GameStop Corp. Sales Increase 16%; Video Game Software Increases 21%; GameStop Opens 103 New Stores in First Quarter
GRAPEVINE, Texas--(BUSINESS WIRE)--May 18, 2004--GameStop Corp. (NYSE:GME), the nation's largest video game and entertainment software specialty retailer, today reported a 27% increase in net earnings, before a one-time charge (a 1% increase after the one-time charge), after posting record sales for the first quarter ended May 1, 2004.
GameStop sales increased 16% to $371.7 million in the first quarter of 2004, compared with $321.7 million in the prior year quarter. Video game software sales were very strong and grew by 21%, led by such key titles as Ninja Gaiden from Tecmo, Inc.; Fight Night 2004 and MVP Baseball 2004 from Electronic Arts, Inc.; Final Fantasy XI Online from Sony Computer Entertainment of America and Square Enix Co., Ltd.; and Pokemon Colosseum from Nintendo of America, Inc., as well as an exceptional performance from used video games. Comparable store sales declined 1.8% during the quarter due to weaker than anticipated video game hardware sales. However, sales performance in stores opened over the last 15 months, including 103 stores opened during this quarter, exceeded expectations and were a significant contributor to the overall sales growth of 16%.
Net earnings for the first quarter were $6.7 million, or $0.11 per diluted share, increasing 1% from the prior year quarter, including an after-tax charge of $1.7 million, or $0.03 per diluted share, attributable to a provision for a proposed California labor litigation settlement and related legal costs. Excluding this after-tax charge, which management views as non-recurring, first quarter earnings were $8.4 million, or $0.14 per diluted share, increasing 27% from the prior year quarter, when net earnings were $6.6 million, or $0.11 per diluted share.
R. Richard Fontaine, Chairman & Chief Executive Officer, commented, "GameStop's first quarter earnings were at the high end of our previously released guidance, excluding the one-time charge, making this the most profitable first quarter ever for GameStop. Our first quarter was a re-verification that our business model is a consistent earnings driver, even during what could be called only a slightly above average quarter for new title releases and a marginally disappointing quarter for hardware sales. Gross margin rates continued to improve and were very strong in the first quarter. Our 1.9% gross margin rate improvement was primarily due to a more favorable sales mix, driven in part by a revised merchandising presentation in our stores, an ever increasing store mix of more productive strip centers versus malls, and a reduction in low margin hardware sales compared to last year."
Fontaine continued, "We opened 103 stores during the quarter, an all-time high for GameStop in any quarter. The new stores continue to perform above expectations, even as we test new markets, concentrate more stores into existing markets, and test a wider variety of store sizes and merchandising configurations. We continue to improve the evaluation and analysis of site selection, and we are confident that we will open the high end of the 300 to 330 stores that we previously forecasted. As we move into the second quarter, we are confident that the recent announcement of a price drop on Sony's PlayStation 2 to $149.99, which we expected, will solidly support an absolute increase in hardware sales for the quarter and will generate new buyers for the lineup of second quarter titles. In addition, we have continued confidence in our full year forecast due to the excitement generated by the strong second half title line-up announced during last week's Electronics Entertainment Exposition (E3) convention. The titles are strong for every platform, and with the likely introduction of Nintendo's Dual Screen portable unit in the fall, we have another technological and creative piece of hardware supported by a strong franchise."
The recently announced price reductions in hardware, coupled with our forecast for continued strong software growth of 20% or more, should result in our earnings per diluted share for the second quarter ranging from $0.12 to $0.13, with corresponding comparable store sales of -1.0% to -3.0%. In addition, the software titles recently announced for the Fall season continue to reinforce our forecast of full-year earnings of between $1.20 and $1.24 per diluted share, excluding the one-time charge.
A conference call with GameStop Corp.'s management will be simulcast on the Web at (http://www.gamestop.com/investor-relations/) beginning at 11:00 AM ET on May 18, 2004, and will be accessible at (http://www.gamestop.com/investor-relations/), where it will be archived until June 2, 2004.
About GameStop Corp.
