Key Holiday Titles Drive GameStop Q3 Results, Retailer Raises Guidance

Leading U.S. physical video game retailer GameStop on Thursday reported a rise in sales and profits for the third fiscal quarter ended October 30, and raised yearly guidance thanks to a lineup of high-profile holiday game releases. GameStop said that quarterly growth was driven by Microsoft and Bungie's Halo Reach, EA Sports' Madden NFL 2011, Bethesda and Obsidian's Fallout: New Vegas, 2K Sports' NBA 2K11 and Electronic Arts' Medal of Honor. Those top five-selling games at the retailer boosted quarterly revenues 3.5 percent to $1.9 billion, up from $1.83 billion for the same quarter a year ago. Profits were up 4.8 percent to $54.7 million, up from $52.2 million year-on-year. GameStop said that its sales mix is shifting from hardware to software, which has been beneficial to the company's margins. Retailers make a relatively small amount of profits from new hardware sales, while new games have around a 20 percent margin, and used titles can bring in 50 percent. Out of the total sales for the quarter, $839.1 million, or 44.2 percent, came from the sale of new video game software. Used video game products -- including hardware and software -- generated $528 million, or 27.8 percent of sales, and new hardware generated $276 million, or 14.5 percent of total sales. "Other" products claimed $256.1 million in sales, or 13.5 percent. While used video game products generated less than a third of total sales for GameStop, they were responsible for $250.2 million of the retailer's gross profit for the quarter, thanks to a gross profit margin of 47.4 percent. New video game software brought in gross profits of $182.4 million with a 21.7 percent gross profit margin, new video game hardware earned $21.7 million with a 7.9 percent margin, and the "other" category earned $92 million with a 35.9 percent margin. CEO J. Paul Raines said, "Our global retail team increased revenues, expanded gross margins and maintained tight expense control which led to solid earnings growth." Raines said that based on "brisk sales" of new software and the launch of motion control solutions like Sony's PlayStation Move and Xbox 360's Kinect, the retailer raised full-year earnings forecasts. The company now expects earnings per share in the range of $2.63 to $2.69, up from a previously-stated forecast of $2.58 to $2.68 for the fiscal year. The third quarter results do not include some of this year's biggest game launches, including Blizzard's World of Warcraft: Cataclysm and Activision's Call of Duty: Black Ops.