GameStop Q1 profit surges amid strong demand for videogames; boosts full-year EPS forecast

Thu. May 22, 2008; Posted: 10:40 AM

(RTTNews) - Thursday, GameStop Corp. (GME | Quote | Chart | News | PowerRating), a retailer of video games and entertainment softwares, posted a first-quarter profit that more than doubled on strong sales of "Grand Theft Auto IV," "Super Smash Bros. Brawl" and other games. The company also provided its financial forecast for the second quarter and raised its earnings expectation for the full-year.

The Grapevine, Texas-based company reported first-quarter net earnings of $62.1 million, as compared to net earnings of $24.7 million for the first quarter of 2007, an increase of 151.4%. Diluted earnings per share were $0.37, compared to $0.15 a year-ago. Earnings per share for the latest quarter topped the company's expectations as GameStop was expecting first quarter earnings in the range of $0.32 - $0.33 per share. However, on a sequential basis, the first-quarter profit fell from $189.8 million, or $1.14 per share reported in the fourth quarter of 2007.

GameStop sales increased 41.8% to $1.81 billion in the first quarter from $1.28 billion in the prior year quarter. However, the company's sales fell sequentially from $2.9 billion generated in the fourth quarter of 2007.

Comparable store sales advanced 27.1% during the first quarter, better than the company's forecast of 24% - 25% growth. For the quarter, new video game software sales grew an amazing rate of 72%.

Analysts, on average, polled by First Call/Thomson Financial expected earnings of $0.35 per share on revenues of $1.72 billion for the first quarter.

Commenting on the results, Richard Fontaine, CEO of GameStop, said, "We are very bullish on the future as three major metrics are transforming the business and accelerating the potential for GameStop growth."

Since GameStop was spun off from Barnes & Noble Inc. (BKS | Quote | Chart | News | PowerRating) in 2004, sales have been strong following its 2005 acquisition of rival Electronics Boutique. GameStop's strong quarterly results came at a cheerful time in the video-game industry, which is flourishing even as people are cutting back their spending on discretionary items.

Further, GameStop's trade model helps it sell the games a low cost, while offering the largest selection of gaming products of any retailer. GameStop's installed base of video game consoles grew 34% in 2007, or nearly 31 million units, the highest incremental growth in the history of the business. Further, GameStop is forecasting that hardware unit sell-thru would match these levels in 2008. The company attributed the hardware growth to the fact that the demographic for videogaming is expanding dramatically as industry figures indicate that 38% of game players are female.

Among others in the industry, the Seattle, Washington-based Amazon.com (AMZN | Quote | Chart | News | PowerRating) reported first-quarter net income of $143 million or $0.34 per share, higher than $111 million or $0.26 per share in the year-ago quarter. The company's most recent quarter net sales jumped 37% to $4.13 billion from $3.02 billion in the previous year quarter.

For the second quarter of fiscal 2008, GameStop is forecasting comparable store sales growth to range from 12% to 14%. Diluted earnings per share are expected to range from $0.26 to $0.28. Street analysts estimate earnings of $0.26 per share for the second quarter.

Based on the stronger than expected results in the first quarter of 2008, GameStop increased its guidance for full year diluted earnings per share to a range of $2.30 - $2.39 from prior forecast of $2.25 - $2.34. The revised outlook represents 28% - 33% growth over last year. Analysts expect the company to earn $2.33 per share for the full-year.

Meanwhile, comparable store sales are still projected to increase between 10% and 12% for the full fiscal year.

GameStop is considered to be the world's largest video game and entertainment software retailer. The company operates 5,453 retail stores in 16 countries worldwide. During the first quarter, GameStop opened a record 210 stores and on track to achieve its goal of opening between 550 and 600 new stores in 2008. As half of the new stores opening are outside the U.S., the company believes its international store base will grow by 25% and continued growth in its overall global market share.

However, GameStop is likely to face tough comparisons starting this fall, when popular titles such as "Halo 3" and "Guitar Hero III" hit their one-year anniversaries. At the same time, the company is facing increasing competition from other retailers like Best Buy Co. (BBY | Quote | Chart | News | PowerRating), Wal-Mart Stores Inc. (WMT | Quote | Chart | News | PowerRating). The company said it have an outstanding line-up of new games coming during the rest of the year, including Nintendo's Wii Fit, Konami's Metal Gear Solid 4, Microsoft's Gears Of War 2, and Activision's Guitar Hero 4.

According to a recent data from the market research firm NPD Group, videogame sales in North America climbed 68% in April, but the number missed forecasts from several analysts who were expecting triple-digit percentage growth amid the launch of Grand Theft Auto IV.

Shares of GameStop fell $4.94 or 9.72% and currently trading at $45.90. During the past 1-year, the stock has been trading between $34.79 and $63.77.

For full details on Gamestop Corp (GME) click here. Gamestop Corp (GME) has Short Term PowerRatings of 3. Details on Gamestop Corp (GME) Short Term PowerRatings is available at This Link.

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