GameStop tallies billion-dollar quarter

The thrill of bringing record revenues to Wall Street analysts was palpable in the voices of GameStop executives Dick Fontaine (chairman and CEO), David Carlson (CFO), Steve Morgan (president), and Dan DeMatteo (COO) today in the company's first-quarter 2006 earnings results conference call.

While the markets bid up GameStop shares to near its 52-week high, those executives outlined finances tallied during the February-April quarter for the Texas-based retailer.

For the 13-week period ending April 28, 2006, the specialty retailer--now the world's largest, with 4,565 stores in 14 countries--reported revenues of $1.04 billion dollars, more than twice the $475 million reported for the same quarter a year ago.

Opening today's analyst call, Fontaine called the revenue figures "outstanding."

Carlson then informed listeners that comparable store sales decreased 3.3 percent for the quarter, but he was pleased by the fact that dip was far slimmer than expected--the company had previously stated it expected comps to fall by 7-9 percent. The better-than-expected decline was "due to improved flow of Xbox 360 hardware and much higher-than-anticipated sell-through of new video game software," Carlson explained.

"Square Enix's Kingdom Hearts II topped the best-seller list for the quarter, with two Xbox 360 titles, Elder Scrolls IV: Oblivion and Ghost Recon: Advanced War Fighter, showing the acceptance of the 59.99 price point with our Xbox 360 customers," he added.

Net earnings for the retailer, which continued to make progress in the nuts and bolts of the merger with EB Games during the quarter was $11.7 million, compared with $10.3 million a year earlier.

In March, all EB stores were connected to the GameStop inventory management replenishment system, Morgan explained, and by August 14, all GameStop stores should be converted to a joint point-of-sale system.

"While there is more work that needs to be done to fully complete the merger, we have concluded many critical facets of the integration, including the roll out of GameStop's inventory management system to EB stores, applying best practices to the company's operations, the closing of the West Chester general office and the Coatesville distribution center, and restructuring of field management," Fontiane said. "We continue to have great confidence in our new and used business model as an earnings driver while the industry moves through the transformation to multiple new hardware platforms."

Longtime industry observer Dan DeMatteo gave the company line on the performance of the major console makers at last week's Electronic Entertainment Expo.

"Nintendo. Quite simply, they had a fantastic show," DeMatteo said in today's call. "Due to the innovative controllers and the stable of Nintendo properties, the Wii will certainly be desired by the core gamers, but it has the potential to expand well beyond this group into nontraditional game players."

He called a Zelda title at launch "significant," as well as the anticipated price point of the Wii, expected by all to come in lower than both the Xbox 360 and the PlayStation 3. "We view the release of a new Legend of Zelda at the Wii launch and an anticipated lower console price most significant and the most pleasant surprise of E3." He referred to Red Steel, the Legend of Zelda title, Dragon Ball Z, and Tony Hawk's Downhill Jam as "some of the most highly anticipated titles for the Wii."

DeMatteo also spoke highly of the Xbox 360, saying the "several new innovative accessories for the 360 [announced at E3] should really enhance gameplay, such as the wireless headset used in on-line gaming, and a new wireless steering well for racing games."

On the PS3 release date and pricing, DeMatteo was less enthusiastic, but still optimistic. "While there seems to be some concern about the price, we feel that given all that it delivers, it is very acceptable to the consumers that will be in the market at this time. The quantities they expect are at an all-time high range for a console launch--two million day one, another two million by the end of the year, and two million by the end of their fiscal year, March 2007."

He estimates the US portion of that allocation to be in the 35-40 percent range.

On the PC front, based on what he saw at E3, DeMatteo expects the World of Warcraft expansion pack (The Burning Crusade), Neverwinter Nights 2 from Atari, and Battlefield 2142 from Electronic Arts to be the top-selling titles through the coming year.

In the coming quarter, GameStop execs expect same-store sales to net out at 2 percent down to 1 percent up. At press time, GameStop (GME) shares were trading up almost 4 percent at $46.36.