You know you're in for a fun ride when the lead-in on a company's earnings press release touts adjusted EBITDA (earnings before interest taxes and depreciation) -- and nothing else. Welcome to the horrorshow that is Movie Gallery
Investors seem somewhat surprised that the company reported a stinker of a quarter this morning; the stock is down 45% today. On a pro forma basis, sales and same-store sales declined, and the company reported a net loss of $0.47 per share. To make things worse, this isn't a situation where one-time items obscure cash profitability; the company's operating cash flow was also negative.
I don't think there's much cause for investors to be surprised. The company did report a pretty good first quarter three months ago, which got Wall Street excited. But the company remained overleveraged, still operating a declining business that Comcast
Investors who might consider Movie Gallery a turnaround play should remember the more than $1 billion in debt on its books, and the company's inability to cover its interest expense in three of the last four quarters.
To help right the ship, the company has brought on Merrill Lynch
That's not a lot to work with, and for the rest of the year, the company still plans to open 30 new stores. That will require cash for inventory, equipment, and furnishings as well. I don't see much that will allow the company make a great deal of headway on its $1 billion in debt. These moves seem destined to keep the company operating a little bit longer, in hopes that the decline in sales and same-store sales will abate.
I think it's very likely that the only people to get anything out of Movie Gallery will be Merrill Lynch (fees) and the debtholders, who will look to recoup their principal. I just can't envision a scenario where shareholders end up with much of anything at all.