Profit Slumps at Electronic Arts

And the company's balance sheet echoes Jenson's warning about continued soft sales in the current quarter. At the end of the holiday quarter, EA's inventory was up 23% from the same period a year earlier to $76 million. Meanwhile, days sales outstanding as a function of holiday-quarter sales had jumped from less than 19 days a year ago to more than 40 days at the end of December.

While sales are falling, costs are rising. With declining demand for current-generation games, the company upped its reserves for price protection and returns in the holiday quarter, leading to a sharp drop in gross margins, Jenson said. Margins fell from 64.8% of sales a year earlier to 60.5% of sales in the just-completed period.

EA upped its marketing spending to $147 million, or 11.6% of sales, in the just completed quarter from $133 million, or 9.3% of sales a year earlier.

The investments the company is making in next-generation and other consoles showed up in its line for research and development spending, which rose 11% to $206 million. Research and development came in at 16% of sales from just 13% a year earlier.

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