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GameStop Sales, Profit Surges On Hardware Sales

GameStop Sales, Profit Surges On Hardware Sales

November 21, 2006 | By Brandon Boyer

November 21, 2006 | By Brandon Boyer
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More: Console/PC



Online and retail outlet GameStop has recorded a massive jump in sales for its third quarter, with an increase to just past $1 billion, up over the prior year's $534.2 million, led by a spike in hardware sales, as well as growth in its sales of game software.

Profits from GameStop's third quarter came in at $13.6 million, a healthy jump from the $2.5 million loss it sustained this time in 2005 - the 2006 loss was due to what it said was a lull, as consumers waited for the Xbox 360's launch.

GameStop reported that sales in hardware, led by the Xbox 360 and the continued popularity of the DS Lite, increased 69% over the third quarter of the 2005. Software sales, too, it said were up 14% over the previous year, led by Madden NFL 2007, Saints Row, Dead Rising, and Splinter Cell: Double Agent, all on the Xbox 360. Comparable store sales, it noted, increased 8.8% during the quarter.

[UPDATE: Speaking in its earnings conference call, executives from GameStop revealed more information on the recent next-gen hardware launches by noting that while both consoles achieved complete sell through, both have currently been resupplied and the company expects to get continuous re-supply on a weekly basis.

On the Playstation 3, GameStop found its top titles were Resistance and Madden, while on Wii, The Legend of Zelda and Red Steel were the top sellers. The Wii and PS3 achieved software/hardware tie ratios of 3.0 and 1.5 respectively.

While the latter was somewhat lower than usual, executives explained that the smaller percentage was due to the excessive number of PS3s being purchased exclusively for resale at a "huge premium," and that they expect historical tie ratio norms to prevail once the consoles reach the hands of "true gamers."

When asked if the company received an allocation of launch units that it saw as consistent with its marketshare, the executives said that they in fact did not, but that in its 10 years of business it had never seen a launch allocation it was truly satisfied with.

In particular, the company said, the initial allocation of PS3s was not as good. But, based on early reports of resupply, they expect a more consistent flow of goods to come from Sony. This is in contrast to the launch of the 360 at this time last year, where supplies from Microsoft became more sporadic moving through the holiday season to the end of the year.

On the remaining established consoles, GameStop reported that it has seen especially strong surge in hardware and software sales, with the release of Gears of War marking a strong uptick in Xbox 360 sales, a title which they expect will become the best selling 360 game to date.

The PlayStation 2 is a console which GameStop has seen similar strong momentum at its $129.99 pricepoint and especially in its limited silver edition - Final Fantasy XII, WWE SmackDown vs. RAW 2006 and Guitar Hero have continued to drive sales.

The executives also noted that while new software is up 14%, sales of used software is additionally up 10%, and that due to heavy promotions throughout the year, the per store levels of used software are on target and ahead of last year's levels.]

"Not only did we have an excellent third quarter, but the sales during the period indicate that GameStop is building momentum heading into the holiday season," said GameStop chairman and CEO R. Richard Fontaine. "Strong sales of Microsoft's Xbox 360, an unexpected resilient performance from Sony's PlayStation 2, and robust sales of Nintendo's DS Lite reflect a growing installed base of game customers measured by our 69% increase in hardware sales."

He added, "We have a contemporary platform attracting core customers, a seven year-old platform attracting a value customer, hand-helds attracting a broader demographic gamer, and the latest revolutionary systems just coming to the market. Never before in video game history have we had so many outstanding consoles to energize the existing gamers, entice the upgrade customer, and attract new customers to gaming and GameStop."


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