GameStop (GME) Comps Down 8.6% for Holiday 2009; Lowers Q409 Guidance

GameStop Corp. (NYSE: GME) today reported sales results for the nine-week holiday period ending January 2, 2010.

Total sales for the period were $2.86 billion, flat from prior year sales. New stores continue to perform very well while comparable store sales for the period decreased 8.6%.

Daniel DeMatteo, Chief Executive Officer, stated, “Despite a kick start to this year’s holiday selling season with several major title launches, sales momentum was impacted in December by economic weakness in all global operating segments, winter storms at peak shopping periods in December, and unexpected shortages of key products such as New Super Mario Bros. Wii, Nintendo Wii and Sony’s PlayStation 3 consoles.”

New video game software sales increased 4% in the holiday period. The top five video games sold during the holiday period were Call of Duty: Modern Warfare 2 from Activision, Ubisoft’s Assassin’s Creed II, Nintendo’s New Super Mario Bros. Wii, Left 4 Dead 2 and Dragon Age: Origins from Electronic Arts.

Hardware sales declined 8% due to recent console price cuts and a decline in unit sales on a year-over-year basis.

Used products continue to be a value draw for consumers and outperformed the sales trends in general, but were also somewhat affected by adverse weather and negative macroeconomic conditions. Used video game product sales grew 10%, which was less than forecast. Based on a store-by-store and regional analysis, we saw no impact by other entrants in this category.

Based on results to date, we are lowering our fourth quarter 2009 guidance. GameStop now expects fourth quarter 2009 diluted earnings per share guidance to range from $1.25 to $1.29. Comparable store sales in the quarter are now expected to range from -8.5% to -9.5%.

Full year diluted earnings per share are forecast to range from $2.23 to $2.27. Comparable store sales are projected to decrease between -8.0% and -9.0% for the full year, with total sales growing between +2.0% and +3.0%.

Cathy Smith, Chief Financial Officer, added, “It is important to note that this is still the second highest earnings year in GameStop’s history coming off a record fiscal year 2008. Our fiscal year 2009 projected EPS represents a 25% growth over fiscal year 2007.”

Note that guidance does not include debt retirement costs or merger-related expenses.

Although we are still in the planning stages for our fiscal year 2010, we expect that strong PlayStation 3 demand, an exciting title line-up, combined with anticipated economic recovery, will all be factors that should drive software growth and therefore GameStop earnings in 2010.

Full year 2009 sales and earnings results and fiscal 2010 earnings guidance are expected to be released in mid-March 2010.

At year end, GameStop expects to have almost $700 million of cash on hand, after having funded approximately $300 million of capital investments and debt repurchases in the year. As a result of consistently strong cash flow generation, the company is exploring options to increase shareholder value and will announce its plans shortly, subject to Board approval.

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