Moreover, the chain, which operates under the MovieGallery and Hollywood Video flags, will open just 150stores in 2006 and expects to close 75 to 100 unitsduring the same period. Movie Gallery's chairman,president and CEO Joe Malugen discussed the pullbackduring the chain's third quarter earnings conferencecall.
Malugen also indicated that the company, which hasnearly 4,800 stores in North America, plans toevaluate ways to leverage its existing real estate."We have some of the best real estate in the world,"he pointed out, adding that the average store measures6,000 sf--an excessive amount required for today'sbusiness. As a result, Movie Gallery is pursuingsubleasing opportunities, along with joint venturesfor the space.
"We're aggressively responding to the industryslump," Malugen noted, adding that the industrydownturn had been more severe and prolonged thananticipated. He attributed the ongoing weakness to the unprecedented box office slump, an abundance of for-sale videos, a dearth of new movie and gaming titles and superior television programming.
Lack of customer demand for movie and game rentals,combined with several charges related to theacquisition of Hollywood Entertainment Corp. andHurricane Katrina, pushed Movie Gallery to a $12.5-million loss, or 39 cents per share, during thequarter compared with earnings of $9.2 million, or 29cents a share, for the third quarter 2005. Excludingthe charges, Movie Gallery's adjusted net loss was$5.2 million, or 16 cents per share.
The chain's revenues for the period totaled $572.4million. Analysts surveyed by Thomson Financial hadexpected Movie Gallery to achieve sales of $585million and earnings of 6 cents per share.
During the third quarter, same-store revenues declined9%, while same-store rental revenue declined 10.3%and product same-store revenue declined 2.2% comparedto the same period last year.
Malugen has a negative outlook for Movie Gallery forthe rest of the year. "We anticipate that thecumulative weakness of move releases in the second andthird quarters of 2005 will adversely impact ourfourth quarter results," he said during the call,adding that he expects the chain's fourth quarterrevenues to be $675 million and $705 million andsame-store revenues to decline 5% to 9% as compared tothe fourth quarter of 2004.
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