Blockbuster plans more store closures

PHYSICAL: Retailer to shutter as many as 960 locations by end of 2010

By Danny King -- Video Business, 9/15/2009

SEPT. 15 | PHYSICAL: Blockbuster will close as many as 960 stores by the end of next year, as the largest U.S. movie-rental chain looks to shutter unprofitable units to cut debt. As many as another 300 stores may be converted to outlets with an emphasis on used DVDs.

The retailer is trying to improve its financials to comply with a recent refinancing agreement and is redeploying cash toward such initiatives as digital delivery and movie rental kiosks.

The company will incur as much as $60 million in lease-termination costs but save as much as $60 million a year with the closures, factoring the closure of money-losing stores and the amount of sales transferred to nearby operating stores, Blockbuster said in a filing with the Securities and Exchange Commission today.

The nearly 1,300 stores that may be either closed or converted to outlets account for as much as 18% of Blockbuster's approximately 7,100 stores, or about the same percentage of stores that lose money, the company said in the filing.

Blockbuster has had to reduce costs all year in order to cut its debt to comply with its new $250 million refinancing agreement, which was finalized May 11 and extended a line of credit more than a year past its previous due date of August 2009. The new agreement is for about $100 million less than the previous agreement.

Cost-cutting efforts have already helped the chain's finances. Blockbuster's fiscal second-quarter U.S. same-store sales fell 18% from a year earlier, but the company narrowed its loss by 12% thanks to lower inventory and advertising expenses.

The company said yesterday that it will try to sell as much as $340 million in senior secured notes due 2014 in an effort to cut costs by replacing its current debt at a lower interest rate.

Blockbuster also said today that it extended the due date on some of its debt by about nine months to the end of May 2012 and cut its quarterly amortization payment.

Blockbuster's announcement yesterday signals that credit markets might be loosening up enough for retailers to cut interest costs by refinancing at lower rates. Last week, Redbox parent Coinstar said that it's offering as much as $175 million in senior secured notes in an effort to replace part of a $400 million revolving credit line.

Still, today's Blockbuster announcement continues the trend of video store closures as by-mail services such as Netflix and kiosk operators such as Redbox have gained market share. As of July 1, Blockbuster had about 7,200 stores, down from 8,000 two years prior. Blockbuster has been broadening its digital-delivery service by reaching agreements with component makers including TiVo and Samsung. The chain also partnered with ATM-maker NCR to deploy as many as 10,000 Blockbuster Express movie rental kiosks by the end of next year.

Blockbuster shares (BBI) were up about 7% at 1:50 p.m. Eastern time today and reached their highest levels in about seven months.