GameStop Reports Third Quarter 2008 Results
GRAPEVINE, Texas--(BUSINESS WIRE)--GameStop Corp. (NYSE: GME - News), a Fortune 500 and S&P 500 company and the world’s largest video game and entertainment software retailer, today reported sales and earnings for the third quarter ended November 1, 2008.
GameStop sales increased 5.2% to $1,695.7 million in the third quarter, compared to $1,611.2 million in the prior year quarter. Comparable store sales decreased 1.8% during the third quarter due primarily to the difficult comparison to the Halo 3 launch, the largest in GameStop’s history, in the prior year quarter when comparable store sales increased 46.3%. Recent trends are encouraging as comparable store sales for October increased by nearly 11%, and increased 20.5% for the first two weeks of November, showing surprising strength given the unprecedented economic and financial crisis.
Net earnings for the third quarter of 2008 were $46.7 million, as compared to net earnings of $52.0 million for the third quarter of 2007. Diluted earnings per share were $0.28, as compared to $0.31 in the prior year quarter. The current period was impacted by the effect of foreign currency fluctuations and merger-related expenses.
Earnings on a non-GAAP basis for the third quarter of 2008 were $63.3 million, as compared to earnings of $52.5 million in the prior year quarter, an increase of 20.6%. Diluted earnings per share on a non-GAAP basis were $0.38, as compared to diluted earnings per share of $0.32 in the prior year quarter. Merger-related costs, foreign currency fluctuations, and debt extinguishment expenses are the differences between GAAP and non-GAAP measures, which are reconciled in Schedule III.
For the quarter, new video game software sales increased 10%, driven by the top five selling games during the quarter: Madden NFL 2009 from Electronic Arts, Star Wars: The Force Unleashed by Lucas Arts, Microsoft’s Fable 2, Nintendo’s Wii Fit, and Activision’s Guitar Hero World Tour.
Daniel DeMatteo, Chief Executive Officer, stated, “Despite the dramatic decline of the global economy and its severe impact on the entire retail industry, GameStop had a strong quarter. Sales have been very robust over the last several weeks, driven by strong new title releases such as Activision’s Call of Duty: World at War and World of Warcraft: Wrath of the Lich King, and Microsoft’s Gears of War 2. We believe that video games provide real entertainment value to consumers in these trying economic times and will be sought out gift purchases for the holiday season.”
R. Richard Fontaine, Executive Chairman, indicated, “While we are operating through what has been the most unpredictable economic environment in my over 40 years in retail, the GameStop business model has proven to be very resilient. New game sales were strong due in part to the values generated by many of our customers trading in products while older products are being sold at value price points.
“I am pleased to say that during the quarter we negotiated the acquisition of Micromania, France’s largest video game retailer. The final purchase price was reduced to approximately $636 million from the announced $700 million due to foreign exchange rate fluctuations and debt procured to fund the acquisition is projected to be paid off by the end of this fiscal year. We remain committed to using our strong cash flow to continue our global strategy for growth through future new store openings and acquisitions.”
Growth Update
During the quarter, GameStop opened 191 stores, 94 in the U.S. and 97 international stores. Also, on November 17, 2008, GameStop completed the transaction to acquire Micromania, France's leading video game retailer with 332 locations. A Form 8-K was filed on Tuesday, November 18, 2008 with the final details of the transaction. This document can be viewed, without charge, at the SEC's Internet site, http://www.sec.gov or at http://investor.gamestop.com.
Updated Guidance
We continue to expect a solid fourth quarter in sales and earnings, albeit tempered slightly by the weakness in consumer spending, based on a line-up of recently released, strong selling new software titles, the drop in hardware prices and the value consumers are placing on video game entertainment.
For the fourth quarter of fiscal 2008, GameStop is now forecasting diluted earnings per share to range from $1.29 to $1.34, an increase of +13% to +18% over the prior year quarter. Comparable store sales in the fourth quarter are expected to range from +4% to +5%. For details regarding this updated guidance, refer to Schedule IV.
Full year diluted earnings per share are forecast to range from $2.35 to $2.40, an increase of +30% to +33% over the prior year, and includes accretion of approximately $0.05 from the acquisition of Micromania. Comparable store sales are projected to increase between +10% and +11% for the full year, with total sales growing between +21% and +22%.
