Games, DVDs spur 1st qtr. cash flow spike

Homevideo giant Blockbuster Entertainment swung to a sizable loss in the first quarter of 2002 as a hefty $1.82 billion accounting charge took its toll, but sales and cash flow both climbed during the interval thanks to an emphasis on hot formats like vidgames and DVDs.

Blockbuster, which is controlled by media conglom Viacom, lost $1.75 billion for the quarter, compared with a nominal profit of $4.7 million in the same period a year earlier. The $1.8 billion charge that got the red ink flowing stems from a change in the way companies write off premiums paid for acquisitions.

The video chain’s revenues edged slightly higher to $1.33 billion, while cash flow — seen on Wall Street as an important measure of a company’s ongoing operations because it excludes many one-time charges — rose more than 9% to $175 million.

That growth was driven by the increasingly prominent position of higher-margin products, including DVDs and vidgames, in the rental mix. Company said DVD rental transactions, for example, more than doubled over the 2001 first quarter.

Trying to tap into the growing popularity of gameplay, Blockbuster in May plans to reveal an increased emphasis on vidgame sales at the Electronic Entertainment Expo in Los Angeles that will include new game sections inside its stores, as well as several new customer programs for gamers.

The quarterly perf “validates the strategy that we implemented last year focusing on high-growth game and DVD formats,” said Blockbuster chairman and chief exec John Antioco.

Looking forward, Blockbuster said it expects same-store sales (those of stores open at least a year) to grow in the low- to mid-single-digit range for the rest of the year, helped by a strengthening release sked and more format-driven improvement. Cash flow is seen climbing at “double-digit” rates.

Investors cheered the company’s results in the markets Wednesday, bidding Blockbuster shares up just under 10% to $26.95 — less than $2 short of its 52-week high.

(Marc Graser contributed to this report.)

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