GameStop Corp. Comparable Store Sales Up 8.8%
Third Quarter 2006 EPS at High End of Guidance Business Editors/High-Tech Editors
GRAPEVINE, Texas--(BUSINESS WIRE)--Nov. 21, 2006--GameStop Corp. (NYSE:GME)(NYSE:GME.B), the world's largest video game and entertainment software retailer, today reported sales and earnings for the third quarter ended October 28, 2006.
GameStop sales increased 89% to $1,011.6 million in the third quarter of 2006, compared with $534.2 million in the prior year quarter. Comparable store sales increased 8.8% during the quarter, exceeding our previously indicated guidance. New video game software sales grew 14%, led by titles such as MADDEN NFL 2007 from Electronic Arts, SAINTS ROW by THQ, DEAD RISING by Capcom, and SPLINTER CELL: DOUBLE AGENT by Ubisoft. In addition, hardware sales increased 69% over the prior year quarter, led by Microsoft's Xbox 360 and Nintendo's DS Lite.
GameStop's net earnings for the third quarter of 2006 were $13.6 million. This includes merger-related expenses of $2.9 million ($1.8 million, net of tax benefits) and debt retirement costs related to the bond buy-back program of $3.4 million ($2.1 million, net of tax benefits). Diluted earnings per share were $0.17, including merger-related expenses and debt retirement costs of $0.05 per diluted share.
"Not only did we have an excellent third quarter, but the sales during the period indicate that GameStop is building momentum heading into the holiday season," reported R. Richard Fontaine, Chairman and Chief Executive Officer of GameStop Corp. "Strong sales of Microsoft's Xbox 360, an unexpected resilient performance from Sony's PlayStation 2, and robust sales of Nintendo's DS Lite reflect a growing installed base of game customers measured by our 69% increase in hardware sales. We have a contemporary platform attracting core customers, a seven year-old platform attracting a value customer, hand-helds attracting a broader demographic gamer, and the latest revolutionary systems just coming to the market. Never before in video game history have we had so many outstanding consoles to energize the existing gamers, entice the upgrade customer, and attract new customers to gaming and GameStop."
Guidance Update
For the fourth quarter of fiscal 2006, comparable store sales are projected to range from +14.0% to +18.0%. Diluted earnings per share for the fourth quarter are expected to range from $1.53 to $1.59.
Full year fiscal 2006 diluted earnings per share are now expected to range from $1.98 to $2.04. We continue to believe that full year fiscal 2006 comparable store sales will increase between 7.0% and 9.0%, and total sales will increase between 15.0% and 17.0%, both on a pro forma basis.
Note that guidance includes projected stock-based compensation expenses of $0.17 per diluted share for fiscal 2006.
In addition, guidance does not include merger costs related to the business combination, which were $0.05 per diluted share for fiscal 2006, nor debt retirement costs, which could range from $0.03 to $0.05 per diluted share for fiscal 2006.
Third quarter fiscal 2005 pro forma statements of operations have been provided in Schedule III as if the acquisition of Electronics Boutique Holding Corp. took place at the beginning of fiscal 2005. In addition, the pro forma statements of operations include stock-based compensation expense as if SFAS No. 123(R) was implemented at the beginning of fiscal 2005.
GameStop will report holiday sales on or about January 4, 2007.
Conference Call and Webcast Information
A conference call with GameStop Corp.'s management is scheduled for November 21, 2006 at 11:00 AM EST to discuss the third quarter sales and earnings results. The conference call will be simulcast on the Internet at (http://www.gamestop.com/investor-relations/). The conference call will be archived on the website until December 5, 2006.
About GameStop Corp.
Headquartered in Grapevine, TX, GameStop Corp. is the world's largest video game and entertainment software retailer. The company operates 4,633 retail stores across the United States and in fourteen countries worldwide. The company also owns two e-commerce sites, GameStop.com and EBgames.com, and Game Informer(R) magazine, a leading multi-platform video game publication. GameStop Corp. sells new and used video game software, hardware and accessories for next generation video game systems from Sony, Nintendo, and Microsoft. In addition, the company sells PC entertainment software, related accessories and other merchandise. General information on GameStop Corp. can be obtained at the company's corporate website: http://www.gamestop.com/corporate.
Safe Harbor
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, the outlook for the fourth quarter of fiscal 2006 and beyond, future financial and operating results, projected store openings, the company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of GameStop's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the risk that the cost savings and other synergies from the combination with Electronics Boutique may not be fully realized or may take longer to realize than expected; the inability to obtain sufficient quantities of product to meet consumer demand, including Sony's PlayStation 3 and Nintendo's Wii; the timing of release of video game titles for next generation consoles; and economic and other events that could reduce or impact consumer demand. Additional factors that could cause GameStop's results to differ materially from those described in the forward-looking statements can be found in GameStop's Annual Report on Form 10-K for the fiscal year ended January 28, 2006 filed with the SEC and available at the SEC's Internet site at http://www.sec.gov.
