Top U.S. movie rental chain Blockbuster Inc beat Wall Street earnings estimates and said it had reached agreements with most creditors to restructure debt due in August.

Blockbuster's share price jumped as much as 10 percent in early after hours trade before settling back below its closing price on light volume.

The company warned that the its new loans will be expensive, and it plans to temporarily pull back on plans to spend on stores to conserve capital in tough economic times.

Blockbuster Chief Executive Jim Keyes told Reuters the company's plans to diversify entertainment offerings and retail products at its 6,000 U.S. stores have been slowed down because of these credit markets and given the increased cost of capital.

We are very pleased with the progress made last year and but for these credit markets, I would have anticipated a continuation of that trend, he said in an interview.

Keyes said the will rely more on consigned product to grow retail inventory and pursue new digital offerings through partnerships.

Selling products on consignment allows Blockbuster to get inventory from manufacturers without investing its own capital.

Blockbuster plans to sell some overseas stores to raise capital, Keyes said. The company can raise additional revenue by licensing the Blockbuster name and brand to the new store owners, he said.

The company plans to slash $200 million in costs this year, mainly through renegotiation of above-market leases and by aggressively closing underperforming stores and replacing them with DVD rental kiosks, Keyes said.

Blockbuster's online subscriber base eroded from 2 million-plus in 2007 but it has no plans to renew its costly battle for subscribers against Netflix Inc .

To the extent we can grow that business organically by finding other places to fish...we think there is a great opportunity to expand that business in '09... Keyes said.

APPROPRIATELY CONSERVATIVE

Blockbuster, whose share price fell 70 percent in 2008, posted a net loss of $359.7 million, or $1.89 per share, in the fourth quarter mainly due to a non-cash charge of $435 million for impairment of goodwill and other assets.

In last year's fourth quarter, Blockbuster reported a net profit of $41 million or 18 cents per share.

Excluding impairments, stock-based compensation expenses and costs associated with lease terminations and severance, Blockbuster posted a profit of $80.4 million, or 40 cents per share, compared with $57.8 million, or 26 cents per share, in 2007.

Total revenues fell 12 percent to $1.38 billion from $1.57 billion a year earlier.

The company's results were affected by a shorter fiscal year, by a decline in rental revenues, negative foreign currency exchange rates and a smaller store base.

Analysts, on average, expected Blockbuster to post a profit, excluding items, of 25 cents per share, and revenue of $1.54 billion, according to Reuters Estimates.

In fiscal 2009, the company forecast somewhat lower revenue, earnings before interest, taxes, depreciation and amortization of $305 million to $325 million, operating income between $164 million to $184 million and net income of $40 million to $60 million, Keyes said.

Wedbush Morgan analyst Michael Pachter described the results as fine and the company's forecast for nearly flat EBITDA compared with last year's forecast as appropriately conservative.

Flat (EBITDA) is a huge home run, Pachter said. If it never budges from that...and they can pay this debt off in three years, this stock is going to be trading at $3.50.

The company reached agreements with JPMorgan Chase Bank and two of the largest lenders under its existing revolving credit facility to amend and extend the facility through September 30, 2010.

The principle amount of the facility will be reduced to $250 million, and the company also is working to restructure a $40 million term loan due in August, Keyes said.

He said that Blockbuster's financial statements and auditors' report likely would include reference to going concern risks until our financing is complete...

Keyes said on Thursday that rental trends were weaker than last year, mainly due to a weaker DVD release slate, but second quarter slate appeared stronger.

Blockbuster closed regular trading up 7.2 percent at 89 cents per share on the New York Stock Exchange on Thursday.

Pachter said he expected the stock to open higher on Friday on news of the debt restructure and the company's 2009 forecast.

(Reporting by Gina Keating; Editing by Andre Grenon and Carol Bishopric)

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