Shareholders of GameStop Corp. (GME) breathed a sigh of relief Thursday when the company said it expects fourth-quarter earnings to come in at the high-end of its previous forecast and it sees solid growth in sales and earnings for the current year.
GameStop, the world’s largest retailer of video games and entertainment software with over 6,200 stores in 17 countries, said it now expects earnings of $1.33 to $1.34 per share for the quarter ending Jan. 30 due to strong holiday sales.
The company had previously said earnings would be in the $1.29 to $1.34 per share range. Quarterly sales grew 22 percent from a year ago to $3.5 billion, slightly above the $3.46 billion figure expected by analysts.
GameStop said it now expects to earn $2.39 to $2.40 for the just-ended full year on sales of $8.8 billion. Analysts were looking for a profit of $2.40 per share on sales of $8.77 billion. But it was the outlook for the current year that likely lit a fire under the shares, which rose over seven percent on the day.
The company said earnings will rise 18 percent to 22 percent from last year with sales growth of 10 percent to 12 percent. Same-store sales growth is expected to range between four percent and six percent. Its full quarterly earnings report will be issued in mid-March.
Well Positioned
GameStop CEO Dan DeMatteo said, “consumers will continue to spend money on video game software as they see video game as really inexpensive entertainment,” that they can play for months.
He said the company’s profit margins have benefited from a trade-in system whereby gamers can swap used games for a fraction of the purchase price or credit toward future sales. The returned games are then sold at a higher profit margin than new games.
In a CNBC interview Mr. DeMatteo said GameStop is well positioned to weather the current economic crisis because of its value proposition and even those customers with limited funds can buy older, used games that are much more affordable.
Separately he noted that the video game business is continuing to enjoy robust growth and that it’s the fastest growing of the many consumer goods categories. “2008 marked yet another of strong new hardware sales, which will again help drive sales of new video games in the years ahead,” DeMatteo said.
He said GameStop’s exceptional growth is also a function of thousands of conveniently located stores, excellent supply chain management and the expertise of the associates who operate the stores. GameStop expects to open 400 new stores this year which is below historical highs but DeMatteo says that’s because some shopping centers “are just not being built right now.”
Last he said the company is energized by the fact that video gaming has gone mainstream, with industry data showing that nearly half of new gamers are over 35 years old and 40 percent are female.
Sales may be spurred further if console makers cut prices, which he says is likely for Sony and Microsoft.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
