Coinstar shares are down nearly 10.5% in after-hours trading as the company coupled this surprising announcement with an early release of financial data that’s lower than Wall Street expected. The owner of the Redbox $1-a-night DVD rental kiosks says that next week it will report 2Q revenues of between $434M and $436M — below the $445.9M average forecast by analysts. Coinstar adds that earnings in the third quarter will be higher than in the fourth because the year will end with lots of DVD releases “by studios that generate lower margins for the company.” The company also said that it has borrowed $450M in senior secured credit to repay $150M in existing debt and provide working capital.
The announcements will jolt investors who have been regaining their confidence in Coinstar after its shares plummeted 30% in January. The company startled the Street by disclosing that its financials would fall far short of its guidance. Coinstar was grappling inventory issues as several studios delayed providing DVDs to Redbox until 28 days after they were available elsewhere. Also, Redbox was slow to integrate Blu-ray discs into its kiosks. But lately Redbox seemed to be in the catbird’s seat. Blockbuster’s kiosk business is on the ropes following the chain’s bankruptcy and acquisition by Dish Network; this month NCR, which makes the machines, said it may sell the unit. And Netflix angered a lot of consumers with the recent 60% price hike for its combination DVD rental and broadband streaming subscription service. Coinstar shares closed Thursday at $58.63.
Here’s the announcement about Lowe:
BELLEVUE, Wash. – July 21, 2011 – Coinstar, Inc. (NASDAQ: CSTR), a leader in automated retail, today announced a leadership transition for the company’s redbox business, a wholly-owned subsidiary of Coinstar. Mitch Lowe has resigned as president of redbox to pursue entrepreneurial and other interests, and will continue to serve as president until a successor is named. Coinstar has commenced an external search to identify a new president of redbox.
“On behalf of Coinstar and the redbox organization, I want to thank Mitch for his many contributions over the last eight years, particularly in establishing redbox as a leader in the home entertainment business,” said Paul Davis, chief executive officer of Coinstar. “A true entrepreneur, we wish him the best as he pursues other passions. I am also excited for the future of the redbox business, and as such, we will be seeking a new leader to help us realize the next chapter in the redbox growth story.”
“I feel very fortunate to have been part of the extraordinary redbox team that transformed the DVD rental business, and I look forward to working closely with the company to ensure a smooth transition in the days ahead,” said Lowe. “When I joined redbox in 2003, it was part of McDonald’s and we had only a few kiosks installed. Today, redbox has more than 31,800 kiosks located across the United States and has rented more than 1.5 billion DVDs. As the market continues to evolve, I look forward to watching redbox innovate and grow with it.”