Blockbuster Eats Brains

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There sure are a lot of zombie movies at your local Blockbuster (NYSE: BBI). Between Night of the Living Dead, Shaun of the Dead, and Army of Darkness, the living dead are alive and well on the racks. After consuming this morning's surprisingly lively report, it's safe to say that Blockbuster itself may be back from the dead.

I'm not making this stuff up.

Last year's operating loss became a $0.20-a-share profit. Revenue fell by 5% to $1.4 billion, but that is mostly the result of the company closing more than 400 company-owned stores. Comps actually rose by 2.9%. This is the first time in five years that sales at the domestic store level have clocked in higher.

And, as a cherry on top, Blockbuster's Total Access is actually now profitable. The company's move last year to raise prices and scale back perks for its subscription plan may have cost it members and momentum, but if coming in a distant second to Netflix (Nasdaq: NFLX) means profitability, shareholders will gladly take the silver medal.

The better-than-expected profits (analysts were looking for earnings of just $0.15 a share) will no doubt find analysts ratcheting up their earnings targets. It is what they have been doing in recent months, as CEO Jim Keyes' retail-friendly initiatives have been working.

You see the retail success at the store level. Rental comps were up 0.4%, but merchandising revenue soared 19.7% higher at the unit level.

Investors may be skeptical about the company's merchandising bent. Channeling GameStop (NYSE: GME) with video gaming initiatives didn't get the stock moving. Its pursuit of Circuit City (NYSE: CC) has been ridiculed. Maybe those cynics will begin seeing things differently now that Keyes is pushing all of the right buttons.

I seemed to be in a thin crowd when I proclaimed "I believe in Blockbuster" on Monday. Seeing the stock open nearly 7% higher on today's report, I guess I'm not alone anymore.

Keep gnawing on those brains, Blockbuster. They're apparently making us all a little smarter.

Related Foolishness:

• A fellow Fool rated Blockbuster the Worst Stock for 2008.
• Some Fools disagree about Blockbuster's potential future with Circuit City.
• But some think there's more than meets the eye.