Same-store Sales Hurt Blockbuster Q3 Results
Struggling media entertainment retailer Blockbuster, Inc. cited declining Q3 2009 same-store sales results as having a
negative impact on other quarterly financial results, such as revenues and gross profit. Selected analysis of Blockbuster’s quarterly performance follows.
Consolidated Revenues Fall 21%
Blockbuster reported $910.5 million in consolidated revenues during Q3 2009 (ended October 4, 2009), a 21% drop from $1.16 billion in the same period a year ago. The retailer primarily attributed its decreased revenues to a consolidated 14.4% decline in same store sales due to a temporary shift in corporate focus to manage the business for liquidity and the macroeconomic environment. Other factors Blockbuster cited as affecting third quarter total revenue included the reduction in company-operated stores and the negative impacts of foreign currency exchange.
Consolidated Gross Profit Falls, Margin Rises
Despite a 16% drop in consolidated gross profit, which fell from $621.4 million to $521.6 million, Blockbuster still reported a consolidated gross margin increase from 53.7% to 57.3%. While Blockbuster attributed the reduction in gross profit dollars to lower same-store sales and negative foreign currency exchange impact, the retailer said the increase in gross profit as a percentage of revenue was primarily driven by a product mix shift from lower margin games hardware, software and accessories to higher margin DVD rental, combined with improved studio revenue-sharing arrangements on the top domestic DVD releases during Q3 2009.
Same-Store Sales Plunge
As mentioned above, consolidated same-store sales fell 14.4% during the quarter. Blockbuster also reported an 18.3% decrease in domestic same-store sales and 4.8% decrease in international same-store sales. A decline in same-store rental sales drove the overall same-store sales drop.
Net and Operating Losses Increase
Blockbuster reported a quarterly net loss of $116.8 million, compared to a net loss of $20.6 million in Q3 2008. Quarterly operating loss also grew, from $3.5 million to $10.2 million. Excluding costs associated with debt financing write-off, store closures and severance (see below), adjusted net loss would be $38.3 million, compared to $17.8 million one year earlier. Excluding store closure and severance costs, adjusted operating income would be $200 million, a 75% drop from $800 million in Q3 2008.
Domestic Store Optimization Continues
Blockbuster closed 216 domestic stores through the end of Q3 2009, and anticipates closing no more than 115 in Q4 2009. Blockbuster will continue examining the profitability of its domestic store portfolio.
Notable Activity
In July, Blockbuster continued the expansion of its digital media services by partnering with consumer electronics manufacturer Samsung to deliver its OnDemand service
through Samsung products including HDTVs and blu-ray players. Blockbuster OnDemand allows customers to directly rent and purchase digital movies through home entertainment devices. In March 2009, Blockbuster announced a similar partnership with TiVo making 10,000 film titles available for download by TiVo users.
In September, Blockbuster obtained a
$50 million reduction in a letters of credit agreement with former parent company Viacom, Inc. The face amount on letters of credit Blockbuster maintains for Viacom is now $25 million instead of $75 million, paralleling a reduction in Viacom’s exposure to Blockbuster lease obligations.
Further aiding Blockbuster’s liquidity was the August 28, 2009
sale of its 186-store Xtra-vision Limited entertainment retail chain in Ireland to Irish firm Birchhall Investments for up to $45 million USD in cash. Blockbuster said it expects to use the majority of the proceeds for incremental liquidity improvements.
At the end of Q3 2009, Blockbuster operated 6,770 stores worldwide, with 4,217 located in the U.S. and 2,553 located globally.
