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Bleeding vidtailer cuts jobs

Layoffs ahead for vid company

The video rental biz took another hit Thursday as the country’s second-largest chain reported it lost more than half a billion dollars in the fourth quarter and would lay off hundreds of employees by the end of the year.

Alabama-based Movie Gallery lost $547 million in the quarter and $552 million for the year after turning a small profit in both the fourth quarter and full fiscal year in 2004.

The numbers were partly a function of writedowns and impairment charges associated with Movie Gallery’s purchase of Hollywood Video parent company Hollywood Entertainment.

Merger did help Movie Gallery’s quarterly revenue rise from $208 million to $676 million on a year earlier.

But same-store sales at Movie Gallery, an important retail metric, saw revenues fall by more than 8%.

The losses came as a surprise to Wall Street, where some projections had the company turning a profit for the quarter. Movie Gallery’s stock price has lost about 50% of its value in the last two months.

Numbers highlight physical rental biz’s declining share of the homevid market.

“Fiscal 2005 was a challenging year for the industry and our company primarily due to a weak box office and, to a lesser extent, the continued growth of various alternative entertainment options and new technologies,” prexy-CEO Joe Malugen said.

But he also added, “We are not satisfied with our recent performance and have responded by taking decisive actions to improve our results.”

Among those initiatives are subleasing space in some of its 4,800 stores and possibly shuttering locations.

Company will also lay off about 300 employees, some of whom were made redundant after company bought Hollywood Entertainment, many in administrative and back-office roles.

Move comes on top of previously announced layoffs of 80 employees.

Physical rental biz has been hard hit by the rise of Netflix and falloff in DVD rentals compared to sales.

But even observers have been astonished by how quickly a robust business seems to be crumbling.

Still, despite losses, Movie Gallery said it did not expect to start its own online service, likely because startup costs — and Netflix’s advantage — are too prohibitive.

Malugen went further, saying that he thinks online rental is “a business that nobody is going to make much money at.”