Blockbuster Has Tough Q1, Stays Afloat
Troubled media entertainment retailer Blockbuster Inc. had a difficult Q1 2009,
with declines in several major financial figures. However, the retailer met requirements to receive a $250 million
credit facility which will help keep it operational. Selected analysis follows:
Several Factors Hurt Revenues
Total quarterly revenues declined 19.4%, from $1.39 billion to $1.12 billion. Blockbuster said moves to preserve liquidity, such as reducing inventory and lowering advertising spend, contributed to the decline. The retailer also cited weakening DVD title strength, strong theater box office, and a foreign currency impact of $81.3 million USD.
Operating, Net Income Fall
Operating income fell 28.6% for the quarter, from $70.2 million to $50.1 million. Net income fell 38.9%, from $45.4 million to $27.7 million. Blockbuster cited store closures, severance and an adjustment for game inventory obsolescence as impacting operating and net income.
Gross Margin Falls, So Do Operating Expenses
Quarterly gross margin fell from 53.2% to 52.6%. Blockbuster attributed the decline to lower same-store revenues and a foreign currency impact of $40.3 million USD. However, operating expenses fell 19.4%, from $671.5 million to $540.6 million. Blockbuster said the drop in operating expenses largely offset the gross margin decline.
Rentals Impact Same-store Sales
Domestic same-store sales declined 10.9%, while international same-store sales dropped 6.7% and worldwide same-store sales decreased 9.6%. Blockbuster primarily attributed same-store sales declines to drops in same-store rental comparables, although same-store retail comparables also fell.
Blockbuster Stays in Business
One very bright spot for Blockbuster is that it was approved for a $250 million credit facility funded by companies including J.P. Morgan, Monarch Alternative Capital L.P. and Silver Point Capital, L.P. Blockbuster said in an April
SEC filing there was “substantial doubt about our ability to continue as a going concern,” mostly related to meeting conditions to secure the funding, which expires September 30, 2010. Blockbuster also said even if it received the funding, investors in its securities may still lose part or all of their investments.
In addition, the retailer’s Blockbuster Canada subsidiary has received a non-revolving $21.4 million USD from privately-held Canadian lender Callidus Capital Corporation. The loan matures September 30, 2010.
2009 Outlook Includes Lower Same-store Sales
Blockbuster’s guidance for 2009 includes a prediction that same-store sales will be lower by an unspecified amount. The retailer also predicts an adjusted EBITDA (earnings before income taxes, depreciation and amortization) of $305 to $325 million.
At the end of fiscal 2008, Blockbuster was operating 7,405 stores worldwide, with 3,878 company-owned and 1,599 franchised stores domestically and 1,928 company-owned stores internationally. Domestically, Blockbuster opened 42 company-owned stores and 81 franchised stores during 2008, and closed 169 company-owned and 239 franchised stores. Internationally, the retailer opened 21 stores and closed 161 stores.
