During the fourth quarter, which ended Jan. 1, the retailer shut 64 stores where there were duplications of units as a result of the company's acquisition of Hollywood Entertainment's more than 2,000 stores a year ago. This year, the company, which operates about 4,800 stores, also plans to open 140 units.

Movie Gallery's quarter was marked by deep losses and drops in sales. Year-over-year same-store sales plunged 8.6%, and the company's net loss totaled $546.5 million, due to a $527.9-million non-cash impairment of goodwill, and other factors. Executives blame weak sales on last year's less-than-stellar performance last year by movies at the box office.

One way that Movie Gallery executives are trying to improve results is by subleasing space to other retailers in 2,200 of their stores, a strategy announced earlier this month. Management has decided that on average it only needs 4,000 sf in Hollywoods, which average 6,600 sf, and 3,000 sf in Movie Gallery units, which average 4,200 sf. "We have had a great deal of interest," says Malugen, referring to retailers inquiring about the extra space in stores. "It includes virtually all 1,000-sf to 2,000-sf retailers that you can imagine."

Officials also announced that they will cut administrative staff by 17% by the end of the year, letting go about 300 positions. Capital expenditures will drop from $58 million last year to $35 million this year.

Despite a tough quarter, and first quarter that Malugen perceives as being less than stellar so far, he says that Movie Gallery's sector of retailing has the potential to bounce back. "There's still no substitute for a quality DVD movie at home," he says of consumers' entertainment choices.