Not Much of a Blockbuster Quarter

Blockbuster Inc. (Dallas) reported a 2.1 percent increase in total revenues for its second quarter of 2004. However, net income fell 23.5 percent.

“The rental business continues to be challenging, a trend we expect to continue through at least the first half of 2005,” said chairman and ceo John Antioco. “We believe this validates our decision to transform Blockbuster from a rental-only retailer into an entertainment destination that enables customers to rent, buy or trade movies and games, new or used, in-store or online. We remain on track or ahead of schedule with all our strategic initiatives.”

The company said the quarterly revenues gain was a result of the favorable impact of foreign exchange and growth in the store base, but it was offset by a decline in worldwide same-store revenues, which decreased 4.4 percent. Total rental revenues, which represented 75.7 percent of the company’s total, decreased 1.7 percent. Worldwide same-store rental revenues decreased 6.4 percent, reflecting weak rental traffic industry-wide.

For the first six months of 2004, total revenues have increased 0.5 percent, but have been offset by a 5.7 percent decline in worldwide same-store revenues. Total retail revenues, which represented 22.4 percent of the total, increased 14.0 percent and worldwide same-store retail revenues are up 1.0 percent.

The company said it expects profitability for the third quarter of 2004 to “decline significantly” from last year based on an estimated decline in worldwide same-store revenues and a significant increase in operating expenses associated with the development and launch of some key growth initiatives. Furthermore, same-store revenues for the third quarter are expected to be adversely affected by a weak home video release schedule as well as the expected strong viewership of the Summer Olympics.

Blockbuster said its outlook does not reflect the adverse impact on results of operations from any incremental expenses associated with the divestiture of the company by Viacom.

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