Blockbuster (NYSE: BBI) remains troubled. Just look at the second-quarter report that was released on Thursday after the bell. Net sales dropped over 20%, coming in at roughly $1 billion. The company lost 19 cents per share, one penny better than the loss reported in the year-ago period (to which I say, big deal!). According to the preview, the market wanted to see $1.1 billion for the top line and a loss of only 12 cents for the bottom line. A failure on both counts, I'm afraid.
Cash flow was the more attractive part of the Q2 story. The company calculated its free cash flow to be about $109 million. Okay, I'll give Blockbuster a good mark for having positive cash flow this year.
Don't expect me to call Blockbuster a buy just on that, however. Same-store sales were rotten, reflecting deep problems with the movie-rental chain's ability to bring consumer traffic into its locations. Blockbuster used to be the king of its retail genre. Then, Netflix (NASDAQ: NFLX) came along. As well as on-demand platforms such as the one featured on the Comcast (NASDAQ: CMCSA) system. Blockbuster just couldn't adjust.
Going back to the cash flow for a moment, I know there probably are some speculative turnaround buffs out there who might use that point to say that Blockbuster could be headed in the right direction. However, to my way of thinking, I believe we have to use the power of the markets to glean the potential future. When I look at how shares of Blockbuster are performing in the after-hours session (they were down by a whopping 16%), I conclude that the future isn't bright. Agreed: the markets aren't always correct, but in this case they seem to be forecasting the risk associated with trading Blockbuster.
The risk associated with Blockbuster is too high, in my estimation. There are many people who believe the chain will still be around in one form or another in the next ten years. Hey, it probably will be for all I know. But with the stock under a buck, and with the fundamentals nothing less than questionable, I have no qualms about avoiding this business.
Disclosure: I don't own any company mentioned; positions can change without notice.
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