Holiday shoppers a disappointment for GameStop; slashed profit outlook hurts stock

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Holiday shoppers a disappointment for GameStop

GRAPEVINE, Texas — With lingering economic pain, holiday shoppers did not shell out as much for video games this season as GameStop Corp. hoped, and the company slashed its profit forecast Thursday.

The news sent shares of the world’s biggest video game retailer down as much as 19 percent.

GameStop executives said sales were still strong in November, when “Call of Duty 3,” ”Assassins Creed 2″ and other well-reviewed new titles came out. But the holiday crowd did not pick up where hard-core gamers left off.

“The gift-giver was not as aggressive this year as last year,” CEO Dan DeMatteo said.

GameStop said sales at stores open more than a year tumbled 8.6 percent from 2008 levels for the nine weeks ending Jan. 2. Overall sales were flat at $2.86 billion. The figure is a key measure of a retailer’s health because it excludes sales at stores that open or close during the year.

Buyers still seemed to be pinching pennies. In all, used game sales climbed 10 percent, while sales of new games rose only 4 percent. Price cuts and lower unit sales drove down revenue from game console sales by 8 percent.

GameStop lowered its fourth-quarter earnings forecast. It now expects to report a profit of $1.25 to $1.29 per share for the three months ending in January. That’s down from a previous forecast of $1.47 to $1.65 per share. On average, analysts were expecting $1.57 per share, according to Thomson Reuters.

Yet GameStop had its second-most profitable year ever in fiscal 2009. It expects to report earnings of $2.23 to $2.27 per share, though analysts expected $2.55, on average.

Investors panned the holiday figures. GameStop shares dropped $3.68, or 15 percent, to $20.35 in midday trading after hitting a 52-week low of $19.42, making it the biggest percentage decliner in the Standard & Poor’s 500 index.

Aside from an uncertain economy, sales were dented by a heavy storm on the East Cost the weekend before Christmas and by shortages.

GameStop said it sold out of the “New Super Mario Bros. Wii,” game and saw shortages of the Nintendo Wii console and Sony Corp.’s PlayStation 3.

That could bode good for the future, however. DeMatteo said there was a surge in Wii sales late in the year and he expects fourth-quarter figures to show PlayStation sales as much as doubled over last year.

Whether that can keep up is not clear, however.

In a note to investors, Janney Montgomery Scott analyst Tony Wible said the uptick in Wii sales is a sign casual gamers are spending, though that could be “a false read … since these gamers disappeared before the holiday and may not return after.”

GameStop said sales comparisons to last year are tougher for it than most retailers because its sales at stores open at least a year did not fall as the recession deepened toward the end of 2008. Instead, GameStop bucked the national trend with a 10.2 percent increase that makes comparisons bleaker this year.

The company said it won’t forecast its 2010 earnings until mid-March.

It is banking on another round of new games to help drive sales in the first quarter. “Mass Effect 2: Fight for the Lost” is set for release this month, and “Splinter Cell: Conviction” comes out in February.

“We see some real strong titles,” Chief Operating Officer Paul Raines said in an interview. “The core gamer is continuing to buy.”