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Q2 Sales, Profits Decline At GameStop

Q2 Sales, Profits Decline At GameStop

August 18, 2011 | By Kris Graft

GameStop on Thursday reported declines in sales for the second fiscal quarter ended July 30, due to "underperforming" new hardware sales and a light software slate, as profits also declined.

Total quarterly sales were $1.74 billion, down 3.1 percent from $1.8 billion for the same quarter a year ago. Comparable store sales -- or sales generated by GameStop stores that have been open for a year or more -- had a decline of 9.1 percent.

Profits were $30.9 million, down 23.3 percent from $40.3 million for the same quarter a year prior. The retailer said it continued spending on "strategic initiatives" during the quarter.

Top games during the period were L.A. Noire from Rockstar Games, NCAA Football 12 from Electronic Arts, Infamous 2 by Sony, Brink from Bethesda and Mortal Kombat from Warner.

Pre-owned game sales once again had strong performance during the quarter, as growth in pre-owned and digital drove gross margins of 31.2 percent, "the company's highest margin rate in five years," GameStop said. "...While new hardware and software underperformed, pre-owned sales increased 12 percent and digital sales increased 69 percent, exceeding quarterly expectations."

During the quarter, used video game products, including hardware and accessories, generated $633.1 million with a gross profit margin of 46.2 percent. That's compared to new video game software's $599.8 million in sales and 22 percent margin. New hardware generated $275.6 million with margins of 7.5 percent.

CEO Paul Raines said, "GameStop's resilient retail model enabled us to achieve our earnings plan despite a challenging period for the industry. Through the back half of the year, we expect industry software sales to accelerate based on an exciting title line-up."

He added, "Meanwhile, the digital and loyalty programs we have brought to market continue to gain traction with consumers and position us as a leading partner with publishers."

The retailer reiterated its full year earnings per share guidance in the range of $2.82-$2.92, which would be a 6.4 to 10.2 percent increase over the last fiscal year. GameStop now expects comparable store sales to rise 1 to 3 percent, downgraded from a previous forecast of 3.5 to 5.5 percent.

[UPDATE: During GameStop's quarterly earnings call, the company said it has high hopes for a strong second half of the year, driven by hardware price cuts and major software releases.

GameStop president Tony Bartel said, "In terms of recent trends, clearly we've had two major events recently, with the price drop on the 3DS and the recent price drop on the PS3 platform. That has seen a significant increase in the rate of sale of those platforms, as you would expect, so we see that as a good barometer for what's going to take place in terms of an installed base at the back half of the year."

CEO Raines also said reservations for major upcoming games including Bethesda's The Elder Scrolls V: Skyrim and Electronic Arts' Battlefield 3 are running "significantly ahead" of those for the overall holiday software slate from last year.]

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