GameStop profit beats forecast; cautiously eyes holiday

Reuters News
Posted: Nov 15, 2012 10:15 AM
GameStop profit beats forecast; cautiously eyes holiday

By Malathi Nayak

SAN FRANCISCO (Reuters) - GameStop Corp, the world's largest retailer of videogame products, reported a stronger-than-expected profit on Thursday but lowered its sales forecast for this year due to uncertainty around the holiday shopping season as the video game market struggles.

Grapevine, Texas-based GameStop forecast same-store sales in 2012 would drop 6 percent to 9 percent, compared with a 2 to 10 percent decline projected previously.

"We've continued to find new ways to drive revenues and margins in our stores and that's enabled us to hold on to some earnings in these difficult times," Chief Financial Officer Rob Lloyd said in an interview.

"We're still a little bit cautious in that it's a difficult environment in which to forecast because the industry has been down," Lloyd said. "And we've got uncertainty surrounding what the supply of the (Nintendo)Wii U is going to be."

Nintendo Co Ltd is gearing up to launch its Wii U video game console on November 18. It is the first new home console device to be sold by a major gaming company in more than six years.

GameStop hopes the start of a new console cycle with the Wii U launch and just-released high quality games like Microsoft Corp's "Halo 4" and Activision Blizzard's "Call of Duty: Black Ops II" will boost hardware and software sales this holiday season.

GameStop's shares rose 4.25 percent to $24.48 in afternoon trading on the New York Stock Exchange.

Sterne Agee analyst Arvind Bhatia said investors seem more comfortable now with the company's recent efforts to drive profitability.

In the last two years, the company has been tackling decelerating video game sales in a tough market by diversifying its revenue sources, selling electronics like tablets, digital video games and used games.

The games retailer said it had repurchased stock worth $76.8 million in the third quarter and announced that its board had approved a new $500 million share buy-back plan to replace its existing $242 million repurchase plan. It also announced a quarterly dividend of 25 cents, same as last quarter.

The company reported adjusted net earnings per share of 38 cents in the third quarter, beating analysts' expectations of 32 cents.

"Earnings per share was quite impressive, driven by gross margins being strong and cost control," Sterne Agee's Bhatia said.

GameStop said it expects comparable store sales to range between down 7 percent and up 1 percent in the fourth quarter. It forecast earnings per share between $2.07 to $2.27 for the period.

Sales of traditional videogame products such as consoles have been pressured globally by lower-priced online offerings and gamers spending more time on tablet computers and cell phones.

Total U.S. sales of videogame software in October dropped 25 percent from a year ago, following a similar trend throughout the third quarter, according to a report by market research firm NPD.

GameStop said sales fell 8.9 percent to $1.77 billion. Analysts were expecting sales of $1.79 billion, according to Thomson Reuters I/B/E/S.

Adjusted earnings were $47.2 million, compared with $53.9 million a year ago. The company maintained its previously announced full-year earnings outlook of between $3.10 per share to $3.30 per share.

(Reporting by Malathi Nayak; editing by John Wallace, Maureen Bavdek, David Gregorio and Dan Grebler)