Blockbuster 2Q loss deepens despite sales progress

Blockbuster Inc.'s second-quarter loss deepened, but the struggling movie rental chain showed some signs of progress by wringing more revenue from its stores while lowering its costs.

Heartened by its progress, Blockbuster modestly raised its outlook for the remainder of the year.

"To paraphrase Mark Twain, the demise of Blockbuster has been greatly exaggerated," Chief Executive James Keyes told analysts during a Thursday conference call.

But investors weren't impressed. Blockbuster shares shed 31 cents, 10 percent, to $2.88 in Thursday's morning trading.

The Dallas-based company said Thursday that it lost $44.7 million, or 23 cents per share, in three months ended July 6, worse than its setback of $34.2 million, or 18 cents per share, a year ago. Last year's showing would have been poorer if not for an $81 million windfall from the sale of more than 200 Gamestation stores in the United Kingdom.

After stripping out costs for store closures, employee layoffs and an aborted takeover bid for Circuit City Stores Inc., Blockbuster said its second-quarter loss totaled 20 cents per share. That figure matched the average estimate among analysts surveyed by Thomson Financial.

Blockbuster's revenue for the latest quarter totaled $1.3 billion, up 3 percent from last year.

In a more telling indicator of a retailer's health, Blockbuster's same-store sales rose 9 percent. This yardstick measures the performance of stores that have been open for at least the past year.

As part of its turnaround efforts, Blockbuster closed or sold 233 stores during the past year, leaving the company with fewer revenue channels. Blockbuster operates 7,619 stores worldwide.

To drum up more rental revenue, Blockbuster has been trying to ensure it has more copies of the latest DVDs on its store shelves. At the same time, the company is trying to sell more video games and other consumer electronics.

While sprucing up its stores, Blockbuster has been spending less on advertising in an austerity drive that curtailed the growth of its online rental service, which ended the quarter with 3.2 million subscribers. That leaves Blockbuster far behind the online DVD rental leader, Netflix Inc., which boasts 8.4 million subscribers.

In the second quarter, Blockbuster spent $31.9 million on advertising, a 42 percent drop.

The strategy has been engineered by Keyes, a former 7-Eleven Inc. CEO who was hired a year ago to snap Blockbuster out of a miserable streak that has produced more than $4 billion in losses since 2001.

Through the first half of this year, Blockbuster has lost $2.1 million, an improvement from a loss of $86 million at the same juncture in 2007.

Blockbuster expects to finish this year with a profit ranging from $21 million to $36 million. Analysts, on average, have forecast full-year net income of $19.3 million, according to Thomson Financial.

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