Movie Gallery’s Profit Jumps

Movie Gallery Inc., the second-largest U.S. video-rental chain, said Thursday that first-quarter profit more than doubled, beating analysts’ estimates and sending its shares up 51%.

Net income climbed to $40.3 million, or $1.27 a share, from $18.4 million, or 58 cents, a year earlier, Dothan, Ala.-based Movie Gallery said. Revenue in the period ended April 2 almost tripled to $694.4 million after the purchase of Hollywood Entertainment Corp. in April 2005.

A tax gain of $293,000 in the quarter lifted profit after the company paid $11.8 million in taxes a year earlier. Creditors in March relaxed debt covenants, helping Movie Gallery avoid default, and the company said Thursday that it had enough cash for the rest of the year.

Shares of Movie Gallery surged $1.62 to $4.78. The shares have tumbled 83% in the last year. Stock in Dallas-based Blockbuster Inc. has declined 50%, while Los Gatos, Calif.-based Netflix Inc. has more than doubled over that time.

Movie Gallery would be receptive to a merger with Blockbuster, said Thomas Johnson, senior vice president of investor relations, when asked on a conference call about the idea.

“It certainly makes a lot of sense if you were to put the two companies together,” Johnson said. “I think we would be very receptive to something of that magnitude.”

Movie Gallery said in March it would reduce the size of its average Hollywood Video store to 4,000 square feet from 6,600 and cut Movie Gallery stores to 3,000 square feet from 4,200. The retailer is cutting 300 jobs, or 17% of its administrative staff, this year.