Can the video rental industry get any uglier? Last night, Movie Gallery (NASDAQ:MOVI) announced that it expects September-quarter comps to come in between 8% and 10% below last year's showing. It sees fourth-quarter same-store sales no better than flat and potentially as bad as 6% lower than last year's holiday results.
That last point stings, because just last month the company projected a rebound in the fourth quarter. That was based on the anticipated video releases of some of the year's biggest theatrical blockbusters, like Star Wars Episode 3, War of the Worlds, Batman Begins and Marvel's (NYSE:MVL) Fantastic Four. As far as quarters go, it won't be a "Fantastic Four" for the country's second-largest flick-rental chain.
Movie Gallery posted a 6% slide in fourth-quarter comps in 2004, so the combination of hit movies and a sandbagged period to compare against should have led the company to close out the 2005 year strongly, in the hope of clinching its seventh consecutive year of record results.
It doesn't look good right now. The company is reporting progress in realizing synergies after its recent Hollywood Entertainment acquisition. But shaving overhead by eliminating redundancies won't alleviate the continuing trend of consumers bailing on movie rentals through traditional storefronts. As companies like Movie Gallery and Blockbuster (NYSE:BBI) continue to suffer dips in comps, online rental specialist Netflix (NASDAQ:NFLX) keeps gathering up new film buffs.
This doesn't mean that Movie Gallery's salvation would come from an online migration. Even Wal-Mart (NYSE:WMT) shuttered its online DVD-rental business this year, and Amazon.com (NASDAQ:AMZN) doesn't seem so anxious to jump into the fray, despite launching a rental service in the United Kingdom.
Either way, swallowing the Hollywood Video chain isn't looking like such a great idea in retrospect. Realized savings in a sinking industry is never a fair trade.
Shares of Marvel, Netflix and Amazon.com have been recommended in our Motley Fool Stock Advisor newsletter service. Learn more with a free 30-day trial subscription.
Longtime Fool contributor Rick Munarriz lives in South Florida, the original nesting ground for Blockbuster. He also owns shares in Netflix. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
