GameStop Sales Up, Profits Slip

GameStop Sales Up, Profits Slip

Videogame retail giant GameStop reports a 132 percent rise in year-over-year sales for its most recent quarter thanks to the merger with EB Games, but profits take a dip as merger integration is completed; conference call details inside…

Sales for the second fiscal quarter ended July 29 were $963.3 million compared to $415.9 million for the same quarter a year prior. Comparable store sales increased by 3.9 percent.

Although sales figures showed growth, net earnings dropped to $3.2 million for the quarter, down from $7.9 million a year ago. The quarter’s net earnings figures did however include $2.6 million in expenses related to the EB Games merger.

Strong software sales

New Super Mario Bros. for DS and EA’s multi-platform NCAA Football 07 were the top sellers for the quarter. Vice chairman and COO Dan DeMatteo added during a conference call that strong sales of Capcom’s Dead Rising, released last week for Xbox 360, exhibit the "pent-up demand for 360 titles."

DeMatteo also predicted Madden NFL 07 reservations to be at an all-time high, with "sales to hit Madden records." He also said that THQ’s Saint’s Row for the Xbox 360 is reserving "extremely well." GameStop also has high sales expectations for Final Fantasy XII on PS2, which is slated for a late October release, and Gears of War for Xbox 360, launching November 12.

Hardware sales ramping up

On the hardware side, the DS Lite and Xbox 360 drove hardware sales up 56 percent. In contrast to last holiday season, DeMatteo expects Xbox 360 supply to meet "anticipated high demand" in Q4, and also anticipates continuing demand for the DS Lite, which remains in short supply. In fact, DeMatteo said that he’s unsure if the retailer will be able to keep the system in stock throughout the holidays.

CEO R. Richard Fontaine said that GameStop’s hardware sales performance "clearly positions GameStop as the major launch partner for Sony and Nintendo with the release later this year of their PlayStation 3 and Wii consoles." Introductory Wii and PS3 sections will appear in stores in September.

EB Games merger complete

Fontaine also said that the merger integration between EB Games and GameStop is complete, with a recently established unified POS (point-of-sale) system across all stores. He called the accomplishment "a testimony to the hard work and partnership of all our team members."

GameStop president Steven Morgan stated that in March, all of the EB stores were connected to GameStop’s inventory management system. "The entire company will operate on a single replenishment system from a single buying office from two very well-positioned distribution centers," he said. "What now remains is the fine-tuning, enhancement and physical re-branding of our stores."

GameStop also confirmed the completion of the closure of its distribution center in Coatesville, Pennsylvania.

GameStop and EB Games announced the $1.44 billion merger in April 2005.

Guidance

As for the future, GameStop expects comparable store sales to increase between 4 and 6 percent for the third quarter. The company also reaffirmed its forecast of comparable store sales to increase for full fiscal 2006 by 7 to 9 percent, with total sales increasing between 15 and 17 percent. GameStop expects a "record back-half" of its fiscal year, riding the wave of a strong software lineup and new hardware launches.

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