Thursday, May 22, 2008

gme (I)

the streak continues: for the sixth quarter in a row, video game and entertainment retailer gme has reported earnings that exceeded analyst's expectations. the company reported earnings of $62.1 million, or 37 cents a share, 151% better than the same period last year. the analysts who follow gme had predicted that earnings for the quarter would be 32 cents a share; revenue was up 41% compared to 2007 and comparable-store sales were up 27%.

the sales of new video games were particularly strong, with new game sales rising 72% in the three months. the sales leader in games was Grand Theft Auto IV, despite being available only the last five days of the period, followed by Super Smash Brothers. used game sales rose 27% in the three months.

the retailer opened a record 210 stores in the first quarter as well. with the new store openings, gme now has over 5,400 retail locations in 17 countries. each store stocks over 4,500 items -- including games, consoles and accessories.

ceo R. Richard Fontaine commented on the quarter saying,

"GameStop's trade model continues to provide our customers with a way to lower the cost of video gaming while offering the largest selection of gaming products of any retailer in any market. We continue to attract and serve a broader consumer base as video gaming continues to attract the core gamers and is moving towards becoming mainstream family entertainment."

the company also raised its guidance for the full year; the company now expects to earn between $2.30 and $2.39, up from the previous level of $2.25 to $2.34. currently, the consensus expectation is for the company to earn $2.33. the company also expects revenue growth to be between 12% and 14% at stores open at least one year. gme is also well ahead of pace to meet its goal of 550 to 600 new stores this year. at least half of those stores will be outside the us, and international profits are expected to grow by 25%.

in its release, the company expects full-year profits for gme to rise at least 25%. management attributes the growth to the growing market for video games, with new gaming platform sales rising by over 31 million nationally in 2007 and the continuing changing demographics of the gaming marketplace. over 38% of the market is female, the fastest-growing segment of the video game market. the average age of video gamers is now over 30, dispelling the myth that the marketplace is comprised of just teenage and early 20s hardcore gamers.

releases of new games such as Guitar Hero IV and Nintendo's Wii Fit are also expected to help fuel sales growth for gme. in spite of the good news, the stock's selling off.

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