Blockbuster shares dive as cash worries mount

LOS ANGELES  – Blockbuster Inc, the No. 1 U.S. movie rental chain teetering on the brink of bankruptcy, lost more than a fifth of its value on Thursday as worries grew about its rapidly dwindling cash pile.

But Blockbuster, which continues to hemorrhage customers to rivals such as Netflix and Coinstar Inc's Redbox, said it was making headway in discussions with investors on recapitalizing. It did not elaborate.

"We have had encouraging discussions with both financial and strategic partners and expect to have additional details to report by our annual stockholders' meeting in late June," CEO Jim Keyes said in a statement.

Traditional video retailers are struggling to retain customers turning to Google Inc's YouTube and innovative non-retail rivals such as Redbox -- which rents DVDs out of bright-red kiosks at supermarkets and other heavily trafficked locations -- and mail-order firm Netflix.

In March, Blockbuster -- once the dominant national movie rental chain but now laboring under $1 billion in debt -- said for the first time it may need to file for bankruptcy protection. Its auditors declared "substantial doubt" about its survival.

Just this month, Movie Gallery Inc -- the operator of Hollywood Video stores -- said it planned to shutter its remaining stores and liquidate operations. While some analysts expect Blockbuster to pick up stranded customers, many more say the struggling chain will lose the battle to the Web and Redbox.

Blockbuster posted a net loss of $65.4 million in the first quarter ended April 4, from a gain of $27.7 million a year earlier. Revenue slid 14 percent to $939.4 million, broadly in-line with the $933.25 million expected by Wall Street.

On a conference call with analysts, Keyes said that so far this year the company has closed 470 underperforming stores, and that it ended the first four months of the year with less than 3,500 company-owned and franchised locations.

Same-store sales slid 7.8 percent domestically in the quarter, reflecting the continued loss of business.

Michael Pachter, an analyst with Wedbush Equity Research, noted the company brought in less in earnings before interest, taxes, depreciation and amortization than it has to pay in interest, which he called "a problem."

Cash and cash equivalents stood at just under $110 million at the end of the first quarter, nearly half the $188.7 million at the end of the fourth. In the first three months of 2010, the company said it had negative free cash flows of $54.8 million.

"Management is doing everything they can right," Pachter said. "It's just that they can't control the increased popularity of Redbox; they can't keep Redbox from opening boxes everywhere and they can't keep Netflix from connecting households that used to be pay-as they-go renters."

In April, activist investor Carl Icahn sold off his remaining Class B shareholding in Blockbuster and further slashed his Class A stake. He had given up his seat on the company's board in January, ending more than four years as a director.

The billionaire shareholder had been a vocal critic of onetime Chief Executive John Antioco.

Blockbuster shares have rallied in the past week since longtime rival and No. 2 U.S. chain Movie Gallery Inc said it planned to liquidate.

Dallas-based Blockbuster's shares fell 20 percent to 39.9 cents in extended trading, after closing up 15.6 percent at 50 cents on the New York Stock Exchange.