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AP Online via NewsEdge Corporation :

DALLAS_Blockbuster Inc., the nation’s largest movie-rental chain, cut its first-quarter loss sharply from a year ago and posted its first gains in U.S. same-store rentals in three years.

However, overall revenue tumbled nearly 8 percent as the chain closed some stores and reduced low-margin merchandise such as older movies.

Blockbuster officials and analysts said the company focused on improving profitability, even if it meant sacrificing sales.

Blockbuster said Thursday it lost $4.7 million for common shareholders, or 3 cents per share, compared with a loss of $57.5 million or 31 cents per share a year earlier.

Stripping out expenses for store closings and severance for laid-off workers, Blockbuster said it would have earned $13 million, or 5 cents per share, in the quarter ended March 31.

On that basis, analysts had expected a gain of 2 cents per share, according to a survey by Thomson Financial.

Same-store rental revenue, a closely watched measure for Blockbuster, rose 2.1 percent in U.S. stores but fell slightly worldwide because of a 9 percent decline overseas.

Overall revenue fell 7.7 percent, to $1.43 billion, about $40 million below analysts’ forecast.

The revenue decline reflected 200 fewer stores than a year ago for the chain of nearly 9,000 locations around the world. Blockbuster also saw a sharp decline in sales of merchandise, which is only about one-third as profitable as renting movies.

Chairman and Chief Executive John Antioco said the company had taken big steps to cut costs and was focused on improving profitability.

Analysts said the results showed Blockbuster is making headway in reversing a dismal stretch in which it piled up large losses and needed waivers from financial-performance requirements of its bank loans. The stock plummeted, and the company was considered a candidate for bankruptcy.

Arvind Bhatia, an analyst with Sterne, Agee & Leach, said the company seems most intent on cutting costs and increasing profits, “and if they’re not chasing revenue for the sake of chasing revenue, that’s a good thing.”

Michael Pachter, an analyst with Wedbush Morgan Securities Inc., said Blockbuster closed more stores than expected and grew more lean.

“They have aligned their expenses with their revenue, and they were profitable” on an operating basis, he said. “That has taken away the bankruptcy fears.”

Both analysts said they were disappointed, however, in the continuing slow growth of Blockbuster’s online service. It grew by 100,000 customers, to 1.3 million at the end of March.

But rival Netflix Inc. added nearly 700,000 customers in the same three months and now has 4.9 million subscribers.

Blockbuster had raised hopes of growing its online service faster by resuming advertising in February after a long spell in which it cut back to conserve cash.

Dallas-based Blockbuster hopes to add another 700,000 customers to the online service this year, which would still be only half the growth that Netflix predicts.

“If we hit our goal and they hit theirs, we’ll both be growing rapidly,” Antioco said, adding that Blockbuster would be growing faster in percentage terms.

Blockbuster dominates the in-store rental business, but that has not been a good line for the last few years, as more people buy cheap DVDs at Wal-Mart or order movies from Netflix.

Company officials have also blamed a shortage of hit movies that people want to rent. Bhatia said Hollywood won’t help Blockbuster’s business much until some summer hits reach the home market later this year.

Antioco dismissed dire predictions about the future of movie rental stores.

“No matter what forecast you look at, in-store rental is still projected to be a multi-billion business years into the future,” he said.

Shares of Blockbuster fell 13 cents, or 2.7 percent, to close at $4.76 on the New York Stock Exchange.

<<AP Online — 04/28/06>>