DOTHAN, Ala., May 11 /PRNewswire-FirstCall/ -- Movie Gallery, Inc.
(NASDAQ:MOVI) today reported results for the first quarter ended
April 1, 2007. For the first quarter of 2007, Movie Gallery's total
revenues were $647.7 million, a decrease of 6.7% from $694.4
million in the first quarter of 2006. Total revenues were primarily
impacted by a 5.9% decline in same-store total revenues for the
first quarter as compared to the first quarter of 2006. To a lesser
extent, the decrease in revenues also resulted from the reduction
of the Company's store footprint by 184 stores, or approximately
4%, year over year. Same-store total revenues declined 4.0% at
Movie Gallery branded stores and declined 6.8% at Hollywood branded
stores. The same-store total revenues at the Hollywood brand were
impacted by a 13.1% decline in same-store revenues at the Hollywood
Video segment, which was partially offset by a 26.4% increase in
same-store revenues in the Game Crazy segment. Gross margin on
rental revenue for the first quarter of 2007 was essentially flat
at 69.7% compared to 69.6% for the first quarter of 2006. The
Company's rental gross margin for the first quarter of 2006 was
negatively impacted by a charge of $6.8 million, or 1.0% of rental
revenue, which was recorded to reflect changes in rental
amortization estimates in the Movie Gallery segment. Rental gross
margins in the first quarter of 2007 reflect the adverse impact of
a 17% decline in the average sales price of previously viewed DVD
movies. The Company's operating income for the first quarter of
2007 was $33.6 million as compared to $67.5 million for the first
quarter of 2006. During the first quarter of 2007, the Company
incurred additional expenses of approximately $6.3 million, or
$0.21 per share, that impacted operating income. These expenses
primarily related to our digital content and online delivery
efforts, higher professional fees, and real estate optimization
initiatives. In conjunction with the senior credit facility
refinancing in the first quarter of 2007, net interest expense
included a debt extinguishment charge of $17.5 million, or
approximately $0.58 per share, to write off unamortized deferred
financing fees related to Movie Gallery's previous senior credit
facility. As a result, the Company reported a net loss of $14.9
million, or $0.47 per share, for the first quarter of 2007 which
compares to net income of $40.3 million, or $1.27 per share, in the
first quarter of 2006. Adjusted EBITDA, which is defined as
operating income plus depreciation, amortization, non-cash stock
compensation, and special items, less purchases of rental
inventory, totaled $63.5 million during the first quarter of 2007
compared to $116.8 million in the first quarter of 2006.
Reconciliations of non-GAAP financial measures are provided in the
financial schedules accompanying this press release. As of April 1,
2007, Movie Gallery had total cash of $27 million and availability
under its credit facility of $100 million. Management's Commentary
Thomas Johnson, Executive Vice President and Chief Financial
Officer, said, "At the end of the quarter and as previously
announced, the Company entered into a new senior secured credit
facility that provides additional flexibility to the business and
significantly reduces the capital constraints that the Company had
been working under. With the new facility now in place, we are
moving forward with our strategic plans to improve the Company's
financial performance." Joe Malugen, Chairman, President and Chief
Executive Officer, said, "During the first quarter, the rental
business experienced increased pressure and was impacted by weaker
titles released to video, increasing competitive pricing pressure,
unfavorable weather and the earlier shift to daylight savings time
in 2007. Notwithstanding these challenging market conditions, we're
encouraged by several developments and ongoing initiatives. We've
seen strong demand for video games, as evidenced by our solid
product sales during the quarter, and we are pursuing a plan to
increase the availability of gaming products in an additional 500
existing Hollywood Video and Movie Gallery stores. We are also
moving forward with our plan to increase customer convenience and
satisfaction by offering content through multiple channels. We are
confident that we are taking the right steps to drive growth as we
continue to pursue initiatives to reduce expenses and reposition
Movie Gallery for the future." Conference Call Information
Management will have a conference call today (May 11, 2007) at
11:00 a.m. Eastern Time to discuss the quarterly financial results.
To listen to the conference, please call 1-877-340-MOVI ten minutes
prior to the scheduled start time and reference passcode MOVIE
GALLERY. The call may also be accessed on the Investor Relations
section of the Company's website at: http://www.moviegallery.com/.
