DALLAS - Blockbuster Inc. cut its 2002 profit estimate by at least 16 percent yesterday, saying competition from discount stores had crimped fourth-quarter sales at the largest movie-rental chain. The stock plunged a record 32 percent.
Per-share profit this year will be $1.03 to $1.10 on sales of more than $5.5 billion, Blockbuster said in a statement. Last month, the Dallas-based company predicted that profit before some expenses would rise to $1.31 a share from $1.01 last year.
Higher sales of movies on digital video discs at rival retailers pinched Blockbuster's rental revenue. The company redesigned its more than 4,400 U.S. stores last month in a bid to win a bigger share of the $8.4 billion retail market for DVDs, rather than relying on rentals. The overhaul failed to fend off the competition.
"The problem for us this holiday quarter is the sheer volume of DVDs that were being sold at deeply discounted prices," said Blockbuster Chairman and Chief Executive Officer John Antioco. "We always anticipated this would be an issue; we just didn't realize the extent."
Blockbuster shares fell $6.27 to $13.13 on the New York Stock Exchange after dropping to $13.10, the lowest level since early 2001. The stock has declined 48 percent this year.
The push into DVD sales is part of Antioco's goal of doubling profit in five years. Blockbuster controls 40 percent of the U.S. movie-rental business, though competition is growing.
"They underestimated that, at $10 to $15 for a DVD, people would rather buy than rent," said Alan Weichselbaum, an analyst at New York-based Fulcrum Global Partners who rates Blockbuster stock a "sell." Blockbuster "is competing with the mass merchandisers" such as Wal-Mart Stores Inc., Target Corp., Best Buy Co. and Circuit City Stores Inc. and their heavily discounted prices, he said.
Cable-television providers are offering more home-entertainment choices, and big retailers such as Wal-Mart are selling DVDs, the fastest-growing consumer-electronics product in history.
U.S. rental sales of DVDs and videocassettes combined is about $8.7 billion a year, Blockbuster said, citing estimates from Kagan World Media Inc. Annual retail sales of both DVD and videocassette is about $13.6 billion, the company said.