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Growing digital sales not enough to combat GameStop's decreasing profits

GameStop posted growth in its digital business, but not enough to offset an overall drop in profits, as it cut its outlook and its shares dropped. [UPDATE: Over half company's gross profit from used games.]
U.S. retailer GameStop has posted financial results for the first quarter of the current fiscal year, with growth in its digital and mobile business not enough to offset overall drops in revenue and profit. The company managed to hit its earnings target for the quarter thanks to digital game sales, which increased 23 percent year-over-year, and mobile sales, which were on track to match GameStop's full fiscal year goal. However, both new and used retail game sales decreased by more than expected compared to last year, although the company noted that this is, in part, due to the late stages of this console cycle. For the quarter ended April 28, 2012, GameStop recorded revenues of $2 billion, down 12.2 percent compared to $2.28 billion year-over-year. New game hardware sales made up 17.4 percent of this total ($348.6 million, down from $432.4 million year-over-year), and new software sales made up 36.5 percent ($731.1 million, down from $914.7 million). In comparison, used software and hardware sales accounted for 30.9 percent of the total revenue ($619.0 million, down from $625.0 million). The 'Other' category, which includes digital and mobile sales as well as peripherals and other items, made 15.2 percent of that total revenue -- down to $303.5 million from $309.3 million year-over-year. The company recorded profits of $72.5 million for the quarter, compared to $80.4 million in the same quarter of the previous year. Looking to the rest of the fiscal year, GameStop CEO Paul Raines said that the company believes that "positive profit contributions from our pre-owned, mobile and digital businesses" will help smooth the ongoing transition to the new console cycle. However, GameStop has forecast same-store sales to be down 5 percent to flat for the upcoming year. As the Wall Street Journal notes, in March, GameStop forecast same-store sales to be down 1.5 percent to up 2 percent for the year, so this is a significant worsening. As a result, GameStop's stock price bounced down almost 10 percent at the start of the day, while correcting up again, currently landing at around $19.41, down $1.40 in early trading. [UPDATE: Financials released alongside GameStop's results reveal that $304.2 million of the company's $599.9 million in gross profits come from used retail video games. The margin from used games at GameStop also increased, from 48 to 49.1 percent, as the firm's new game margin reached 20.5 percent and its game hardware margin decreased to 6.6 percent.]

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