NEW YORK GameStop Corp's (GME.N) second-quarter earnings outlook fell short of Wall Street's expectations but its shares turned positive as the world's largest video retailer made upbeat comments on its future business.
GameStop shares initially fell as much as 7 percent after it issued its first-quarter report on Thursday but later recovered when its executives spoke on a conference call with analysts, restoring hopes that the $60.4 billion global video game industry could reverse its sales declines.
GameStop maintained that sales in its stores would rise 3.5 percent to 5.5 percent in 2011.
The company's shares were up 2 percent at $27.18 in afternoon trading on the New York Stock Exchange.
"The recovery (in the shares) was that management had the opportunity to demonstrate our strategic initiatives and to explain why we're seeing positive results," GameStop's Chief Financial Officer Robert Lloyd said in an interview.
GameStop has been taking steps to convince investors that it can transform from a traditional retailer into a digital distributor of video games. In the first quarter, the company said its digital revenue rose 53 percent. It plans to make about $450 in digital sales in 2011, generated largely from digital content that can be played along with console games such as "Call of Duty: Black Ops."
Last quarter, GameStop said it was buying digital games distributors Spawn Labs and Impulse Inc, with the aim of selling games digitally outside its stores.
Executives have also previously hinted that part of the company's digital strategy could be developing a tablet for games. In an interview, GameStop President Tony Bartel told Reuters this was no longer the case.
"We feel comfortable we can find a tablet that is optimized for gaming. I would be surprised if we developed our own tablet."
GameStop said its earnings per share would range from 20 cents to 23 cents in the second quarter, compared with the average Wall Street estimate of 28 cents, as compiled by Thomson Reuters I/B/E/S.
GameStop forecast a weaker second quarter because sales of Nintendo 7974.OS new 3DS handheld games device are tapering off, according to Sterne Agee analyst Arvind Bhatia.
He added that fewer consumers will be buying new games consoles because there will be no price cuts to Microsoft's (MSFT.O) Xbox and Sony Corp (6758.T) (SNE.N) PlayStation 3 console like there were a year earlier.
GameStop's first-quarter net income rose to $80.4 million, or 56 cents a share, up from $75.2 million, or 48 cents a share, a year earlier. The average Wall Street estimate was 54 cents per share.
Sales rose 9.5 percent to $2.28 billion, which was just above analysts' average estimate of $2.23 billion, according to Thomson Reuters I/B/E/S.
(Reporting by Liana B. Baker, editing by Gerald E. McCormick and Derek Caney)