Coinstar shares plunge after lower 4Q estimate
Coinstar stock tumbled 27 percent Friday on disappointing sales at its chain of Redbox DVD-rental kiosks, partly due to delayed access to Hollywood's newest releases.
Coinstar's stock tumbled 27 percent Friday after the company lowered its earnings estimate for the fourth quarter on disappointing sales at its chain of Redbox DVD-rental kiosks.
Coinstar said Thursday that its holiday revenue was surprisingly low partly because of delayed access to Hollywood's newest releases.
The Bellevue company has agreed to a 28-day delay in receiving the latest DVD releases from movie studios, giving them a four-week window to sell their latest movies before offering them for rental in Redbox kiosks.
While kiosk traffic remained strong, people rented fewer DVDs with each trip, and revenue was far below expectations.
The company said it expects to report fourth-quarter revenue of $391 million. It had initially forecast $415 million to $440 million and now estimates earnings per share of 65 to 69 cents, rather than the previous 79 to 85 cents.
Analysts expected earnings of 86 cents a share on revenue of $426.1 million, according to a FactSet poll.
The revised estimates, announced after the stock market closed Thursday, pushed shares down $13.80 to $43.15 in after-hours trading Thursday. That sharp decline was mirrored in Friday's regular session, with the stock closing down $15.45, or 27 percent, at $41.50.
Chief Executive Paul Davis said a number of factors contributed to the shortfall.
An unexpectedly high share of customers took the option to rent DVDs from one kiosk and return them to another, creating a supply imbalance. At the same time, 2010 was the first holiday season when a slate of movies had been delayed for rental by 28 days.
Davis said Coinstar had anticipated demand would be higher for the delayed movies than it really was.
"We have already taken a number of decisive steps to better align content purchases with our consumers' behavior, including offering more day and date titles and better allocating Blu-ray titles to high demand areas," Davis said in a statement.
Michael Pachter, an analyst with Wedbush Securities in Los Angeles, said the 28-day delay requires management to do a better job of selecting titles to keep customers renting while they wait for newer releases.
"The miss is attributable to poor inventory management," Pachter said.
Coinstar reduced its outlook for 2011, expecting revenue between $1.7 billion and $1.85 billion, and earnings between $2.60 and $3.10 a share based on 33.3 million shares. Analysts were expecting $3.43 a share for 2011 revenue of $1.91 billion.
The company, which has taken sales from traditional retailers such as Blockbuster, had previously exceeded analysts' profit estimates for eight straight quarters.
Coinstar plans to report complete financial results Feb. 3
Information from The Associated Press and Bloomberg News is included in this report.