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GameStop Cuts Outlook

Hardware shortages hit December sales.
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Video game retailer GameStop (GME) said fourth-quarter sales and earnings will fall short of previous guidance as a result of severe hardware shortages.

The company announced after the bell Thursday that it was expecting fourth-quarter same-store sales growth of flat to 1% and earnings of 68 cents to 70 cents a share, compared with its prior expectations of 6% to 9% comps growth and earnings of 81 cents to 84 cents a share.

A Thomson First Call survey of analysts had expected the company to earn 84 cents a share in the fourth quarter.

"After a very strong November, when GameStop's comparable-store sales rose 23% driven by significant demand across all major platforms, we were well-positioned for a strong holiday season," said Chairman and Chief Executive R. Richard Fontaine in a prepared statement.

"Unfortunately, severe hardware shortages of



PlayStation 2,



Xbox and


Dual Screen have taken a toll. Not only did we lose the tie-in software sales that generally accompany hardware gifts, but due to the shortage affecting the total market, we lost the 'downstream' sales that historically have come our way regardless of where hardware is sold. In all of my years in the video game business, I have never seen shortages of this duration or magnitude.

"There is no question that there was demand for the product, but not hardware product to satisfy demand," Fontaine added. "As the season progressed, we expected hardware inventories to improve, and, as the season developed very late, we felt that much of the lost holiday sales could be rescued with more hardware in the last weeks of the season, but the shipments did not materialize."

Fontaine noted that the company's December month-end inventory was $33 million lower than the year-ago period, despite the addition of 300 stores.

In addition, Gamestop said it thought that huge sales in October and November of



Grand Theft Auto: San Andreas

for PlayStation 2 and

Halo 2

for Xbox led avid gamers to be "less active" in purchasing additional titles in December.

"While we were frustrated by the supply shortfall, we view this as a temporary problem, as we know that our hardware manufacturers will aggressively work to expand the user base that is so obviously ready to purchase the product," Fontaine added. "Our disappointment at not having the product to sell is, to some degree, tempered by our enthusiasm for the fact that in the fourth and fifth holiday season for Xbox and PlayStation2, demand was phenomenal."

Gamestop noted that sales for the holiday period -- the nine weeks ended Jan. 1, 2005 -- totaled $577.7 million, a 13.6% increase from a year earlier. Same-store sales rose 0.9%.