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
13 weeks 13 weeks
ended ended
Oct. 28, Oct. 29,
2006 2005
----------- ---------
Sales $1,011,560 $534,212
Cost of sales 695,904 357,492
----------- ---------
Gross profit 315,656 176,720
Selling, general and administrative
expenses 235,389 136,072
Depreciation and amortization 27,281 19,224
Stock-based compensation 5,156 --
Merger-related expenses 2,890 11,329
----------- ---------
Operating earnings 44,940 10,095
Interest expense, net 19,648 6,430
Merger-related financing costs -- 7,518
Debt extinguishment expense 3,371 --
----------- ---------
Earnings (loss) before income
tax expense (benefit) 21,921 (3,853)
Income tax expense (benefit) 8,352 (1,393)
----------- ---------
Net earnings (loss) $ 13,569 (2,460)
=========== =========
Earnings (loss) per common share:
Basic $ 0.18 $ (0.04)
Diluted $ 0.17 $ (0.04)
Weighted average common shares
outstanding:
Basic 75,393 56,630
Diluted 79,291 56,630
Percentage of Sales:
------------------------------------------------
Sales 100.0% 100.0%
Cost of sales 68.8% 66.9%
----------- ---------
Gross profit 31.2% 33.1%
SG&A expenses 23.3% 25.5%
Depreciation and amortization 2.7% 3.6%
Stock-based compensation 0.5% --
Merger-related expenses 0.3% 2.1%
----------- ---------
Operating earnings 4.4% 1.9%
Interest expense, net 1.9% 1.2%
Merger-related financing costs -- 1.4%
Debt extinguishment expense 0.3% --
----------- ---------
Earnings (loss) before income
tax expense (benefit) 2.2% (0.7)%
Income tax expense (benefit) 0.9% (0.2)%
----------- ---------
Net earnings (loss) 1.3% (0.5)%
=========== =========
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
39 weeks 39 weeks
ended ended
Oct. 28, Oct. 29,
2006 2005
----------- -----------
Sales $3,014,934 $1,424,869
Cost of sales 2,097,980 993,957
----------- -----------
Gross profit 916,954 430,912
Selling, general and administrative
expenses 706,110 339,369
Depreciation and amortization 79,541 40,072
Stock-based compensation 15,706 --
Merger-related expenses 6,788 11,329
----------- -----------
Operating earnings 108,809 40,142
Interest expense, net 59,186 6,657
Merger-related financing costs -- 7,518
Debt extinguishment expense 3,562 --
----------- -----------
Earnings before income
tax expense 46,061 25,967
Income tax expense 17,614 10,198
----------- -----------
Net earnings $ 28,447 $ 15,769
=========== ===========
Earnings per common share:
Basic $ 0.38 $ 0.30
Diluted $ 0.36 $ 0.27
Weighted average common shares
outstanding:
Basic 74,619 53,092
Diluted 78,864 57,519
Percentage of Sales:
----------------------------------------------
Sales 100.0% 100.0%
Cost of sales 69.6% 69.8%
----------- -----------
Gross profit 30.4% 30.2%
SG&A expenses 23.4% 23.8%
Depreciation and amortization 2.7% 2.8%
Stock-based compensation 0.5% --
Merger-related expenses 0.2% 0.8%
----------- -----------
Operating earnings 3.6% 2.8%
Interest expense, net 2.0% 0.5%
Merger-related financing costs -- 0.5%
Debt extinguishment expense 0.1% --
----------- -----------
Earnings before income
tax expense 1.5% 1.8%
Income tax expense 0.6% 0.7%
----------- -----------
Net earnings 0.9% 1.1%
=========== ===========
GameStop Corp.
