GameStop Records Loss, Concerns Over Xbox 360 Supply

Representatives from North American video games retailer GameStop have reported financial details of the company’s third quarter, ended October 29th. During these three months sales rose by 28.2 percent to $534.2 million, although comparable store sales decreased by 12 percent. As expected, a relative lack of big name titles, compared to the same time last year, was blamed for the softer results, with the company recording a net loss of $2.5 million, compared to a profit of $12.0 million in 2004. Diluted loss per share was $0.04, including merger costs with Electronics Boutique of $0.19 per diluted share and hurricane losses and disaster relief of $0.01 per diluted share, as compared to earnings of $0.21 per diluted share in the prior year quarter. These results were at the high-end of previously announced guidance. "Third quarter gross margins were positively affected by strong used video games sales as value-driven customers became a larger factor in the face of rising gas prices and general economic uncertainty," stated R. Richard Fontaine, chairman and CEO. "During November we experienced weaker than expected new video game software sales mainly due to core customers waiting for the launch of Microsoft's Xbox 360 and to value consumers continuing to gravitate to used video games. We anticipate this trend to continue to a degree throughout the holiday season, with gross sales levels declining, but strong margin contributions supporting forecasted earnings." "On the Xbox 360 front, GameStop sold through every copy we had and did so in record time,” he added. “There is no question that both the core gamer and gift giver are very enthusiastic about this great product. In fact, our attach ratio of games and accessories to date has never been higher for any release in GameStop's history. Our only concern is that the total hardware released to date in the U.S., and to GameStop, are far less than we had anticipated. While we expect to be supplied throughout the holiday season, the exact quantities to be shipped are not yet clear." The company has updated its full year guidance to reflect an expected fourth quarter result of between zero and two percent for comparable store sales, following limited supplies for the Xbox 360 and a lack of other prominent releases. Share prices did not react poorly, though, with the stock up over 2% to $36.07 in early trading.