GMEB Gamestop Corp

GameStop Corp. (NYSE:GME) (NYSE:GME.B), one of the nation's largest video game and entertainment software retailers, today reported record sales and earnings for the second quarter ended July 30, 2005. GameStop sales increased 20.3% to $415.9 million in the second quarter of 2005, compared with $345.6 million in the prior year quarter. Video game software sales remained solid, increasing by 16%, with leading titles such as "NCAA Football 2006" from Electronic Arts, "Star Wars Episode III: Revenge of the Sith" from Lucas Arts, and "Pokemon Emerald" from Nintendo of America. The Sony PlayStation Portable (PSP) continued to be an important driver of comparable store sales, which increased 6.2% during the second quarter. Net earnings for the second quarter increased to $7.9 million, compared with net earnings of $7.7 million in the prior year quarter. Diluted earnings per share increased 7.7%, to $0.14 per diluted share, as compared to $0.13 per diluted share in the prior year quarter. As previously released, second quarter earnings include a $1.1 million write-off of our used "Grand Theft Auto: San Andreas" inventory, due to a retroactive ratings change from "Mature" to "Adults Only" by the Entertainment Software Ratings Board, and the concomitant pulling of the product from sale in our stores. "We are pleased with our second quarter results," said R. Richard Fontaine, Chairman and Chief Executive Officer. "I am particularly encouraged that we continued to execute our business plan and focus on our customers in light of the very exciting, and potentially distracting, announcement regarding our pending merger with Electronics Boutique. Sales grew over 20% during the quarter with the used catalogue showing strength in the face of a relatively slow quarter for new title releases. Hardware sales were very robust and grew over 40% from the prior year, driven by in-stock positions on all console and hand-held platforms. Despite this heavy hardware sales mix, we were able to increase our gross margin percentage through freight cost reductions and improved margins on video game software." Fontaine continued, "In addition, we opened 76 stores in the quarter, with our new stores continuing to perform ahead of our internal goals." Update on Merger with Electronics Boutique On June 9, 2005, GameStop Corp. and Electronics Boutique Holding Corp. announced that the waiting period under the Hart-Scott-Rodino Improvements Act had expired. Both companies are now responding to questions from the Securities and Exchange Commission regarding their S-4 registration statement and Form 10-K's. The merger is now expected to close in late September 2005 or early October 2005. Daniel DeMatteo, Vice-Chairman and Chief Operating Officer, said, "The integration planning process is going well, with integration teams comprised of members from both companies working on selecting 'best practices' and integration timelines. Based on our progress to date, we are confident that the synergies and cost savings previously announced can be achieved." Guidance for Third Quarter For the third quarter of fiscal 2005, GameStop expects comparable store sales to decrease between -8.0% and -10.0%, primarily due to the difficult comparisons with the prior year quarter when record-breaking titles such as "Grand Theft Auto: San Andreas" and "Fable" were released, with diluted earnings per share between $0.18 and $0.20. Management continues to believe that full year 2005 diluted earnings per share will range from $1.30 to $1.40, without taking into consideration the planned merger with Electronics Boutique Holdings Corp. GameStop will update guidance for the combined company after the closing of the merger. Conference Call and Webcast Information A conference call with GameStop Corp.'s management is scheduled for August 18, 2005 at 11:00 AM ET to discuss the 2005 second quarter results. The conference call will be simulcast on the Internet at (http://www.gamestop.com/investor-relations/). The conference call will be archived on the website until September 1, 2005. About GameStop Corp. Headquartered in Grapevine, TX, GameStop Corp. (NYSE:GME) (NYSE:GME.B) is one of the nation's largest video game and entertainment software retailers. The company operates 1,980 retail stores throughout the 50 states, the District of Columbia, Puerto Rico, Ireland and the United Kingdom, primarily under the GameStop(R) brand. In addition, the company owns a commerce-enabled Web property, GameStop.com, and Game Informer(R) magazine, a leading video and computer game publication. GameStop Corp. sells the most popular new software, hardware and game accessories for the PC and next generation video game systems from Sony, Nintendo and Microsoft. In addition, the company sells computer and video game magazines and strategy guides, action figures, and other related merchandise to more than 30 million customers. General information on GameStop Corp. can be obtained via the Internet by visiting the company's corporate Website: http://www.gamestop.com/investor-relations/. Safe Harbor This press release (including the attached schedules) contains "forward-looking statements." GameStop Corp. is including this statement for the express purpose of availing itself of the protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. These forward-looking statements are based on currently available information and represent the beliefs of the management of the company. