GameStop 2Q Profit Falls 32% On Lower Sales, Cuts Year EPS View

GameStop Corp.'s (GME) fiscal second-quarter earnings fell 32% amid slowing sales of video consoles, tough comparisons owing to prior-year releases of hit games, and higher expenses.

The videogame and console retailer also cut its 2009 earnings forecast and projected third-quarter earnings below analysts' expectations.

Shares were down 5.1% at $23.89 in recent premarket trading. The stock is down roughly 45% in the past year, though it has rallied by nearly half since November.

GameStop now expects 2009 earnings of $2.40 to $2.64 a share, from its prior guidance of $2.83 to $2.93 a share. Analysts recently were looking for $2.76. GameStop also expects same-store sales to decline 4% to 8%.

For the fiscal third quarter, the company expects earnings of 27 cents to 33 cents and a same-store-sales decline of 6% to 11%. Analysts were looking for 41 cents.

Videogame industry sales have weakened in recent months, after a record performance in 2008. The slump is partly owing to the recession, and partly because several of last year's top titles were released in first half such as Mario Kart, Wii Fit, Super Smash Bros.: Brawl, and Grand Theft Auto IV.

Console sales also have been hurt by the dearth of new blockbuster games. Pressure has been rising for console makers to lower prices to drive traffic, with Sony Corp. (SNE) slashing its price for PlayStation 3 by about 25% on Tuesday.

While the recession has played to GameStop's strength in higher-margin used videogames, rivals such Best Buy Co. (BBY), Amazon.com Inc. (AMZN), Toys 'R' Us Inc. and Wal-Mart Stores Inc. (WMT) have been testing programs in the segment.

For the quarter ended Aug. 1, GameStop reported a profit of $38.7 million, or 23 cents a share, down from $57.2 million, or 34 cents a share, a year earlier. The company in May projected 28 cents to 33 cents, below analysts' views at the time.

Revenue decreased 3.7% to $1.74 billion, as same-store sales tumbled a more-than-expected 14%. The company in May expected a same-store drop of 8% to 11%.

Analysts polled by Thomson Reuters most recently were looking for revenue of $1.75 billion.

Gross margin rose to 28.5% from 26.8%.

Chief Executive Daniel DeMatteo said as the new title release schedule improves, the company expects earnings growth in the second half of the year.

-By Tess Stynes, Dow Jones Newswires; 212-416-2481; [e-mail]