Movie Gallery Provides Update on Integration of Hollywood Entertainment

Movie Gallery Provides Update on Integration of Hollywood Entertainment

Company to Consolidate Finance, Product, Logistics, and Human Resources Functions in Portland, Oregon

DOTHAN, Ala., Oct. 25 /PRNewswire-FirstCall/ -- Movie Gallery, Inc. (NASDAQ:MOVI) today announced further progress on its integration of Hollywood Entertainment Corporation. At the time of the acquisition in April 2005, Movie Gallery stated its intention to review the operations of both companies to ensure that it was adopting the best practices of each. Since that time, Movie Gallery has stated that it expects to realize cash savings of approximately $20 million in 2005 and up to approximately $50 million by the end of 2007 as a result of the Hollywood transaction.

"Over the past few months we have taken significant steps to position the Company for future growth," said Joe Malugen, Movie Gallery's Chairman, President and Chief Executive Officer. "In spite of our market and operational strengths, our industry continues to face significant challenges, including the worst box office slump in more than two decades. While we are hopeful that the fourth quarter will begin to show some improvement due to the release to video of several box office hits, the profound softness in our market requires us to take a hard look at our cost structure."

"The process of merging Movie Gallery and Hollywood Entertainment has led us to conduct a comprehensive organizational review and has laid the groundwork to address the challenges that we currently face," continued Malugen. "Accordingly, we will continue the consolidation of certain corporate departments by locating the primary functions of Finance, Accounting, Treasury, Product, Logistics, Human Resources and Payroll at our Portland office."

"This decision was a difficult one, but we believe that it will enable us to reduce expenses, leverage the Company's purchasing power and streamline the organization to drive top-line results," said Malugen. "Unfortunately, the process of making our Company stronger will have an impact on a number of our valued and talented associates and partners. The consolidation of these corporate functions will allow the Company to reduce its salaried and administrative office staff by approximately 10%, or by about 100 positions over the next twelve months, primarily in our Dothan office. This reduction in our workforce is in addition to the 80 positions that have been eliminated over the past 6 months, mostly from our Portland office."

"We are committed to treating all affected associates and partners fairly and providing the necessary assistance to make this transition as smooth as possible," Malugen added. "The Company will provide severance pay as well as outplacement and other related services to assist affected employees in making a smooth transition to other employment. Furthermore, affected employees will receive priority in terms of applying for other open Movie Gallery positions, including open positions in Portland."

Beginning in the fourth quarter of 2006, the Company expects today's announcement to result in annualized pre-tax savings of approximately $2.1 million, which will advance its goal of achieving approximately $50 million in cash savings by the end of 2007. To realize these cash savings, Movie Gallery will incur after-tax costs of approximately $1.1 million for severance and other expenses during 2005 and 2006.

About Movie Gallery

Movie Gallery is the second largest North American video rental company with annual revenue of approximately $2.6 billion and nearly 4,800 stores located in all 50 U.S. states, Mexico and Canada. Since the Company's initial public offering in August 1994, Movie Gallery has grown from 97 stores to its present size through acquisitions and new store openings.

Forward-Looking Statements

To take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, you are hereby cautioned that this release contains forward-looking statements that are based upon the Company's current intent, estimates, expectations and projections and involve a number of risks and uncertainties. These statements include descriptions of the estimated costs and benefits associated with the continuing integration of Hollywood Entertainment and projections relating to the performance of the Company's industry. Various factors exist which may cause results to differ from these expectations. These risks and uncertainties include, but are not limited to, the risk factors that are discussed from time to time in the Company's SEC reports, including, but not limited to, the annual report on Form 10-K for the fiscal year ended January 2, 2005. In addition to the potential effect of these ongoing factors, the Company's operations and financial performance may be adversely effected if, among other factors, (i) same-store revenues are less than projected; (ii) the availability of new movie releases priced for sale negatively impacts consumers' desire to rent movies; (iii) the number of new store openings during the year is less than expected; (iv) unforeseen issues with the continued integration of the Hollywood Entertainment business; (v) the Company's actual expenses or liquidity requirements differ from estimates and expectations; (vi) consumer demand for movies and games is less than expected; (vii) the availability of movies and games is less than expected, including as a result of changes in movie studios' distribution policies; (viii) competitive pressures, including technological advances, are greater than anticipated; (ix) the Company expands its investment in existing strategic initiatives for alternative delivery of media content or chooses to invest in significant new strategic initiatives, (x) the effects of Hurricane Katrina and other hurricanes are greater than expected on the Company's overall operations or (xi) video game hardware and software manufacturers fail to introduce new products. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Contacts:
Financial - Thomas D. Johnson Jr. @ Movie Gallery, Inc. (503) 570-1950
or
Media - Andrew B. Siegel @ Joele Frank, Wilkinson Brimmer Katcher
(212) 355-4449, ext. 127

Source: Movie Gallery, Inc.

CONTACT: Financial, Thomas D. Johnson Jr. of Movie Gallery, Inc.,
+1-503-570-1950; or Media, Andrew B. Siegel of Joele Frank, Wilkinson Brimmer
Katcher, +1-212-355-4449, ext. 127, for Movie Gallery, Inc.

Web site: http://www.moviegallery.com/

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