EX-99.1 2 e19619ex99_1.txt PRESS RELEASE Exhibit 99.1 Movie Gallery Reports Record Revenues For The 2004-Third Quarter And Earnings Per Share In-Line With Estimates DOTHAN, Ala., Nov. 4 /PRNewswire-FirstCall/ -- Movie Gallery, Inc. (Nasdaq: MOVI) today announced record revenues for the 2004-third quarter, which ended October 3, 2004. Total revenues in the 2004-third quarter were $189.9 million, an increase of 13.5% from $167.2 million in the year-ago quarter. Net income for the 2004-third quarter was $9.2 million, or $0.29 per diluted share, compared to $9.2 million, or $0.28 per diluted share, in the comparable period last year. For the first nine months of fiscal 2004, total revenues were $582.7 million, a 17.3% increase over the first nine months of fiscal 2003. Net income for the nine month period was $38.1 million, or $1.16 per diluted share, an increase of $6.1 million, or 19.2%, over the $32.0 million, or $0.96 per diluted share, in the comparable period last year. "We were pleased to deliver another quarter of solid results for our shareholders," said Joe Malugen, Chairman, President and Chief Executive Officer. "We knew this would be one of our more challenging periods in quite some time given the significantly weaker home video release schedule and a strong television viewership of the Summer Olympics in the 2004-third quarter versus the strong home video release schedule and a positive 5% same-store revenue comp in last year's third quarter." Third Quarter Results For the 2004-third quarter, total revenues were $189.9 million, an increase of $22.6 million over the third quarter last year. Rental revenues for the 2004-third quarter were $176.1 million, or 92.7% of total revenues, versus $154.6 million, or 92.4% of total revenues, in the comparable period last year. Product sales for the 2004-third quarter were $13.8 million, or 7.3% of total revenues, versus $12.7 million, or 7.6% of total revenues, in the year-ago quarter. The increase in total revenues was primarily driven by an 18.5% increase in the average number of stores operated during the period and partially offset by a 2.5% decrease in same-store revenues versus the year-ago quarter. During August and September of 2004, our operations were also impacted by an unprecedented hurricane season which disrupted the normal day-to-day operations of about 325 stores in the southeastern United States. Excluding those stores that were temporarily closed due to the severe weather impacting those markets, same-store revenues would have decreased only 2.0% for the 2004-third quarter. Total gross profit was $130.1 million, or a 68.5% total gross margin, for the 2004-third quarter versus a total gross profit of $112.7 million, or a 67.4% total gross margin, in the 2003-third quarter. Excluding the non-cash charge of $1.1 million associated with our rental inventory amortization policy change, total gross profit in the 2003-third quarter would have been $113.8 million, or a 68.0% gross margin. Rental gross profit for the 2004-third quarter was $124.9 million, or a 71.0% rental margin, compared to a rental gross profit of $110.0 million, or a 71.2% rental gross margin, in the same period last year. Excluding the non-cash charge of $1.0 million associated with our rental inventory amortization policy change, rental gross profit in the 2003-third quarter would have been $111.1 million, or a 71.9% rental margin. Gross profit on product sales in the 2004-third quarter was $5.1 million, or a 37.1% sell-through gross margin, versus a gross profit on product sales of $2.7 million, or a 21.1% sell-through gross margin, in the year-ago quarter. Store operating expenses for the 2004-third quarter were $98.0 million, or 51.6% of total revenues, versus $84.2 million, or 50.3% of total revenues, in the comparable period last year. The increase in store operating expenses as a percentage of revenues was primarily driven by the decrease in same-store revenues for the 2004-third quarter versus the year-ago quarter. This increase was partially offset by a 1.6% decrease in our store operating expenses on a per store basis from the prior year-ago quarter. To a lesser extent, the increase in store operating expenses was also driven by the significant increase in the number of new store openings since last year, generating store opening and start-up costs for a larger quantity of immature stores in the revenue base versus last year. For instance, as of the end of the 2004-third quarter we had approximately 36% more stores in the store base that were less than one year old than