Movie Gallery Up

The classic movie rental tenant in the net-lease industry is feeling a bit of market driven pressure. While Blockbuster, Hollywood Video and Movie Gallery are vying for your video rental dollars will they continue to pass as good long-term net-leased investments?

LOS ANGELES (Reuters) - Shares of Movie Gallery Inc. (MOVI.O: Quote, Profile, Research) rose as much as 8.3 percent on Wednesday a day ahead of the company's fourth-quarter earnings announcement, as investors who had shorted the stock covered their positions, an analyst said.

The No. 2 North American video rental chain has seen its share price drop 90 percent since June on a raft of bad news that followed its acquisition of the Hollywood Video chain.
Facing continued weakness in rental industry revenue, Movie Gallery last week obtained relief from its debt covenants, and on Monday, announced preliminary financial results that were far below Wall Street forecasts.

The company also said it would be late in filing its 10-K annual report to the U.S. Securities and Exchange Commission, and would start subleasing space in about half of its retail stores.
Paul Foster, options strategist at financial information Web site http://www.theflyonthewall.com, attributed the stock's upward movement on Wednesday in part to investor belief that the company's recent actions would produce positive results.

"There are continued restructuring discussions on debt and the subleasing of non-performing stores. There is also short covering in the stock attributed to expected fundamentals improving," Foster said.

Short covering is when investors who borrowed shares and sold them short purchase more shares on the open market to replace the shares they borrowed.

He said investors may expect the company to "give some guidance on how the subleasing and restructuring of debt is going, and how their fundamentals are going" on its Thursday morning post-earnings conference call.

Based on unaudited results, Movie Gallery said it would report fiscal 2005 revenue of $1.99 billion, up from $791.2 million in fiscal 2004.

It expects to post a net loss of $556.3 million, or $17.65 per share, including charges for impairment of goodwill and other intangible assets of about $527.9 million, or $10.88 per share, net of tax.

Shares of Movie Gallery were up 6.1 percent, or 14 cents, at $2.42 in afternoon trading on Nasdaq.