GameStop Corp. Sales Up 14%; Third Quarter 2003 EPS of $0.18 at High End of Guidance; Video Game Software Sales Increase 18%; GameStop Opens 83 New Stores in Third Quarter
GRAPEVINE, Texas--(BUSINESS WIRE)--Nov. 19, 2003--GameStop Corp. (NYSE:GME), the nation's largest video game and entertainment software specialty retailer, today reported sales and earnings for the third quarter ended November 1, 2003.
GameStop sales increased 14% to $326.0 million in the third quarter of 2003, compared with $286.7 million in the prior year quarter. Both new and used video game software sales were very strong, growing by 18%, with strong performances from new titles such as "Soul Calibur II" from Namco, "Madden NFL 2004" and "NBA Live 2004" from Electronic Arts Inc., and "WWE Smackdown: Here Comes The Pain" from THQ, Inc.
Comparable store sales declined by 1.9% during the third quarter compared to last year's third quarter, which had comparable store sales of 30.3% that were fueled by the release of "Grand Theft Auto: Vice City," the best selling video game ever. Net earnings for the third quarter increased 9% to $10.7 million, or $0.18 per diluted share, at the high end of our previously issued guidance, compared with net earnings of $9.8 million, or $0.16 per diluted share, in the prior year quarter.
New store sales performance in stores opened over the last 24 months continued to be strong, exceeding expectations, including the 83 stores opened during this quarter, and was a significant contributor to the overall sales growth of 14%.
"I am particularly happy with our third quarter performance in that virtually all elements of our business came together as planned. Our new title software sales were strong, our used sales benefited from a better inventory position in the quarter, the early stages of our holiday re-merchandising efforts have improved our customer's shopping experience at many of our stores, and our gross margin was very strong," said R. Richard Fontaine, Chairman and CEO. "In addition, our new store performance and effectiveness in site selection have come together so well that we will exceed our original store count for the year, and should finish the year with 300 new stores. We are very well positioned to continue this momentum into the holiday season."
Guidance for the fourth quarter assumes comparable store sales ranging from -2.0% to +2.0%, with earnings per diluted share between $0.62 and $0.66. We continue to believe that full-year 2003 earnings per diluted share will range from $1.02 to $1.06.
During the first quarter of fiscal 2003, GameStop implemented FASB Emerging Issues Task Force Issue 02-16 (EITF 02-16), which deals with the accounting for vendor rebates, advertising allowances, and other cash consideration received from vendors. EITF 02-16 stipulates that cash consideration received from a vendor should be presumed to be a reduction of the prices of vendors' products and should, therefore, be shown as a reduction in the cost of sales when recognized in the reseller's statements of operations. The only exceptions to this rule are if the vendor receives an identifiable benefit or if the reimbursement is for specific, incremental, identifiable costs. If the amount of cash consideration received exceeds the cost being reimbursed, that excess amount should be characterized as a reduction of cost of sales when recognized in the reseller's statements of operations. This new standard is effective prospectively for new arrangements, including modifications of existing arrangements, entered into after December 31, 2002. We expect that the implementation of EITF 02-16 will reduce fiscal 2003 net earnings by approximately $0.03 per diluted share due to the deferral of vendor allowances reported as a reduction in merchandise inventories. As of November 1, 2003, approximately $2.2 million in vendor allowances have been deferred and will be recognized in cost of sales as the inventory is sold. EITF 02-16 also requires the reclassification of a portion of GameStop's vendor allowances earned in fiscal 2003 from selling, general and administrative expense to cost of goods sold. In Schedules I and II, we have presented both this year's and last year's third quarter and year to date results on a pro forma basis as if EITF 02-16 had been implemented prior to the beginning of fiscal 2002.
A conference call with GameStop Corp.'s management will be simulcast on the Web at (http://www.gamestop.com) beginning at 5:00 PM ET on November 19, 2003, and will be accessible at (http://www.gamestop.com/investor-relations), where it will be archived until December 3, 2003.
