Blockbuster Sales Fall 1.4%

Blockbuster Inc., the world’s largest video-store chain, said Tuesday that sales declined for the first time in at least four years as the company rented out fewer movies. Its shares fell 11%.

Revenue slipped 1.4% in the third quarter to $1.38 billion, the Dallas-based company said, disappointing analysts who expected sales to rise to $1.48 billion, the average estimate in a survey by Thomson First Call.

Net income climbed 25% to $63.7 million, or 35 cents a share, from $51 million, or 28 cents, a year earlier, the company said. It had been expected to report per-share profit of 32 cents, according to Thomson.

Shares of Blockbuster fell $2.28 to $19.22 on the New York Stock Exchange.

DVDs accounted for 60% of Blockbuster’s rentals in the quarter, up from 42% a year earlier. The transition has pitted Blockbuster against Wal-Mart Stores Inc. and Netflix Inc., which let consumers rent DVDs through the mail and keep them as long as they like. Netflix’s sales grew 77% in the recent quarter.

“There are definite competitive threats,� said David Joyce, an analyst with Guzman & Co.

Blockbuster pays less to buy DVDs than it does to buy videotapes. That helped Blockbuster’s rental margins rise to 72% from 66% a year ago and contributed to an increase in the company’s profit.

Sales at stores open at least a year fell 7.5%, Blockbuster said. The quarter’s DVD releases didn’t appeal to consumers, Blockbuster executives said.

“September was one of the toughest for the industry in several years,� Chief Financial Officer Larry Zine said. “Titles didn’t perform well for rental or retail.�

Blockbuster’s sales had risen in every quarter since the company sold its stock to the public in 1999.

With DVD rentals rising, videotape rentals slipped to 30% of sales from 48%, Blockbuster said. Game rentals accounted for the rest. Blockbuster also sells DVDs and videotapes.

Videotape sales “are pretty much dead,� Blockbuster Chief Executive John Antioco said. Blockbuster expects DVDs to account for 75% of the company’s rentals and 90% of its movie sales next year, he said.