, amid fierce competition in DVD sales from retailers such as
, turned a lower-than-expected profit for the fourth quarter, reversing a year-earlier loss. The company projected full-year earnings above Wall Street estimates.
The nation's largest video-rental chain posted fourth-quarter net income of $30.7 million, or 17 cents a share, compared with a year-earlier net loss of $4.5 million, or three cents a share. The results included an $11.4 million expense to establish a reserve related to the sale of its Blockbuster Music division. Wall Street expected earnings of 19 cents a share, according to Thomson Financial/First Call.
Revenue rose 17% to $1.58 billion, buoyed by a 40% increase in worldwide same store sales.
"Prior to the holidays, we experienced significant increases in both the rental and retail segments of our business and, based on that, we invested in movie and game rental inventory, marketing and store staffing, designed to take advantage of a higher level of customer transactions than actually materialized. As a result, our profits were negatively impacted," said John Antioco, Blockbuster Chairman and CEO. In other words, the company bought more stuff to sell during the holiday season than it actually needed.
However, Antioco said that sales momentum returned after Christmas and has continued into the first quarter, "supporting our belief that the market dynamics of the fourth quarter were an anomaly. We will continue to pursue our strategy of capitalizing on both rental and retail opportunities and believe this is the right approach to maximize our growth opportunities for 2003 and beyond."
The company expects full-year earnings growth of at least 20% above the $1.04 a share earned in 2002, putting earnings at about $1.25 a share at minimum. That forecast is above the $1.20 a share Wall Street estimate, according to Thomson Financial/First Call.
For the fourth quarter, gross margin declined to 53.9% from 58.7% a year earlier, reflecting a less-profitable mix of sales.