Note that guidance does not include debt retirement costs or merger related expenses.
Non-GAAP Financial Measures
Schedule III reconciles the company’s net earnings and earnings per share in accordance with generally accepted accounting principles to its non-GAAP net earnings and non-GAAP earnings per share. The presentation of these non-GAAP financial measures is not intended to be considered as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP measures used by other companies.
GameStop uses earnings per share excluding certain items to evaluate the performance of operations exclusive of merger-related costs, debt extinguishment expense and foreign currency fluctuations that impact the comparability of results from period to period. GameStop believes these non-GAAP financial measures provide useful supplemental information regarding our performance by excluding certain items that may not be indicative of the company’s core business, operating results, or future outlook.
Conference Call and Webcast Information
A conference call with GameStop Corp.’s management is scheduled for November 20, 2008 at 11:00 AM ET to discuss the third quarter sales and earnings results. The conference call will be simulcast on the Internet at http://investor.gamestop.com. The conference call will be archived on the website until December 4, 2008.
About GameStop Corp.
Headquartered in Grapevine, TX, GameStop Corp. is the world's largest video game and entertainment software retailer. The company operates 6,066 retail stores in 17 countries worldwide. The company also operates two e-commerce sites, GameStop.com and EBgames.com, and publishes Game Informer(R) magazine, a leading multi-platform video game publication. GameStop Corp. sells new and used video game software, hardware and accessories for 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.gamestopcorp.com.
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 2008 and beyond, future financial and operating results, projected store openings, the company's plans, objectives, expectations and intentions, statements about the benefits of the business combination transaction involving GameStop and Micromania, including future financial and operating results 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 inability to obtain sufficient quantities of product to meet consumer demand, including Nintendo's Wii; the timing of release of video game titles for next generation consoles; the risks associated with expanded international operations; 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 February 2, 2008 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 thousands, except per share data) | ||||||||
| 13 weeks | 13 weeks | |||||||
| ended | ended | |||||||
| November 1, 2008 | November 3, 2007 | |||||||
| Sales | $ | 1,695,746 | $ | 1,611,201 | ||||
| Cost of sales | 1,222,317 | 1,191,637 | ||||||
| Gross profit | 473,429 | 419,564 | ||||||
| Selling, general and administrative | ||||||||
| expenses | 335,722 | 288,954 | ||||||
| Depreciation and amortization | 35,767 | 33,705 | ||||||
| Merger-related expenses | 16,605 | - | ||||||
| Operating earnings | 85,335 | 96,905 | ||||||
| Interest expense, net | 8,807 | 11,922 | ||||||
| Debt extinguishment expense | - | 3,840 | ||||||
| Earnings before income | ||||||||
| tax expense | 76,528 | 81,143 | ||||||
| Income tax expense | 29,859 | 29,186 | ||||||
| Net earnings | $ | 46,669 | $ | 51,957 | ||||
| Earnings per common share: | ||||||||
| Basic | $ | 0.29 | $ | 0.32 | ||||
| Diluted | $ | 0.28 | $ | 0.31 | ||||
| Weighted average common shares | ||||||||
| outstanding: | ||||||||
| Basic | 163,736 | 160,048 | ||||||
