GameStop Corp (GME.N), the largest U.S. video game retailer, slashed its forecast for fourth-quarter sales after customer traffic shrank over the crucial holiday season, sending its shares down 6 percent.
GameStop said it now sees same-store sales falling between 4 percent and 7 percent for the fiscal fourth quarter ending January 28, versus a previous forecast ranging from an increase of 1 percent to a decline of 7 percent. The company also warned that quarterly profit will come in at the low end of its previously forecast range.
The video game industry has been struggling to reverse a downward spiral in software and hardware sales that stretched through the holidays.
"Like many retailers, we were disappointed in traffic at holiday," Chief Executive Paul Raines told Reuters in a telephone interview. "Fortunately for us, a lot of the new businesses picked up a lot of the gap."
A 16-percent plummet in used-game sales -- an increasingly large part of the company's physical business -- was "a yellow flag" while new software and hardware sales were in line with expectations, analyst Colin Sebastian of R.W. Baird said.
"The issue with pre-owned is that it disproportionately affects their margins, so they lowered the earnings guidance as well," Sebastian said.
New hardware sales -- mostly of game consoles -- slid almost 3 percent. One bright spot was that GameStop's Nintendo 7974.OS Wii U sales did reasonably well, and mobile and digital sales came in better than expected, analyst Arvind Bhatia of Sterne Agee said.
GameStop said it sold 320,000 of the new Wii U game console, which hit store shelves in November, during the holiday period.
"The question is how it will do now in 2013 and what the other console makers do now in reaction," Raines said.
GameStop shares were down 6 percent at $23.33 near midday, after earlier falling as low as $22.75.
NEXT CONSOLE CYCLE
Light traffic in stores could present a tough road ahead in 2013 for game publishers like Electronic Arts (EA.O) and Activision Blizzard (ATVI.O), analysts said.
"There were more promotions run this holiday by publishers, and that was an indication of weaker-than-expected trends in general," Bhatia said.
Analysts expect next-generation versions of Microsoft's (MSFT.O) Xbox and Sony's (6758.T) PlayStation to launch this year, potentially giving the troubled sector a lift.
GameStop needs the launch of new consoles, and the games that take advantage of them, to get customers excited and drive store traffic, Bhatia said.
"We are at the tail end of the cycle and there's a certain amount of fatigue that sets in," he said. "People aren't buying existing consoles, so you're not necessarily adding new customers and the existing customers are buying fewer titles."
Raines said "rumors are rampant that we'll see consoles in 2013." But said he was unaware of which ones would launch this year.
"Given the environment and decline of the current generation it's very important that we see some innovation in console hardware from our partners," Raines said. "I'm guardedly optimistic for 2013."
GameStop said new hardware sales fell 2.7 percent in the holiday period. As a result, the company expects profit for the current quarter to be at the low end of its forecast range of $2.07 to $2.27 per share.
"The pre-owned category (of video games) declined 15.6 percent as limited inventory due to fewer new titles released throughout 2012 and less promotional activity negatively impacted sales compared to last year," the company said.
(Reporting by Malathi Nayak in San Francisco; Additional reporting by Sayantani Ghosh and Sruthi Ramakrishnan in Bangalore; Editing by Maju Samuel and Leslie Adler)