Video rental company Blockbuster

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[BBI  Loading...      ()   ] posted a second quarter loss of $44.7 million, or 23 cents per share, compared to an 18 cent-per-share loss in the year-ago quarter.

But, thanks to improved sales--up three percent from last year to $1.3 billion--the company raised its outlook, predicting a profit of between $21 million and $36 million for the whole year.

And excluding costs for store closures, employee layoffs, and an aborted takeover bid for Circuit City Stores

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[CC  Loading...      ()   ], the loss came in at 20 cents per share, a cent worse than the consensus analyst expectation from Thomson Financial.

Blockbuster has had a tough run: its stock down almost 90 percent since 2001, having posted $4.5 billion in losses since then. But a year ago the company hired the former CEO of 7-Eleven, James Keyes, to take the helm, and the company is actually looking up. There's that three percent revenue increase this quarter, and even better, same-store sales rose nine percent. Keyes has been streamlining-- closing 233 stores in the past year-- while also diversifying, selling more video games and DVDs (instead of just renting) along with consumer electronics.

Carl Icahn, who's a shareholder and board member gave his thumbs-up to the company's progress, saying in a company release: "There was a little question that Blockbuster was sick and needed the new medicine that has been administered by Jim Keyes and his team."

Netflix

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[NFLX  Loading...      ()   ] and video-on-demand of course pose tough competition for Blockbuster, a threat that prompted Blockbuster to launch an online rental service. This quarter Blockbuster isn't investing as much in promoting the web-based system, which has just 3.2 million subscribers compared to Netflix's 8.4 million subscribers.

Keyes seems to want to focus on Blockbuster's core competency, which isn't its online service. But it did buy high-speed download service Movielink for $7.7 million last year. Eventually it's bound to combine it with its current system. But in the meantime, the fact that Blockbuster is no longer making its online system a priority is great for Netflix, whose stock got a bit of a boost.

But Blockbuster has some new innovations in the work, that is if you can call a vending machine an innovation. Blockbuster--teaming with NCR, a cash-register maker--is debuting vending machines that rent DVDs. Fifty Blockbuster kiosks will roll out in the next few weeks, with up to 10,000 in the next year and a half, likely expanding to include digital downloads and DVD and video game sales. This strategy aims to take on company's like McDonald's owned Redbox, which has vending machines in some grocery stores and McDonald's Restaurants

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[MCD  Loading...      ()   ]. It's certainly a way to expand Blockbuster's footprint without serious investment for each kiosk. But we shall see.

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