Redbox president leaves; parent company’s stock drops 10%
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The president of Redbox unexpectedly said he would be leaving the kiosk DVD rental company as the firm’s parent company, Coinstar Inc., reported preliminary results for the second quarter that disappointed Wall Street.
Coinstar stock then plummeted 10% in after-hours trading.
The company announced Mitch Lowe’s resignation Wednesday along with early financial results for the quarter ended June 30. Revenue was between $434 million and $436 million, Coinstar said, lower than a consensus estimate among Wall Street analysts of $446 million.
Earnings per share, meanwhile, were between 96 cents and $1, higher than analysts’ estimate of 81 cents.
Executives at two Hollywood studios that work closely with Redbox said they were surprised by the news of Lowe’s departure. He has been with the company since 2003, when it was owned by McDonald’s and had only a dozen kiosks. Redbox, which has transformed the home entertainment business with its $1-a-night rentals, now has more than 31,800 kiosks in grocery stores, convenience stores and other retail locations.
Lowe regularly commuted to Redbox’s Illinois headquarters from Mill Valley, Calif. He previously was a founding executive at Netflix, which is headquartered close to that Northern California city.
Coinstar said in a statement that Lowe resigned ‘to pursue entrepreneurial and other interests,’ but did not provide more details. The company said he would stay in his post until a new executive had been found and that an external search had already begun.
Together with Netflix, Redbox dominates the DVD rental business. Its growth was a key factor in the bankruptcy of Blockbuster, since acquired by Dish Network, and the shutdown of Hollywood Video.
However, many in Hollywood have become concerned that its $1-per-night rentals undermine more profitable video-on-demand transactions and disc sales. As a result, four of the six major movie studios either forbid or impose financial incentives discouraging Redbox from renting their movies until 28 days after the DVD goes on sale.
That led to a disappointing financial performance in the fourth quarter of last year when the company underestimated how big the effect of those delays would be on consumer demand. But Redbox’s business stabilized in the first quarter of 2011.
The company also announced a $250-million stock buyback and a new $450-million credit facility to pay down debt and for working capital.
Coinstar stock closed down less than 1% at $58.63 on Wednesday before Lowe’s resignation and the preliminary financial results were announced.
The news came on the same day that Dish Network revealed it would keep more than 1,500 Blockbuster stores open out of the approximately 1,700 it took over, more than many had anticipated. It also comes a week after Netflix unexpectedly hiked its prices, leading to a consumer outcry.