About GameStop Corp.
Headquartered in Grapevine, TX, GameStop Corp. (NYSE: GME) is the nation's largest video game and entertainment software specialty retailer. The company operates 1,472 retail stores throughout 49 states, Puerto Rico and Ireland, primarily under the GameStop(R) brand. In addition, the company owns a commerce-enabled Web property, GameStop.com, and Game Informer(R) magazine, a leading video and computer game publication.
GameStop Corp. sells the most popular new software, hardware and game accessories for the PC and next generation video game systems from Sony, Nintendo, and Microsoft, and is also the industry's largest reseller of used video games. In addition, the company sells computer and video game magazines and strategy guides, action figures, and other related merchandise to more than 30 million customers.
Barnes and Noble, Inc. (NYSE: BKS), the world's largest bookseller, has approximately a 60 percent interest in GameStop. General information on GameStop Corp. can be obtained via the Internet by visiting the company's corporate Website: http://www.gamestop.com/investor-relations/.
SAFE HARBOR
This press release (including the attached schedules) contains "forward-looking statements." GameStop Corp. is including this statement for the express purpose of availing itself of the protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. These forward-looking statements are based on currently available information and represent the beliefs of the management of the company. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks include, but are not limited to, general economic and market conditions, seasonality, decreased consumer demand for the company's products, possible disruptions in the company's computer or telephone systems, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to obtain suitable sites for new stores, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the company's online and other initiatives, the successful integration of acquired businesses, unanticipated increases in merchandise or occupancy costs, unanticipated adverse litigation results or effects, product shortages, and other factors which may be outside of the company's control. In addition, the video game industry has historically been cyclical in nature and dependent upon the introduction of new generation systems and related interactive software. Please refer to the company's reports on file with the SEC for a more detailed discussion of these and other risks that could cause results to differ materially.
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
13 weeks 13 weeks
ended ended
November 1, 2003 November 2, 2002
----------------- ------------------
Sales $ 326,042 $ 286,728
Cost of sales 227,568 212,883
----------------- ------------------
Gross profit 98,474 73,845
Selling, general and
administrative expenses 72,865 52,001
Depreciation and amortization 7,718 5,862
----------------- ------------------
Operating earnings 17,891 15,982
Interest expense (income), net (62) (380)
----------------- ------------------
Earnings before income
tax expense 17,953 16,362
Income tax expense 7,260 6,577
----------------- ------------------
Net earnings $ 10,693 $ 9,785
================= ==================
Earnings per common share:
Basic $ 0.19 $ 0.17
Diluted $ 0.18 $ 0.16
Weighted average common shares
outstanding:
Basic 55,767 56,931
Diluted 59,431 61,111
Percentage of sales:
--------------------
Sales 100.0% 100.0%
Cost of sales 69.8% 74.2%
----------------- ------------------
Gross profit 30.2% 25.8%
SG&A expenses 22.3% 18.2%
Depreciation and amortization 2.4% 2.0%
----------------- ------------------
Operating earnings 5.5% 5.6%
Interest expense (income), net - (0.1)%
----------------- ------------------
Earnings before income
tax expense 5.5% 5.7%
Income tax expense 2.2% 2.3%
----------------- ------------------
Net earnings 3.3% 3.4%
================= ==================
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
39 weeks 39 weeks
ended ended
November 1, 2003 November 2, 2002
----------------- ------------------
Sales $ 953,457 $ 832,395
Cost of sales 680,559 616,014
----------------- ------------------
Gross profit 272,898 216,381
Selling, general and
administrative expenses 212,662 165,217
Depreciation and amortization 20,807 16,605
----------------- ------------------
Operating earnings 39,429 34,559
Interest expense (income), net (648) (255)
----------------- ------------------
Earnings before income
tax expense 40,077 34,814
Income tax expense 16,167 13,997
----------------- ------------------
Net earnings $ 23,910 $ 20,817
================= ==================
Earnings per common share:
Basic $ 0.42 $ 0.37
Diluted $ 0.40 $ 0.34
Weighted average common shares
outstanding:
Basic 56,538 56,039
Diluted 59,953 60,372
Percentage of sales:
--------------------
Sales 100.0% 100.0%
Cost of sales 71.4% 74.0%
---------------- ------------------
Gross profit 28.6% 26.0%
SG&A expenses 22.3% 19.9%
Depreciation and amortization 2.2% 2.0%
---------------- ------------------
Operating earnings 4.1% 4.1%
Interest expense (income), net (0.1)% (0.1)%
---------------- ------------------
Earnings before income
tax expense 4.2% 4.2%
Income tax expense 1.7% 1.7%
---------------- ------------------
Net earnings 2.5% 2.5%
================ ==================
GameStop Corp.
