Movie Gallery sees shares suffer

Profit down due to more costs for service development

NEW YORK — Shares in vid rental chain Movie Gallery stumbled Thursday after the company posted flat second-quarter sales growth and cut its profit outlook due to higher costs for the development of a digital delivery service.

Stock closed down 2.94% to $17.84 Thursday.

The third-largest U.S. rental chain said same-store sales increased 1% but profit would be lower than expected due to increased costs booked in the quarter related to the development of “various alternative delivery vehicles” for movies.

Company dropped its earnings forecast for the second quarter a penny a share to 32¢-34¢. Its anticipated revenue remained unchanged at $185 to $195 million for the quarter.

A spokesman declined to elaborate on the specifics of the new digital film delivery service, except to say the initiative is very much in startup phase, and the company hopes to preserve “first-mover advantage.”

Despite increased costs booked in the second quarter, full-year spending on the Internet initiative would stay between $5 and $6 million.

The 1% sales growth, which came in at the low end of a previous estimate, suffered from difficult comparisons to last year, when sales grew 6.5%. Nevertheless, analysts expected better.

The firm added 91 stores in the quarter, bringing it a total of 2,331 outlets in the U.S., Canada and Mexico.

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