Thursday, August 18, 2011

GameStop Reports Second Quarter 2011 Results


GRAPEVINE, Texas, Aug 18, 2011 (BUSINESS WIRE) -- --Strength in pre-owned and digital sales drives margin expansion
GameStop Corp. GME +2.62% , the world's largest multichannel video game retailer, today reported sales and earnings for the second quarter ended July 30, 2011.
Financial Results
Total sales for the second quarter of 2011 were $1.74 billion, a decrease of 3.1% compared to $1.80 billion in the prior year quarter. Total company comparable store sales were -9.1%, impacted by lower hardware sales and a lighter software title slate than the prior year quarter. While new hardware and software underperformed, pre-owned sales increased 12% and digital sales increased 69%, exceeding quarterly expectations.
The top five selling games during the quarter were L.A. Noire by Rockstar Games, NCAA Football 12 by Electronic Arts, inFAMOUS 2 by Sony, Brink by Bethesda Softworks, and Mortal Kombat by Warner Home Video Games.
Net earnings were $30.9 million compared to $40.3 million in the prior year quarter. As planned, the company continued spending on its strategic initiatives during the quarter. Diluted earnings per share were in-line with guidance at $0.22 compared to $0.26 in the prior year quarter. The strength of the pre-owned business and growth in digital channels led to gross margins of 31.2%, an increase of 250 basis points and the company's highest margin rate in five years.
Paul Raines, chief executive officer, stated, "GameStop's resilient retail model enabled us to achieve our earnings plan despite a challenging period for the industry. Through the back half of the year, we expect industry software sales to accelerate based on an exciting title line-up. Meanwhile, the digital and loyalty programs we have brought to market continue to gain traction with consumers and position us as a leading partner with publishers."
Rob Lloyd, chief financial officer, said, "Continued strength in pre-owned sales, improved gross margins, tight cost controls and capturing a high rate of sales transfers all contributed to our financial results. Additionally, we continue to focus on executing our capital allocation plan to maximize shareholder returns while we invest in our long-term strategic initiatives."
Earnings Guidance
For the third quarter of fiscal 2011, the company expects comparable store sales to range from 2.0% to 4.0%. Diluted earnings per share are expected to range from $0.38 to $0.41.
GameStop is reiterating its full year diluted earnings per share guidance range of $2.82 to $2.92, representing a 6.4% to 10.2% increase over fiscal 2010. Full year comparable store sales are now expected to range from 1.0% to 3.0% based on revised annual revenue growth of 4.5% to 6.5%.
Share Repurchase Update
During the second quarter, GameStop repurchased 1.36 million shares at an average price of $25.38, or $34.6 million worth of stock. At the end of the quarter, the company had approximately $348 million remaining of its current share and debt repurchase authorization.
Conference Call and Webcast Information
A conference call with GameStop Corp.'s management is scheduled for Aug. 18, 2011 at 10:00 a.m. CDT to discuss the second quarter sales and earnings results. The conference call will be simulcast online at http://investor.GameStop.com/ . The conference call will be archived on the website until Sept. 18, 2011.
GameStop is scheduled to present at the Goldman Sachs 18th Annual Global Retailing Conference on Thursday, Sept. 8 at the Marriott Marquis Hotel in New York City.
About GameStop
GameStop Corp. GME +2.62% , a Fortune 500 and S&P 500 company headquartered in Grapevine, Texas, is the world's largest multichannel video game retailer. GameStop's retail network and family of brands include 6,582 company-operated stores in 17 countries worldwide and online at www.GameStop.com . The network also includes: www.Kongregate.com , a leading browser-based game site; Game Informer(R) magazine, the leading multi-platform video game publication; Spawn Labs, a streaming technology company; and Impulse, Inc., a digital distribution platform available at www.GameStop.com/impulse .
General information on GameStop Corp. can be obtained at the company's corporate website. Follow GameStop on Twitter @ www.twitter.com/GameStop and find GameStop on Facebook @ www.facebook.com/GameStop .
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 2011, 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 and accessories; the timing of release of video game titles for current generation consoles; the risks associated with expanded international operations and the integration of acquisitions; the impact of increased competition and changing technology in the video game industry, including browser and mobile games and alternative methods of distribution; 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 29, 2011 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 millions, except per share data)
                                                               13 weeks           13 weeks
                                                                 ended              ended
                                                             July 30, 2011      July 31, 2010
                                                           -----------------  -----------------
        Sales                                                   $ 1,743.7          $ 1,799.1
        Cost of sales                                             1,200.5            1,282.3
                                                                  -------            -------
           Gross profit                                             543.2              516.8
        Selling, general and administrative
           expenses                                                 442.5              405.0
        Depreciation and amortization                                47.1               42.2
                                                                  -------            -------
        Operating earnings                                           53.6               69.6
        Interest expense, net                                         6.3               10.0
                                                                  -------            -------
        Earnings before income
           tax expense                                               47.3               59.6
        Income tax expense                                           16.7               19.8
                                                                  -------            -------
        Consolidated net income                                      30.6               39.8
        Net loss attributable to noncontrolling interests             0.3                0.5
                                                                  -------            -------
        Consolidated net income attributable to GameStop        $    30.9          $    40.3
                                                           ====== =======     ====== =======
        Net income per common share:
           Basic(1)                                             $    0.22          $    0.27
           Diluted(1)                                           $    0.22          $    0.26
        Weighted average common shares
           outstanding:
           Basic                                                    141.0              151.3
           Diluted                                                  142.2              154.2
        Percentage of Sales:
        -------------------------------------------------
        Sales                                                       100.0 %            100.0 %
        Cost of sales                                                68.8 %             71.3 %
                                                                  ------- -          ------- -
           Gross profit                                              31.2 %             28.7 %
        Selling, general and administrative
           expenses                                                  25.4 %             22.5 %
        Depreciation and amortization                                 2.7 %              2.3 %
                                                                  ------- -          ------- -
        Operating earnings                                            3.1 %              3.9 %
        Interest expense, net                                         0.4 %              0.6 %
                                                                  ------- -          ------- -
        Earnings before income
           tax expense                                                2.7 %              3.3 %
        Income tax expense                                            0.9 %              1.1 %
                                                                  ------- -          ------- -
        Consolidated net income                                       1.8 %              2.2 %
        Net loss attributable to noncontrolling interests             0.0 %              0.0 %
                                                                  ------- -          ------- -
        Consolidated net income attributable to GameStop              1.8 %              2.2 %
                                                                  ======= =          ======= =
        (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 millions, except per share data)
                                                               26 weeks           26 weeks
                                                                 ended              ended
                                                             July 30, 2011      July 31, 2010
                                                           -----------------  -----------------
        Sales                                                   $ 4,025.1          $ 3,881.8
        Cost of sales                                             2,861.7            2,794.2
                                                                  -------            -------
           Gross profit                                           1,163.4            1,087.6
        Selling, general and administrative
           expenses                                                 885.2              808.8