Balance Sheets
(in thousands, except per share data)
November 1, 2003 November 2, 2002
---------------- ------------------
ASSETS:
Current assets:
Cash and cash equivalents $ 91,577 $ 125,121
Receivables, net 8,013 7,461
Merchandise inventories 309,691 268,393
Prepaid expenses and other
current assets 10,964 8,976
Prepaid taxes 16,798 -
Deferred taxes 6,034 3,418
---------------- ------------------
Total current assets 443,077 413,369
---------------- ------------------
Property and equipment:
Leasehold improvements 52,287 36,413
Fixtures and equipment 124,498 77,590
---------------- ------------------
176,785 114,003
Less accumulated depreciation
and amortization 76,067 49,854
---------------- ------------------
Net property and equipment 100,718 64,149
---------------- ------------------
Goodwill, net 320,826 317,957
Other noncurrent assets 1,401 1,148
---------------- ------------------
Total assets $ 866,022 $ 796,623
================ ==================
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable $ 239,184 $ 209,491
Accrued liabilities 75,334 66,388
---------------- ------------------
Total current liabilities 314,518 275,879
Deferred taxes 5,574 3,065
Other long-term liabilities 3,314 2,777
---------------- ------------------
Total liabilities 323,406 281,721
---------------- ------------------
Stockholders' equity:
Preferred stock - authorized
5,000 shares; no shares
issued or outstanding - -
Class A common stock - $.001
par value; authorized
300,000 shares; 21,674 and
20,971 shares issued and
outstanding, respectively 22 21
Class B common stock - $.001
par value; authorized
100,000 shares; 36,009 shares
issued and outstanding 36 36
Additional paid-in-capital 499,059 491,812
Accumulated other comprehensive
loss (25) -
Retained earnings 78,530 23,033
Treasury stock, at cost, 2,304
and 0 shares, respectively (35,006) -
---------------- ------------------
Total stockholders' equity 542,616 514,902
---------------- ------------------
Total liabilities and
stockholders' equity $ 866,022 $ 796,623
================ ==================
Schedule I
GameStop Corp.
Pro-Forma Statement of Operations
(in thousands, except per share data)
13 weeks 13 weeks
ended ended
November 1, 2003 November 2, 2002
----------------- ------------------
Sales $ 326,042 $ 286,728
Cost of sales (1) 226,401 201,856
----------------- ------------------
Gross profit 99,641 84,872
Selling, general and
administrative expenses (1) 72,865 63,158
Depreciation and amortization 7,718 5,862
----------------- ------------------
Operating earnings 19,058 15,852
Interest expense (income), net (62) (380)
----------------- ------------------
Earnings before income
tax expense 19,120 16,232
Income tax expense 7,687 6,525
----------------- ------------------
Net earnings $ 11,433 $ 9,707
================= ==================
Net earnings per common share:
Basic $ 0.21 $ 0.17
Diluted $ 0.19 $ 0.16
Weighted average common shares
outstanding:
Basic 55,767 56,931
Diluted 59,431 61,111
Percentage of sales:
--------------------
Sales 100.0% 100.0%
Cost of sales 69.4% 70.4%
----------------- ------------------
Gross profit 30.6% 29.6%
SG&A expenses 22.4% 22.0%
Depreciation and amortization 2.4% 2.0%
----------------- ------------------
Operating earnings 5.8% 5.6%
Interest expense (income), net - (0.1)%
----------------- ------------------
Earnings before income
tax expense 5.8% 5.7%
Income tax expense 2.3% 2.3%
----------------- ------------------
Net earnings 3.5% 3.4%
================= ==================
Footnote to Schedule I:
(1) If GameStop had implemented EITF 02-16 prior to the beginning
of fiscal 2002, vendor allowances in excess of reimbursement
for specific, incremental, identifiable costs would have
equated to $11,157 for the 13 weeks ended November 2, 2002.
