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New Software Sales Carry GameStop To Sales, Profits Increase

New Software Sales Carry GameStop To Sales, Profits Increase

August 19, 2010 | By Leigh Alexander

August 19, 2010 | By Leigh Alexander
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More: Console/PC

U.S. NPD numbers continue to decline and the global game market market continues to show volatility, but retailer GameStop is touting its stability as it reports sales and profits up during its fiscal second quarter.

The company reported sales of $1.80 billion for the quarter ended July 31, up 3.4 percent year over year. Comparable store sales rose slightly -- 0.9 percent -- on sales of new titles and hardware. GameStop also says its increasing market share helped create a 5.3 percent increase in new software sales.

GameStop's top five selling games for the quarter were Rockstar's Red Dead Redemption, Nintendo's Super Mario Galaxy 2, THQ's UFC Undisputed 2010, Blizzard's StarCraft II: Wings of Liberty and EA Sports' NCAA Football 11, the company said.

The company netted $40.3 million in profits, up 4.2 percent over the same period last year, while per-share earnings rose 13 percent to 26 cents.

Despite July's surge in hardware, U.S. retail software has been declining in recent months even in the presence of anticipated releases, showing year-over-year percentage sales decreases for every month this year except for March.

GameStop says this makes the strength in its software sales all the more positive: "GameStop's second quarter results demonstrate the resiliency of our business model as we achieved both top-line and earnings growth despite the ongoing volatility in the global economy," says company CEO Paul Raines.

Chairman Dan DeMatteo pointed to the company's ongoing initiatives to keep pace with the downloadable content market, promising to "accelerate and complete the national roll-out" of its in-store DLC initiatives as well as its new customer loyalty program in the third quarter. During the quarter the company acquired browser-based social gaming hub Kongregate, another component in its strategy to leverage digital downloads and create a community for its customers.

"These investments are evaluated with a focus of increasing return on invested capital over a period of time," says DeMatteo. "In addition, we are reviewing the use of excess cash to enhance shareholder returns."

The company also finished a $300 million share buyback program in the second quarter, retiring some 2,520,400 shares at $20.93 each.

Looking ahead, as GameStop rolls out its in-store DLC program and loyalty program, it lowered its earnings per share guidance for the third fiscal quarter to the range of 35-38 cents, down from previous guidance of 38-41 cents, due to the recent acquisition of Kongregate.

GameStop maintained its full-year earnings per share guidance range of between $2.58 to $2.68, which would represent a 14 to 18 percent year over year increase. The retailer expects to benefit from its new customer initiatives and specifically the launch of Microsoft's Kinect this holiday.

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