GameStop Reports Third Quarter 2010 Results

Earnings Per Share of $0.38 Exceeds Street Estimates; Raising Full Year Guidance

New Software Sales Increase 9%

Digital Technologies Rolled Out for Holidays

GRAPEVINE, Texas--()--GameStop Corp. (NYSE: GME), the world’s largest video game and entertainment software retailer, today reported record sales and earnings for the third fiscal quarter ended October 30, 2010.

Financial Results

Total sales for the third quarter increased 3.5% to $1.90 billion, in comparison to $1.83 billion in the prior year quarter. Continued significant market share gains on a strong slate of new title releases drove a 9% increase in new software sales.

U.S. segment comparable store sales were 5.3%, while total company comparable store sales increased 1.1%. New software sales were strong worldwide, but weakness in international hardware sales negatively affected the international comparable store sales. The shift in sales mix had a positive result on the company’s gross margins and net earnings.

The top five selling games during the quarter were Microsoft’s Halo: Reach, Madden NFL 2011 from Electronic Arts, Fallout: New Vegas by Bethesda Softworks, NBA 2K11 from 2K Sports and Medal of Honor from Electronic Arts.

Net earnings for the third quarter increased 4.8% to $54.7 million, including $6.0 million of debt retirement costs ($3.8 million net of tax benefits), as compared to net earnings of $52.2 million, including $2.5 million of debt retirement costs ($1.6 million net of tax benefits), in the prior year quarter. Diluted earnings per share increased 16.1% to $0.36, including $0.02 of debt retirement costs, as compared to $0.31, including $0.01 of debt retirement costs, in the prior year quarter. Excluding debt retirement costs, GameStop’s diluted earnings per share were $0.38, achieving the high-end of company guidance.

During the quarter, the company repurchased and retired 2,611,993 shares of its common stock at an average cost of $18.91 per share under its current $300 million share repurchase program.

J. Paul Raines, Chief Executive Officer, stated, “Our global retail team increased revenues, expanded gross margins and maintained tight expense control which led to solid earnings growth. Based on brisk sales trends of new software titles and motion controller launches, we are enthusiastic about our business and have raised our full year earnings guidance.”

Dan DeMatteo, Executive Chairman, commented, “Several technology and consumer initiatives have entered the market, each of them strengthening our core business and establishing GameStop as the retail leader in providing consumers with exciting ways to experience video gaming. The PowerUp Rewards™ Loyalty Program, Kongregate.com, in-store digital content sales and a re-tooled gamestop.com were all implemented to expand market share and increase our share of wallet. Lastly, the on-going execution of share buybacks and debt retirement reinforces our commitment to exercise disciplined capital allocation practices to maximize shareholder returns.”

Year-to-date, GameStop has opened 156 net new stores: 89 in the U.S., 47 in Europe, 8 in Canada and 12 in Australia/New Zealand.

Updated Guidance

GameStop is raising its full year diluted earnings per share guidance range from $2.58 to $2.68 to $2.63 to $2.69, excluding debt retirement costs, representing a 16% to 19% increase over fiscal 2009. The company projects fourth quarter diluted earnings per share to range from $1.53 to $1.59, an increase of 19% to 23% over the prior year quarter.

The company expects comparable store sales for the fourth quarter to range from 2.0% to 4.0% and full year comparable store sales are still expected to range from flat to 2.0%.

About GameStop

GameStop Corp. (NYSE: GME), a Fortune 500 and S&P 500 company headquartered in Grapevine, Texas, is the world's largest multi-channel video game retailer. GameStop’s retail network and family of brands include 6,606 company-operated stores in 17 countries worldwide, www.Kongregate.com, a leading browser based game site with more than 10 million monthly unique visitors, and Game Informer(R) magazine, the leading multi-platform video game publication. The company also sells video games and related merchandise at www.GameStop.com. General information on GameStop Corp. can be obtained at the company's corporate website.