A replay of the call can be accessed by dialing 1-877-919-4059,
replay passcode 19421417 beginning immediately after the call on
May 11, 2007 and continuing through July 11, 2007. The conference
call webcast will also be archived on the Investor Relations
section of the Company's web site. About Movie Gallery The Company
is the second largest North American video rental company with over
4,575 stores located in all 50 U.S. states and Canada operating
under the brands Movie Gallery, Hollywood Video, Game Crazy and
MovieBeam. The Game Crazy brand represents 626 in-store departments
and 14 free-standing stores serving the game market in urban
locations across the United States. MovieBeam is a movies-on-demand
service that provides instant access to a changing lineup of movies
through digital delivery to the home. Since Movie Gallery's initial
public offering in August 1994, the Company has grown from 97
stores to its present size through acquisitions and new store
openings. For more information about the Company, please visit our
website at: http://www.moviegallery.com/. Forward Looking
Statements To take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, you are hereby
cautioned that this release contains forward-looking statements,
including statements regarding the Company's plans and intentions,
with regard to operational initiatives and the impact of the
Company's new senior credit facility, that are based upon the
Company's current intent, estimates, expectations and projections
and involve a number of risks and uncertainties. Various factors
exist which may cause results to differ from these expectations.
These risks and uncertainties include, but are not limited to,
risks related to the integration of acquisitions generally and the
risk factors that are discussed from time to time in the Company's
SEC reports, including, but not limited to, the Company's annual
report on Form 10-K for the fiscal year ended December 31, 2006 and
subsequently filed quarterly reports on Form 10-Q. The Company
undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events, or
otherwise. Contacts Analysts and Investors: Michelle K. Lewis,
Movie Gallery, Inc., 503-570-1950 Media: Andrew B. Siegel of Joele
Frank, Wilkinson Brimmer Katcher, 212-355-4449 ext. 127 Movie
Gallery, Inc. Consolidated Statements of Operations (Unaudited, in
thousands, except per share amounts) Thirteen Weeks Ended
---------------------- April 2, April 1, 2006 2007 ----------
---------- Revenue: Rentals $ 570,427 $ 511,045 Product sales
123,938 136,650 --------- --------- Total revenue 694,365 647,695
Cost of sales: Cost of rental revenue 173,577 155,023 Cost of
product sales 93,879 103,388 --------- --------- Gross profit
426,909 389,284 Operating costs and expenses: Store operating
expenses 311,727 307,984 General and administrative 46,941 46,964
Amortization of intangibles 733 695 Other expenses - 22 --------
-------- Operating income 67,508 33,619 Interest expense, net
(includes $17,538 write off of debt issuance costs for the thirteen
weeks ended April 1, 2007) 27,454 47,800 -------- -------- Income
(loss) before income taxes 40,054 (14,181) Income taxes (benefit)
(293) 685 -------- -------- Net income (loss) $ 40,347 $ (14,866)
======== ======== Net income (loss) per share: Basic $ 1.27 $
(0.47) Diluted $ 1.27 $ (0.47) Weighted average shares outstanding:
Basic 31,691 31,848 Diluted 31,754 31,848 Movie Gallery, Inc.
Unaudited Financial Highlights and Supplemental Information ($ in
thousands) Thirteen Weeks Ended ---------------------- April 2,
April 1, 2006 2007 --------- ----------- Adjusted EBITDA $ 116,795
$ 63,467 Same-store revenues: Consolidated total (6.5%) (5.9%) -
Movie Gallery (3.7%) (4.0%) - Hollywood (7.7%) (6.8%) Consolidated
rental (7.7%) (9.7%) - Movie Gallery (5.6%) (3.3%) - Hollywood
(8.8%) (13.7%) Consolidated product sales (0.8%) 11.4% - Movie
Gallery 18.2% (11.0%) - Hollywood (3.9%) 16.0% Margin data: Rental
margin 69.6% 69.7% Product sales margin 24.3% 24.3% Total gross
margin 61.5% 60.1% Percent of total revenue: Rental revenue 82.2%
78.9% Product sales 17.8% 21.1% Store operating expenses 44.9%
47.6% General and administrative expenses 6.8% 7.3% Thirteen Weeks
Ended --------------------- April 2, April 1, 2006 2007 Cash Flow
Data: ---------- --------- Net cash flow provided by (used
in)operating activities $ (20,597) $ 16,783 Net cash flow used in
investing activities (8,693) (4,228) Net cash flow used in
financing activities (71,392) (18,172) Balance Sheet Data: Cash and
cash equivalents $ 34,468 27,335 Merchandise inventories, net
127,049 149,008 Rental inventories, net 358,038 333,953 Accounts
payable 132,976 77,750 Long-term obligation, including current
