GameStop Corp's quarterly profit beat expectations helped by price cuts that stoked video game console demand and as used-game sales boosted margins -- signs a months-long period of gloom may be easing.
Shares of the biggest U.S. video game retailer were unchanged at $24.09 on Thursday morning as the broader market declined. Shares initially rose 2.3 percent after GameStop reaffirmed its fourth-quarter profit forecast and said sales in the holiday shopping season were off to a strong start.
The optimism is in contrast to months of dour industry sales reports as the sluggish economy discourages consumers from buying $60 games and consoles costing $200 or more.
Even research firm NPD's October report showed weak software sales following price cuts on Sony Corp's PlayStation 3 console, Nintendo Co Ltd's Wii and Microsoft Corp's Xbox 360.
But GameStop Chief Operating Officer Paul Raines blamed the sluggish market on a dearth of top games. Consumers are returning to the stores for titles like new versions of Microsoft's Halo and Electronic Arts' Madden NFL, as well as Square Enix's Batman: Arkham Asylum and Take-Two Interactive's NBA 2K10.
In this category, it's less about the economy and more about the title catalog, and that started to happen for us in this quarter, Raines said in an interview. We saw gamers coming back to us.
GameStop, which had backed its view of third-quarter results last week, posted a profit of $52.2 million, or 31 cents a share, for the third quarter ended October 31, compared with $46.7 million or 28 cents a share in the prior year quarter.
Excluding special items, the profit was 32 cents a share, beating analysts' expectations of 30 cents a share, according to Thomson Reuters I/B/E/S.
GameStop sales rose 8.2 percent to $1.83 billion from $1.7 billion in the prior-year's quarter. On average, analysts had expected sales of $1.73 billion. Same-store sales fell 7.8 percent in the third quarter.
The company said its store foot traffic increased from the second quarter, as did gross margins, led by a sequential improvement in its used business. GameStop's margins benefit from its trade-in system which lets shoppers return used games for a fraction of the purchase price in cash or credit toward future sales. Returned games sell at a higher profit margin -- around 50 percent -- than new games.
GameStop forecast fourth-quarter earnings per share of $1.47 to $1.65, and a decline in comparable-store sales in a range of 1 percent to 7 percent.
(Reporting by Franklin Paul, editing by Gerald E. McCormick)