Safe Harbor

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, the outlook for fiscal 2010, future financial and operating results, projected store openings, the company's plans, objectives, expectations and intentions, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of GameStop's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. GameStop undertakes no obligation to publicly update or revise any forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the inability to obtain sufficient quantities of product to meet consumer demand, including console hardware; the timing of release of video game titles for next generation consoles; the risks associated with expanded international operations and the integration of acquisitions; the impact of increased competition and changing technology, including alternative methods of distribution, in the video game industry; and economic, regulatory and other events, including litigation, that could reduce or impact consumer demand or affect the company’s business. Additional factors that could cause GameStop's results to differ materially from those described in the forward-looking statements can be found in GameStop's Annual Report on Form 10-K for the fiscal year ended January 30, 2010 filed with the SEC and available at the SEC's Internet site at http://www.sec.gov or http://investor.gamestop.com.

 
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
   
13 weeks 13 weeks
ended ended
Oct 30, 2010 Oct 31, 2009
 
Sales $ 1,899,152 $ 1,834,727
Cost of sales   1,352,835     1,311,643  
 
Gross profit 546,317 523,084
 
Selling, general and administrative
expenses 408,854 391,210
Depreciation and amortization   44,670     41,605  
 
Operating earnings 92,793 90,269
 
Interest expense, net 9,669 10,466

Debt extinguishment expense

  5,966     2,461  
 
Earnings before income
tax expense 77,158 77,342
 
Income tax expense   22,846     25,117  
 
Consolidated net income 54,312 52,225
Net loss attributable to noncontrolling interests   396     -  
Consolidated net income attributable to GameStop $ 54,708   $ 52,225  
 
Net income per common share:
Basic1 $ 0.36 $ 0.32
Diluted1 $ 0.36 $ 0.31
 
Weighted average common shares
outstanding:
Basic 150,709 164,702
Diluted 153,276 168,113
 
 
 

Percentage of Sales:

 
Sales 100.0 % 100.0 %
Cost of sales   71.2 %   71.5 %
 
Gross profit 28.8 % 28.5 %
 
SG&A expenses 21.5 % 21.3 %
Depreciation and amortization   2.4 %   2.3 %
 
Operating earnings 4.9 % 4.9 %
 
Interest expense, net 0.5 % 0.6 %
Debt extinguishment expense   0.3 %   0.1 %
 
Earnings before income
tax expense 4.1 % 4.2 %
 
Income tax expense   1.2 %   1.4 %
Consolidated net income 2.9 % 2.8 %
 
Net loss attributable to noncontrolling interests   0.0 %   0.0 %
 
Consolidated net income attributable to GameStop   2.9 %   2.8 %

1 Basic net income per share and diluted net income per share are calculated based on consolidated net income attributable to GameStop.

 
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
   
39 weeks 39 weeks
ended ended
Oct 30, 2010 Oct 31, 2009
 
Sales $ 5,780,942 $ 5,553,984
Cost of sales   4,147,018     3,993,381  
 
Gross profit 1,633,924 1,560,603
 
Selling, general and administrative
expenses 1,217,654 1,151,815
Depreciation and amortization   129,418     119,109  
 
Operating earnings 286,852 289,679
 
Interest expense, net 29,281 33,422
Debt extinguishment expense   5,966     5,323  
 
Earnings before income
tax expense 251,605 250,934
 
Income tax expense   82,626     89,591  
 
Consolidated net income 168,979 161,343
Net loss attributable to noncontrolling interests   1,244     -  
Consolidated net income attributable to GameStop $ 170,223   $ 161,343  
 
Net income per common share:
Basic1 $ 1.12 $ 0.98
Diluted1 $ 1.10 $ 0.96
 
Weighted average common shares
outstanding:
Basic 151,841 164,604
Diluted 154,638 167,981
 
 
 

Percentage of Sales:

 
Sales 100.0 % 100.0 %
Cost of sales   71.7 %   71.9 %
 
Gross profit 28.3 % 28.1 %
 
SG&A expenses 21.1 % 20.7 %
Depreciation and amortization   2.2 %   2.2 %
 
Operating earnings 5.0 % 5.2 %
 
Interest expense, net 0.5 % 0.6 %
Debt extinguishment expense   0.1 %   0.1 %
 
Earnings before income
tax expense 4.4 % 4.5 %
 
Income tax expense   1.5 %   1.6 %
Consolidated net income 2.9 % 2.9 %
 
Net loss attributable to noncontrolling interests   0.0 %   0.0 %
 
Consolidated net income attributable to GameStop   2.9 %   2.9 %

1 Basic net income per share and diluted net income per share are calculated based on consolidated net income attributable to GameStop.