portion 1,095,506 1,100,026 Store count: Beginning of period 4,749
4,642 New store builds 70 1 Stores acquired - - Stores closed (46)
(54) --------- -------- End of period 4,773 4,589 =========
======== Disclosures Regarding Non-GAAP Financial Information In
this press release, we have provided a non-GAAP financial measure,
Adjusted EBITDA, which is defined as operating income plus
depreciation, amortization, non-cash stock compensation, and
special items, less purchases of rental inventory. Adjusted EBITDA
is presented as an alternative measure of operating performance
that is used in making business decisions, executive compensation,
and as an alternative measure of liquidity. It is an indicator of a
company's ability to incur and service debt, finance its
operations, and meet its growth plans. However, our computation of
Adjusted EBITDA is not necessarily identical to similarly captioned
measures presented by other companies in our industry. We encourage
you to compare the components of our reconciliation of Adjusted
EBITDA to operating income and our reconciliation of Adjusted
EBITDA to cash flows from operations in relation to similar
reconciliations provided by other companies in our industry. Our
presentation of net cash provided by operating activities and
Adjusted EBITDA treats rental inventory as being expensed upon
purchase instead of being capitalized and amortized. This
presentation differs from our GAAP basis presentation. We believe
this presentation is meaningful and appropriate to our EBITDA
calculation, as it reflects the true cash used to acquire inventory
during the period. It also takes into consideration the
similarities to recurring merchandise inventory purchases, our
operating cycle and the relatively short useful lives of our rental
inventory. Adjusted EBITDA excludes the impact of changes in
operating assets and liabilities. This adjustment eliminates
temporary effects attributable to timing differences between
accrual accounting and actual cash receipts and disbursements, and
other normal, recurring and seasonal fluctuations in working
capital that have no long-term or continuing affect on our
liquidity. Investors should consider our presentation of Adjusted
EBITDA in light of its relationship to operating income and net
income in our statements of operations. Investors should also
consider our presentation of Adjusted EBITDA in light of its
relationship to cash flows from operations, cash flows from
investing activities and cash flows from financing activities as
shown in our statements of cash flows. Adjusted EBITDA is not
necessarily a measure of "free cash flow" because it does not
reflect periodic changes in the level of our working capital or
investments in new store openings, business acquisitions, or other
long-term investments we may make. However, it is an important
measure used internally by executive management in making decisions
about where to allocate resources. Because we use Adjusted EBITDA
as a measure of performance and as a measure of liquidity, the
tables below reconcile Adjusted EBITDA to both operating income and
net cash flow provided by operating activities, the most directly
comparable amounts reported under GAAP. The following table
provides a reconciliation of Adjusted EBITDA to operating income:
Thirteen Weeks Ended ----------------------- April 2, April 1, 2006
2007 ---------- ----------- Operating income $ 67,508 $ 33,619
Rental amortization 65,372 49,323 Rental purchases (45,943)
(42,974) Depreciation and intangible amortization 26,718 21,842
Stock compensation 420 709 Amendment/refinance fees 2,720 948
----------- --------- Adjusted EBITDA $ 116,795 $ 63,467
=========== ========= The following table provides a reconciliation
of Adjusted EBITDA to net cash provided by (used in) operating
activities: Thirteen Weeks Ended ----------------------- April 2,
April 1, 2006 2007 ---------- ----------- Net cash provided by
(used in) operating activities $(20,597) $ 16,783 Changes in
operating assets and liabilities 103,140 15,493 Investment in base
stock inventory 5,903 184 Amortization of debt issuance cost
(1,532) (19,178) Other non-cash expense - 913 Deferred income taxes
- (161) Interest expense 27,454 47,800 Income taxes (293) 685
Amendment/refinance fees 2,720 948 ---------- --------- Adjusted
EBITDA $ 116,795 $ 63,467 ========== ========= DATASOURCE: Movie
Gallery, Inc. CONTACT: Analysts and Investors: Michelle K. Lewis of
Movie Gallery, Inc., +1-503-570-1950; or Media: Andrew B. Siegel of
Joele Frank of Wilkinson Brimmer Katcher, +1-212-355-4449 ext. 127,
for Movie Gallery, Inc. Web site: http://www.moviegallery.com/
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