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GameStop Reports Second Quarter 2010 Results

August 19, 2010
Video Game Software Sales Increase 5.3%
National Roll-out of New Initiatives Underway

GRAPEVINE, Texas, Aug 19, 2010 (BUSINESS WIRE) -- GameStop Corp. (NYSE: GME), the world's largest video game and entertainment software retailer, today reported sales and earnings for the second fiscal quarter ended July 31, 2010.

 

Financial Results

Total sales for the second quarter increased 3.4% to $1.80 billion, in comparison to $1.74 billion in the prior year quarter. Comparable store sales increased 0.9%, primarily attributable to sell through of new hardware systems and new video game titles. Strong market share gains contributed to a 5.3% increase in new video game software sales.

The top five selling games during the quarter were Rockstar Games' Red Dead Redemption, Nintendo's Super Mario Galaxy 2, THQ's UFC Undisputed 2010, StarCraft II: Wings of Liberty by Blizzard Entertainment and EA Sports' NCAA Football 11.

Net earnings for the second quarter increased 4.2% to $40.3 million, as compared to net earnings of $38.7 million in the prior year quarter. Diluted earnings per share increased 13.0% to $0.26, as compared to $0.23 in the prior year quarter.

J. Paul Raines, Chief Executive Officer, said, "GameStop's second quarter results demonstrate the resiliency of our business model as we achieved both top-line and earnings growth despite the ongoing volatility in the global economy. Our U.S. operations were strong relative to the industry with solid comparable store sales and continued new video game market share gains. Internationally, we continue to focus on the execution of GameStop's buy-sell-trade model to improve operational efficiencies."

Dan DeMatteo, Executive Chairman, stated, "Based on the outstanding initial results of our new customer loyalty program and selling downloadable content (DLC) in stores, we will accelerate and complete the national roll-out of both programs in the third quarter. Additionally, we purchased Kongregate, a leading social gaming destination, to advance our digital strategy. These investments are evaluated with a focus of increasing return on invested capital over a period of time. In addition, we are reviewing the use of excess cash to enhance shareholder returns."

The company also announced that during the second quarter, it completed its $300 million share repurchase program. GameStop repurchased and retired 2,520,400 shares of its common stock at an average cost of $20.93 per share, spending the remaining $52.8 million available.

Year-to-date, GameStop has opened 99 net new stores: 48 in the U.S., 35 in Europe, 6 in Canada and 10 in Australia/New Zealand.

Updated Guidance

Based on the success of the company's new PowerUp Rewards loyalty program and in-store DLC sales pilot, these two initiatives will be rolled out nationally during the third quarter. GameStop is adjusting its third quarter diluted earnings per share guidance to range from $0.35 to $0.38 to account for incremental expenses related to these programs as well as for the upfront expenses of the Kongregate acquisition and investments in e-commerce.

GameStop is maintaining its full year diluted earnings per share guidance range of $2.58 to $2.68, representing a 14% to 18% increase over fiscal 2009. The company projects that $0.03 per share of earnings will be realized in the fourth quarter from these new customer initiatives and the launch of Microsoft's Kinect.

The company expects comparable store sales for the third quarter to range from +3.0% to +6.0% and full year comparable store sales are still expected to range from flat to +2.0%.

About GameStop

Headquartered in Grapevine, TX, GameStop Corp., a Fortune 500 and S&P 500 company, is the world's largest video game and entertainment software retailer. The company operates 6,549 retail stores in 17 countries worldwide. The company also operates e-commerce sites, including GameStop.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 2010, 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; the timing of release of video game titles for next generation consoles; the risks associated with expanded international operations and the integration of acquisitions; the impact of increased competition and changing technology, including alternative methods of distribution, in the video game industry; 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 January 30, 2010 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
July 31, 2010 Aug 1, 2009
Sales $ 1,799,093 $ 1,738,504
Cost of sales 1,282,267 1,243,098
Gross profit 516,826 495,406
Selling, general and administrative
expenses 404,964 384,773
Depreciation and amortization 42,235 39,677
Operating earnings 69,627 70,956
Interest expense, net 10,038 11,275
Earnings before income
tax expense 59,589 59,681
Income tax expense 19,761 20,996
Consolidated net income 39,828 38,685
Net loss attributable to noncontrolling interests 515 -
Consolidated net income attributable to GameStop $ 40,343 $ 38,685
Net income per common share:
Basic1 $ 0.27 $ 0.23
Diluted1 $ 0.26 $ 0.23
Weighted average common shares
outstanding:
Basic 151,250 164,636
Diluted 154,154 167,857

