You know you're probably looking at a tough business situation when the first thing you see on an earnings release is a pair of bullet points related to financing strategies that are clearly meant to show the reader that a company is getting its house in order.
Such was the case with Blockbuster (NYSE: BBI) and its Q1 report, which came out Thursday after the bell. Remember, this is the company that, not long ago, received a notice about its woes.
Liquidity is the name of the game these days for Blockbuster. Too bad it isn't the company's business model. As far as that goes, the video-rental chain is still having its difficulties. Revenues dipped 19% to $1.1 billion. On an adjusted basis, net income came out to 19 cents per share versus 21 cents per share in the year-ago period.
I suppose a two-penny drop in income isn't that outrageously awful. But the same-store sales statistics certainly were less than attractive. Comps declined by 9.6% on a worldwide basis. In the U.S., the decline was 10.9%. As can be seen, Blockbuster is having a tough time getting people to check out its stores.
One more thing: there was no free cash generated in the quarter. Oh, and the board passed on declaring a dividend on some convertible preferred stock. Gloomy, huh?
Who can blame the consumer who decides to pass on visiting a Blockbuster? Isn't it just so much more convenient to sit at home and order up a movie via on-demand platforms from a cable system like Comcast (NASDAQ: CMCSA)? Doesn't the Netflix (NASDAQ: NFLX) service have a lot more brand equity than Blockbuster?
I thought the price action surrounding Blockbuster's stock on Thursday was hilarious. The shares rose 10.7% to close at $1.14. And this was on heavy volume. Then what happens? The Q1 report comes out after the bell, and Blockbuster loses over 20% of its value and is priced at 88 cents per share.
Were a lot of shorts covering before the news? And it's amazing to think that the stock performed so poorly in light of the fact that it beat Wall Street expectations by a comfortable five-cent margin.
Who the heck was buying before this report? See, this is the problem. You can beat Wall Street, but you can't necessarily beat the idea that your business is in tough shape. Turnarounds are interesting concepts, and I'm not about to say that Blockbuster is definitely going away.
I will say, however, that Blockbuster is becoming increasingly more speculative as each day passes. Maybe the company's strategies with rental kiosks might save the day at some point. As far as I'm concerned, though, Blockbuster is most definitely not a buy (unless my local convenience store runs out of lottery tickets and I have an overwhelming urge to gamble).
Disclosure: I don't own any company mentioned; positions can change without notice.
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