NEW YORK – Viacom Inc. will write off $100 million against its fourth-quarter profit to cover the costs of closing 50 unprofitable Blockbuster Music stores, wiping out the entertainment giant’s quarterly profit, it said Tuesday.
Viacom execs had warned analysts and investors at a briefing late last year about plans for the one-time charge, although its size was not revealed at that time. Viacom said Tuesday the writeoff included the cost of moving Blockbuster’s headquarters from Ft. Lauderdale to Dallas, so the total charge was slightly greater than Wall Streeters expected.
“It’s reasonable,” said Lehman Bros. analyst Larry Petrella. News of the charge came after the market closed, with Viacom stock up 37¢ to $35.12.
Analysts had expected Viacom in the quarter to earn a small profit of between $38 million and $52 million, so the one-time charge will wipe out that profit. But Cowen & Co. analyst Harold Vogel noted that Wall Street treats such one-time charges as special items, and tends to focus on the earnings excluding the charge.
The store closings are part of a revamp of Blockbuster being undertaken by the chain’s chairman Bill Fields, who is attempting to diversify the product available, turning them into video and music retail outlets. The closures amounted to roughly 10% of the Blockbuster’s music store roster.
Fields said in a statement that most of the “underperforming music stores … were the result of past acquisitions.” Sources said locations and leases on the stores ensured that they have a difficult time making money. Blockbuster Music as a whole has been losing money; in the third quarter of 1996 it lost $4.1 million before interest and taxes on revenue of $140.3 million.
Fields added in the statement that Viacom will reposition its remaining music stores “to take advantage of the significant opportunities for neighborhood-based entertainment retailing.” The physical design of Blockbuster’s stores is being changed to add more space for merchandising.
Fields added that the headquarters move played a key role in Blockbuster’s future growth plans because the “Dallas area is centrally located, offers efficient transportation for product distribution and business travel.”