(Updates with comments by chief executive during conference
call, share price)
GameStop Corp.'s (GME) fiscal fourth-quarter net income rose 22% on strong sales, especially in used video games, as the video-game retailer projected earnings for the current quarter above analysts' views.
For the first quarter, it expects earnings of 40 cents to 42
cents a share and same-store sales to be flat to up 2%. Analysts
polled by Thomson Reuters expected earnings of 39 cents.
"Video games will continue to hold up well in this recession,
and we are well-positioned to grow share in the U.S. and
worldwide," Chief Executive Dan Demattio said on a conference call
after the results were reported.
GameStop's shares were up 4.7% at $28.10 in premarket trading.
However, shares were down 1.1% to $26.52 in regular trading. The
stock is up 24% so far this year, widely outpacing the broader
market.
The video-game retailer had said in November results would be
solid but tempered by the deepening slump in consumer spending and
falling hardware prices. Shareholders have worried the slumping
economy will pinch sales of video games and consoles, especially as
competition from other retailers like Best Buy Co. (BBY) and
Wal-Mart Stores Inc. (WMT) is rising.
The company had a virtual monopoly in the used video games
market, but is now facing competition from Amazon.com Inc. (AMZN),
which launched a service allowing customers to trade in used video
games for store credit, taking aim at a key part of GameStop's
business. A big reason for GameStop's strong performance amid the
recession is its used-games business, which accounted for about 25%
of revenue and almost half of total gross profit in the first 10
months of 2008.
But there were some downsides. GameStop executives on the
investor conference call pointed out a slowdown in European sales
during the quarter, and the company's 2009 forecast assumes game
console revenue, a key driver of GameStop sales, will fall about 2%
annually. GameStop now has plans to expand by about 200 new stores
a year over the next few years, a rate that's now half what the
company anticipated just last month. Many retailers have been
curtailing opening plans, or shrinking, amid the slide in consumer
spending. GameStop currently has 6,207 stores in 17 countries.
Since GameStop was spun off from Barnes & Noble Inc. (BKS)
in 2004, sales have been strong. But high prices for staples such
as gas and food and the recent stock market slump have made it more
difficult for people to shell out hundreds of dollars for game
equipment.
For the period ended Jan. 31, the company posted net income of
$232.3 million, or $1.39 a share, up from $189.8 million, or $1.14
a share, a year earlier. Last month, the company boosted its
earnings projection to a range of $1.33 to $1.34.
Last month, GameStop said revenue finished above its
already-raised estimates, rising 22% to $3.49 billion, as
same-store sales increased 9.6%.
Gross margin edged up to 24% from 23.9%. New-game sales jumped
22%. Margins rose to 5.4% from 5.2% for new hardware but fell to
46.4% from 48% for used games, with revenue up 11% and 28%,
respectively.
Looking ahead, the company affirmed last month's outlook for
earnings in the new fiscal year of 18% to 22% growth on sales
growth of 10% to 12%, above analysts' estimates at the time. It
said it expected the new year to be another record year.
GameStop said last month its $628.5 million acquisition of
Micromania in January enabled it to secure a growing foothold on
the European continent, where sales are seen reaching $2 billion in
2009.
The company said including Micromania, it opened or acquired
1,002 stores worldwide last year.
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com
(Ben Charny contributed to this report.)