        Depreciation and amortization                                93.4               84.7
                                                                  -------            -------
        Operating earnings                                          184.8              194.1
        Interest expense, net                                        12.5               19.6
                                                                  -------            -------
        Earnings before income
           tax expense                                              172.3              174.5
        Income tax expense                                           61.8               59.8
                                                                  -------            -------
        Consolidated net income                                     110.5              114.7
        Net loss attributable to noncontrolling interests             0.8                0.8
                                                                  -------            -------
        Consolidated net income attributable to GameStop        $   111.3          $   115.5
                                                           ====== =======     ====== =======
        Net income per common share:
           Basic(1)                                             $    0.78          $    0.76
           Diluted(1)                                           $    0.78          $    0.74
        Weighted average common shares
           outstanding:
           Basic                                                    141.9              152.4
           Diluted                                                  142.9              155.3
        Percentage of Sales:
        -------------------------------------------------
        Sales                                                       100.0 %            100.0 %
        Cost of sales                                                71.1 %             72.0 %
                                                                  ------- -          ------- -
           Gross profit                                              28.9 %             28.0 %
        Selling, general and administrative
           expenses                                                  22.0 %             20.8 %
        Depreciation and amortization                                 2.3 %              2.2 %
                                                                  ------- -          ------- -
        Operating earnings                                            4.6 %              5.0 %
        Interest expense, net                                         0.3 %              0.5 %
                                                                  ------- -          ------- -
        Earnings before income
           tax expense                                                4.3 %              4.5 %
        Income tax expense                                            1.5 %              1.5 %
                                                                  ------- -          ------- -
        Consolidated net income                                       2.8 %              3.0 %
        Net loss attributable to noncontrolling interests             0.0 %              0.0 %
                                                                  ------- -          ------- -
        Consolidated net income attributable to GameStop              2.8 %              3.0 %
                                                                  ======= =          ======= =
        (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 millions, except per share data)
                                                                                                              July 30,          July 31,
                                                                                                                2011              2010
                                                                                                          ----------------  ----------------
        ASSETS:
        Current assets:
                     Cash and cash equivalents                                                              $   224.8         $   289.3
                     Receivables, net                                                                            44.2              44.3
                     Merchandise inventories                                                                  1,059.9           1,129.5
                     Prepaid expenses and other current assets                                                  156.4             103.4
                     Deferred taxes                                                                              24.6              19.3
                                                                                                              -------           -------
                                                      Total current assets                                    1,509.9           1,585.8
                                                                                                              -------           -------
        Property and equipment:
                     Land                                                                                        25.6              13.5
                     Buildings & leasehold improvements                                                         592.8             535.8
                     Fixtures and equipment                                                                     867.8             747.1
                                                                                                              -------           -------
                                                                                                              1,486.2           1,296.4
                     Less accumulated depreciation and amortization                                             871.3             721.1
                                                                                                              -------           -------
                                                      Net property and equipment                                614.9             575.3
                                                                                                              -------           -------
        Goodwill, net                                                                                         2,073.2           1,924.2
        Other noncurrent assets                                                                                 341.4             277.7
                                                                                                              -------           -------
                                                      Total assets                                          $ 4,539.4         $ 4,363.0
                                                                                                          === =======       === =======
        LIABILITIES AND STOCKHOLDERS' EQUITY:
        Current liabilities:
                     Accounts payable                                                                       $   469.7         $   625.0
                     Accrued liabilities                                                                        672.0             529.4
                                                                                                              -------           -------
                                                      Total current liabilities                               1,141.7           1,154.4
        Other long-term liabilities                                                                             168.3             118.8
        Senior notes payable, net of discount                                                                   249.3             447.8
                                                                                                              -------           -------
                                                      Total liabilities                                       1,559.3           1,721.0
                                                                                                              -------           -------
        Stockholders' equity:
                     Preferred stock - authorized 5.0 shares; no shares
                                                      issued or outstanding                                       0.0               0.0
                     Class A common stock - $.001 par value; authorized 300.0 shares;
                                                      140.2 and 150.4 shares outstanding, respectively            0.1               0.1
                     Additional paid-in-capital                                                                 799.4           1,046.8
                     Accumulated other comprehensive income                                                     265.9              82.8
                     Retained earnings                                                                        1,917.1           1,513.3
                                                                                                              -------           -------
                                                      Equity attributable to GameStop Corp. stockholders      2,982.5           2,643.0
                     Equity (deficit) attributable to noncontrolling interest                                    (2.4)            (1.0)
                                                                                                              ------- ---       ------- ---
                                                      Total equity                                            2,980.1           2,642.0
                                                                                                              -------           -------
                                                      Total liabilities and stockholders' equity            $ 4,539.4         $ 4,363.0
                                                                                                          === =======       === =======
        