we had at the end of the third quarter last year. General and administrative expenses ("G&A") for the 2004-third quarter were $14.4 million, or 7.6% of total revenues, versus $12.0 million, or 7.1% of total revenues, in the comparable period last year. The increase in G&A expenses over the year-ago quarter was principally a result of: (i) overhead increases to support our current and future growth plans for new store openings, which include continued expansion in geographic areas where our market penetration is lower; and, (ii) overhead costs associated with some of our new business initiatives such as our store-in-a-store concept Game Zone(R). For the 2004-third quarter, operating income was $16.3 million, or 8.6% of total revenues, versus $15.9 million, or 9.5% of total revenues, in the 2003-third quarter. Excluding non-cash charges of $0.8 million related to stock option compensation, operating income in the 2004-third quarter would have been $17.0 million, or 9.0% of total revenues. Comparatively, our operating income in the 2003-third quarter would have been $17.0 million, or 10.2% of total revenues, after excluding non-cash charges totaling $1.1 million related to our rental inventory amortization policy change and stock option compensation. Our net income of $9.2 million for the 2004-third quarter included pre-tax expenses and non-cash charges totaling approximately $1.7 million, or $0.03 per diluted share, related to our investments in various alternative delivery vehicles for movie content and stock option compensation. Excluding these items, net income in the 2004-third quarter would have been $10.3 million, or $0.32 per share on an on-going basis. Prior year earnings for the quarter included pre-tax charges of $1.8 million, or $0.04 per diluted share, related to our rental inventory amortization policy change, investments in various alternative delivery vehicles, and stock option compensation. Excluding these items, net income for the 2003-third quarter would have been $10.3 million, or $0.32 per share on an on-going basis. Net cash provided by operating activities for the 2004-third quarter was $11.3 million versus $19.0 million in the year-ago quarter. The decrease in net cash provided by operating activities for the 2004-third quarter is due to the timing of changes in both working capital and deferred taxes. Adjusted EBITDA is defined as net cash provided by operating activities before changes in operating assets and liabilities, interest and taxes. Adjusted EBITDA for the 2004-third quarter was $24.7 million, or 13.0% of total revenues, versus $20.0 million, or 12.0% of total revenues, in the comparable period last year. Year-to-Date Operating Results For the nine months ended October 3, 2004, total revenues were up $85.9 million to $582.7 million, a 17.3% increase over the prior year's total revenues of $496.9 million. Net income for the nine month period was $38.1 million, or $1.16 per diluted share, which included expenses of approximately $0.09 per diluted share, related to our investments in alternative delivery vehicles and a non-cash charge of $0.01 per diluted share associated with stock option compensation. Excluding these items, net income in the period would have been $41.6 million, or $1.26 per share on an on-going basis. Comparatively, our earnings for the first nine months of fiscal 2003 included expenses and non-cash charges totaling $0.13 per diluted share, related to our rental inventory amortization policy change, stock option compensation and investments in various alternative delivery vehicles for movie content. Excluding these items, net income for the first nine months of fiscal 2003 would have been $36.5 million, or $1.09 per share on an on-going basis. Net cash provided by operating activities for the first nine months of fiscal 2004 was $47.7 million, an increase of $1.1 million, or 2.4%, from $46.6 million in the comparable year-ago period. Adjusted EBITDA for the first nine months of fiscal 2004 was $84.2 million, or 14.5% of total revenues, versus $76.7 million, or 15.4% of total revenues, in the comparable period last year. Other Financial Data During the 2004-third quarter, we repurchased 1,434,300 shares of our common stock at an average price of $17.43 per share. For the nine months ended October 3, 2004, we have repurchased a total of 2,770,612 shares of our common stock at an average price of $18.05 per share. Business Outlook "Considering that the weather was unfavorable during the month of October, as we forecast revenues and earnings for the remainder of