Mixed Outlook Grounds GameStop

The game retailer lifts its full-year guidance, but fourth-quarter profits could fall short.
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Updated from 10:13 a.m. EST

SAN FRANCISCO -- Video-game retailer

GameStop

(GME) - Get Report

crushed analysts' expectations for the third quarter and raised its guidance for the fiscal year based on strong sales of titles such as

Halo 3

,

Madden NFL

and

Guitar Hero 3

.

However, shares of GameStop fell 6.3% to $49.58 after the company's fourth-quarter profit forecast was softer than what Wall Street wanted to see.

Including debt-retirement costs of 2 cents a share, the company posted third-quarter earnings of $51.9 million, or 31 cents a share, exceeding its earlier guidance by 12 cents. A year ago, GameStop reported net income of $13.9 million and earnings of 9 cents a share.

Excluding charges, GameStop would have earned 33 cents, 10 cents better than the estimate of analysts polled by Thomson Financial. Sales rose 59.3% to $1.61 billion, compared with $1.01 billion in the same quarter the year before. Analysts were expecting revenue of $1.43 billion.

Comparable-store sales increased 46.3% during the quarter, also beating the company's guidance of 30% to 32%. During the third quarter, new video-game software sales rose 59%, and hardware sales increased 149%.

The top-selling games during the quarter were

Halo 3

from

Microsoft

(MSFT) - Get Report

,

Madden NFL '08

by

Electronic Arts

(ERTS)

,

Activision's

(ATVI) - Get Report

Guitar Hero 3

,

BioShock

by

Take-Two

(TTWO) - Get Report

and

Wii play with Remote

from

Nintendo

.

GameStop opened 181 stores -- 101 in the U.S. and 80 overseas -- during the quarter. This year alone the company has opened 417 stores and is on track to have 500 to 550 new stores by the end of the year.

For the fourth quarter, the retailer forecast that same-store sales will increase 7% to 9%, on top of same-store sales growth of 26.5% in the fourth quarter of fiscal 2006 when the Nintendo Wii and

Sony's

(SNE) - Get Report

PlayStation 3 were launched.

Excluding debt-retirement costs, earnings for the quarter are expected to range from 95 cents to 97 cents a share, compared with earnings of 81 cents the year before. Analysts are looking for $1.01 a share.

Still, GameStop raised its expectations for the full year and said earnings are now likely to range from $1.61 to $1.63, compared to its previously issued guidance of $1.45 to $1.48 a share.

Revenue is now projected to grow between 28% and 29% for the year to $6.79 billion to $7.84 billion, compared to the earlier guidance of a 20% to 22% increase to between $6.37 billion and $6.47 billion. Analysts are expecting earnings of $1.57 a share on revenue of $6.71 billion for the year.

Comparable-store sales are expected to grow 20% to 21% for the fiscal year, GameStop said.