background image

GameStop Reports Second Quarter 2011 Results

August 18, 2011
Digital revenues increase 69%
Strength in pre-owned and digital sales drives margin expansion

GRAPEVINE, Texas, Aug 18, 2011 (BUSINESS WIRE) -- GameStop Corp. (NYSE: GME), the world's largest multichannel video game retailer, today reported sales and earnings for the second quarter ended July 30, 2011.

Financial Results

Total sales for the second quarter of 2011 were $1.74 billion, a decrease of 3.1% compared to $1.80 billion in the prior year quarter. Total company comparable store sales were -9.1%, impacted by lower hardware sales and a lighter software title slate than the prior year quarter. While new hardware and software underperformed, pre-owned sales increased 12% and digital sales increased 69%, exceeding quarterly expectations.

The top five selling games during the quarter were L.A. Noire by Rockstar Games, NCAA Football 12 by Electronic Arts, inFAMOUS 2 by Sony, Brink by Bethesda Softworks, and Mortal Kombat by Warner Home Video Games.

Net earnings were $30.9 million compared to $40.3 million in the prior year quarter. As planned, the company continued spending on its strategic initiatives during the quarter. Diluted earnings per share were in-line with guidance at $0.22 compared to $0.26 in the prior year quarter. The strength of the pre-owned business and growth in digital channels led to gross margins of 31.2%, an increase of 250 basis points and the company's highest margin rate in five years.

Paul Raines, chief executive officer, stated, "GameStop's resilient retail model enabled us to achieve our earnings plan despite a challenging period for the industry. Through the back half of the year, we expect industry software sales to accelerate based on an exciting title line-up. Meanwhile, the digital and loyalty programs we have brought to market continue to gain traction with consumers and position us as a leading partner with publishers."

Rob Lloyd, chief financial officer, said, "Continued strength in pre-owned sales, improved gross margins, tight cost controls and capturing a high rate of sales transfers all contributed to our financial results. Additionally, we continue to focus on executing our capital allocation plan to maximize shareholder returns while we invest in our long-term strategic initiatives."

Earnings Guidance

For the third quarter of fiscal 2011, the company expects comparable store sales to range from 2.0% to 4.0%. Diluted earnings per share are expected to range from $0.38 to $0.41.

GameStop is reiterating its full year diluted earnings per share guidance range of $2.82 to $2.92, representing a 6.4% to 10.2% increase over fiscal 2010. Full year comparable store sales are now expected to range from 1.0% to 3.0% based on revised annual revenue growth of 4.5% to 6.5%.

Share Repurchase Update

During the second quarter, GameStop repurchased 1.36 million shares at an average price of $25.38, or $34.6 million worth of stock. At the end of the quarter, the company had approximately $348 million remaining of its current share and debt repurchase authorization.

Conference Call and Webcast Information

A conference call with GameStop Corp.'s management is scheduled for Aug. 18, 2011 at 10:00 a.m. CDT to discuss the second quarter sales and earnings results. The conference call will be simulcast online at http://investor.gamestop.com. The conference call will be archived on the website until Sept. 18, 2011.

GameStop is scheduled to present at the Goldman Sachs 18th Annual Global Retailing Conference on Thursday, Sept. 8 at the Marriott Marquis Hotel in New York City.

About GameStop

GameStop Corp. (NYSE: GME), a Fortune 500 and S&P 500 company headquartered in Grapevine, Texas, is the world's largest multichannel video game retailer. GameStop's retail network and family of brands include 6,582 company-operated stores in 17 countries worldwide and online at http://www.GameStop.com. The network also includes: http://www.Kongregate.com, a leading browser-based game site; Game Informer(R) magazine, the leading multi-platform video game publication; Spawn Labs, a streaming technology company; and Impulse, Inc., a digital distribution platform available at http://www.gamestop.com/impulse.

General information on GameStop Corp. can be obtained at the company's corporate website. Follow GameStop on Twitter @ http://www.twitter.com/GameStop and find GameStop on Facebook @ http://www.facebook.com/GameStop.

Safe Harbor

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, the outlook for fiscal 2011, 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. GameStop undertakes no obligation to publicly update or revise any forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the inability to obtain sufficient quantities of product to meet consumer demand, including console hardware and accessories; the timing of release of video game titles for current generation consoles; the risks associated with expanded international operations and the integration of acquisitions; the impact of increased competition and changing technology in the video game industry, including browser and mobile games and alternative methods of distribution; and economic, regulatory and other events, including litigation, that could reduce or impact consumer demand or affect the company's business. 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 29, 2011 filed with the SEC and available at the SEC's Internet site at http://www.sec.gov or http://investor.gamestop.com.

GameStop Corp.
Statements of Operations
(in millions, except per share data)
13 weeks 13 weeks
ended ended
July 30, 2011 July 31, 2010
Sales $ 1,743.7 $ 1,799.1
Cost of sales 1,200.5 1,282.3
Gross profit 543.2 516.8
Selling, general and administrative
expenses 442.5 405.0
Depreciation and amortization 47.1 42.2
Operating earnings 53.6 69.6
Interest expense, net 6.3 10.0
Earnings before income
tax expense 47.3 59.6
Income tax expense 16.7 19.8
Consolidated net income 30.6 39.8
Net loss attributable to noncontrolling interests 0.3 0.5
Consolidated net income attributable to GameStop $ 30.9 $ 40.3
Net income per common share:
Basic1 $ 0.22 $ 0.27
Diluted1 $ 0.22 $ 0.26
Weighted average common shares
outstanding:
Basic 141.0 151.3
Diluted 142.2 154.2

Percentage of Sales:
Sales 100.0 % 100.0 %
Cost of sales 68.8 % 71.3 %
Gross profit 31.2 % 28.7 %
Selling, general and administrative
expenses 25.4 % 22.5 %
Depreciation and amortization 2.7 % 2.3 %
Operating earnings 3.1 % 3.9 %
Interest expense, net 0.4 % 0.6 %
Earnings before income
tax expense 2.7 % 3.3 %
Income tax expense 0.9 % 1.1 %
Consolidated net income 1.8 % 2.2 %
Net loss attributable to noncontrolling interests 0.0 % 0.0 %
Consolidated net income attributable to GameStop 1.8 % 2.2 %

1 Basic net income per share and diluted net income per share are calculated based on consolidated net income attributable to GameStop.

