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GameStop Sees Sales, Profits Up On New Software Sales

Industry software may have fallen about 7 percent overall in the past few months, but GameStop's bucking the trend with 13 percent sales growth in new software -- helping drive Q1 profits up to $75.2 million.
Retailer GameStop continues to grow its earnings, reporting sales up 5.1 percent to $2.08 billion in its first fiscal quarter alongside increased profits of $75.2 million, up 6.8 percent year over year. According to the company, it now boasts a 62 percent compound annual growth rate of first-quarter earnings. Although the company credits its used product business -- which saw margins of 48.1 percent during the quarter -- as a source of its continued resilience, new software sales were up 13.3 percent thanks to new releases like Battlefield: Bad Company 2, God of War III, Final Fantasy XIII and others. In particular, GameStop says new marketing initiatives helped it capture marketshare among new releases. However, declining hardware prices and supply constraints over the past few months weighed on comparable store sales, which declined 1.6 percent. "I am pleased that our earnings have achieved the high end of guidance and total company sales have exceeded $2 billion for the first time in a non-holiday quarter," said GameStop CEO Daniel DeMatteo. "By maintaining a sharp focus on our customer needs and overall business execution, our strong brick and mortar business continues to provide the capital needed to invest in new stores as well as execute our strategic plan to incorporate digital gaming into our global operations," he adds. In the weeks ahead, the company says it will begin marketing and selling downloadable content in a group of test stores, and launch a new customer loyalty program in some markets. Alongside the positive performance, however, GameStop's guidance for the upcoming quarter -- earnings per share of 25 to 27 cents -- was less than expected, disappointing some analysts. The retailer still expects its full-year earnings to come in 14 to 18 percent higher than 2009, however. Says Lazard Capital Markets analyst Colin Sebastian: "Despite recent negative trends in NPD data, GameStop is still taking share, as the packaged goods segment of video games is somewhat more concentrated among core gamers." The analyst notes that GameStop's new software growth of 13 percent handily beats NPD's 7 percent decline between February and April -- "suggesting that GameStop’s core consumer base remains loyal and active despite increasing overtures from big box and online retailers."

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