Blockbuster reported a loss of 26 cents a share, much worse then a consensus estimate loss of 15 cents a share. Revenue, however, outperformed the consensus, $1.47B to $1.36B. The company also announced this morning that it sold its U.K. specialty games retailer Games Station Limited to The Game Group for about $150 million in cash, with the majority of the proceeds going to pay down outstanding debt.
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9:50am: Logging into the conference call now, although these never start on time, let alone early. Here comes fifteen minutes of listening to elevator music...
10:00: As a point of interest, I just looked at Blockbuster's stock, and it is trading down 40 cents to $5.81. Still waiting for the call to begin.
10:05: An operator just chimed in to let us know that the call would begin shortly, and then put us back on hold. Tease.
10:08: And here we go. The director of investor relations, Ms. Torres, is reading the standard legal mumbo-jumbo.
10:09: Larry Zine, CFO, gets handed off the call. He said increasing the subscriber growth is the key to the company's economic model. He is now going over the results -- $1.47B in revenue, rental revenues of $1.05B. Blockbuster Total Access offset slowing in-store rentals. The company met its aggressive online growth objective -- adding 800,000 online subs.
10:13: Zine continued, saying the rental industry remained under pressure, putting pressure on rental gross margin. Operating loss was 26 cents per share. The company announced the sale of Game Station, with a large amount of proceeds (about $150 million) going to pay off debt and strengthen the balance sheet. Reduced debt by $500 million since November 2005.
10:16: Zine summarized, saying they are taking the right steps to strengthen the company.
10:17: CEO John Antiocco got the mic. He said the company had 60% of the subscriber growth in the online space. Grew subscriber base by 35%. Nearly doubled online base in five months to 3 million. The company seems real focused on Total Access and the online market.
10:19: Antiocco said the plan is to double online subscribers this year to over 4 million.
10:20: On the store side, a study showed that business increased with Blockbuster over Hollywood Video.
10:23: Antiocco continued, saying he believes this is time for investment. The subs are setting the stage for future profitability. The company is reducing churn and managing costs. The value of the subs is worth more than what the company is spending to get them. We will create shareholder value well beyond what we spend this year.
10:26: Antiocco added that the company is moving to the day Blockbuster is a "triple-play," when consumers can get movies in stores, through the mail, and through the Internet. Wow, executives love the term triple play.
10:28: Antiocco discussed his leaving by year's end, saying he has an interest in leaving the company as strong as possible.
10:29: Antiocco's closing statement: The in-store business is poised for consolidation and store closing. To take advantage of this, the company is closing overlapping stores, and reducing costs in stores.
10:30: Opening the call for questions.
10:32: Asked about customer mix: The Mix shifting -- the company began our external media at the beginning of the year -- In store and other are about 50-50. It fluctuates week-to-week.
10:33: Any thoughts on VOD release the same day as the DVD release: Ultimately, what will the impact be on retail and rental? Blockbuster thinks the decision to do that will bring diminishing returns to the studio should they decide to implement that method.
Share price update: shares continue to fall, now down 46 cents to $5.75.
10:38: Asked about the asset sale of Game Station: It's an important business, but the investment it would have required would have exceeded its earnings this year. The company made a decision to focus here instead.
10:43: Asked about downsizing: The company is testing prototypes for downsizing -- looking for a good mix of catalog and new release. About 200 downsizes should be done in 2007; that number will increase going forward as the company improves at it.
10:46: The company does not give guidance, but said Q2 will continue to be tough, and Q3 is looking better from a product standpoint.
10:47: Conference concluded, thanks for playing.
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