Percentage of Sales:
Sales 100.0 % 100.0 %
Cost of sales 71.3 % 71.5 %
Gross profit 28.7 % 28.5 %
SG&A expenses 22.5 % 22.1 %
Depreciation and amortization 2.3 % 2.3 %
Operating earnings 3.9 % 4.1 %
Interest expense, net 0.6 % 0.7 %
Earnings before income
tax expense 3.3 % 3.4 %
Income tax expense 1.1 % 1.2 %
Consolidated net income 2.2 % 2.2 %
Net loss attributable to noncontrolling interests 0.0 % 0.0 %
Consolidated net income attributable to GameStop 2.2 % 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 thousands, except per share data)
26 weeks 26 weeks
ended ended
July 31, 2010 Aug 1, 2009
Sales $ 3,881,790 $ 3,719,257
Cost of sales 2,794,183 2,681,738
Gross profit 1,087,607 1,037,519
Selling, general and administrative
expenses 808,800 760,605
Depreciation and amortization 84,748 77,504
Operating earnings 194,059 199,410
Interest expense, net 19,612 22,956
Debt extinguishment expense - 2,862
Earnings before income
tax expense 174,447 173,592
Income tax expense 59,780 64,474
Consolidated net income 114,667 109,118
Net loss attributable to noncontrolling interests 848 -
Consolidated net income attributable to GameStop $ 115,515 $ 109,118
Net income per common share:
Basic1 $ 0.76 $ 0.66
Diluted1 $ 0.74 $ 0.65
Weighted average common shares
outstanding:
Basic 152,408 164,555
Diluted 155,319 167,915

Percentage of Sales:

Sales 100.0 % 100.0 %
Cost of sales 72.0 % 72.1 %
Gross profit 28.0 % 27.9 %
SG&A expenses 20.8 % 20.4 %
Depreciation and amortization 2.2 % 2.1 %
Operating earnings 5.0 % 5.4 %
Interest expense, net 0.5 % 0.6 %
Debt extinguishment expense 0.0 % 0.1 %
Earnings before income
tax expense 4.5 % 4.7 %
Income tax expense 1.5 % 1.8 %
Consolidated net income 3.0 % 2.9 %
Net loss attributable to noncontrolling interests 0.0 % 0.0 %
Consolidated net income attributable to GameStop 3.0 % 2.9 %

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 thousands, except per share data)
July 31, Aug 1,
2010 2009
ASSETS:
Current assets:
Cash and cash equivalents $ 289,348 $ 197,856
Receivables, net 44,299 40,119
Merchandise inventories 1,129,495 1,099,325
Prepaid expenses and other current assets 103,333 84,898
Deferred taxes 19,324 22,137

Total current assets

1,585,799 1,444,335
Property and equipment:
Land 13,514 11,590
Buildings & leasehold improvements 535,841 504,595
Fixtures and equipment 747,068 675,168
1,296,423 1,191,353
Less accumulated depreciation and amortization 721,089 612,197

Net property and equipment

575,334 579,156
Goodwill, net

1,924,210

1,948,178
Other noncurrent assets 277,616 310,467
Total assets $

4,362,959

$ 4,282,136
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 624,958 $ 615,364
Accrued liabilities 529,419 480,287
Total current liabilities 1,154,377 1,095,651
Other long-term liabilities 118,840 113,493
Senior notes payable, net of discount 447,798 495,807
Total liabilities 1,721,015 1,704,951
Stockholders' equity:
Preferred stock - authorized 5,000 shares; no shares
issued or outstanding -- --
Class A common stock - $.001 par value; authorized 300,000 shares;

150,352 and 164,661 shares outstanding, respectively

150

165
Additional paid-in-capital 1,046,762 1,325,492
Accumulated other comprehensive income

82,767

121,920
Retained earnings 1,513,270 1,129,608

Equity attributable to GameStop Corp. stockholders

2,642,949

2,577,185
Equity attributable to noncontrolling interest (1,005 ) -
Total equity

2,641,944

2,577,185
Total liabilities and stockholders' equity $

4,362,959

$ 4,282,136
Schedule I
GameStop Corp.
Sales Mix
13 Weeks Ended 13 Weeks Ended
July 31, 2010 Aug 1, 2009
Percent Percent
Sales of Total Sales of Total
Sales (in millions):
New video game hardware $ 314.3 17.5 % $ 301.3 17.3 %
New video game software 663.2 36.9 % 629.8 36.2 %
Used video game products 565.5 31.4 % 560.8 32.3 %
Other 256.1 14.2 % 246.6 14.2 %
Total $ 1,799.1 100.0 % $ 1,738.5 100.0 %
Schedule II
GameStop Corp.
Gross Profit Mix
13 Weeks Ended 13 Weeks Ended
July 31, 2010 Aug 1, 2009
Gross Gross
Gross Profit Gross Profit
Profit Percent Profit Percent
Gross Profit (in millions):
New video game hardware $ 25.9 8.2 % $ 21.6 7.2 %
New video game software 141.7 21.4 % 133.6 21.2 %
Used video game products 260.0 46.0 % 256.9 45.8 %
Other 89.2 34.8 % 83.3 33.8 %
Total $ 516.8 28.7 % $ 495.4 28.5 %

SOURCE: GameStop Corp. 

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