Headquartered in Grapevine, Texas, GameStop Corp. (NYSE:GME) is the nation's largest video game and entertainment software specialty retailer, based on the number of U.S. stores and U.S. revenues. The company operates 1,603 retail stores throughout 49 states, the District of Columbia, 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 65 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, possible disruptions or delays in successfully transferring the company's headquarters and distribution center to a new facility during 2004 and 2005, 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
May 1, May 3,
2004 2003
--------- ---------
Sales $371,736 $321,741
Cost of sales 266,196 236,300
--------- ---------
Gross profit 105,540 85,441
Selling, general and administrative
expenses 86,626 68,535
Depreciation and amortization 8,144 6,217
--------- ---------
Operating earnings 10,770 10,689
Interest expense (income), net (153) (379)
--------- ---------
Earnings before income
tax expense 10,923 11,068
Income tax expense 4,245 4,457
--------- ---------
Net earnings $6,678 $6,611
========= =========
Net earnings per common share:
Basic $0.12 $0.12
Diluted $0.11 $0.11
Weighted average common shares
outstanding:
Basic 56,990 57,083
Diluted 60,130 60,236
Percentage of sales:
--------------------------------------------------
Sales 100.0% 100.0%
Cost of sales 71.6% 73.5%
--------- ---------
Gross profit 28.4% 26.5%
SG&A expenses 23.3% 21.3%
Depreciation and amortization 2.2% 1.9%
--------- ---------
Operating earnings 2.9% 3.3%
Interest expense (income), net (0.0%) (0.1%)
--------- ---------
Earnings before income
tax expense 2.9% 3.4%
Income tax expense 1.1% 1.3%
--------- ---------
Net earnings 1.8% 2.1%
========= =========
GameStop Corp.
Balance Sheets
(in thousands, except per share data)
May 1, May 3,
2004 2003
--------- ---------
ASSETS:
Current assets:
Cash and cash equivalents $167,093 $174,477
Receivables, net 6,101 5,195
Merchandise inventories 194,566 156,194
Prepaid expenses and other current assets 13,379 10,508
Prepaid taxes 9,310 --
Deferred taxes 7,661 6,034
--------- ---------
Total current assets 398,110 352,408
--------- ---------
Property and equipment:
Land 2,000 --
Buildings and leasehold improvements 71,320 43,513
Fixtures and equipment 138,486 92,087
--------- ---------
211,806 135,600
Less accumulated depreciation and amortization 91,961 62,272
--------- ---------
Net property and equipment 119,845 73,328
--------- ---------
Goodwill, net 320,826 317,957
Other noncurrent assets 1,277 1,128
--------- ---------
Total assets $840,058 $744,821
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $134,084 $112,186
Accrued liabilities 78,467 68,498
--------- ---------
Total current liabilities 212,551 180,684
Deferred taxes 17,625 5,591
Other long-term liabilities 3,269 2,954
--------- ---------
Total liabilities 233,445 189,229
--------- ---------
Stockholders' equity:
Preferred stock -- authorized 5,000 shares; no
shares issued or outstanding -- --
Class A common stock -- $.001 par value;
authorized 300,000 shares; 23,469 and 21,102
shares issued, respectively 23 21
Class B common stock -- $.001 par value;
authorized 100,000 shares; 36,009 shares issued
and outstanding 36 36
Additional paid-in-capital 516,676 494,346
Accumulated other comprehensive income 119 --
Retained earnings 124,765 61,231
Treasury stock, at cost, 2,304 and 4 shares,
respectively (35,006) (42)
--------- ---------
Total stockholders' equity 606,613 555,592
--------- ---------
Total liabilities and stockholders' equity $840,058 $744,821
========= =========
Schedule I
GameStop Corp.
Retail Sales Mix
13 weeks 13 weeks
Ended ended
May 1, 2004 May 3, 2003
------------- -----------
Video Game Hardware 15% 16%
Video Game Software 65% 62%
Video Game Accessories 13% 12%
PC Software 5% 6%
PC Accessories and Other 2% 4%
Schedule II
GameStop Corp.
Reconciliation of Litigation Settlement Charge
(in thousands, except per share data)
13 weeks Percentage
ended Of
May 1, 2004 Sales
------------ ----------
Selling, general and administrative expenses $86,626 23.3%
Less: Litigation settlement charge 2,750 (0.7%)
------------ ----------
Selling, general and administrative expenses
excluding litigation settlement charge $83,876 22.6%
============ ==========
Operating earnings $10,770 2.9%
Add: Litigation settlement charge 2,750 0.7%
------------ ----------
Operating earnings excluding litigation
settlement charge $13,520 3.6%
============ ==========
Net earnings $6,678 1.8%
Add: After-tax litigation settlement charge 1,708 0.5%
------------ ----------
Net earnings excluding litigation settlement
charge $8,386 2.3%
============ ==========
Net earnings per common share -- diluted $0.11
Add: After-tax litigation settlement charge
per common share -- diluted $0.03
------------
Net earnings excluding litigation settlement
charge per common share -- diluted $0.14
============
CONTACT: GameStop Corp., Grapevine
Media Contact:
Director, Public & Investor Relations
Lori M. Milovich, 817-424-2130
or
Investor Contact:
Executive Vice President & Chief Financial Officer
David W. Carlson, 817-424-2130
SOURCE: GameStop Corp.