H&R Block reported a consolidated net loss for the first quarter of $133.6 million, or 40 cents a share, with much of the loss attributed to tax operations.

The company said the loss was “essentially flat” compared to a loss of $132.7 million, or 41 cents a share, a year ago. Analysts polled by Bloomberg and Reuters had expected a loss of 37 cents a share.

The company also reported a net loss from continuing operations for the fiscal first quarter ended July 31, 2009, of $130.6 million, or 39 cents per share compared to a loss of $128.4 million, or 39 cents per share, in the first quarter a year ago. Improved pre-season results from the Block’s business services division and lower corporate expenses were partially offset by an expected larger loss in tax services. The company typically does not earn as much income outside tax season.

Block president and CEO Russ Smyth said the company would improve its customer service and concentrate more on its core filing operations. "First-quarter results were in line with our expectations and reflected our continuing success in driving out non-value-added costs while making the necessary investments to ensure our success in fiscal 2010 and beyond,” he said in a statement. “We are focused on efforts to enhance our field-level performance and marketing effectiveness to improve client attraction, retention and satisfaction.”

Fiscal first-quarter revenues from continuing operations grew 1.3 percent over the prior-year period to $275.5 million from $271.9 million, although it fell shy of analyst expectations of $280 million.

Results from discontinued operations improved to a net loss of $3.0 million compared to a net loss of $4.3 million in the first quarter a year ago.

Block’s first-quarter tax services revenues rose 7.7 percent year-over-year to $88.0 million, and tax prep fees increased $4.2 million, or 14.2 percent, primarily due to favorable results in the company's Australian tax operations, but the segment reported a pretax loss of $172.0 million compared to $163.7 million a year ago. This primarily reflects a net impact of $7.4 million due to the acquisition of a Southwest franchise that occurred in the fiscal third quarter of last year, $3.5 million of severance expense, and $2.9 million of incremental expenses for information technology projects to prepare for the upcoming tax season.

Expense increases were partially offset by savings achieved through closing underperforming retail office locations and renegotiating leases.

Block continues to expect that the tax services segment will deliver improved margins totaling 100 basis points over the next two fiscal years. However, the company also expects to see fewer tax returns next year due to unemployment and other economic factors. However, the company also anticipates more people will be seeking help with complex tax returns as a result of the economic recovery efforts, which included many new tax credits.

H&R Block also announced plans to convert up to 300 of a pool of 500 company-owned offices to franchises this fall and winter. The company expects to close a net 1,200 locations, including 300 poorly performing retail office locations, as well as kiosks in Wal-Mart, which ended a contract with Block. To entice more franchisees, Block is offering a defined territory, along with a fully operational office, training and recruitment programs, technology systems, local marketing and signage.

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