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DOTHAN, AL-The worst box-office slump in two decades,coupled with weak game titles, adversely impactedMovie Gallery Inc.’s second quarter financial results. Specifically, same-store total revenue dropped 5.5% for the second quarter, while same-store rental revenue declined 8.4%.

Movie Gallery’s executive team expresseddisappointment and surprise during its second quarterearnings call, calling the industry slump”unprecedented.” The second quarter results includethe recent acquisition of Hollywood EntertainmentCorp., which will continue to operate as a separatebrand format. At the end of the second quarter, MovieGallery boasted 4,700 stores located in all 50 USstates, Canada and Mexico, making it the secondlargest video retailer in the nation.

Movie Gallery same-store revenue plunged 8.1%, andsame-store rental revenue declined 8.7% in the secondquarter of 2005. Same-store product sales declined1.2% in the second quarter. Hollywood Video’sperformance was equally lackluster as same-storerevenues decreased 4.4% for the second quarter, andsame-store rental revenue declined 8.2% in the secondquarter of 2005. One bright spot emerged fromHollywood Video’s product sales. Same-store productsales increased 12.9% in the second quarter, primarilybecause of in-store Game Crazy departments.

Together, the companies posted a net loss of $12.2million, or 39 cents per share, due to charges relatedto the acquisition and accounting changes. The chargestotal $16.4 million or 52 cents per share. Excludingthese items, net income would have been $4.3 million,or 13 cents per share.

Movie Gallery chairman, president and CEO Joe Malugensaid that he expects the third quarter to be tough,but anticipates an improvement during the fourthquarter as Batman Begins, Star Wars Episode 3, War ofthe Worlds, Mr. and Mrs. Smith and Fantastic Fourare released.

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