Blockbuster Inc.'s first-quarter profit sagged as fewer people came to its stores to rent videos, though the long-slumping company softened the blow by whittling the size of its chain and shedding other expenses.
The results released Thursday were the latest sign of the challenges facing Blockbuster as it struggles to attract customers who are increasingly getting their videos through the mail or high-speed Internet connections. Blockbuster shares plunged 34 cents — nearly 30 percent — in extended trading after finishing the regular session at $1.14.
The Dallas-based company earned $24.9 million, or 12 cents per share, for the three months ended April 5. That represented a 42 percent decline from $42.6 million, or 20 cents per share, at the same time last year.
Excluding one-time charges and gains, Blockbuster said it would have earned 19 cents per share. On that basis, Blockbuster topped the average estimate of 15 cents per share among analysts polled by Thomson Reuters.
But Blockbuster's revenue plunged nearly 20 percent to $1.12 billion — nearly $200 million below analyst estimates.
Unfavorable currency exchange rates accounted for about $81 million of the revenue decline.
Blockbuster's biggest problem was a familiar one — its model of offering videos from brick-and-mortar stores is being challenged by DVD-by-mail rival Netflix Inc., store kiosks and pay-TV services that offer more convenient and sometimes less expensive options.
Blockbuster's video-rental revenue from U.S. stores open at least a year fell by 12 percent.
In a Thursday conference call with analysts, Blockbuster Chief Executive James Keyes attributed the weak video demand to a surge in attendance at movie theaters and a lackluster mix of DVD releases during the first quarter.
As cinemas attract bigger audiences, fewer people are coming into Blockbuster's stores to rent videos, Keyes said.
But that phenomenon hasn't fazed Netflix, which added the most subscribers in its 10-year history during the first quarter. Those gains helped Netflix boost its profit by 68 percent during the opening three months of the year.
Keyes said he thinks Blockbuster's video rentals should pick up later this year when some of the movies that recently filled the movie theaters are released on DVD. Nevertheless, Blockbuster is bracing for its same-store sales to dwindle through most of this year.
In past quarters, Blockbuster has been able to offset some of the erosion in video rentals by selling DVD players and other merchandise. But even those peripheral sales sank in the first quarter.
Keyes, a former convenience store CEO, said he still believes Blockbuster will have to build beyond DVD rentals to turn things around. "The future of those stores requires diversification," he told analysts.
Blockbuster believes it can regain sales momentum by offering its customers more ways to rent video. The company already offers its own version of Netflix and recently launched a service that delivers video rentals through Internet connections to satisfy consumers looking for immediate gratification. Blockbuster is also installing DVD vending machines in its stores to counter the kiosk concept that is being popularized by Redbox.
With its revenue slumping, Blockbuster is closing stores and laying off workers to bolster its finances.
The company ended the quarter with 7,267 stores worldwide, 138 fewer than at the beginning of the year. Blockbuster said it is exploring selling some of its international operations in hopes of raising about $100 million.
Blockbuster lowered its operating expenses to $541 million, a reduction of nearly 20 percent, or about $131 million, from the same time last year.
The company's troubles have raised fears earlier this year that it might seek bankruptcy protection. Those concerns sent Blockbuster shares to a new low of 13 cents in March before management lined up a new $250 million line of credit available through September 2010. Its Canadian subsidiary has also lined up a $21.4 million loan.
The company ended the quarter with $107 million in cash.
"There should be no doubt we have sufficient liquidity to continue the transformation of Blockbuster through 2010 and beyond," Chief Financial Officer Thomas Casey told analysts Thursday.
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