Take-Two Takes One on the Chin

Updated from 9:50 a.m. EST

Take-Two Interactive ( TTWO) shares sank Thursday after the video game maker posted a drop in earnings and revenue from a year ago. The maker of the blockbuster hit Grand Theft Auto video game also lowered its earnings guidance for the second quarter as it postponed a game release in Japan.

Shares of Take-Two were recently down $1.40, or 4.1%, to $32.42.

For the first quarter ended Jan. 31, Take-Two earned $31.8million, or 70 cents a share, on revenue of $375.5 million. That was a drop from earnings of $51.5 million, or $1.22 a share, on revenue of $411 million a year earlier, which included holiday sales of the big hit Grand Theft Auto: Vice City for PlayStation 2. Earnings fell in line with Wall Street estimates gathered by Thomson First Call, but revenue fell short of the $385.1 million consensus estimate.

CEO Jeffrey Lappin said revenue in the second half of January came in shy of the company's estimates, although its Jack of All Games distribution subsidiary posted a 39% year-over-year increase in revenue to about $144 million.

For the second quarter ending April 30, Take-Two reiterated guidance of $220 million but reduced its earnings guidance by six pennies to 33 cents a share. That cut is primarily due to the release date of Grand Theft Auto: Vice City for PlayStation 2 and PC in Japan slipping to the third quarter from the second quarter, the company said.

Lappin said Take-Two agreed to push back the date at the request of Capcom Col, which has a license agreement with Take-Two in Japan and argued the additional time for marketing would maximize sales.

Take-Two's initial guidance for the third quarter ending July 31 targets sales between $180 million and $200 million and net income between 12 cents and 17 cents a share. For fiscal year ending Oct. 31, Take-Two reiterated its sales guidance of $1.22 billion and net income of $2.45 a share.

Lappin began the earnings conference call Thursday saying the company continues to be in discussions with the Securities and Exchange Commission, which has had a long-running investigation into the company's revenue recognition policies. The company recently began taking a more conservative approach in handling allowances for returns.

Lappin said he believes Sony will reduce its price on the PlayStation 2 video game console to $149 by summer and $129 by Christmas, moves that should help game sales as cheaper prices prompt more people to buy consoles. He said he believes Sony will launch Play Station 3 in 2006.

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