the year, we are approaching our business cautiously given the weak home video release schedule for the 2004-fourth quarter coupled with a holiday schedule that has both Christmas and New Year occurring on a weekend," added Malugen. The following are our current expectations for the 2004-fourth quarter: * Total revenues for the 2004-fourth quarter are forecasted to range between $207 million and $212 million, an increase of 6% to 8% over the prior year's fourth quarter. We now project total revenues for fiscal 2004 to be in a range of $790 million and $795 million, a 14% plus increase over the prior year driven primarily by the continued growth in our store base. * As we face a positive 6% same-store revenue comp from last year's fourth quarter, this year's fourth quarter same-store revenues are expected to be adversely impacted by: (i) both Christmas and New Year occurring on a weekend; (ii) a weaker 2004-fourth quarter home video release schedule, resulting in a 33% decrease from the year-ago quarter in movie titles that grossed over $100 million at the box office; and, (iii) an unfavorable warm and dry weather pattern during the month of October across much of the United States. As a result, we are now forecasting same-store revenues for this year's fourth quarter to be in the range of -6% to -4%. In total for fiscal 2004, we now project same-stores revenues to be in a range of -2% to -1%. * Earnings for the 2004-fourth quarter are forecasted to range between $0.48 and $0.52, which includes approximately $0.03 per diluted share for expenses related to our investments in alternative delivery vehicles. Excluding this item, our projected earnings on an on-going basis for the 2004-fourth quarter would to be in the range of $0.51 to $0.55 per share. In total for fiscal 2004, we now project earnings per diluted share to be in a range of $1.64 and $1.68, which includes approximately $0.12 per diluted share related to our alternative delivery investments. Excluding this item and the $0.01 per diluted share for non-cash charge related to stock option compensation, our projected earnings on an on- going basis for fiscal 2004 would be in the range of $1.77 to $1.81 per share. Malugen added, "Looking into next year, we intend to provide 2005 guidance of our expected sales and EPS increases in our year-end conference call, after completion and approval of the 2005 annual business plan." Conference Call Information Management will have a conference call today (November 4, 2004) at 11:00 a.m. eastern time to discuss the quarterly financial results and the outlook for the Company. The call may be accessed at 1-877-340-MOVI and reference passcode MOVIE GALLERY. The call will also be simultaneously webcast via the Investor Relations homepage of the Company's website at http://www.moviegallery.com . A replay of the call will be available through the website for 30 days. In addition, you can register through the above referenced website if you would like to receive press releases, conference call reminders and other notices. About Movie Gallery Movie Gallery currently owns and operates more than 2,400 video specialty stores located throughout North America. Movie Gallery is the leading home video specialty retailer primarily focused on rural and secondary markets. For more information on the Company, please visit the Company's website at http://www.moviegallery.com Forward Looking Statements To take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, you are hereby cautioned that this release contains forward-looking statements that are based upon the Company's current intent, estimates, expectations and projections and involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, the risk factors that are discussed from time to time in the Company's SEC reports, including, but not limited to, the annual report on Form 10-K for the fiscal year ended January 4, 2004. In addition to the potential effect of these ongoing factors, the Company will not achieve its financial estimates for the 2004-fourth quarter if, among other factors, (i) same-store revenues are less than projected; (ii) the availability of new movie releases priced for sale negatively impacts the consumers' desire to rent movies; (iii) the number of new store openings during the year is less than expected; (iv) the Company's actual expenses differ from estimates and expectations; (v) consumer demand for movies and games is less than expected; (vi) the availability of movies and games is less than expected; (vii) competitive pressures are greater than anticipated; or (viii) the Company expands its investment in existing strategic initiatives for alternative delivery of media content or chooses to invest in significant new strategic initiatives. The Company undertakes no obligation to update any forward- looking statements, whether as a result of new information, future events, or otherwise. Movie Gallery, Inc. Unaudited Financial Highlights and Supplemental Information (dollars in thousands, except per share data) Thirteen Weeks Ended Thirty-Nine Weeks Ended October 5, October 3, October 5, October 3, 2003 2004 2003 2004 Total revenues $167,239 $189,855 $496,886 $582,748 Net income $9,215 $9,214 $31,976 $38,100 Net income per diluted share $0.28 $0.29 $0.96 $1.16 Weighted average diluted shares outstanding 33,499 31,807 33,298 32,933 Net cash provided by operating activities $19,033 $11,251 $46,595 $47,726 Adjusted EBITDA $20,038 $24,669 $76,730 $84,246 Store count: Beginning of period 1,936 2,331 1,784 2,158 New store builds 79 65 163 221 Stores acquired 42 5 134 60 Stores closed (7) (18) (31) (56) End of period 2,050 2,383 2,050 2,383 Same-store revenues increase (decrease) 5.0% (2.5)% 8.0% --% Movie Gallery, Inc. Consolidated Statements of Income (Unaudited) (in thousands, except per share data) Thirteen Weeks Ended Thirty-Nine Weeks Ended October 5, October 3, October 5, October 3, 2003 2004 2003 2004 Revenues: Rentals $ 154,565 $176,058 $456,322 $538,054 Product sales 12,674 13,797 40,564 44,694 Total revenues 167,239 189,855 496,886 582,748 Cost of sales: Cost of rental revenues 44,559 51,110 134,966 152,763 Cost of product sales 10,005 8,673 32,447 29,745 Gross profit 112,675 130,072 329,473 400,240 Operating costs and expenses: Store operating expenses 84,202 97,962 238,101 287,788 General and administrative 11,956 14,397 34,461 41,879 Amortization of intangibles 493 673 1,389 1,962 Stock option compensation 128 755 1,626 795 Operating income 15,896 16,285 53,896 67,816 Interest expense, net (89) (225) (331) (390) Other (700) (955) (700) (4,891) Income before income taxes 15,107 15,105 52,865 62,535 Income taxes 5,892 5,891 20,889 24,435 Net income $9,215 $9,214 $31,976 $38,100 Net income per share: Basic $0.28 $0.29 $0.99 $1.17 Diluted $0.28 $0.29 $0.96 $1.16 Weighted average shares outstanding: Basic 32,536 31,444 32,303 32,436 Diluted 33,499 31,807 33,298 32,933 Cash dividends per common share $ -- $0.03 $ -- $0.09 Movie Gallery, Inc. Consolidated Balance Sheets (dollars in thousands) January 4, October 3, 2004 2004 (Unaudited) Assets Current assets: Cash and cash equivalents $53,720 $19,211 Merchandise inventory 26,473 25,453 Prepaid expenses 1,377 1,613 Store supplies and other 11,019 10,034 Deferred income taxes 1,631 3,063 Total current assets 94,220 59,374 Rental inventory, net 102,479 116,789 Property, furnishings and equipment, net 114,356 129,465 Goodwill, net 136,008 141,742 Other intangibles, net 8,473 7,947 Deposits and other assets 8,753 6,471 Total assets $464,289 $461,788 Liabilities and stockholders' equity Current liabilities: Accounts payable $77,344 $46,673 Accrued liabilities 26,161 27,268 Deferred revenue 10,741 7,149 Total current liabilities 114,246 81,090 Long-term debt -- 18,000 Other accrued liabilities 142 83 Deferred income taxes 29,785 43,713 Stockholders' equity: Preferred stock, $.10 par value; 2,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, $.001 par value; 65,000,000 shares authorized, 32,840,849 and 31,061,309 shares issued and outstanding, respectively 33 31 Additional paid-in capital 225,191 188,204 Retained earnings 91,098 126,294 Accumulated other comprehensive income 3,794 4,373 Total stockholders' equity 320,116 318,902 Total liabilities and stockholders' equity $464,289 $461,788 Movie Gallery, Inc. Consolidated Statements of Cash Flows (Unaudited) (in thousands) Thirty-Nine Weeks Ended October 5, October 3, 2003 2004 Operating activities: Net income $31,976 $38,100 Adjustments to reconcile net income to net cash provided by operating activities: Rental inventory amortization 98,620 107,690 Purchases of rental inventory (93,623) (109,315) Depreciation and intangibles amortization 16,911 22,151 Stock option compensation 1,626 795 Tax benefit of stock options exercised 2,793 4,689 Deferred income taxes 11,943 12,496 Changes in operating assets and liabilities: Merchandise inventory 1,376 1,281 Other current assets (1,891) 749 Deposits and other assets (3,315) 2,282 Accounts payable (17,724) (30,671) Accrued liabilities and deferred revenue (2,097) (2,521) Net cash provided by operating activities 46,595 47,726 