Confounding Wall Street yet again with unexpected bad news, Viacom Inc. said yesterday that earnings for its Blockbuster Entertainment unit would be far below analyst expectations for the second quarter and for the full year.
The company said that cash flow would plummet as much as 72 percent to $40 million to $50 million from the $143 million posted for the second quarter of last year. Viacom also said it was taking a writedown of $300 million for overstocked items and to close some stores.
Blockbuster, which is the leading video-rental company, had attempted to diversify its product offerings into toys, stuffed animals and T-shirts. In addition, Viacom said, certain of its foreign stores were having problems.
"The emphasis went from renting videos and ancillary product to a more diversified retailing experience," said an executive close to Viacom. "It did not work, and the write off recognizes that."
Viacom projected that, if disappointing same-store sales continued, Blockbuster would earn $400 million to $500 million for the year. That range would be far less than the $800 million it had led analysts to expect just weeks ago.
Viacom cited a litany of problems in explaining the shortfall, including heavy buying of videotapes that did not rent well, the interim effects of a distribution change, general softness in the video business and disruptions caused by the company's move to Dallas from Fort Lauderdale, Fla.
Pub Date: 7/02/97