GameStop Q4 sales, profits drop as company continues digital transition

As U.S. specialty retailer GameStop continues to navigate a tricky transition from a physical to digital video game market, the Grapevine, TX-based company reported a drop in fiscal Q4 revenues and profits.
U.S. specialty retailer GameStop reported on Thursday a drop in fiscal Q4 revenues and profits, and full year sales that showed only modest growth, but still pushed the $10 billion mark. GameStop finds itself in the tricky situation as the leading brick-and-mortar video game retailer on the planet, but it needs to steer its giant ship in a direction where it can incorporate more sales from the growing digital video game market. Total sales for GameStop during the quarter ended January 28 were $3.58 billion, down from $3.69 billion year-on-year and just missing consensus estimates. Profits for the quarter fell to $174.7 million from $237.8 million, falling in line with company guidance. Full-year sales saw modest growth, hitting $9.55 billion, a "modest increase," the company said, from 2010's $9.47 billion. Annual profits were $339.9 million, down from 2010's $408 million. GameStop attempted to assuage investor fears by highlighting 57 percent year-on-year digital sales growth to $453 million -- healthy growth, but still a relatively small part of the overall business. The company expects sales to grow between 1 and 5 percent in the current fiscal year, and earnings per share to rise between 8 and 15 percent. GameStop CEO Paul Raines said in a statement, "In 2011, GameStop outperformed the video game market through disciplined execution of its core business and strategic initiatives. For 2012, we project operating earnings growth based on the continuation of our transformation, led by our strong pre-owned business, expanding digital offerings and emerging mobile categories." The company's success in past years has been tied to its pre-owned product business. For example, used video game products brought in $2.6 billion in sales for the company, making up 27 percent of total sales. Despite bringing in just about a quarter of total sales, the high-margin used video game business brought in gross profits of $1.2 billion, or about 46 percent of total gross profit. GameStop has taken steps toward being more digital-friendly, such as buying up online game website Kongregate, acquiring digital distribution platform impulse, game streaming firm Spawn Labs and selling downloadable PC games on its website.

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