Investing activities: Business acquisitions (25,447) (9,599) Purchases of rental inventory-base stock (12,869) (11,085) Purchases of property, furnishings and equipment (33,909) (34,699) Net cash used in investing activities (72,225) (55,383) Financing activities: Proceeds from exercise of stock options 2,484 7,359 Proceeds from employee stock purchase plan -- 168 Proceeds from issuance of long-term debt -- 18,000 Purchases and retirement of common stock -- (50,000) Payment of dividends -- (2,958) Net cash provided by (used in) financing activities 2,484 (27,431) Effect of exchange rate changes on cash and cash equivalents 3,031 579 Decrease in cash and cash equivalents (20,115) (34,509) Cash and cash equivalents at beginning of period 39,526 53,720 Cash and cash equivalents at end of period $19,411 $19,211 Movie Gallery, Inc. Disclosures Regarding Non-GAAP Financial Information Adjusted EBITDA is defined as net cash provided by operating activities before changes in operating assets and liabilities, interest and taxes. Adjusted EBITDA is presented primarily as an alternative measure of liquidity, although we also use it as an internal measure of performance for making business decisions and compensating our executives. It is also a widely accepted financial indicator in the home video specialty retail industry of a company's ability to incur and service debt, finance its operations and meet its growth plans. However, our computation of Adjusted EBITDA is not necessarily identical to similarly captioned measures presented by other companies in our industry. We encourage you to compare the components of our reconciliation of Adjusted EBITDA to cash flows from operations in relation to similar reconciliations provided by other companies in our industry. Our presentation of net cash provided by operating activities and Adjusted EBITDA treats rental inventory as being expensed upon purchase instead of being capitalized and amortized. We believe this presentation is meaningful and appropriate because our annual cash investment in rental inventory is substantial and in many respects is similar to recurring merchandise inventory purchases considering our operating cycle and the relatively short useful lives of our rental inventory. Our calculation of Adjusted EBITDA excludes the impact of changes in operating assets and liabilities. This adjustment eliminates temporary effects attributable to timing differences between accrual accounting and actual cash receipts and disbursements, and other normal, recurring and seasonal fluctuations in working capital that have no long-term or continuing affect on our liquidity. Investors should consider our presentation of Adjusted EBITDA in light of its relationship to cash flows from operations, cash flows from investing activities and cash flows from financing activities as shown in our statements of cash flows. Adjusted EBITDA is not necessarily a measure of "free cash flow" because it does not reflect periodic changes in the level of our working capital or our investments in new store openings, business acquisitions, or other long-term investments we may make. However, it is an important measure used internally by executive management of our Company in making decisions about where to allocate resources to grow our business. In prior periods, we presented a reconciliation of Adjusted EBITDA to operating income. We changed the format of our reconciliation beginning in the first quarter of fiscal 2004 to reconcile Adjusted EBITDA to cash provided by operating activities. We have recast the reconciliations for prior periods to conform to the new presentation. Our calculation of Adjusted EBITDA is reconciled to net cash provided by operating activities as follows (in thousands): Thirteen Weeks Ended Thirty-Nine Weeks Ended October 5, October 3, October 5, October 3, 2003 2004 2003 2004 Net cash provided by operating activities $19,033 $11,251 $46,595 $47,726 Changes in operating assets and liabilities 5,966 11,543 23,651 28,880 Tax benefit of stock options exercised (1,186) (610) (2,793) (4,689) Deferred income taxes (9,756) (3,631) (11,943) (12,496) Interest expense 89 225 331 390 Income taxes 5,892 5,891 20,889 24,435 Adjusted EBITDA $20,038 $24,669 $76,730 $84,246 Contact: Thomas D. Johnson, Jr. SVP of Investor Relations (334) 702-2400 SOURCE Movie Gallery, Inc. -0- 11/04/2004 /CONTACT: Thomas D. Johnson, Jr., SVP of Investor Relations of Movie Gallery, +1-334-702-2400/ /Web site: http://www.moviegallery.com / (MOVI) CO: Movie Gallery, Inc. ST: Alabama IN: ENT FLM SU: ERN CCA