First Bubble To Pop? Coinstar Slashes Guidance On "Weak Video Title Performance"

Tyler Durden's picture

Who would have thought that such things as consumer wealth and cash actually matter for companies? After CSTR enjoyed a doubling of its stock price in the past year, it now appears many of these were based on the same thing that has driven the entire economy: hopium. The company has slashed Q4 revenue guidance from $415-440 to $391, and now sees EPS of $0.65 and $0.69 compared with guidance in the range of $0.79 to $0.85. Coming to pretty much every single consumer discretionary (ahem Netflix) stock near you.

Full press release:

BELLEVUE, Wash., Jan. 13, 2011 /PRNewswire/ -- Coinstar, Inc. (Nasdaq:CSTR - News) today announced certain preliminary financial results for the fourth quarter ended December 31, 2010. The company expects revenue for the fourth quarter of 2010 to increase 31% year over year to $391 million, compared with previous fourth quarter 2010 guidance in the range of $415 million to $440 million.

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™ titles, despite a
16% 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, "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 February 3.

"Nevertheless, redbox revenue grew 38% 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% 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% to 45.9%, compared with guidance in the range of $84 million to $90 million. EBITDA was impacted by lower revenue and gross margin.  

Coinstar also has revised its initial outlook for full year 2011 and now expects revenue between $1.70 billion and $1.85 billion, adjusted EBITDA from continuing operations between $325 million and $355 million, and GAAP EPS from continuing operations between $2.60 and $3.10, based on a share count of 33.3 million.  

results provided in this press release are preliminary and subject to
completion and review of the 2010 financial statements by the company as
well as review by the company's independent auditors and Audit

Coinstar plans to report final results for the 2010 fourth quarter and full year on February 3, 2011, after the market close. Management will host a conference call that day at 2:00 p.m. PST (5:00 p.m. EST)
to review the results in more detail and discuss 2011 guidance. The
conference call will be webcast live and archived on the Investor
Relations section of Coinstar's website at A recording of the call will be available approximately two hours after the call ends through February 17, 2011, at 1-888-286-8010 or 1-617-801-6888, passcode 42299302.