Balance Sheets
(in thousands, except per share data)
October 28, October 29,
2006 2005
---------- ----------
ASSETS:
Current assets:
Cash and cash equivalents $ 180,948 $ 81,031
Receivables, net 32,841 34,662
Merchandise inventories 844,979 746,563
Prepaid expenses and other current
assets 33,346 35,953
Prepaid taxes 68,307 48,929
Deferred taxes 48,391 38,622
---------- ----------
Total current assets 1,208,812 985,760
---------- ----------
Property and equipment:
Land 10,106 10,008
Buildings & leasehold improvements 291,692 252,243
Fixtures and equipment 394,712 325,387
---------- ----------
696,510 587,638
Less accumulated depreciation and
amortization 257,981 162,141
---------- ----------
Net property and equipment 438,529 425,497
---------- ----------
Goodwill, net 1,395,824 1,440,939
Assets to be disposed of -- 19,190
Other noncurrent assets 43,605 54,446
---------- ----------
Total assets $3,086,770 $2,925,832
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current
liabilities:
Accounts payable $ 605,773 519,972
Accrued liabilities 308,125 297,799
Note payable, current portion 12,240 12,936
---------- ----------
Total current liabilities 926,138 830,707
Deferred taxes 11,300 69,491
Other long-term liabilities 38,756 42,458
Notes payable, long-term portion 412 22,171
Senior floating and fixed rate notes
payable, net of discount 876,592 941,557
---------- ----------
Total liabilities 1,853,198 1,906,384
---------- ----------
Stockholders' equity:
Preferred stock - authorized 5,000
shares; no shares
issued or outstanding -- --
Class A common stock - $.001 par value;
authorized 300,000 shares;
45,908 and 42,404 shares issued and
outstanding, respectively 46 42
Class B common stock - $.001 par value;
authorized 100,000 shares;
29,902 shares issued and outstanding 30 30
Additional paid-in-capital 1,006,811 911,886
Accumulated other comprehensive
income 5,833 100
Retained earnings 220,852 107,390
---------- ----------
Total stockholders' equity 1,233,572 1,019,448
---------- ----------
Total liabilities and
stockholders' equity $3,086,770 $2,925,832
========== ==========
Schedule I
GameStop Corp.
Sales Mix
13 Weeks Ended 13 Weeks Ended
Oct. 28, 2006 Oct. 29, 2005
----------------- ---------------
Percent Percent
Sales of Sales of
Total Total
-------- ------- ------ -------
Sales (in millions):
New video game hardware $ 150.5 14.9% $ 48.4 9.0%
New video game software 401.8 39.7% 216.2 40.5%
Used video game products 295.4 29.2% 170.2 31.9%
Other 163.9 16.2% 99.4 18.6%
-------- ------- ------ -------
Total $1,011.6 100.0% $534.2 100.0%
======== ======= ====== =======
Schedule II
GameStop Corp.
Gross Profit Mix
13 Weeks Ended 13 Weeks Ended
Oct. 28, 2006 Oct. 29, 2005
----------------- ---------------
Gross Gross
Gross Profit Gross Profit
Profit Percent Profit Percent
------ ------- ------ -------
Gross Profit (in millions):
New video game hardware $ 16.5 11.0% $ 5.2 10.7%
New video game software 94.0 23.4% 53.8 24.9%
Used video game products 143.9 48.7% 77.2 45.4%
Other 61.3 37.4% 40.5 40.7%
------ ------
Total $315.7 31.2% $176.7 33.1%
====== ======
Schedule III
GAMESTOP CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
Historical
For the GameStop Historical
thirteen Corp. Electronics
weeks ended October Boutique GameStop
October 29, 29, October 8, Pro Forma Corp
2005 2005 (a) 2005 (a) Adjustments Pro Forma
---------- ----------- ----------- -----------
Sales $ 534,212 $ 350,691 $ -- $ 884,903
Cost of sales 357,492 248,738 -- 606,230
---------- ----------- -------- --------
Gross
profit 176,720 101,953 -- 278,673
Selling,
general and
administrative
expenses 136,072 96,992 -- 233,064
Depreciation
and
amortization 19,224 8,203 (4,271)(c) 23,156
Merger-related
expenses 11,329 -- (11,329)(b) --
Stock based
compensation -- -- 2,798 (j) 2,798
---------- ----------- -------- --------
Operating
earnings
(loss) 10,095 (3,242) 12,802 19,655
Interest
expense, net 6,430 (335) 14,176 (d),(e) 20,271
Merger-related
interest
expense 7,518 -- (7,518)(b) --
---------- ----------- -------- --------
Earnings
(loss)
before
income
tax
expense
(benefit) (3,853) (2,907) 6,144 (616)
Income tax
expense
(benefit) (1,393) (1,057) 2,212 (f) (238)
---------- ----------- -------- --------
Net
earnings
(loss) $ (2,460) $ (1,850) $ 3,932 $ (378)
========== =========== ======== ========
Net loss per
common share-
basic $ (0.04)(h)$ (0.07) $ (0.01)(i)
========== =========== ========
Weighted
average shares
of common
stock-basic 56,630 25,504 (9,943)(g) 72,191
========== =========== ======== ========
Net loss per
common share-
diluted $ (0.04)(h)$ (0.07) $ (0.01)(i)
========== =========== ========
Weighted
average shares
of common
stock-diluted 56,630 25,715 (10,154)(g),(k) 72,191
========== =========== ======== ========
Schedule III
GAMESTOP CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
Historical
For the GameStop Historical
thirty-nine Corp. Electronics
weeks ended October Boutique GameStop
October 29, 29, October 8, Pro Forma Corp.
