Blockbuster Q1 2010 Earnings Call Transcript

Blockbuster Q1 2010 Earnings Call Transcript
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Blockbuster (BBI)

Q1 2010 Earnings Call

May 13, 2010 4:30 pm ET


Kellie Nugent - IR - The Shelton Group

Thomas Casey - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

James Keyes - Chairman and Chief Executive Officer


Emily Shanks - Lehman Brothers

Tony Wible - Janney Montgomery Scott LLC

Colleen Burns - Oppenheimer

Carla Casella - J.P.

Karru Martinson - Deutsche Bank AG

Mary Ross Gilbert



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Good afternoon, and Welcome to Blockbuster's First Quarter 2010 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Kellie Nugent, Blockbuster's Director of Investor Relations. Kelly, please go ahead.

Kellie Nugent

Thank you, Jonathan, and thank you everyone for joining us today to discuss Blockbuster's first quarter 2010 financial results. With me on today's call are: Jim Keyes, Chairman and CEO; and Tom Casey, Executive Vice President and CFO. As Jonathan mentioned, this conference call is being recorded. It is also being broadcast via live in voice mode over the Internet and may be accessed within Blockbuster's website at After the market closed today, Blockbuster issued a press release regarding its financial results for the first quarter ended April 4, 2010. By now, everyone should have access to the press release and financial tables. However, if you do not, they are available via the company's website.

Please be advised that matters discussed in today's teleconference contain forward-looking statements relating to the company's operations and business outlook, financial and operational strategies and goals, including expectations regarding the company's financial and operational performance in 2010, and other matters that do not strictly relate to historical or current facts. We caution you that statements are, in fact, such predictions that are subject to risks and uncertainties that could cause actual events or results to differ materially. Additional risks and uncertainties that could cause actual events or results to differ materially from these forward-looking statements may be found in the company's filings with the Securities and Exchange Commission on Form 10-K.

Forward-looking statements are based on the company's beliefs as of today, Thursday, May 13, 2010. Blockbuster undertakes no obligation or responsibility to publicly update any forward-looking statements for any reason, except as required by law, even if new information becomes available or other events occur in the future. Additionally, in the company's press release and during the teleconference, management will discuss certain measures and information in both GAAP and non-GAAP terms. A reconciliation of GAAP to non-GAAP is provided in the financial tables following the text of the release.

I will now turn the call over to the Blockbuster's Chairman and CEO, Jim Keyes.

James Keyes

Thank you, Kelly, and thank you, everyone, for joining us this afternoon. During the first quarter, we continue to make progress to recapitalize our business. We've now received several proposals from bondholders and both financial and strategic investors. And we appreciate the support these constituencies have provided. And we're conducting due diligence now to carefully evaluate each of these opportunities. As you know, we’ve delayed the shareholder meeting until late June to have the opportunity to report progress on our recapitalization plans.

During the quarter, we experienced better same-store sales trends and achieved one of our key goals: establishing a significant cross-channel competitive advantage by securing agreements with three of the major studio partners. With these agreements, we not only demonstrated positive studio support, but we established a significant competitive advantage, receiving day-and-date cross-channel access on nearly 50% of major new releases. These are movies that are national competitors like, Netflix or Redbox, will not have for 28 days.

In March, we announced an agreement with Warner Home Video providing a 28-day advantage beginning with the movies: The Blind Side and Sherlock Holmes. Two weeks later, we announced similar agreements with Fox and Universal.

Since over 60% of the industry's $22 billion rental and retail business represents new releases during the first 28 days of street date, we believe that these agreements provide a significant competitive advantage for Blockbuster's stores and for our cross-channel offerings.

Ideally, we'd support these new release windows with aggressive advertising. But given the continued need to manage the business to maximize liquidity, we've been unable to spend incremental dollars to date or significant incremental dollars at least, on advertising. We do believe this is a significant opportunity going forward and for the first time in many years, we now have a tangible advantage to communicate. And we hope that additional funds and studio co-op advertising can be used to promote this advantage.

Finally, we believe more studios are likely to introduce a window and that, over time, this will strengthen this virtual exclusivity, if you will, in new release rentals in DVD.

We have taken important steps also to improve our comparable trends, including the rollout of additional daily rates, improving the customer shopping experience, introducing direct access that allows our customers, By Mail access to as many as 100,000 titles, and providing exclusive products.

As I said in the third quarter of last year, when you manage the business for liquidity, you have to sacrifice in some cases top line growth. And I also said that it would take several quarters to restore our ability to improve same-store sales.

During the quarter, we made steady improvement in top line performance with sequential improvement of domestic rental same-store sales comps coming from approximately minus 15% in the third quarter of 2009 to minus 11% in the fourth quarter of '09, and now minus 6% in the first quarter of 2010.

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