UPDATE 3-Blockbuster posts third quarter loss, lower sales

* Blockbuster posts Q3 loss per share of 11 cts

* Q3 revenues decline 2.7 pct to $1.2 bln

* Shares up slightly in thin after hours trading

* Outlook for new credit facility "muddled" (Adds conference call quotes, CEO interview quotes, byline)

By Sue Zeidler

LOS ANGELES, Nov 6 (Reuters) - Blockbuster Inc (BBI.N) posted a third quarter loss on Thursday due to seasonal factors, but narrowed its loss from a year ago with the help of more consumer products and cost reductions at its stores.

The nation's leading DVD rental company said its third quarter net loss narrowed 48.3 percent to $17.8 million, or 11 cents per share, from a net loss of $34.4 million, or 20 cents per share, a year earlier.

Excluding items, Blockbuster posted a loss of 8 cents, which was better than analysts' consensus forecasts of a loss of 15 cents per share, according to Reuters Estimates.

Third quarter revenues fell 2.7 percent, reflecting the closure of dozens of stores from the year earlier, to $1.2 billion from $1.24 billion.

"It was a good report. When you look at the top line, they're operating fewer stores, but they're making more money on a per store basis," said Stern Agee analyst Arvind Bhatia.

Blockbuster repeated that it remained confident it would achieve its full-year guidance for 2008 adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the range of $300 million to $315 million, which corresponds to net income in the range of $21 million to $36 million.

The company's shares were slightly higher in very thin after-hours trading at about $1.39 a share after closing down 23 cents at $1.32 a share on the New York Stock Exchange.

Blockbuster has sought to reposition itself to compete more effectively in a market where viewers download videos or receive them by mail. Third-quarter domestic same-store sales rose 5.1 percent, helped by a 30.7 percent spike in same-store merchandise sales for items such as games software and hardware.

But the company said on Thursday it was taking steps to manage capital spending more conservatively and improve cash flow to limit the need for new debt financing due to the uncertainties of the macroeconomic environment.

Blockbuster ended the quarter with $135 million outstanding under its revolving credit facility due in August 2009.

On a conference call, Blockbuster said market conditions had "muddled" the outlook for its plans to a put a new bank credit facility in place early next year, but said it will explore it once capital markets improve.

Accordingly, Blockbuster said it was in a position to implement a capital management plan -- which would reduce spending and maximize cash flow -- if necessary to self-fund its business through 2009.

"We want to stay the course with our strategic plan in place and would rather finance the business in the more traditional way, but it's prudent to have a plan in place to improve the cash flow," Blockbuster Chief Executive Jim Keyes told Reuters.

If necessary, Blockbuster will put on hold some store remodeling and other spending to maximize cash flow, he said.

Blockbuster has been testing various pricing schemes and terms for months. On Thursday, Keyes said the company was working toward a market by market deployment of some variation of the daily, weekly and monthly approach to pricing between now and the first quarter of next year.

"It's good that they're trying a lot of things. They're testing some stuff that is working," said Wedbush Morgan analyst Edward Woo. "The quarter was essentially in line and they are continuing to perform as they stated, but of course the big unknown is the whole economy." (Editing by Andre Grenon)