The Movie Gallery Shooting Gallery

After three straight extensions to its credit terms, Movie Gallery (Nasdaq: MOVI  ) has finally decided to do something material about its flagging finances. The nation's No. 2 movie-rental chain (after Blockbuster (NYSE: BBI  ) ) is grabbing a BB gun, ready to decimate its headcount and sell off some inventory.

Some 520 stores among the 4,500 or so Movie Gallery and Hollywood Video locations have big bull's-eyes on their back walls. Management now hopes to turn a profit from the remaining core of roughly 4,000 stores. Somehow. Someday.

That's not easy, given the rise of online video rentals from the Blockbuster/Netflix (Nasdaq: NFLX  ) duopoly. Meanwhile, the next wave in this sea change is waiting around the corner. Hello, direct downloads and real-time streaming video.

While I wish the best for Movie Gallery's employees and investors, Fools have seen this move coming for quite a while. It's been five quarters since Movie Gallery last turned a quarterly profit, and its last annual profit came in 2005. The company has lost $376 million over the last 12 months -- the $309.9 million loss in the previous quarter alone erased the combined $310 million in net earnings the company amassed from 1993 to 2005.

Movie Gallery is a sad shell of a business operation, with a $19.6 million market cap but $1.2 billion in enterprise value. Its debt load is crushing, and I doubt that a rather meek 11% reduction in stores and headcount can fix what ails these guys. Perhaps management should reload that gun and do another round in the shooting gallery soon.

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