Blockbuster CEO: Circuit City acquisition "not critical"
Blockbuster Inc. (NYSE:BBI) CEO Jim Keyes said the movie rental company will not buy Circuit City Stores (NYSE:CC) unless the deal makes financial and strategic sense and “also returns significant value for our shareholders.” Keyes made the comments during a morning conference call with investors and Wall Street analysts.
“We remain confident that our core business is healthy and we remain confident in our ability to transform Blockbuster with or without this transaction,” Keyes said. “We see it as a potential accelerator for our stated strategy but the transaction is not critical to our continued transformation.”
On April 14, Blockbuster disclosed its offer to buy Circuit City for up to $1.3 billion. Circuit City said it plans to evaluate Blockbuster’s unsolicited offer. On May 9, Circuit City said it would open its books to Blockbuster and billionaire investor Carl Icahn, Blockbuster’s largest shareholder.
“We’re all interested in a timely resolution of this process,” Keyes said. “It is our hope that due diligence will validate the strength we see in the possible combination but if it does not, I can assure you we will move on and focus on the continued improvement of our store and our online businesses.”
The Dallas-based company reported early Thursday that it swung to a first-quarter profit of $45.4 million, or $0.20 per share, versus a year-earlier loss of $49 million, or $0.27 per share. Wall Street analysts expected earnings of $0.15 per share. The movie rental company attributed the improved performance to strength in its core rental and emerging retail business.
“We’re now more confident than ever that our core business is healthy and capable of profitable growth,” Keyes said. “We recognize that the physical distribution of DVDs is clearly a mature business, but we plan to manage it accordingly.”
Quarterly revenue declined 5% to $1.39 billion from $1.47 billion a year ago. Wall Street analysts’ consensus estimate was $1.44 billion in revenue. In a move that might raise revenue, Blockbuster plans to role out new prices “probably this summer,” the CEO said.
Subscriptions to Total Access, Blockbuster’s online DVD rental segment that competes with Netflix, were stable at 3.1 million. On April 10, Netflix reported 8.2 million subscribers.
“The business is now profitable and we’re getting back to the business of growth,” Keyes said.
Blockbuster is making progress in developing a more diversified and robust retail business, the chief executive said. The firm plans to sell more media devices and move more heavily into the video game business, which could have a negative impact on video game retailer GameStop Corp. (NYSE:GME).
“Our strategy is to be a convenience retailer for media entertainment,” Keyes said. “In the near term, that means selling DVDs, video games and other entertainment products but we’re also moving into the arena of selling content-enabling devices — selling Sony PS3 players, Blu-ray players, video game consoles and we’ve begun testing personal and portable video device players in several locations.”
Blockbuster has begun stocking video game titles on the new release shelves. Grand Theft Auto IV is on track to become the company’s biggest rental and retail title of all time, Keyes said.
“We’re optimistic that our new emphasis on games combines with other new merchandising efforts will ignite our retail momentum,” Keyes said.
The firm is also exploring digital kiosks that will offer content downloads, along with related devices that will be compatible with the kiosks, the CEO said.
The company reaffirmed its outlook for 2008 adjusted earnings before interest, tax, depreciation and amortization. The firm expects a range of $290 million to $310 million, CFO Thomas Casey said.
Keyes said the firm had an opportunity to look at its strong first-quarter results and “perhaps forecast higher targets.” The swing variable is Blockbuster’s advertising usage, he said.
“We’ve got an opportunity to be much more aggressive with Netflix, much more aggressive with Game Stop and the question is how much of our advertising will be used in that fashion,” Keyes said. “We basically have the option to dial it up as results continue to improve.”
In midday trading, BBI shares are up 0.98%, or $0.03, at $3.10. The stock price hit $3.50 in pre-market trading but has steadily declined since the conference call.
