GameStop Forecast Flattens Shares

An in-line projection doesn't impress investors.
Publish date:

SAN FRANCISCO - Shares of video-games retailer


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slumped after the company beat analysts' first-quarter estimates but forecast earnings for the current quarter and fiscal year that were merely in line with Street expectations.

Shares of GameStop were down $4.76, or 9.4%, to $46.09 in recent trading.

Profit for the quarter was $62.1 million, or 37 cents a share vs. $24.7 million, or 15 cents a share, a year earlier. Excluding items, the company earned 38 cents a share, beating analysts' expectations by 3 cents a share.

Revenue increased 41.8% to $1.81 billion, surpassing analysts' expectations of $1.75 billion for the quarter.

Comparable-store sales increased 27.1% during the first quarter.

New video game software sales grew 72%. The top-five selling games during the quarter were


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Grand Theft Auto IV

, with only five days of sales at the end of the quarter;

Super Smash Bros. Brawl


Mario Kart WII




Rainbow Six: Vegas 2



; and

Electronic Arts'


Army Of Two

, said GameStop.

"The installed base of video game consoles grew 34% in 2007, or nearly 31 million units, the highest incremental growth in the history of the business, and we are forecasting that hardware unit sell-thru will match these levels in 2008," said R. Richard Fontaine, chairman and chief executive officer for GameStop in a statement.

Gross margin for the quarter was 26.1%, down from 27.2% a year ago. The decline came primarily from the hardware sales category, said Matt Hodges, director of investor relations for GameStop.

GameStop sold lower warranties compared to a year ago, mainly because


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offered its own three-year warranty for the Xbox 360 system last year. This took a toll on GameStop's warranty sales and hit gross margins, said Hodges.

During the first quarter, GameStop opened 210 stores and said it plans to open between 550 and 600 new stores in 2008. With half of the new stores opening outside of the U.S., the international store base is set to grow by 25%.

For the second quarter, GameStop forecast comparable-store sales growth of 12% to 14%. EPS is expected to range from 26 cents to 28 cents compared to earnings of 14 cents the year before. Analysts are looking for EPS of 26 cents.

GameStop also raised its full-year EPS guidance to range from $2.30 to $2.39. That compares to Street expectations of $2.33.

Comparable-store sales are forecast to increase between 10% and 12% for the full fiscal year, even as the company expects video-games software sales to increase 15% to 20%.

GameStop offered an upbeat outlook on the state of the video-game industry. With the average age of a gamer at about 30 years, good games attract longtime players, leading to a longer cycle for the console, the company told analysts on a conference call.

As a result, older consoles are continuing to do well. Last week, three of GameStop's top 20 titles were for


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PlayStation 2, a console now in its eighth year and competing with Sony's latest PlayStation 3 system.

The demographics of game buyers are also expanding, with more families and women buying games. GameStop said it is seeing games such as


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Guitar Hero

, EA's

Rock Band

and the latest Wii Fit accessory from Nintendo driving this change.