GameStop Holiday Sales Up 10.2%, Tightens Q4, FY08 Forecast; Stock Up - Update

(RTTNews) - Even as recession continues to bruise US retailers, GameStop Corp. (GME | Quote | Chart | News | PowerRating) managed a 22% jump in December sales, terming the season as the busiest it has ever experienced. The Grapevine, Texas-based gaming company, Thursday said its same-store-sales during the holiday period, November 2, 2008 through January 3, 2009, jumped 10.2%, driven by substantial increases in hardware and software sales. Consequently, GameStop raised its fourth quarter and full year earnings outlook. GameStop shares are currently trading up, more than 11%, on the New York Stock Exchange.

For the nine-week period ended January 3, 2009, GameStop recorded a 10.2% increase in comparable store sales. Total sales during the period were up 22.3% at $2.86 billion, compared to $2.33 billion in the same period a year ago.

The top five video games sold during the holiday period were Activision's Call of Duty: World at War and Guitar Hero World Tour, Microsoft's Gears of War 2, Blizzard Entertainment's World of Warcraft: Wrath of the Lich King, and Nintendo's Wii Fit.

Hardware sales were led by Nintendo's Wii and Microsoft's Xbox 360, with a 23.5% increase in new video game software sales.

Commenting on the sales, Daniel DeMatteo, Chief Executive Officer, said, "Our proprietary inventory management systems allowed us to maintain a great in-stock position during the busiest season we have ever experienced. A major highlight of the period was that GameStop's sales grew in every worldwide territory in which we operate."

In the third quarter, GameStop, however, reported a decline in earnings due to the effect of foreign currency fluctuations and merger-related expenses.

GameStop, however, noted that gross margin rates were lower than anticipated, even while sales significantly exceeded forecast. Gross margins were impacted by higher mix of hardware sales and the success of value messaging and promotions during the holiday period.

Consequently, GameStop raised its fourth quarter 2008 comparable store sales guidance to 9.0% to 9.5%.

For the fourth quarter, the company raised the low end of its previous forecast by $0.02, resulting in a range of $1.31 to $1.34 per share. The new forecast represents an increase of 15% to 18%, compared to the prior year.

Analysts' polled by First Call/Thomson Financial currently expects earnings of $1.31 per share for the quarter. Analysts' estimates typically exclude one-time special items.

For full year, the company now sees earnings in the range of $2.37 to $2.40 per share, which is an increase of 32% to 33%, compared to the prior year. The Street currently expects earnings of $2.39 per share for the year. The company had earlier forecast earnings in the range of $2.35 to $2.40 per share.

Comparable store sales are projected to increase between 12.0% and 12.5% for the full year, with total sales growing between 24% and 25%.

Paul Raines, Chief Operating Officer stated, "Our store associates did a tremendous job of making sure all of our holiday shoppers found the right systems, games, and accessories to fill their wish lists."

Full year 2008 sales and earnings results and fiscal 2009 earnings guidance are expected to be released in mid-March 2009.

Among others in the industry, Amazon.com also released similar results, noting that 2008 holiday season was its best ever, with more than 6.3 million items sold worldwide on the peak shopping day, December 15.

GME is currently trading up $25.17, up $2.56 or 11.32%, on a volume of 5.59 million shares. In the past 52-week period, GME shares traded in the range of $16.91 to $59.13, on a three month average volume of 3.24 million shares.

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