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Blockbuster to shut more stores


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POSTED: Saturday, August 15, 2009

Blockbuster Inc. Chief Executive Officer James Keyes said the largest movie-rental chain might be more aggressive in closing stores as it deploys as many as 10,000 rental kiosks by mid-2010.

The company had more than 7,100 stores in the United States and overseas at the end of the second quarter and has said it plans to close about 300 this year. (Blockbuster has about 24 outlets in Hawaii.)

“;We could be more aggressive as vending ramps up,”; Keyes, 54, said in a telephone interview, referring to store closures. “;We're deploying as many as 10,000 vending machines by the middle of next year.”; Blockbuster, based in Dallas, plans to have 500 kiosks by the end of this month and more than 2,500 by year-end.

The company is focused on increasing cash flow, rather than boosting sales, in a “;very challenging credit market,”; Keyes said.

Blockbuster has a $250 million revolving loan due Sept. 30, 2010, and must repay more than $350 million of outstanding long-term debt by the end of next year, Wedbush Morgan Securities Inc. analyst Michael Pachter wrote yesterday in a research note. It had $99 million in cash and equivalents as of July 5, down 36 percent from $154.9 million as of Jan. 4.

Blockbuster sank 14 cents, or 16 percent, to 72 cents yesterday in New York Stock Exchange composite trading for the steepest decline since May 15. The shares are down 43 percent this year.

The company lowered its 2009 forecast for earnings before interest, taxes, depreciation and amortization yesterday, projecting $270 million to $290 million. That's down from a previous prediction of $305 million to $325 million. It reported a second-quarter net loss of $39.7 million, or 21 cents a share, on sales of $1.02 billion. Six analysts estimated second-quarter revenue of $1.12 billion, on average, in a Bloomberg survey.

Sales declined in each of the last four quarters at Blockbuster, which has seen increased competition from by-mail service Netflix Inc. and daily rental kiosks run by Redbox, a unit of Coinstar Inc. Blockbuster has started competing in both services, and also offers digital video-on-demand entertainment.

The company aims to extend its debt maturities and reduce the cost of capital, and is in talks with its lender about refinancing debt, Keyes said.

“;They need the credit markets to loosen up, and they need to refinance,”; Pachter said in a telephone interview Thursday. “;They're not on track to repay this debt in the time frame they need to, so they've got to extend the terms.”;

Pachter recommends investors hold Blockbuster shares, lowering his rating from “;outperform”; yesterday. He also reduced his price target, estimating the stock will reach $1.50 in 12 months, down from $2 previously. The Los Angeles-based analyst doesn't own Blockbuster shares.