It’s hard to say if Blockbuster’s positive first-quarter earnings made things better or worse for the company’s management.

Associated Press

James Keyes

Blockbuster reported net income of $45.4 million compared with a prior-year net loss of $49 million. A nice turnaround, considering how bad things have been for the company in recent years. Only once since 2003 did it finish the year with positive net income, a $50.5 million gain in 2006. Its worst fiscal year in that span came in 2004 when Blockbuster reported $1.246 billion in losses.

But the positive 2008 numbers only seemed to reinforce this argument: If things are going well, why try to buy Circuit City?

During Thursday’s earnings conference call, CEO James Keyes didn’t waste any time trying to assuage shareholder concern about the possible acquisition of Circuit City. He opened his comments with “a quick update” on Circuit City before addressing earnings.

“We will not proceed with the transaction unless it makes sense both strategically and financially and also creates significant value for our shareholders,” he said.

He added that the deal wasn’t essential to Blockbuster’s success, but that management viewed the transaction as a “potential accelerator” for its transformation strategy, which includes a bigger push into video games and entertainment retail.

“They are making a big push away from their core rental business and I think that’s a good thing because their core rental business has been struggling so much,” says Edward Woo, a Wedbush Morgan Securities research analyst. “We’ll see if that’s successful, but so far this is a good quarter for them. They need to keep stringing them together.”

Were the Circuit City comments enough to appease shareholder concern about the deal? “No,” Woo says.

Woo was skeptical about the deal before the call and remained so after it. “Why potentially throw in more complexities especially since Circuit City has a lot of their own issues?” he says.