GameStop would have recognized vendor allowances as a
reduction in cost of sales aggregating $1,167 during the 13
weeks ended November 1, 2003. GameStop would have deferred
vendor allowances aggregating $130 as a reduction in
merchandise inventories during the 13 weeks ended November 2,
2002.
Schedule II
GameStop Corp.
Pro-Forma Statement of Operations
(in thousands, except per share data)
39 weeks 39 weeks
ended ended
November 1, 2003 November 2, 2002
----------------- ------------------
Sales $ 953,457 $ 832,395
Cost of sales (1) 677,858 597,339
----------------- ------------------
Gross profit 275,599 235,056
Selling, general and
administrative expenses (1) 212,662 184,151
Depreciation and amortization 20,807 16,605
----------------- ------------------
Operating earnings 42,130 34,300
Interest expense (income), net (648) (255)
----------------- ------------------
Earnings before income
tax expense 42,778 34,555
Income tax expense 17,197 13,891
----------------- ------------------
Net earnings $ 25,581 $ 20,664
================= ==================
Net earnings per common share:
Basic $ 0.45 $ 0.37
Diluted $ 0.43 $ 0.34
Weighted average common shares
outstanding:
Basic 56,538 56,039
Diluted 59,953 60,372
Percentage of sales:
--------------------
Sales 100.0% 100.0%
Cost of sales 71.1% 71.8%
----------------- ------------------
Gross profit 28.9% 28.2%
SG&A expenses 22.3% 22.1%
Depreciation and amortization 2.2% 2.0%
----------------- ------------------
Operating earnings 4.4% 4.1%
Interest expense (income), net (0.1%) (0.1%)
----------------- ------------------
Earnings before income
tax expense 4.5% 4.2%
Income tax expense 1.8% 1.7%
----------------- ------------------
Net earnings 2.7% 2.5%
================= ==================
Footnote to Schedule II:
(1) If GameStop had implemented EITF 02-16 prior to the beginning
of fiscal 2002, vendor allowances in excess of reimbursement
for specific, incremental, identifiable costs would have
equated to $18,934 for the 39 weeks ended November 2, 2002.
GameStop would have recognized vendor allowances as a
reduction in cost of sales aggregating $2,701 during the 39
weeks ended November 1, 2003. GameStop would have deferred
vendor allowances aggregating $259 as a reduction in
merchandise inventories during the 39 weeks ended November 2,
2002.
Schedule III
GameStop Corp.
Retail Sales Mix
13 weeks 13 weeks
ended ended
November 1, 2003 November 2, 2002
----------------- ------------------
Video Game Hardware 15% 15%
Video Game Software 64% 61%
Video Game Accessories 11% 12%
PC Software 7% 7%
PC Accessories and Other 3% 5%
CONTACT: GameStop Corp.
Media Contact
Director, Public & Investor Relations
Lori M. Milovich, 817-424-2130
or
GameStop Corp.
Investor Contact
Executive Vice President & Chief Financial Officer
David W. Carlson, 817-424-2130
SOURCE: GameStop Corp.