GameStop Corp.
Statements of Operations
(in millions, except per share data)
26 weeks 26 weeks
ended ended
July 30, 2011 July 31, 2010
Sales $ 4,025.1 $ 3,881.8
Cost of sales 2,861.7 2,794.2
Gross profit 1,163.4 1,087.6
Selling, general and administrative
expenses 885.2 808.8
Depreciation and amortization 93.4 84.7
Operating earnings 184.8 194.1
Interest expense, net 12.5 19.6
Earnings before income
tax expense 172.3 174.5
Income tax expense 61.8 59.8
Consolidated net income 110.5 114.7
Net loss attributable to noncontrolling interests 0.8 0.8
Consolidated net income attributable to GameStop $ 111.3 $ 115.5
Net income per common share:
Basic1 $ 0.78 $ 0.76
Diluted1 $ 0.78 $ 0.74
Weighted average common shares
outstanding:
Basic 141.9 152.4
Diluted 142.9 155.3

Percentage of Sales:
Sales 100.0 % 100.0 %
Cost of sales 71.1 % 72.0 %
Gross profit 28.9 % 28.0 %
Selling, general and administrative
expenses 22.0 % 20.8 %
Depreciation and amortization 2.3 % 2.2 %
Operating earnings 4.6 % 5.0 %
Interest expense, net 0.3 % 0.5 %
Earnings before income
tax expense 4.3 % 4.5 %
Income tax expense 1.5 % 1.5 %
Consolidated net income 2.8 % 3.0 %
Net loss attributable to noncontrolling interests 0.0 % 0.0 %
Consolidated net income attributable to GameStop 2.8 % 3.0 %

1 Basic net income per share and diluted net income per share are calculated based on consolidated net income attributable to GameStop.

GameStop Corp.
Balance Sheets
(in millions, except per share data)
July 30, July 31,
2011 2010
ASSETS:
Current assets:
Cash and cash equivalents $ 224.8 $ 289.3
Receivables, net 44.2 44.3
Merchandise inventories 1,059.9 1,129.5
Prepaid expenses and other current assets 156.4 103.4
Deferred taxes 24.6 19.3
Total current assets 1,509.9 1,585.8
Property and equipment:
Land 25.6 13.5
Buildings & leasehold improvements 592.8 535.8
Fixtures and equipment 867.8 747.1
1,486.2 1,296.4
Less accumulated depreciation and amortization 871.3 721.1
Net property and equipment 614.9 575.3
Goodwill, net 2,073.2 1,924.2
Other noncurrent assets 341.4 277.7
Total assets $ 4,539.4 $ 4,363.0
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 469.7 $ 625.0
Accrued liabilities 672.0 529.4
Total current liabilities 1,141.7 1,154.4
Other long-term liabilities 168.3 118.8
Senior notes payable, net of discount 249.3 447.8
Total liabilities 1,559.3 1,721.0
Stockholders' equity:
Preferred stock - authorized 5.0 shares; no shares
issued or outstanding 0.0 0.0
Class A common stock - $.001 par value; authorized 300.0 shares;
140.2 and 150.4 shares outstanding, respectively 0.1 0.1
Additional paid-in-capital 799.4 1,046.8
Accumulated other comprehensive income 265.9 82.8
Retained earnings 1,917.1 1,513.3
Equity attributable to GameStop Corp. stockholders 2,982.5 2,643.0
Equity (deficit) attributable to noncontrolling interest (2.4 ) (1.0 )
Total equity 2,980.1 2,642.0
Total liabilities and stockholders' equity $ 4,539.4 $ 4,363.0
Schedule I
GameStop Corp.
Sales Mix
13 Weeks Ended 13 Weeks Ended
July 30, 2011 July 31, 2010
Percent Percent
Sales of Total Sales of Total
Sales (in millions):
New video game hardware $ 275.6 15.8 % $ 314.3 17.5 %
New video game software 599.8 34.4 % 663.2 36.9 %
Used video game products 633.1 36.3 % 565.5 31.4 %
Other 235.2 13.5 % 256.1 14.2 %
Total $ 1,743.7 100.0 % $ 1,799.1 100.0 %
Schedule II
GameStop Corp.
Gross Profit Mix
13 Weeks Ended 13 Weeks Ended
July 30, 2011 July 31, 2010
Gross Gross
Gross Profit Gross Profit
Profit Percent Profit Percent
Gross Profit (in millions):
New video game hardware $ 20.8 7.5 % $ 25.9 8.2 %
New video game software 132.0 22.0 % 141.7 21.4 %
Used video game products 292.4 46.2 % 260.0 46.0 %
Other 98.0 41.7 % 89.2 34.8 %
Total $ 543.2 31.2 % $ 516.8 28.7 %

SOURCE: GameStop Corp.

Matt Hodges
Divisional Vice President,
Public and Investor Relations
GameStop Corp.
(817) 424-2130