GameStop shares jump on earnings, forecast


Top U.S. video game retailer GameStop Corp. reported Tuesday a quarterly profit and gave a full-year earnings forecast that topped Wall Street targets, sending its shares up as much as 12%.

The news helped video game publishers, with Electronic Arts Inc. up 1.9% at $51.31 and Activision Inc. shares rising 5 cents, or 0.3%, to $18.13.

GameStop's net earnings for its fourth quarter ended Feb. 3 rose to $129.8 million, or 81 cents per share, from $85.0 million, or 55 cents per share, in the year-earlier period.

Sales rose to $2.3 billion from $1.7 billion in the same quarter a year earlier, helped by sales of Vivendi's new "World of Warcraft" title. Sales at stores open at least one year increased 26.5% in the most recent quarter.

Analysts, on average, had expected a profit of 80 cents per share on revenue of $2.1 billion, based on Reuters Estimates.

GameStop shares surged 12.4% in early trade to $31.43, and closed at $31.16 on the New York Stock Exchange.

"The excitement is over their guidance," said AG Edwards analyst William Kreher.

For the year to Feb. 2, 2008, the Grapevine, Texas-based company forecast comparable store sales growth of 14% to 16%, supported by a slate of video game releases.

Diluted earnings per share for the full year are expected to be $1.37 to $1.40, it said. For the fiscal year just ended, GameStop reported net earnings of $158.3 million, or $1.00 per share, after $6.79 million of pretax merger-related expenses and $6.06 million of debt-extinguishment expenses.

"The outlook is a little conservative for this year," said Scott Tilghman, an analyst at Soleil-Hudson Square Research.

Diluted earnings per share for the first quarter are expected to be 15 cents to 16 cents, GameStop said.

Analysts, on average, had expected the company to post a first-quarter profit of 13 cents per share and annual earnings of $1.33 per share, according to Reuters Estimates.

GameStop Chief Executive R. Richard Fontaine said in a statement the annual forecast was based on the company's views that the latest growth cycle will be "deeper, wider, and longer than any previous period of new console introductions."

"No previous cycle has had the diversity of console attributes currently in our stores; no previous cycle has merged other technologies like HDTV, Wi-Fi, and MP3 attributes to make the gaming experience truly the best ever," he said.

The company forecast first-quarter comparable store sales to rise 12% to 14%, driven in part by the expected launch of Sony Corp.'s PlayStation 3 in Europe and Australia, as well as continued demand for titles for Microsoft Corp.'s Xbox 360.

Daniel DeMatteo, GameStop's chief operating officer, said on a conference call he expects 4 million to 5 million hardware unit sales in the United States this year.

Higher-margin software sales are expected to grow as much as 60%, led by titles like "Halo 3," "Mass Effect" from Microsoft, "Grand Theft Auto IV" from Take-Two Interactive Software Inc. and "Guitar Hero" and "Spider-Man 3" from Activision.

Further out, GameStop said it expects earnings per share to grow at least 25% annually in fiscal 2008 and 2009.