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GameStop Posts Loss After Merger

GameStop (GME) said third-quarter sales rose 28.2% from a year ago, but the video-game seller swung to a loss after factoring in costs associated with the Electronics Boutique acquisition.

For the quarter ended Oct. 29, GameStop's sales rose to $534.2 million from $416.7 million in the prior year. Same-store sales fell 12%, reflecting last year's release of Grand Theft Auto: San Andreas from Take-Two Interactive (TTWO) and Fable from Microsoft (MSFT).

GameStop lost $2.5 million, or 4 cents a share, in the quarter. The bottom line includes merger costs of $11.9 million, or 19 cents a share, along with hurricane-related losses of 1 cent a share.

Excluding the items, the company would have earned about 16 cents, topping Wall Street's consensus profit target of 14 cents. A year ago, the Grapevine, Texas, company earned $12 million or 21 cents a share.

"During November we experienced weaker-than-expected new video-game software sales mainly due to core customers waiting for the launch of Microsoft's Xbox 360 and to value consumers continuing to gravitate to used video games," GameStop said in a statement Tuesday. "We anticipate this trend to continue to a degree throughout the holiday season, with gross sales levels declining, but strong margin contributions supporting forecasted earnings."

The company said its only concern is that the total number of Xbox 360s sent to retailers at this point is "far less" than it had anticipated. "While we expect to be supplied throughout the holiday season, the exact quantities to be shipped are not yet clear," the company said.

GameStop expects comp sales in the fourth quarter to range from unchanged to up 2%, citing supply limitations of the Xbox 360 and weaker-than-expected new game sales in the first three weeks of November. Microsoft has said it won't immediately flood the market with its new console but will instead use a "rapid replenishment program."

Still, used game sales continue to meet the company's goals, and it's forecasting fourth-quarter earnings of 98 cents to $1.02. GameStop projected fiscal-year earnings of $1.65 to $1.70. The guidance doesn't include merger expenses.

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