Pixar Cuts Profit Outlook On Soft 'Incredibles' Sales
By NICK WINGFIELD and MERISSA MARR
Staff Reporters of THE WALL STREET JOURNAL
July 1, 2005
Pixar Animation Studios said it will miss its second-quarter earnings forecast because of higher-than-expected returns by retailers of the home video of "The Incredibles."
Pixar, Emeryville, Calif., said it expected to report earnings of 10 cents a share for the quarter ending July 2 instead of its earlier projection of 15 cents a share, which equates to $6 million less in net income than Pixar had forecast. The lower earnings reflect an increase by Pixar in the reserves it takes to cover returns of home videos from retailers.
Pixar said it expects unit sales of the home video of "The Incredibles" to be about 7% lower than its previous estimates, though it declined to elaborate further until it gets final projections from Walt Disney Co., Pixar's movie distribution partner. Disney declined to comment.
[Steve Jobs]
The news, released after the close of regular trading hours, sent Pixar's stock down 11% to $44.50 in after-hours trading, according to Inet ATS Inc.
Analysts said the shortfall highlights a growing tendency by retailers to quickly return DVDs that don't sell in the first couple of weeks of their release. "There's so much new product out there, it's got to sell immediately or they just ship it back," said David Miller, an analyst at Sanders Morris Harris.
Pixar executives said the $6 million shortfall was relatively small but that they considered the figure material enough to disclose because it is in a financially slow period between the release of new movies.
"Of course, we're disappointed to miss our guidance this quarter, but we're talking about units 7% lower than expected," Steve Jobs, Pixar's chief executive, said on a call with investors and analysts. "In this wide world, projecting something within 7% isn't so bad."
Pixar's revision comes on the heels of a similar glitch faced by rival animation studio DreamWorks Animation SKG with the recent home-video release of "Shrek 2." DreamWorks Animation warned investors in May that it had fallen short of its sales forecasts for "Shrek 2" by five million units. The "Shrek 2" miss took 19 cents off DreamWorks' original expectations for first-quarter earnings.
Pixar and DreamWorks's missteps reflect a DVD market that has become extremely difficult to predict. DVD releases have come to mimic the box office, with titles burning out much faster today than in years past, with many clocking up the bulk of their sales in the first few weeks. So while "Shrek 2" sold 33.7 million DVD and VHS copies world-wide in its first eight weeks, it only sold 1.3 million in the first quarter of this year.
Write to Nick Wingfield at nick.wingfield@wsj.com and Merissa Marr at merissa.marr@wsj.com
By NICK WINGFIELD and MERISSA MARR
Staff Reporters of THE WALL STREET JOURNAL
July 1, 2005
Pixar Animation Studios said it will miss its second-quarter earnings forecast because of higher-than-expected returns by retailers of the home video of "The Incredibles."
Pixar, Emeryville, Calif., said it expected to report earnings of 10 cents a share for the quarter ending July 2 instead of its earlier projection of 15 cents a share, which equates to $6 million less in net income than Pixar had forecast. The lower earnings reflect an increase by Pixar in the reserves it takes to cover returns of home videos from retailers.
Pixar said it expects unit sales of the home video of "The Incredibles" to be about 7% lower than its previous estimates, though it declined to elaborate further until it gets final projections from Walt Disney Co., Pixar's movie distribution partner. Disney declined to comment.
[Steve Jobs]
The news, released after the close of regular trading hours, sent Pixar's stock down 11% to $44.50 in after-hours trading, according to Inet ATS Inc.
Analysts said the shortfall highlights a growing tendency by retailers to quickly return DVDs that don't sell in the first couple of weeks of their release. "There's so much new product out there, it's got to sell immediately or they just ship it back," said David Miller, an analyst at Sanders Morris Harris.
Pixar executives said the $6 million shortfall was relatively small but that they considered the figure material enough to disclose because it is in a financially slow period between the release of new movies.
"Of course, we're disappointed to miss our guidance this quarter, but we're talking about units 7% lower than expected," Steve Jobs, Pixar's chief executive, said on a call with investors and analysts. "In this wide world, projecting something within 7% isn't so bad."
Pixar's revision comes on the heels of a similar glitch faced by rival animation studio DreamWorks Animation SKG with the recent home-video release of "Shrek 2." DreamWorks Animation warned investors in May that it had fallen short of its sales forecasts for "Shrek 2" by five million units. The "Shrek 2" miss took 19 cents off DreamWorks' original expectations for first-quarter earnings.
Pixar and DreamWorks's missteps reflect a DVD market that has become extremely difficult to predict. DVD releases have come to mimic the box office, with titles burning out much faster today than in years past, with many clocking up the bulk of their sales in the first few weeks. So while "Shrek 2" sold 33.7 million DVD and VHS copies world-wide in its first eight weeks, it only sold 1.3 million in the first quarter of this year.
Write to Nick Wingfield at nick.wingfield@wsj.com and Merissa Marr at merissa.marr@wsj.com