| Diluted | 167,995 | 166,357 | ||||||
|
Percentage of Sales: |
||||||||
| Sales | 100.0% | 100.0% | ||||||
| Cost of sales | 72.1% | 74.0% | ||||||
| Gross profit | 27.9% | 26.0% | ||||||
| SG&A expenses | 19.8% | 17.9% | ||||||
| Depreciation and amortization | 2.1% | 2.1% | ||||||
| Merger-related expenses | 1.0% | 0.0% | ||||||
| Operating earnings | 5.0% | 6.0% | ||||||
| Interest expense, net | 0.5% | 0.8% | ||||||
| Debt extinguishment expense | 0.0% | 0.2% | ||||||
| Earnings before income | ||||||||
| tax expense | 4.5% | 5.0% | ||||||
| Income tax expense | 1.7% | 1.8% | ||||||
| Net earnings | 2.8% | 3.2% | ||||||
| GameStop Corp. | ||||||||
| Statements of Operations | ||||||||
| (in thousands, except per share data) | ||||||||
| 39 weeks | 39 weeks | |||||||
| ended | ended | |||||||
| November 1, 2008 | November 3, 2007 | |||||||
| Sales | $ | 5,313,783 | $ | 4,228,377 | ||||
| Cost of sales | 3,882,825 | 3,098,745 | ||||||
| Gross profit | 1,430,958 | 1,129,632 | ||||||
| Selling, general and administrative | ||||||||
| expenses | 1,012,134 | 824,504 | ||||||
| Depreciation and amortization | 106,912 | 96,858 | ||||||
| Merger-related expenses | 16,605 | - | ||||||
| Operating earnings | 295,307 | 208,270 | ||||||
| Interest expense, net | 26,506 | 39,384 | ||||||
| Debt extinguishment expense | 2,331 | 12,591 | ||||||
| Earnings before income | ||||||||
| tax expense | 266,470 | 156,295 | ||||||
| Income tax expense | 100,513 | 57,805 | ||||||
| Net earnings | $ | 165,957 | $ | 98,490 | ||||
| Earnings per common share: | ||||||||
| Basic | $ | 1.02 | $ | 0.63 | ||||
| Diluted | $ | 0.99 | $ | 0.60 | ||||
| Weighted average common shares | ||||||||
| outstanding: | ||||||||
| Basic | 162,983 | 157,308 | ||||||
| Diluted | 167,813 | 164,128 | ||||||
|
Percentage of Sales: |
||||||||
| Sales | 100.0% | 100.0% | ||||||
| Cost of sales | 73.1% | 73.3% | ||||||
| Gross profit | 26.9% | 26.7% | ||||||
| SG&A expenses | 19.0% | 19.5% | ||||||
| Depreciation and amortization | 2.0% | 2.3% | ||||||
| Merger-related expenses | 0.3% | 0.0% | ||||||
| Operating earnings | 5.6% | 4.9% | ||||||
| Interest expense, net | 0.5% | 0.9% | ||||||
| Debt extinguishment expense | 0.1% | 0.3% | ||||||
| Earnings before income | ||||||||
| tax expense | 5.0% | 3.7% | ||||||
| Income tax expense | 1.9% | 1.4% | ||||||
| Net earnings | 3.1% | 2.3% | ||||||
| GameStop Corp. | ||||||
| Balance Sheets | ||||||
| (in thousands, except per share data) | ||||||
| November 1, | November 3, | |||||
| 2008 | 2007 | |||||
| ASSETS: | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 478,056 | $ | 277,808 | ||
| Receivables, net | 50,730 | 47,443 | ||||
| Merchandise inventories | 1,424,249 | 1,164,229 | ||||
| Prepaid expenses and other current assets | 102,449 | 59,615 | ||||
| Prepaid taxes | 68,222 | 73,257 | ||||
| Deferred taxes | 29,200 | 38,458 | ||||
| Total current assets | 2,152,906 | 1,660,810 | ||||
| Property and equipment: | ||||||
| Land | 10,229 | 12,026 | ||||
| Buildings & leasehold improvements | 404,660 | 358,445 | ||||
| Fixtures and equipment | 590,565 | 516,767 | ||||
| Total property and equipment | 1,005,454 | 887,238 | ||||
| Less accumulated depreciation and amortization | 502,348 | 386,658 | ||||
| Net property and equipment | 503,106 | 500,580 | ||||
| Goodwill, net | 1,443,782 | 1,402,845 | ||||
| Other noncurrent assets | 63,907 | 50,605 | ||||
| Total assets | $ | 4,163,701 | $ | 3,614,840 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY: | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 1,102,639 | $ | 977,830 | ||
| Accrued liabilities | 366,147 | 313,844 | ||||
| Total current liabilities | 1,468,786 | 1,291,674 | ||||
