Co. reports net income of $112.6 mil, receives tax benefit

Soon-to-be-spun-off home entertainment chain Blockbuster reported a profit boom but a revenue bust for its fiscal first quarter as the company still managed to beat Wall Street’s grim earnings expectations amid a tough vid rental market.

For the first three months of the year, Blockbuster reported net income of $112.6 million, up from $80.5 million in the same period a year ago thanks to a $37 million tax benefit credited during the quarter. Excluding the gain, adjusted net income actually fell to $75.5 million — still considerably higher than the Street’s estimates.

The rental-dependent company felt the pain of the slowing rental market as total sales declined 1% to $1.5 billion, dragged down by rental revenues off 3.7% over last year’s first quarter to $1.15 billion.

Chairman-CEO John Antioco cited “an extremely challenging environment, including a much lower box office and lighter-than-anticipated traffic industrywide” as explanations for Blockbuster’s sales slowdown. He noted, however, that gross margins and profitability for the quarter continued to be strong.

Antioco said firm had made “significant progress” with new business initiatives, including the forthcoming national launch of a rental subscription service, the rollout of its DVD trading initiative and expansion of its store-in-store game concepts.

“We are making substantial investments in these programs this year and believe they position Blockbuster for future growth,” he said.

Parent company Viacom intends to split off its 82%-held video chain to shareholders later this summer, having failed to find a strategic or private equity buyer at the right price.

Company warned that 2004 earnings could drop by more than 10% with only low single-digit increases in total revenues.

Shares of Blockbuster gained 3.5% to close at $17.05.

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