Movie Gallery Posts Loss

Movie Gallery(MOVI Quote) swung to a wider-than-expected third-quarter loss and warned that the downturn in the video-rental market has been more severe than previously believed.

Movie Gallery, which acquired Hollywood Entertainment earlier this year, lost $12.5 million, or 39 cents a share, in the latest quarter, compared with earnings of $9.2 million, or 29 cents a share, last year. Adjusted to exclude integration and other charges, the company lost $5.2 million, or 16 cents a share, in the latest quarter.

The pro forma loss was well short of Wall Street estimates, which had called for a small profit in the quarter.

Third-quarter sales more than doubled from a year ago to $572.4 million, reflecting the addition of Hollywood Entertainment. Analysts had been forecasting sales of $583 million in the quarter.

"Rental revenues have continued to decline over the last several months, and the market weakness we are currently experiencing has been more severe and longer lasting than anticipated," Movie Gallery said in a release. "In response, we have taken, and will continue to take, decisive action to reduce our cost structure, leverage the Company's purchasing power and streamline the organization to drive improved earnings."

The company forecast fourth-quarter sales of $675 million to $705 million, short of the mean Wall Street estimate of about $720 million.

"The company anticipates that the cumulative weakness of movie releases in the second and third quarters of 2005 will continue to adversely impact its fourth-quarter results. In addition to the weakness of available movie titles, the video game business has been similarly soft due in part to the maturation of game platforms," the company said.

The stock closed at $6.28 Wednesday.

Movie Gallery's disappointing numbers follow a similarly dour report Tuesday from Blockbuster(BBI Quote), the company it beat out in the Hollywood Entertainment bidding.