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks include, but are not limited to, general economic and market conditions, seasonality, decreased consumer demand for the company's products, possible disruptions in the company's computer or telephone systems, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to obtain suitable sites for new stores, possible disruptions or delays in successfully transferring the company's headquarters and distribution center to a new facility during 2005, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the company's online and other initiatives, the successful completion and integration of the planned merger with Electronics Boutique Holding Corp. and other acquired businesses, unanticipated increases in merchandise or occupancy costs, unanticipated adverse litigation results or effects, product shortages or delays in the introduction of new generation systems and related interactive software and other factors which may be outside of the company's control. Please refer to the company's reports on file with the SEC for a more detailed discussion of these and other risks that could cause results to differ materially. -0- *T GameStop Corp. Statements of Operations (in thousands, except per share data) 13 weeks 13 weeks ended ended July 30, 2005 July 31, 2004 --------------- ---------------- Sales $415,930 $345,593 Cost of sales 286,409 238,386 --------------- ---------------- Gross profit 129,521 107,207 Selling, general and administrative expenses 105,606 85,809 Depreciation and amortization 10,725 8,853 --------------- ---------------- Operating earnings 13,190 12,545 Interest expense (income), net 144 (194) --------------- ---------------- Earnings before income tax expense 13,046 12,739 Income tax expense 5,143 5,067 --------------- ---------------- Net earnings $7,903 $7,672 =============== ================ Earnings per common share: Basic $0.15 $0.14 Diluted $0.14 $0.13 Weighted average common shares outstanding: Basic 51,646 56,620 Diluted 56,508 59,533 Percentage of sales: ------------------------------------- Sales 100.0% 100.0% Cost of sales 68.9% 69.0% --------------- ---------------- Gross profit 31.1% 31.0% SG&A expenses 25.4% 24.8% Depreciation and amortization 2.5% 2.6% --------------- ---------------- Operating earnings 3.2% 3.6% Interest expense (income), net 0.1% (0.1)% --------------- ---------------- Earnings before income tax expense 3.1% 3.7% Income tax expense 1.2% 1.5% --------------- ---------------- Net earnings 1.9% 2.2% =============== ================ GameStop Corp. Statements of Operations (in thousands, except per share data) 26 weeks 26 weeks ended ended July 30, 2005 July 31, 2004 --------------- ---------------- Sales $890,657 $717,329 Cost of sales 633,756 504,582 --------------- ---------------- Gross profit 256,901 212,747 Selling, general and administrative expenses 205,864 172,280 Depreciation and amortization 20,990 17,152 --------------- ---------------- Operating earnings 30,047 23,315 Interest expense (income), net 227 (347) --------------- ---------------- Earnings before income tax expense 29,820 23,662 Income tax expense 11,591 9,312 --------------- ---------------- Net earnings $18,229 $14,350 =============== ================ Earnings per common share: Basic $0.36 $0.25 Diluted $0.33 $0.24 Weighted average common shares outstanding: Basic 51,323 56,805 Diluted 55,499 59,832 Percentage of sales: ------------------------------------- Sales 100.0% 100.0% Cost of sales 71.2% 70.3% --------------- ---------------- Gross profit 28.8% 29.7% SG&A expenses 23.1% 24.0% Depreciation and amortization 2.3% 2.4% --------------- ---------------- Operating earnings 3.4% 3.3% Interest expense (income), net 0.1% 0.0% --------------- ---------------- Earnings before income tax expense 3.3% 3.3% Income tax expense 1.3% 1.3% --------------- ---------------- Net earnings 2.0% 2.0% =============== ================ GameStop Corp. Balance Sheets (in thousands, except per share data) July 30, 2005 July 31, 2004 --------------- ---------------- ASSETS: Current assets: Cash and cash equivalents $98,954 $159,748 Receivables, net 9,418 6,547 Merchandise inventories 257,396 184,059 Prepaid expenses and other current assets 24,302 14,628 Prepaid taxes 12,534 11,968 Deferred taxes 5,435 7,661 --------------- ---------------- Total current assets 408,039 384,611 --------------- ---------------- Property and equipment: Land 2,000 2,000 Leasehold improvements 120,145 84,710 Fixtures and equipment 210,942 154,557 --------------- ---------------- 333,087 241,267 Less accumulated depreciation and amortization 144,353 104,102 --------------- ---------------- Net property and equipment 188,734 137,165 --------------- ---------------- Goodwill, net 320,888 320,888 Other noncurrent assets 3,011 1,698 --------------- ---------------- Total assets $920,672 $844,362 =============== ================ LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $166,070 $130,361 Accrued liabilities 103,706 89,965 Note payable, current portion 12,173 -- --------------- ---------------- Total current liabilities 281,949 220,326 --------------- ---------------- Deferred taxes 19,898 17,629 Note payable, long-term portion 24,347 -- Other long-term liabilities 15,503 6,973 --------------- ---------------- Total long-term liabilities 59,748 24,602 --------------- ---------------- Total liabilities 341,697 244,928 --------------- ---------------- Stockholders' equity: Preferred stock - authorized 5,000 shares; no shares issued or outstanding -- -- Class A common stock - $.001 par value; authorized 300,000 shares; 25,163 and 23,483 shares issued, respectively 25 23 Class B common stock - $.001 par value; authorized 100,000 shares; 29,902 and 36,009 shares issued and outstanding, respectively 30 36 Additional paid-in-capital 519,113 516,813 Accumulated other comprehensive income (loss) (43) 125 Retained earnings 109,850 132,437 Treasury stock, at cost, 3,263 shares (50,000) (50,000) --------------- ---------------- Total stockholders' equity 578,975 599,434 --------------- ---------------- Total liabilities and stockholders' equity $920,672 $844,362 =============== ================ Schedule I GameStop Corp. Retail Sales Mix 13 weeks 13 weeks ended ended July 30, 2005 July 31, 2004 --------------- ---------------- Video Game Hardware 19% 16% Video Game Software 65% 65% Video Game Accessories 10% 14% PC Software 5% 4% PC Accessories and Other 1% 1% *T