Instead of its ultimately fruitless pursuit of Circuit City (NYSE: CC), maybe Blockbuster (NYSE: BBI) should turn its attention into snapping up GameStop (NYSE: GME), a local video game arcade, or even my son's bedroom.
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Video games saved the day at Blockbuster this past quarter, as a sharp 30.7% spike in gaming merchandise sales at the individual store level helped boost an anemic 0.8% increase in rental revenue. The blended average works out to an enviable 5.1% boost in comps.
It wasn't enough to offset the DVD rental giant's dwindling store count. Revenue fell by 2.7% to $1.2 billion during the period. However, the company did post a much narrower quarterly loss than Wall Street was expecting. It's also heading into the holiday selling season, where having brisk-selling video games and consoles in stock will help.
The spike in gaming revenue likely explains why Blockbuster was entertaining a combination with Circuit City. Now that everyone from Netflix (Nasdaq: NFLX) to Amazon.com (Nasdaq: AMZN) is delivering movies digitally, Blockbuster is right in reshaping itself as an entertainment retailer of hard goods. In a few quarters, Blockbuster may start looking more like a multipurpose media seller and renter like Hastings Entertainment (Nasdaq: HAST) than it does today.
The company's challenge, of course, is making it to tomorrow. With $854.3 million in total debt, it's certainly not a given that Blockbuster has enough juice to see this game through to the end. The stock may have opened higher on the news, but it quickly sank into sharp intraday losses. Maybe investors can see where this will end, long before the game has a chance to play itself out.
Copyright © 2008 Universal Press Syndicate.
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