After the demise of its No Late Fees program, the company was forced to retract its 2005 guidance, blaming the uncertainty and continued decline in the rental industry. The company says it is "no longer on track to achieve this guidance and is unable to forecast 2005 results with reasonable certainty."
On Monday, the blockbuster also amended its credit facility to provide for a waiver of certain financial covenants for the second and third quarters of 2005. Without the waiver, the company said it would have been in default of the leverage ratio covenant for the second quarter of 2005.
Since the booming popularity of online rental ordering, Blockbuster has been trying keep pace with internet-based movie rental companies. In an attempt to compete, Blockbuster launched a similar online product in August 2004. Since its inception, Blockbuster Online has built a subscriber base of one million and expects that number to increase to two million by the first quarter of 2006.
But those figures are still not matching up with its biggest threat, Los Gatos, CA-based Netflix, which ended the second quarter of 2005 on June 30 with approximately 3.2 million total subscribers, representing 53% year-over-year growth same period last year and 6% sequential growth from subscribers at the end of the first quarter of 2005.
In Blockbuster's most recent attempt to ward off negative results, the company said it is changing the price of its popular three-movies-out rental plan from $14.99 to $17.99—going head-to-head with Netflix prices.
In its Q2, Blockbuster's total revenues decreased 1.6% to $1.4 billion for the second quarter of 2005 from $1.42 billion for the second quarter of 2004. Net loss for the second quarter of 2005 totaled $57.2 million, or 31 cents per share, compared with net income of $48.6 million, or 27 cents per share, for the second quarter of 2004.
Total worldwide same-store revenues decreased 4.7% from the same period in the prior year. Total rental revenues, which represented 73% of total revenues for the second quarter of 2005, decreased 5.2% to $1.02 billion from $1.08 billion for the same period last year.
Total retail revenues, which represented 25.8% of total revenues for the second quarter of 2005, increased 11.5% to $360.4 million from $323.2 million for the second quarter of 2004 primarily as a result of additional company-operated stores. Worldwide same-store retail revenues for the second quarter of 2005 increased 1.8% as a result of growth in sales of new and traded games, which was partially offset by decreased movie sales.
Gross profit decreased 11.5% to $770.8 million from $871.4 million for the second quarter of 2004. Rental gross profit for the second quarter of 2005 decreased 13% to $677.1 million from $778.5 million for the same period last year.
"Although we invested heavily to achieve our revenue results, which combined with industry trends impacted our bottom line, we believe we are affecting a permanent improvement in our business that will enable us to address the decline in our core rental business, develop new revenue streams and drive future growth," said John Antioco, Blockbuster chairman and CEO.
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