It's finally time for Movie Gallery's (Nasdaq: MOVI) feature presentation. After teasing us with a preview trailer two months ago, the DVD rental chain finally filed fiscal third-quarter financials over the weekend.
It wasn't pretty. For the quarter that ended Oct. 1, the company posted a loss of $36.1 million, or $1.13 a share. Most of that came in the form of mounting interest payments paid on the company's debt. To be fair, this is also a seasonally sleepy quarter for the company. In the summer, we've all got plenty of things on our minds beside hitting the video store. However, even if we whack away the $31.2 million in interest that Movie Gallery doled out, it still posted a small operating deficit for the period. A year earlier, it managed to produce an operating profit on the way to posting a loss of just $0.39 a share.
This isn't a good report, but it's not necessarily a bleak one. Things would only get dire if the company fell short in its seasonally potent holiday quarter. In fact, looking above the bottom line -- at the figures repeated from its initial November report -- you see a company that won't go down without a fight.
Movie Gallery's revenues rose 2% for the period, to $583 million. Product sales grew briskly, but royalty revenue inched higher as well. The 0.4% decline in same-store sales is minimal, and if you look past the 1.9% slide at its Hollywood Video chain, you'll find a refreshing 3% increase in comps growth at its namesake stores.
The disparity isn't a surprise. Movie Gallery's own chain emphasizes rural markets. That has given the company an edge over the years, sheltering it from some of the bigger competitive threats that have hit larger metropolitan concepts like Hollywood Video.
Out in the heartland, Netflix (Nasdaq: NFLX) and Blockbuster's (NYSE: BBI) regional distribution centers for their mail-delivered rentals are often too far away to provide overnight delivery. High-speed broadband and digital cable have been slow to come around, so online stores recently rolled out by Amazon.com (Nasdaq: AMZN) and Apple (Nasdaq: AAPL) aren't as compelling.
Is a confrontation with these technological enhancements inevitable? Probably, but Movie Gallery has been granted the luxury of a bigger cushion of time. It isn't squandering that time. The company has been analyzing its floor space and subleasing the room it doesn't necessarily need at many of its stores. Making the online migration isn't a priority, because larger companies with cleaner balance sheets would crush it.
So don't forgive Movie Gallery its sloppy quarter. Don't you dare take your eye off that debt, either. However, like any good flick, Movie Gallery still bears watching until the end credits start to roll. After all, in the movies, anything is possible.
Netflix and Amazon.com are active recommendations in the
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Longtime Fool contributor Rick Munarriz is a Netflix shareholder and plans to stay that way. He is also part of the
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