Coinstar's low fourth-quarter earnings have prompted the Law Office of Robbins Umeda LLP to investigate the company that owns redbox for possible "violations of the law by certain officers and directors."
The investigation concerns whether Coinstar's officers and directors caused the company to issue false and misleading statements regarding the company's revenue and earnings guidance for 2010 and 2011, according to a press release from Robbins Umeda, which represents shareholders in derivative, direct and class action lawsuits.
"Specifically, the investigation concerns whether these fiduciaries misled investors about the growth and profitability of its RedBox DVD kiosk business, despite changes in the DVD industry which required vendors to wait 28 days before obtaining movie titles from the movie studios," it stated.
In October, Coinstar directors issued positive revenue and earnings guidance for the fourth quarter of 2010, including consolidated revenue projections of $415-$440 million and per share earnings between $0.79 and $0.85 per share.
The firm stated in the release that as a result of these projections, the company's value increased almost 25 percent over the prior day's closing. However, Coinstar announced on Jan. 13, 2011, earnings for the fourth quarter and full year of 2010, in which investors learned that the company would earn as little as $0.65 per share for the quarter on revenues of $391 million, well below analysts' expectations and previous guidance sponsored and endorsed by the company. Upon this news, Coinstar's value dropped more than 30 percent.
Marci Maule, Coinstar's director of Public Relations, said the company will not comment on investigations. However, in Coinstar's Jan. 13 announcement, Chief Executive Officer Paul Davis said several factors contributed to the shortfall.
He said an unexpectedly high share of customers rented DVDs from one kiosk and returned them to another, creating an imbalance of supply. At the same time, 2010 was the first holiday season when a slate of movies had been delayed for rental by 28 days. Davis said Coinstar anticipated demand would be higher for those movies than it really was.
"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," Davis said in the statement.
He also said redbox revenue grew 38 percent year over year in the fourth quarter and that consumers rented more than 144 million movies during the quarter.
"Our unit economics for single and dual kiosks remain strong, and we believe in the future prospects for DVD kiosk rentals," he said. "Additionally, we are pleased with the continued strong performance of our coin business, especially its year-over-year 10 percent growth in same store sales during the fourth quarter, and remain focused on driving profitable growth across the organization."