Video game and entertainment software retailer GameStop Corp. (GME) on Thursday reported a 22% increase in profit for the fourth quarter from the year-ago period, helped by an increase in video game sales that bucked the economic slowdown. The company had earlier termed the 2008 holiday season as the busiest it has ever experienced. The company forecast earnings per share for the first quarter of 2009 above analysts' consensus estimate and reiterated its outlook for the full year.

Fourth Quarter Results

The Grapevine, Texas-based GameStop's net earnings for the quarter increased to $232.33 million, or $1.39 per share, from $189.80 million, or $1.14 per share, in the prior-year quarter.

The results for the latest quarter include merger-related income of $12.0 million, or $7.5 million, net of tax expense.

On average, fifteen analysts polled by Thomson Reuters expected the company to report earnings of $1.34 per share for the quarter. Analysts' estimate typically excludes special items.

The results exceeded the company's own estimate. In mid-February, GameStop forecast earnings to increase 17%-18% from the year-ago period, to a range of $1.33-$1.34 per share.

Quarterly sales rose 21.9% to $3.49 billion from $2.87 billion in the comparable quarter last year, topping analysts' consensus revenue estimate of $3.46 billion.

Comparable store sales for the latest quarter increased 9.6%. This compares to comparable store sales growth of 17.4% in the same period last year. The company, which operates 6,207 retail stores in 17 countries worldwide, sells its products through its GameStop and EB Games trade names, Websites, including gamestop.com and ebgames.com, and 'Game Informer' magazine.

In mid-February, the company had said that the completion of the Micromania acquisition enabled it to secure a major, growing foothold on the European continent, where sales are forecast to reach $2 billion in 2009. In November 2008, GameStop completed the transaction to acquire Micromania, France's leading video game retailer with 332 locations.

In the month of December, GameStop reported a 22% jump in sales, terming the season as the busiest it has ever experienced. Same-store-sales during the holiday period, November 2, 2008 through January 3, 2009, jumped 10.2%, driven by substantial increases in hardware and software sales.

The top five video games sold during the holiday period were Activision's Call of Duty: World at War and Guitar Hero World Tour, Microsoft's Gears of War 2, Blizzard Entertainment's World of Warcraft: Wrath of the Lich King, and Nintendo's Wii Fit. Hardware sales were led by Nintendo's Wii and Microsoft's Xbox 360, with a 23.5% increase in new video game software sales.

Dan DeMatteo, Chief Executive Officer of GameStop, had earlier commented, The video game business continues to enjoy robust growth, making it the fastest growing of the many consumer goods categories. 2008 marked yet another year of strong new hardware sales, which will again help drive sales of new video games in the years ahead. This trend continued in January as NPD reported US new hardware unit sales grew 29%, led by Nintendo's Wii, DS and Microsoft's Xbox 360.

Peer Performance

Among others in the industry, Amazon.com, Inc. (AMZN) in late January reported fourth-quarter net income of $225 million or $0.52 per share, compared to net income of $207 million or $0.48 per share for the year-ago quarter. Net sales for the quarter increased 18% year-over-year to $6.70 billion, while the growth was 24% excluding unfavorable impact from year-over-year changes in foreign exchange rates.

Specialty electronics retailer Best Buy Co. Inc. (BBY) is due to announce its fourth-quarter financial results on Thursday, March 26. Analysts expect the company to report earnings of $1.40 per share on revenues of $14.82 billion for the quarter.

Other Metrics

GameStop's gross margin for the quarter edged up to 24% from 23.9% in the year-ago period.

Operating earnings for the latest quarter were $379.81 million, up from $293.15 million in the previous-year quarter.

Segment-wise, sales of new video game hardware increased 13% to $813.1 million and sales of new video game software climbed 23% to $1.48 billion. Sales of used video game products surged 31% to $714.2 million and other sales climbed 23% to $480.9 million.

Fiscal Year 2008 Results

For fiscal year 2008, GameStop's net income surged to $398.28 million, or $2.38 per share, from $288.29 million, or $1.75 per share, in the prior year. Analysts expected the company to report earnings for the year of $2.40 per share.

The year's results include debt retirement costs and merger-related expenses of $4.4 million, net of tax benefits, or $0.02 per share, compared to debt retirement costs of $7.9 million, net of tax benefits, or $0.05 per share, in the previous year.

Total sales for the year climbed 24.1% to $8.81 billion from $7.09 billion a year ago. Analysts had a consensus revenue estimate for the year of $8.77 billion.

Comparable store sales for the year increased 12.3%.

DeMatteo said, Our affinity with consumers, combined with our solid business model, prudent financial management practices, expansive brand presence and strategic merchandising, allowed us to achieve a record eighth straight year of sales and earnings growth. In 2008, we opened or acquired 1,002 stores worldwide, including the acquisition of Micromania, the largest video game retailer in France.

Outlook

For the first quarter of 2009, GameStop forecasts earnings per share in a range of $0.40-$0.42, an increase of 5%-10% from the prior-year quarter. Analysts estimate the company to earn $0.39 per share for the first quarter.

The company projects comparable store sales for the first quarter to range from flat to up 2%. The company noted that sales growth would be driven by continued strong demand for all new hardware systems, including Nintendo's DSi, and a strong slate of new video game releases, including Capcom's Street Fighter IV and Resident Evil 5 and Microsoft's Halo Wars.

For fiscal year 2009, GameStop reiterated its forecast for earnings per share to increase 18%-22% and sales growth in a range of 10%-12%. The company also maintained its forecast for comparable store sales to increase 4%-6%. Analysts expect the company to report earnings of $2.85 per share on revenues of $9.72 billion.

DeMatteo said, Looking at 2009, we are confident in our ability to increase sales and earnings, generate significant cash, advance market share, and maintain a financially sound balance sheet.

New video game software sales for the year are estimated by the company to increase between 5% and 10%.

The company said it expect to generate free cash flow of over $500 million during the year, after having invested $170 million in capital improvements, including the opening of more than 400 new stores worldwide.

Stock Quotes

In Thursday's regular trading session, GME is trading at $27.20, up $0.36 or 1.34% on a volume of 1.89 million shares. In the past 52 weeks, the sock has been trading in a range of $16.91-$59.13.

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