Earnings up, but stock blitzed in early trading

Blockbuster’s balance sheet looks a little cleaner after improved second-quarter results released Thursday, but Wall Street still hasn’t bought into its turnaround story.

For the period ended July 6, same-store domestic sales shot up 14% (with rentals alone rising 6.5%), boosting overall revenue 3%.

Encouraged by the sales gain, the company raised full-year guidance, forecasting a profit of $21 million-$36 million.

The bottom line told a less encouraging story. Net losses widened to $41 million from $31 million, and the year-earlier period included an $81.3 million gain from the sale of Gamestation. Cash flow swung from a year-earlier loss to $28.2 million in the black.

For Wall Street, however, the glass remains half-empty. The company’s already beleaguered stock got blitzed from the opening bell Thursday, finishing down almost 10% to $2.88 on above-average volume.

The turnaround led by chairman and chief exec Jim Keyes, a 7-Eleven vet, has not been uniformly successful (case in point: the fruitless bid for equally challenged retailer Circuit City), but there have been bright spots.

As store closings taper off and the focus turns to remaking existing locations, for example, the retail mix is changing, and that has helped margins. Merchandise revenues, including from vidgames, soared 54.4% in the second quarter.

Blockbuster also recently pacted with ATM maker NCR to roll out thousands of DVD vending machines in a bid to take market share from McDonald’s-owned Redbox.

Shareholder and board member Carl Icahn cast a vote of confidence. “There was little question that Blockbuster was sick and needed the new medicine that has been administered by Jim Keyes and his team,” Icahn said in the company’s release.

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