| Other long-term liabilities | 85,273 | 78,692 | ||||
| Senior notes payable, net of discount | 545,462 | 574,229 | ||||
| Total liabilities | 2,099,521 | 1,944,595 | ||||
| Stockholders' equity: | ||||||
| Preferred stock - authorized 5,000 shares; no shares | ||||||
| issued or outstanding | -- | -- | ||||
| Class A common stock - $.001 par value; authorized 300,000 shares; | ||||||
| 163,776 and 160,959 shares issued and | ||||||
| outstanding, respectively | 164 | 161 | ||||
| Additional paid-in-capital | 1,299,721 | 1,200,586 | ||||
| Accumulated other comprehensive income (loss) | (23,870) | 37,091 | ||||
| Retained earnings | 788,165 | 432,407 | ||||
| Total stockholders' equity | 2,064,180 | 1,670,245 | ||||
| Total liabilities and stockholders' equity | $ | 4,163,701 | $ | 3,614,840 | ||
| GameStop Corp. | ||||||||||
| Schedule I | ||||||||||
| Sales Mix | ||||||||||
| 13 Weeks Ended | 13 Weeks Ended | |||||||||
| November 1, 2008 | November 3, 2007 | |||||||||
| Percent | Percent | |||||||||
| Sales | of Total | Sales | of Total | |||||||
| Sales (in millions): | ||||||||||
| New video game hardware | $ | 328.4 | 19.3% | $ | 373.9 | 23.2% | ||||
| New video game software | 703.3 | 41.5% | 636.9 | 39.5% | ||||||
| Used video game products | 425.1 | 25.1% | 356.3 | 22.1% | ||||||
| Other | 238.9 | 14.1% | 244.1 | 15.2% | ||||||
| Total | $ | 1,695.7 | 100.0% | $ | 1,611.2 | 100.0% | ||||
| GameStop Corp. | ||||||||||
| Schedule II | ||||||||||
| Gross Profit Mix | ||||||||||
| 13 Weeks Ended | 13 Weeks Ended | |||||||||
| November 1, 2008 | November 3, 2007 | |||||||||
| Gross | Gross | |||||||||
| Gross | Profit | Gross | Profit | |||||||
| Profit | Percent | Profit | Percent | |||||||
| Gross Profit (in millions): | ||||||||||
| New video game hardware | $ | 25.4 | 7.7% | $ | 27.5 | 7.4% | ||||
| New video game software | 158.5 | 22.5% | 132.1 | 20.7% | ||||||
| Used video game products | 204.8 | 48.2% | 172.6 | 48.5% | ||||||
| Other | 84.7 | 35.5% | 87.4 | 35.8% | ||||||
| Total | $ | 473.4 | 27.9% | $ | 419.6 | 26.0% | ||||
| Schedule III | ||||||||
| Non-GAAP Results | ||||||||
| (in thousands, except per share data) | ||||||||
| (net of tax) | ||||||||
| 13 weeks | 13 weeks | |||||||
| ended | ended | |||||||
| November 1, 2008 | November 3, 2007 | |||||||
| Net earnings | $ | 46,669 | $ | 51,957 | ||||
| Earnings per diluted share | $ | 0.28 | $ | 0.31 | ||||
| Merger-related costs | 10,461 | - | ||||||
| Merger-related costs per diluted share | 0.06 | - | ||||||
| Debt extinguishment expense | - | 2,419 | ||||||
| Debt extinguishment expense per diluted share | - | 0.02 | ||||||
| Foreign exchange rate impact | 6,139 | (1,886 | ) | |||||
| Foreign exchange rate impact per diluted share | 0.04 | (0.01 | ) | |||||
| Non-GAAP net income | $ | 63,269 | $ | 52,490 | ||||
| Non-GAAP diluted earnings per share | $ | 0.38 | $ | 0.32 | ||||
| Schedule IV | ||||||||
| Updated Guidance for Quarter Ending January 31, 2009 | ||||||||
| (in thousands, except per share data) | ||||||||
| Low-end | High-end | |||||||
| Previously released guidance - earnings per diluted share | $ | 1.37 | $ | 1.40 | ||||
| Foreign exchange rate impact per diluted share | (0.04 | ) | (0.04 | ) | ||||
|
Adjustment to earnings guidance per diluted share |
(0.08 | ) | (0.08 | ) | ||||
| Micromania earnings per diluted share | 0.04 | 0.06 | ||||||
|
Updated earnings per diluted share |
$ | 1.29 | $ | 1.34 | ||||
Contact:
Media Contact: Chris Olivera Vice President, Corporate Communications GameStop Corp. (817) 424-2130 or Investor Contact: Matt Hodges Director, Investor Relations GameStop Corp. (817) 424-2130