Blockbuster Posts Large Loss, COO Quits

Blockbuster Inc. (BBI) Wednesday posted a quarterly profit well below analysts'estimates even before $1.5 billion in one-time charges, as it faced falling movie rental demand and higher costs to counter competition.

The company also forecast a significant slide infourth-quarter profits with weakness continuing into 2005, and announced the resignation of President and Chief Operating Officer Nigel Travis.

In addition, Blockbuster posted a $1.42 billion net third-quarter loss, due to large impairment charges prompted by Viacom Inc.'s (VIA)  spinoff of the video chain.

Blockbuster shares fell 3.2 percent Wednesday from Tuesday's New York Stock Exchange (search) close of $7.09.

The third-quarter net loss amounted to $7.82 a share and compared with a profit of $63.7 million, or 35 cents a share, a year earlier. Included in the loss was $1.5 billion in noncash charges as the company was required under accounting rules to adjust the value of intangible assets when Viacom spun off the company.

Excluding charges, profit was $3.4 million, or 2 cents a share, well below the average analyst expectation of 11 cents a share compiled by Reuters Research.

Revenue rose 1.8 percent to $1.41 billion, helped by the weaker dollar, which boosts the dollar value of sales outside the United States. Same-store rental revenue (search) decreased 6.3 percent, the company said, citing weak rental traffic industry-wide and high TV viewership of the Summer Olympics.

Blockbuster has faced escalating competition from the likes of online video renter Netflix Inc. (NFLX) and may face more rivals as Internet retailer (AMZN) is seen by analysts as poised to join the movie-rental fray, which now includes Wal-Mart Stores Inc. (WMT) as a competitor.

To counter competition, Blockbuster has launched its own online subscription rental service and has started letting customers trade in DVDs and games for store credit.

But the company has had to speed up investment spending in those initiatives, which is also cutting into profits.

For the fourth quarter, Blockbuster expects profits to decline significantly from the prior year on an estimated low-single-digit percentage decline in worldwide same-store revenue, a significant year-over-year increase in operating expenses, an anticipated compensation charge ranging from $60 to $80 million associated with an employee stock option exchange offer and higher interest expense.

The company also said it expects the rental industry to continue to decline next year, but believes it will stabilize by the end of 2005 as DVD penetration is projected to reach 70 percent of U.S. households.