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GameStop Reports Boost In Q3 Sales, Profits

Key releases like Madden NFL 10 led retailer GameStop to post an 8.2% rise in sales and 11.8% profit boost in fiscal Q3, despite lagging industry growth. [UPDATE: Company expects holiday rebound for Wii.]
Games including Madden NFL 10, Halo 3: ODST, and Batman: Arkham Asylum led Tex.-headquartered retailer GameStop to post a rise in both sales and profits during fiscal Q3 on Thursday, beating estimates. The retailer's growth comes soon after NPD Group reported that U.S. game industry sales were down 13 percent year-to-date through October compared to 2008. Sales for the quarter ended October 31, 2009 rose 8.2 percent year-on-year to $1.83 billion, as 2K Sports' NBA 2K10 and Nintendo's Wii Sports Resort rounded out the top five-selling games for GameStop's quarter. New game sales were $769.4 million, reflecting growth of 9.4 percent during the period. GameStop's used product sales (including hardware) were $507.7 million, reflecting a 19.4 percent rise "on top of the 19.3 percent increase in the third quarter of 2008," the company said. New game sales made up 41.9 percent of revenues, while used product sales made up 27.7 percent. Profits for the period rose 11.8 percent year-on-year to $52.2 million. Used video game products brought in $240 million in gross profit, or 47.3 percent of total gross profits. New games generated $173.8 million, which represented 22.6 percent of overall gross profits. The company saw an overall rise in revenues, but comparable store sales -- which take into account revenues from stores open for a year or more -- were down 7.8 percent due to the recent price cuts in video game hardware. Sony, Microsoft, and Nintendo all cut the prices of their hardware during the fiscal quarter. Nevertheless, the retailer beat consensus estimates, analyst Arvind Bhatia with Stern Agee said in a research note. Analyst Colin Sebastian with Lazard Capital Markets said in a separate note that GameStop appears to have gained market share during the quarter. GameStop CEO Dan DeMatteo said in a statement, "A sharp focus on efficient operations in this challenging global economy delivered solid earnings results and significant market share gains. Gross margins expanded, led by a sequential 150 basis point improvement in the used category. Store foot traffic increased from the prior quarter, driven by strong new title releases and price cuts on all current generation platforms." He added that the holiday quarter started "strong" for the company, thanks to the blockbuster release Call of Duty: Modern Warfare 2 from Activision. DeMatteo said in the first 72 hours after release, the retailer sold 2.5 million copies. Activision said this week that the military shooter, developed by Infinity Ward, generated $550 million gross in its first five days. "We are optimistic that the huge success of this game will serve as a bellwether for what we can expect for the remainder of our holiday game sales," the chief exec said. He's also counting on big holiday turnout in the used games segment. "We know consumers are looking for value in these difficult economic times," DeMatteo added. "Our stores are prepared to deliver this holiday with the broadest selection of new and used games, the most knowledgeable gaming associates and the buy-sell-trade model, which offers affordable choices that meet the needs of all types of gaming customers." The retailer is also expecting strong initial holiday quarter sales from Nintendo's New Super Mario Bros. and Ubisoft's Assassin's Creed 2. [UPDATE: In GameStop's earnings call, COO Paul Raines acknowledged slower Wii hardware and software sales during the third fiscal quarter, but expects a rebound during the company's holiday quarter. "We see momentum from the new PS3, and expect lower price points to sustain sales on all three platforms," Raines said. "We have seen the decline in Wii sales that others are seeing in the channel. But years of experience have taught us that Nintendo is a very strong brand at holiday." Chief exec DeMatteo also noted GameStop's recent efforts in the e-commerce and digital distribution arena, such as a new digital media division. But physical retail will still be the main focus a year from now, he told one analyst. "In the last 18 months, we've really studied the digital market and adjacent markets very extensively, and we do believe in the initiatives we are investing in, and we believe they will grow," DeMatteo said. "Will it be a significant portion of our business next year? No. Will it be a growing portion? Yes. ... It will take years for it to be anything significant."]

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