DVD Growth Drives Blockbuster Q4 Earnings Up 67 Percent

DALLAS – Blockbuster Inc., the world's largest video rental chain, said Tuesday its fourth-quarter earnings excluding a range of costs rose 67 percent, beating Wall Street expectations, as the growing appeal of DVDs boosted margins and revenues.

Dallas-based Blockbuster, which said DVD rentals shot up 160 percent for the year, said it expects first-quarter revenues at stores open at least a year to be little changed to slightly down because of a light new release schedule and expected heavy viewership of the Winter Olympics.

Including $40 million in non-cash charges for removing 25 percent of its less-productive VHS tapes to make room for DVDs, the company posted a net loss of $4.5 million, or 3 cents a share, compared with a net loss of $24.6 million, or 14 cents a share a year ago.

Blockbuster, a unit of entertainment giant Viacom Inc. , said earnings in the quarter excluding goodwill amortization costs and charges rose to $63.2 million, or 35 cents a share, from $37.8 million, or 22 cents a share, in the quarter a year earlier.

Analysts polled by research firm Thomson Financial/First Call had forecast earnings of 27 cents to 28 cents, with consensus at 28 cents a share.

Fourth-quarter revenue at the company, which has nearly 7,900 stores worldwide, rose 1.3 percent to $1.36 billion from a year ago.

It expects earnings before interest, taxes, depreciation and amortization (EBITDA) to grow in the double-digits in 2002.

It will add about 300 stores for the full year, and plans 2002 capital expenditures to increase to about $150 million to $175 million.

Digital versatile discs (DVDs) currently account for about 30 percent of rentals at Blockbuster, with the rest still coming from VHS tapes. But the chain expects DVDs, which carry about 10 percent higher margins than videocassettes, to account for half of rentals by 2003.

Gross profit increased nearly 59 percent as a percentage of revenues for the fourth quarter on growth in DVD rentals and fewer purchases under lower margin VHS revenue-sharing agreements, the company said.

Fourth-quarter EBITDA was $135.6 million, including charges of $39.4 million, Blockbuster said.

"We remain poised to increase our ... position with a long-term strategic plan that includes driving top-line and gross profit growth, generating efficiencies in operating costs, and growing our movies and games business," said Blockbuster Chief Executive John Antioco in a statement.

Shares rose more than two percent in early trade Tuesday to $19.73 on the New York Stock Exchange.