Coinstar, Inc. Reports 31 Percent Fourth Quarter Revenue Gain

Coinstar, Inc. announced certain preliminary financial results for the fourth quarter ended Dec. 31, 2010. The company expects revenue for the fourth quarter of 2010 to increase 31 percent year over year to $391 million, compared with previous fourth quarter 2010 guidance in the range of $415 million to $440 million.

The company expected stronger performance from the titles scheduled for release during the 2010 fourth quarter holiday season, particularly from the slate of 28-day delay and higher-priced Blu-ray(TM) titles, despite a 16 percent lower box office for scheduled releases compared with those in fourth quarter 2009. In addition, in anticipation of demand for new releases that did not materialize, redbox removed older inventory early, impacting revenue and gross margin. Further, redbox consumers utilized "rent and return anywhere" to a higher level than expected, which caused temporary imbalances in available titles across the kiosk network.

As a result, the company expects fourth quarter 2010 GAAP earnings per share (EPS) from continuing operations between $0.65 and $0.69 on a fully diluted basis, compared with guidance in the range of $0.79 to $0.85. GAAP EPS includes a reduction of $0.02 per share due to the expected increase in diluted share count of 1.3 million as a result of convertible debt and option exercise dilution and $0.02 per share due to expected higher share based expense related to the higher share price at the end of the quarter.

Paul Davis, chief executive officer of Coinstar, Inc., said in a prepared statement, "Overall, the performance of the redbox business during the fourth quarter was not in line with our forecast. This was redbox's first holiday season with 28-day delayed titles, and we underestimated the impact that the delay would have on demand during the fourth quarter. We also expected much better performance from Blu-ray and had purchased to a higher level of demand. While consumer visits to the kiosks remained strong, the number of movies per visit, or basket size, was lower than planned. 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. In addition, since inventory migration reflects the popularity of our rent and return anywhere capability, we have made adjustments in our field processes to minimize the impact of higher levels of migration on overall rentals. While some measures such as changes in purchasing take longer to impact financial performance, early results give us confidence that we have begun taking the right steps to address these issues and position the business for further success, which we will discuss further on our earnings call on Feb. 3.

"Nevertheless, redbox revenue grew 38 percent year over year in the fourth quarter," Davis continued. "Consumer demand for redbox DVD rentals continues to be robust, and consumers and retailers appreciate the value and convenience offered by redbox. Consumers rented over 144 million movies during the quarter and same store sales increased 12.5 percent year over year in the fourth quarter. Our unit economics for single and dual kiosks remain strong, and we believe in the future prospects for DVD kiosk rentals. Additionally, we are pleased with the continued strong performance of our coin business, especially its year over year 10% growth in same store sales during the fourth quarter, and remain focused on driving profitable growth across the organization."

The company expects fourth quarter adjusted EBITDA from continuing operations between $78 million and $82 million, a year over year increase of 38.8 percent to 45.9 percent, compared with guidance in the range of $84 million to $90 million. EBITDA was impacted by lower revenue and gross margin.