percent to $910.5 million from $1.2 billion a year earlier. That was below analysts' average forecast of revenue of $1.01 billion.

"There's no way to sugarcoat this. The business is challenged," said Edward Woo, an analyst with Wedbush Morgan.

"Honestly they need to give visibility ... They need to prove that the first three quarters of this year were an anomaly and they can turn things around."

Blockbuster, which has cut its marketing budget to the bone so far in 2009, plans a "modest" bump in advertising in the fourth quarter targeting in-store and by-mail customers, Keyes said.

Chief Financial Officer Tom Casey said he expects fourth-quarter cash from operations to be strong, reflecting improved product availability and a stronger slate of movie titles.

Casey forecast fourth-quarter gross margin as a percentage of revenue will be "in line" with prior-year levels, and for working capital in the quarter to be "a significant source of cash."

He also reconfirmed Blockbuster's August forecast for full year earnings before interest, taxes, depreciation and amortization of $270 million to $325 million.

Blockbuster is trying to ramp up its stores, kiosks, digital and by-mail offerings to compete against fast-growing rivals like kiosk provider Coinstar Inc's (CSTR.O) Redbox and Internet rental site Netflix (NFLX.O).