GameStop Shares Up on Strong Earnings, Higher Forecast

GameStopposted on Thursday a better-than-expected seven-fold jump in quarterly profit and raised its full-year outlook on strong sales of games like "Guitar Hero II" and "NCAA Football '08," sending its shares up as much as 8 percent.

The largest U.S. video game retailer said it had opened 150 new stores in the quarter and operates close to 5,000 in 16 countries. It said it was on its way to meet a goal of opening 500 to 550 stores this year.

GameStop executives said on a conference call that they expect all videogame hardware platforms to sell well in its current, third quarter. Even Sony's PS2, for example, seven years after its introduction, continues to sell well among budget-minded gamers.

"The strength of these results points to a company very well-positioned and benefiting from the strongest momentum in retail today," Credit Suisse analyst Gary Balter wrote in a research note.


Net profit for the second quarter, ended on Aug. 4, rose sevenfold to $21.8 million, or 13 cents per share, from $3.18 million, or 2 cents per share, a year earlier.

Excluding debt retirement costs, earnings were 14 cents per share, easily beating the 9 cents analysts had expected, according to Reuters Estimates.

Revenue increased 39 percent to $1.338 billion, topping the average analyst forecast of $1.19 billion. Same-store sales, or sales at stores open at least one year, rose 29 percent.

Shares of GameStop have risen more than elevenfold since 2003 and are up 67 percent so this year as the company secured its position as the last remaining major specialty chain in the $30 billion video game industry.

Its competitors include mainstream retailers like Wal-Mart Stores and Best Buy , which also sell video games.

Balter said increased demand for video game consoles and improving console supply boosted GameStop results.

The company has benefited from the introduction late last year of Nintendo's Wii console, which helped expand the video game market beyond young men to a broader consumer audience.

"The incredible acceptance of the Wii and DS Lite platforms, coupled with the emergence of what could almost be considered a new category -- nongame games such as Guitar Hero, SingStar, Boogie, etc. -- has not only attracted more customers, but we are seeing an increasing number of young girls and women in our demographic," said Chief Executive Dick Fontaine on a conference call.

The top-selling video games include Activision's Guitar Hero II, Electronic Arts' NCAA Football '08, Nintendo's Mario Party 8, Pokemon Diamond and Pearl and Microsoft's Forza Motorsport 2, GameStop said.

New video game software sales rose 49 percent in the quarter, while new hardware sales soared 87 percent.

Executives said they expected highly anticipated new games, including Activision's Guitar Hero III, Assassin's Creed from Ubisoft and EA's "Rock Band," to buoy up earnings in the latter half of the year.

The Grapevine, Texas-based retailer raised its fiscal-year earnings forecast to a range of $1.45 to $1.48 a share from a previous outlook of $1.39 to $1.42. Analysts were looking for $1.46, according to Reuters Estimates.

The company forecast full-year revenue growth at 20 percent to 22 percent, compared with its previous estimate of 19 percent to 21 percent. It expects same-store sales to rise 15 percent to 17 percent.

Sales of new video game hardware accounted for 22 percent of revenue in the quarter, which was a record for the company's summer quarter, said Chief Operating Officer Dan DeMatteo.

"This means that the all-important installed base of players is growing at an all-time high, and, given the systems that are selling, the base continues to get even broader," DeMatteo said.

He also said that the Wii continues to sell out almost immediately once it hits the company's store shelves, nine months after its launch.

"Supply still can't match demand," DeMatteo said.

GameStop expects that sales of Microsoft's Halo 3 game will break all sales records in its current quarter, and it sees Madden, in all console formats, to beat last year's sales numbers, DeMatteo added.

GameStop's shares were up $2.78, or 6.4 percent, at $46.20 in afternoon New York Stock Exchange trade after hitting a record of $46.84 earlier in the session.