     
GameStop Corp.
Balance Sheets
(in thousands, except per share data)
 
Oct 30, Oct 31,
2010 2009
ASSETS:
Current assets:
Cash and cash equivalents $ 181,062 $ 292,027
Receivables, net 58,845 52,543
Merchandise inventories 1,942,416 1,733,962
Prepaid expenses and other current assets 95,916 91,059
Deferred taxes   21,808     24,503
Total current assets   2,300,047     2,194,094
 
Property and equipment:

Land

24,328 11,819
Buildings & leasehold improvements 564,943 516,492
Fixtures and equipment   785,748     692,660
1,375,019 1,220,971
Less accumulated depreciation and amortization   768,951     629,276
Net property and equipment   606,068     591,695
 
Goodwill, net 2,004,636 1,978,987
Other noncurrent assets   304,314     318,547
Total assets $ 5,215,065   $ 5,083,323
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 1,514,627 $ 1,328,041
Accrued liabilities   564,283     510,296
Total current liabilities 2,078,910 1,838,337
 
 
Other long-term liabilities 118,043 111,127
Senior notes payable, net of discount   248,903     447,121
Total liabilities   2,445,856     2,396,585
 
Stockholders' equity:
Preferred stock - authorized 5,000 shares; no shares
issued or outstanding -- --
Class A common stock - $.001 par value; authorized 300,000 shares;
151,369 and 164,752 shares outstanding,
respectively 151 165
Additional paid-in-capital 1,034,858 1,334,481
Accumulated other comprehensive income 167,624 170,259
Retained earnings   1,567,978     1,181,833
Equity attributable to GameStop Corp. stockholders 2,770,611 2,686,738
Equity attributable to noncontrolling interest   (1,402 )   -
Total equity   2,769,209     2,686,738
Total liabilities and stockholders' equity $ 5,215,065   $ 5,083,323

 
Schedule I
GameStop Corp.
Sales Mix
       
 
13 Weeks Ended 13 Weeks Ended
Oct 30, 2010 Oct 31, 2009
Percent Percent
Sales of Total Sales of Total
Sales (in millions):
 
New video game hardware $ 276.0 14.5 % $ 321.4 17.5 %
New video game software 839.1 44.2 % 769.4 41.9 %
Used video game products 528.0 27.8 % 507.7 27.7 %
Other 256.1 13.5 % 236.2 12.9 %
       
Total $ 1,899.2 100.0 % $ 1,834.7 100.0 %
 
 
 
                 
 
Schedule II
GameStop Corp.
Gross Profit Mix
 
 
13 Weeks Ended 13 Weeks Ended
Oct 30, 2010 Oct 31, 2009
Gross Gross
Gross Profit Gross Profit
Profit Percent Profit Percent
 
Gross Profit (in millions):
 
New video game hardware $ 21.7 7.9 % $ 26.8 8.3 %
New video game software 182.4 21.7 % 173.8 22.6 %
Used video game products 250.2 47.4 % 240.0 47.3 %
Other 92.0 35.9 % 82.5 34.9 %
   
Total $ 546.3 28.8 % $ 523.1 28.5 %

Contacts

Media Contact:
Chris Olivera
Vice President,
Corporate Communications
GameStop Corp.
(817) 424-2130
or
Investor Contact:
Matt Hodges
Director,
Investor Relations
GameStop Corp.
(817) 424-2130

Contacts

Media Contact:
Chris Olivera
Vice President,
Corporate Communications
GameStop Corp.
(817) 424-2130
or
Investor Contact:
Matt Hodges
Director,
Investor Relations
GameStop Corp.
(817) 424-2130