2005 2005 (a) 2005 (a) Adjustments Pro Forma
---------- ----------- ----------- -------------
Sales $1,424,869 $ 1,302,107 $ -- $2,726,976
Cost of sales 993,957 935,175 -- 1,929,132
---------- ----------- -------- ----------
Gross
profit 430,912 366,932 -- 797,844
Selling, general
and
administrative
expenses 339,369 331,424 -- 670,793
Depreciation
and
amortization 40,072 30,573 (2,640)(c) 68,005
Merger-related
expenses 11,329 2,900 (14,229)(b) --
Stock based
compensation -- -- 8,159 (j) 8,159
---------- ----------- -------- ----------
Operating
earnings 40,142 2,035 8,710 50,887
Interest
expense, net 6,657 (1,927) 54,974 (d),(e) 59,704
Merger-related
interest
expense 7,518 -- (7,518)(b) --
---------- ----------- -------- ----------
Earnings
(loss)
before
income tax
expense
(benefit) 25,967 3,962 (38,746) (8,817)
Income tax
expense
(benefit) 10,198 1,415 (14,877)(f) (3,264)
---------- ----------- -------- ----------
Net
earnings
(loss) $ 15,769 $ 2,547 $(23,869) $ (5,553)
========== =========== ======== ==========
Net earnings
(loss) per
common share-
basic $ 0.30 (h)$ 0.10 $ (0.08)(i)
========== =========== ==========
Weighted average
shares of
common stock-
basic 53,092 25,098 (6,426)(g) 71,764
========== =========== ======== ==========
Net earnings
(loss) per
common share-
diluted $ 0.27 (h)$ 0.10 $ (0.08)(i)
========== =========== ==========
Weighted average
shares of
common stock-
diluted 57,519 25,420 (11,175)(g),(k) 71,764
========== =========== ======== ==========
GAMESTOP CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(In thousands, except per share data)
(a) Certain reclassifications have been made to the historical presentation of GameStop and EB to conform to the presentation used in the unaudited pro forma condensed consolidated statement of operations.
(b) To give effect to the exclusion of certain expenses of $11,329 and $14,229 for the 13 weeks and 39 weeks, respectively, ended October 29, 2005 and financing costs of $7,518 which are directly attributable to the merger and are believed to be of a one-time or short-term nature.
(c) To give effect to the intangible asset amortization and depreciation on the property and equipment adjustment based on the preliminary allocation of the purchase price over estimated useful lives.
(d) To give effect to the interest expense incurred related to the receipt of $941,472 resulting from issuance of $650,000 in senior notes, at an interest rate of 8.0% and $300,000 in senior floating rate notes at an interest rate of LIBOR plus 3.875%. The senior notes were issued at a discount of $8,528 and interest expense includes the amortization of this discount over seven years.
(e) To give effect to the amortization of deferred financing fees relating to the $400 million revolving credit facility, the senior floating rate notes and the senior notes over five, six and seven years to match the terms, respectively.
(f) Represents the aggregate pro forma effective income tax effect of Notes (b), (c), (d), (e) and (i) above.
(g) The pro forma earnings per share have been adjusted to reflect the issuance of 20,229 shares of GameStop Class A common stock to EB common stockholders as if they were issued on January 30, 2005 and to reflect the elimination of the outstanding shares of Electronics Boutique.
(h) The holders of Historical GameStop Class A and Class B common stock generally had identical rights, except that the holders of Historical GameStop Class A common stock were entitled to one vote per share and the holders of Historical GameStop Class B common stock were entitled to ten votes per share on all matters to be voted on by stockholders. Earnings per common share amounts represent per share amounts for both classes of common stock.
(i) The holders of GameStop Class A and Class B common stock generally have identical rights, except that the holders of GameStop Class A common stock are entitled to one vote per share and the holders of GameStop Class B common stock are entitled to ten votes per share on all matters to be voted on by stockholders. Earnings per common share amounts represent per share amounts for both classes of common stock.
(j) To give effect to the stock-based compensation expense as if SFAS 123(R) had been adopted as of January 30, 2005.
(k) To remove the effect of securities that are anti-dilutive in nature due to the pro forma loss in the 13 weeks and 39 weeks ended October 29, 2005.
CONTACT: GameStop Corp.
Media Contact:
Chris Olivera, 817-424-2130
Divisional Vice President,
Corporate Communications
or
Investor Contact:
David W. Carlson, 817-424-2130
Executive Vice President &
Chief Financial Officer
SOURCE: GameStop Corp.