Schedule I
                                          GameStop Corp.
                                             Sales Mix
                                          13 Weeks Ended              13 Weeks Ended
                                           July 30, 2011               July 31, 2010
                                     -------------------------   -------------------------
                                                     Percent                     Percent
                                         Sales      of Total         Sales      of Total
                                     ------------  -----------   ------------  -----------
        Sales (in millions):
        New video game hardware        $   275.6    15.8 %         $   314.3    17.5 %
        New video game software            599.8    34.4 %             663.2    36.9 %
        Used video game products           633.1    36.3 %             565.5    31.4 %
        Other                              235.2    13.5 %             256.1    14.2 %
             Total                     $ 1,743.7   100.0 %         $ 1,799.1   100.0 %
                                     === =======   ===== ====    === =======   ===== ====
                                            Schedule II
                                          GameStop Corp.
                                         Gross Profit Mix
                                          13 Weeks Ended              13 Weeks Ended
                                           July 30, 2011               July 31, 2010
                                     -------------------------   -------------------------
                                                      Gross                       Gross
                                         Gross       Profit          Gross       Profit
                                        Profit       Percent        Profit       Percent
                                     ------------  -----------   ------------  -----------
        Gross Profit (in millions):
        New video game hardware        $    20.8     7.5 %         $    25.9     8.2 %
        New video game software            132.0    22.0 %             141.7    21.4 %
        Used video game products           292.4    46.2 %             260.0    46.0 %
        Other                               98.0    41.7 %              89.2    34.8 %
             Total                     $   543.2    31.2 %         $   516.8    28.7 %
                                     === =======                 === =======
        


SOURCE: GameStop Corp.

Jason Kiwaluk

Mower & Shoveller,

Ecommerce | Adtech | Innovation | Strategy

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