UPDATE 3-GameStop third-qtr profit beats estimates

Thu Nov 19, 2009 2:24pm EST

* Q3 EPS 31 cents vs Wall Street est. 30 cents

* Q3 rev rose 8.2 pct to $1.83 bln vs est. $1.73 bln

* Reaffirms Q4 EPS view, says holiday has started strong

* Shares rise as much as 2.3 pct as broad market declines (Adds results details, analyst comment)

By Franklin Paul

NEW YORK, Nov 19 (Reuters) - GameStop Corp's (GME.N) quarterly profit beat expectations as price cuts stoked video game console demand and used-game sales boosted margins, signaling that a months-long period of gloom may be easing.

Shares of the biggest U.S. video game retailer rose to $24.43 on Thursday as the broader market declined. The stock initially rose 2.3 percent after GameStop reaffirmed its fourth-quarter profit forecast and said sales in the holiday shopping season were off to a strong start.

The optimism contrasts with months of dour industry sales reports as the sluggish economy discourages consumers from buying $60 games and consoles costing $200 or more.

Even research firm NPD's October report showed weak software sales following price cuts on Sony Corp's (6758.T) PlayStation 3 console, Nintendo Co Ltd's 7974.OS Wii and Microsoft Corp's (MSFT.O) Xbox 360. [ID:nN12407998]

But GameStop Chief Operating Officer Paul Raines blamed the sluggish market on a dearth of top games. Consumers are returning to the stores for titles like new versions of Microsoft's "Halo" and Electronic Arts' ERTS.O "Madden NFL," as well as Square Enix's (9684.T) "Batman: Arkham Asylum" and Take-Two Interactive's (TTWO.O) "NBA 2K10."

"In this category, it's less about the economy and more about the title catalog, and that started to happen for us in this quarter," Raines said in an interview. "We saw gamers coming back to us."

GameStop, which had backed its view of third-quarter results last week, posted a profit of $52.2 million, or 31 cents a share, for the third quarter ended Oct. 31, compared with $46.7 million or 28 cents a share in the prior year quarter.

Excluding special items, the profit was 32 cents a share, beating analysts' expectations of 30 cents a share, according to Thomson Reuters I/B/E/S.

OPTIMISM FOR Q4, 2010

GameStop sales rose 8.2 percent to $1.83 billion from $1.7 billion in the prior-year's quarter. On average, analysts had expected sales of $1.73 billion. Same-store sales fell 7.8 percent in the third quarter.

The company said its store foot traffic increased from the second quarter, as did gross margins, led by a sequential improvement in its used business. GameStop's margins benefit from its trade-in system which lets shoppers return used games for a fraction of the purchase price in cash or credit toward future sales. Returned games sell at a higher profit margin -- around 50 percent -- than new games.

Looking ahead, GameStop said it expects fourth-quarter results to be solid, driven by new games including "New Super Mario Bros." from Nintendo, and Activision Blizzard's (ATVI.O) "Call of Duty: Modern Warfare 2" which the sold over 2.5 million copies at the retailer in its first three days.

Hudson Square Research analyst Scott Tilghman said unlike in 2009, next year is shaping up to be one with many big sellers available early in the year, a potential boon for software and hardware sales.

"We don't anticipate a post-holiday slowdown," he said. "You have to be cautious (before) saying everything is grand now, but definitely the tide seems to be turning."

GameStop forecast fourth-quarter earnings per share of $1.47 to $1.65, and a decline in comparable-store sales in a range of 1 percent to 7 percent.

Analysts were expecting a profit of $1.57 a share.

On a conference call with analysts, GameStop forecast strong single-digit to low-double-digit growth for 2010 video game software industry sales.

Separately, GameStop Chief Financial Officer Cathy Smith declined to comment on talk that GameStop might be looking to buy British games retailer Game Group GMG.L. [ID:nLD5847]

(Reporting by Franklin Paul; Editing by Richard Chang)

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