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GameStop Q4 Profit Jumps 49%; Sees FY13 Earnings Below View

GameStop Q4 Profit Jumps 49%; Sees FY13 Earnings Below View
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Multichannel video game retailer GameStop Corp. (GME: Quote) on Thursday reported a 49 percent surge in profit for the fourth quarter from last year, as a decline in sales was more than offset by higher margins and lower one-time charges. Both revenue and earnings per share beat analysts' estimates.

Looking ahead, GameStop forecast earnings for the first quarter and fiscal 2013 below analysts' expectations, indicating the first half of the year to be challenging as consumers postpone purchases leading up to the launch of a next-generation console in the fourth quarter.

GameStop's sales of new video game hardware in the fourth quarter dropped 1 percent from the year-ago period to $616.7 million, while new video game software sales declined 3 percent to $1.61 billion. Sales of used video game products dropped 8 percent to $752.8 million, while other sales grew 22 percent to $584.3 million.

Gross margin expanded 100 basis points to 27.4 percent from the prior-year quarter's 26.4 percent.

Grapevine, Texas-based GameStop's fourth-quarter net income was $261.1 million or $2.15 per share, up from $174.7 million or $1.27 per share in the year-ago period.

Results for the quarter include charges of $1.2 million, net of tax benefits, or $0.01 per share, as a result of impairment tests of property, equipment and other assets. The prior-year quarter's results included asset impairments and restructuring charges of $81.2 million.

Stripping out these charges, adjusted net earnings were $262.3 million or $2.16 per share, compared to adjusted earnings of $239.5 million or $1.73 per share in the prior-year period. On average, 18 analysts polled by Thomson Reuters expected the company to report earnings per share of $2.09 for the quarter. Analysts' estimates typically exclude special items.

GameStop said the increase in earnings was primarily due to the positive impact of the 53rd week in 2012 and a 100 basis point improvement in the gross margin rate. The 53rd week contributed about $10.1 million of net earning,s or $0.08 per share, to the fourth quarter.

Net sales for the quarter edged down to $3.56 billion from $3.58 billion in the prior-year period, while consolidated comparable store sales decreased 4.6 percent. Analysts had a consensus revenue estimate of $3.45 billion.

The prior-year quarter's revenue include 60 percent growth in digital receipts and $100 million of mobile sales, offsetting weakness in the core business.

For fiscal 2012, GameStop's net loss was $269.7 million or $2.13 per share, compared to net earnings of $339.9 million or $2.41 per share in the previous year. Adjusted net earnings for the year were $403.0 million or $3.17 per share, compared to adjusted net earnings of $405.1 million or $2.87 per share in the prior year.

Net sales for the year declined 7 percent to $8.89 billion from $9.55 billion in the prior year. Consolidated comparable store sales declined 8 percent compared to the previous year.

Street expected the company to earn $3.12 per share for the year on revenues of $8.78 billion.

Paul Raines, chief executive officer of GameStop, said, "While 2012 was a challenging year for console gaming, we focused on factors within our control."

Raines added, "Perhaps most importantly, we invested in our mobile and digital businesses to position the company for future success. These channels delivered as planned and significantly contributed to our highest ever gross margin and profitability."

Looking ahead, GameStop has forecast first-quarter earnings in a range of $0.38 to $0.43 per share and total sales to decline 8.5 percent to 6.0 percent. The company also projects comparable store sales to decline 8 percent to 5.5 percent.

Analysts currently expect the company to earn $0.56 per share for the quarter on revenues of $1.96 billion.

For fiscal 2013, GameStop has forecast earnings per share in a range of $2.75 to $3.15, total sales in a range of down 8.0 percent to flat, and comparable store sales in a range of down 6 percent to up 1.5 percent.

The Street expects GameStop to report earnings of $3.42 per share for the year on revenues of $8.88 billion.

GameStop noted that the video game industry anticipates a strong finish to 2013 with the release of Grand Theft Auto V and the launch of at least one next-generation console by holiday. Ahead of these events, the company expects the first half of the year to be challenging as consumers postpone purchases leading up to the fourth-quarter console launch.

In Thursday's regular session, GME is trading at $26.67, up $0.22 or 0.83 percent on a volume of 1.14 million shares.

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by RTT Staff Writer

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