January 7, 2010 / 2:00 PM / 10 years ago

UPDATE 4-GameStop cuts profit view; holiday sales stagnate

* Holiday season sales flat from year earlier

* Q4 profit estimate cut to $1.25 to $1.29 a share

* Shares down as much as 19 pct, close 14.9 pct lower (Adds CEO interview)

By Paul Thomasch

NEW YORK, Jan 7 (Reuters) - GameStop Corp (GME.N) said holiday sales failed to improve from 2008 and cut its fourth-quarter profit forecast on Thursday, sending shares of the biggest U.S. videogame retailer to a 13-month low.

Although the company blamed a woeful combination of a weak economy, bad weather and product shortages, other retailers had far less trouble overcoming winter storms and consumer worries, with Macy’s Inc (M.N) and Costco (COST.O) posting higher sales figures for the most important sales period of the year. [ID:nN07165754]

“Ugly is a good way to term it,” said FTN Equity Capital Markets analyst Anthony Chukumba. “I’m extremely disappointed, as I’m sure investors will be. I think it really hurts management’s credibility.”

GameStop said sales for the holiday period totaled $2.86 billion, little changed from a year earlier. That came as a surprise to investors, after GameStop previously said sales were off to a strong start for the holiday season.

Chief Executive Dan DeMatteo, in an interview, said one issue is that 2008’s holiday period was actually relatively healthy, even with the economy in a spiral. That made for tough comparisons in the most recent holiday period.

“We had a very good fourth quarter last year,” he said, referring to 2008. This time around, he said, business was strong during the fall when new games rolled out, but “that did not translate as well to the gift givers as we thought it would.”

For the 2009 period, videogame software sales rose 4 percent — due to hot titles like “Call of Duty: Modern Warfare 2” from Activision — but sales of hardware, such as game consoles, dropped a steep 8 percent.

Shortages played a role, DeMatteo said, citing products such as Sony Corp’s (6758.T) PlayStation 3, Nintendo Co Ltd’s 7974.OS Wii, and the game New Super Mario Bros Wii.

To some extent, the shortages make sense, given a broader move by retailers to keep inventories lean after a tough year, particularly when it came to consoles, analysts said. But the inventory issue also raised concerns among sone.

“I don’t know how you end up with shortages of Super Mario Wii,” Sean McGowan, an analyst with Needham & Co. “You know you’re going to sell this game, just make a gazillion of them.”

Competition likely also hurt GameStop, even with its major footprint in the industry. One red flag was raised in December, when Wal-Mart Stores Inc (WMT.N), the world’s largest retailer, announced it would lower prices on popular video games by $10 each and offer a $50 gift card with the purchase of a Wii console.

“It was very disappointing,” McGowan said of the sales results. “The Wal-Mart competition had to have some impact. It was an especially competitive environment across a lot of sectors.”

Given the weaker-than-expected holiday period, the company cut its profit forecast for the fourth quarter. GameStop expects to post earnings of $1.25 to $1.29 a share, well below analysts’ average view of $1.57 a share, as reported by Thomson Reuters I/B/E/S.

That forecast is also below its own previous expectation of fourth-quarter earnings per share of $1.47 to $1.65.

Same-store sales in the quarter are expected to fall 8.5 percent to 9.5 percent.

GameStop shares closed down $3.57, or 14.9 percent, at $20.46 on the New York Stock Exchange. The shares had fallen as much as 19 percent earlier in the session to hit $19.43, their lowest level since December 2008. (Reporting by Paul Thomasch; Editing by Derek Caney, Maureen Bavdek, Gary Hill)

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