August 14, 2009

DVD Kiosks: Blockbuster to Close More Stores

Aug. 14 (Bloomberg) -- Blockbuster Inc. Chief Executive Officer James Keyes said the largest movie-rental chain may be more aggressive in closing stores as it deploys as many as 10,000 rental kiosks by mid-2010. The company is focused on increasing cash flow, rather than boosting sales, in a “very challenging credit market,” Keyes said.


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Blockbuster Kiosks May Lead to ‘More Aggressive’ Store Closures
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By Meg Tirrell

Aug. 14 (Bloomberg) -- Blockbuster Inc. Chief Executive Officer James Keyes said the largest movie-rental chain may be more aggressive in closing stores as it deploys as many as 10,000 rental kiosks by mid-2010.

The company had more than 7,100 stores in the U.S. and overseas at the end of the second quarter and has said it plans to close about 300 this year.

“We could be more aggressive as vending ramps up,” Keyes, 54, said yesterday in a telephone interview, referring to store closures. “We’re deploying as many as 10,000 vending machines by the middle of next year.” Blockbuster, based in Dallas, plans to have 500 kiosks by the end of this month and more than 2,500 by year-end.

The company is focused on increasing cash flow, rather than boosting sales, in a “very challenging credit market,” Keyes said. Blockbuster has a $250 million revolving loan due Sept. 30, 2010, and must repay more than $350 million of outstanding long-term debt by the end of next year, Wedbush Morgan Securities Inc. analyst Michael Pachter wrote in an Aug. 11 research note. It had $99 million in cash and equivalents as of July 5, down 36 percent from $154.9 million as of Jan. 4.

Sales declined in each of the last four quarters at Blockbuster, which has seen increased competition from by-mail service Netflix Inc. and daily rental kiosks run by Redbox, a unit of Coinstar Inc. Blockbuster has started competing in both services, and also offers digital video-on-demand entertainment.

Debt Refinancing

The company aims to extend its debt maturities and reduce the cost of capital, and is in talks with its lender about refinancing debt, Keyes said.

“They need the credit markets to loosen up and they need to refinance,” Pachter said in a telephone interview yesterday. “They’re not on track to repay this debt in the time frame they need to, so they’ve got to extend the terms.”

Before Blockbuster reported second-quarter results yesterday, Pachter recommended buying the shares and expected them to more than double to $2 within 12 months. He said he doesn’t own the stock.

Blockbuster lost 14 cents, or 16 percent, to 72 cents yesterday in trading after the New York Stock Exchange closed. The shares had fallen 32 percent this year before second-quarter results were released.

The company lowered its 2009 forecast for earnings before interest, taxes, depreciation and amortization, projecting $270 million to $290 million. That’s down from a previous prediction of $305 million to $325 million. It reported a second-quarter net loss of $39.7 million, or 21 cents a share, on sales of $1.02 billion.

To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net.

Posted by staff at August 14, 2009 07:25 AM