Blockbuster Inc. (BBI), the No. 1 U.S. video rental chain, on Thursday said it will miss its target of 2 million subscribers and expects domestic same-store rental revenue to drop 1 percent compared to its 2004 third-quarter results.

The company had expected to reach 2 million subscribers for its online DVD rental (search) service by the first quarter of 2006 but now says that goal will come later in the year.

While expecting negative domestic same-store rental revenue for the quarter, Blockbuster said it will outperform the rental industry, which is bracing for a nearly 12 percent drop in store-based and online rental revenue for the quarter.

Blockbuster also headed off speculation that it was again renegotiating its debt covenants, saying its reported results will show that the company is in compliance with those pacts in the third quarter.

Analysts, on average, expect Blockbuster to post earnings of nil cents per share and revenue of $1.4 billion in the third quarter, according to Reuters Estimates.