Blockbuster’s Quarterly Profit Increase Caps Challenging Year

DALLAS —  Blockbuster Inc., the nation’s largest movie retail chain, said Thursday that its fourth-quarter profit increased significantly.

The news capped a tumultuous year that included proxy fights, discussions of bankruptcy protection and a contested decision to end late fees.

Net income grew to $18 million, or 9 cents a share, from $2.8 million, or 2 cents, a year earlier. Excluding one-time items, the company reported adjusted net income of $34.2 million, or 17 cents a share, for the latest quarter.

Chairman and Chief Executive John Antioco delivered the news to analysts with an upbeat tone, different from the yearlong defensive posture forced upon him by critics. Among his biggest critics was financier Carl Icahn, who placed two allies and himself on the company’s board last year.

“It was the toughest year of my retailing career,” Antioco said after a conference call with analysts. “I’m glad it’s over. It was a challenging year in every respect, and maybe that’s why there’s optimism in my tone.”

Revenue fell 11% to $1.53 billion as worldwide sales at stores open at least a year, a key measure of retail health, fell 10.1% because of the elimination of late fees.

Analysts surveyed by Thomson Financial expected earnings of 15 cents a share on revenue of $1.7 billion.

“There are signs of improvement because they are focusing on cost reduction and profitability,” said Arvind Bhatia, an analyst with Sterne, Agee & Leach.

Antioco said the company would continue to cut costs, close unprofitable stores and build its online business.

Antioco spent 2005 defending a decision to eliminate late fees, a move he says will begin paying off this year. Still, no late fees hurt the company’s same-store rental revenue, which accounted for 13% of the rental revenue in the fourth quarter of 2004.

Time will tell whether it was the right move, analysts said.

“It was a case where he had to make a strategic decision, and he stuck it out, but the jury is still out whether it pays off for them,” said analyst Stacey Widlitz of Pali Research.

For 2005, Blockbuster said revenue fell 3.1% to $5.86 billion, largely because of removing the late fees. The company narrowed its full-year net loss from $1.25 billion, or $6.89 a share, to $588.1 million, or $3.20.

Separately, the Dallas-based company announced that it would revise its financial statements to reflect how it categorized its inventory.

The changes, however, will not affect reported revenue, net income, total assets, any shareholder equity, total cash flows or any liquidity.

Blockbuster shares fell 25 cents, or 6.5%, to $3.62.