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GameStop Reports Second Quarter 2009 Results

Software Growth Expected to Rebound in Second Half

GameStop Gains Over 2% Market Share in Second Quarter

GRAPEVINE, Texas--(BUSINESS WIRE)--Aug. 20, 2009-- GameStop Corp. (NYSE: GME), the world’s largest video game and entertainment software retailer, today reported sales and earnings results for the second quarter ended August 1, 2009.

GameStop sales were $1.74 billion, a 3.7% decrease compared to sales of $1.80 billion in the prior year quarter. Despite gaining over 200 basis points in new video game market share during the quarter, comparable store sales decreased 14.1% due to lower new console unit sales, a lack of strong new software titles compared to last year’s record releases and customer caution due to the continued weak economy.

The top five selling games during the quarter were THQ’s UFC 2009 Undisputed, Activision’s Prototype, EA’s Fight Night Round 4 and NCAA Football 2010, and Atari’s Ghostbusters.

Net earnings were $38.7 million, representing the second highest summer quarter in GameStop history, a 32.3% decrease compared to net earnings of $57.2 million in the prior year period. Diluted earnings per share were $0.23, compared to $0.34 in the prior year quarter, when earnings per share grew 162%.

“Due to the effects of the recession and strong prior year comparisons, the video game industry experienced a sharp decline in consumer spending during the quarter,” said Daniel DeMatteo, GameStop CEO. “Looking ahead, as the new title release schedule improves, we expect positive earnings growth in the back half of the year.”

Updated Guidance

Weak trends in consumer spending related to on-going economic uncertainties, and some key new title slippage such as Bioshock 2, StarCraft II and Splinter Cell: Conviction, have prompted GameStop to forecast a lower and widened earnings range for the remainder of the year. In spite of these challenges, new software sales in the second half are expected to increase over the prior year period, led by highly-anticipated title releases such as Call of Duty: Modern Warfare 2, Assassin’s Creed 2 and Halo 3: ODST.

For the third quarter of fiscal 2009, GameStop is forecasting diluted earnings per share to range from $0.27 to $0.33, as compared to $0.28 in the prior year period. Comparable store sales are projected to range from -11.0% to -6.0%.

For the fourth quarter of fiscal 2009, GameStop is forecasting diluted earnings per share to range from $1.47 to $1.65, as compared to $1.39 in the prior year period. Comparable store sales are projected to range from -7.0% to -1.0%.

For fiscal 2009, GameStop is lowering diluted earnings per share guidance from the previously communicated range of $2.83 to $2.93 to a range of $2.40 to $2.64, representing annual EPS growth of flat to +10%. Comparable store sales are now projected to range from -8.0% to -4.0% in fiscal 2009.

We now expect to generate free cash flow (a non-GAAP measure of operating cash flow less capital expenditures) of approximately $400 to $425 million, after having invested $175 million in capital improvements, including the opening of approximately 400 new stores worldwide.

Note that guidance does not include debt retirement costs or merger-related expenses.

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 6,333 retail stores in 17 countries worldwide. The company also operates an e-commerce site, 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 2009 and beyond, 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; the timing of release of video game titles for next generation consoles; the risks associated with expanded international operations and the integration of recent acquisitions, including Micromania; the impact of increased competition and changing technology 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 31, 2009, 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
Aug. 1, 2009 Aug. 2, 2008
 
Sales $ 1,738,504 $ 1,804,420
Cost of sales   1,243,098     1,320,297  
 
Gross profit 495,406 484,123
 
Selling, general and administrative
expenses 384,773 347,745
Depreciation and amortization   39,677     36,309  
 
Operating earnings 70,956 100,069
 
Interest expense, net   11,275     9,211  
 
Earnings before income
tax expense 59,681 90,858
 
Income tax expense   20,996     33,695  
 
Net earnings $   38,685   $   57,163  
 
Earnings per common share:
Basic $ 0.23 $ 0.35
Diluted $ 0.23 $ 0.34
 
Weighted average common shares
outstanding:
Basic 164,636 163,390
Diluted 167,857 168,067
 
 
 

Percentage of Sales:

 
Sales 100.0 % 100.0 %
Cost of sales   71.5 %   73.2 %
 
Gross profit 28.5 % 26.8 %
 
SG&A expenses 22.1 % 19.3 %
Depreciation and amortization   2.3 %   2.0 %
 
Operating earnings 4.1 % 5.5 %
 
Interest expense, net   0.7 %   0.5 %
 
Earnings before income
tax expense 3.4 % 5.0 %
 
Income tax expense   1.2 %   1.8 %
 
Net earnings   2.2 %   3.2 %

   
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
 
26 weeks 26 weeks
ended ended
Aug. 1, 2009 Aug. 2, 2008
 
Sales $ 3,719,257 $ 3,618,037
Cost of sales   2,681,738     2,660,508  
 
Gross profit 1,037,519 957,529
 
Selling, general and administrative
expenses 760,605 676,412
Depreciation and amortization   77,504     71,145  
 
Operating earnings 199,410 209,972
 
Interest expense, net 22,956 17,699
Debt extinguishment expense   2,862     2,331  
 
Earnings before income
tax expense 173,592 189,942
 
Income tax expense   64,474     70,654  
 
Net earnings $   109,118   $   119,288  
 
Earnings per common share:
Basic $ 0.66 $ 0.73
Diluted $ 0.65 $ 0.71
 
Weighted average common shares
outstanding:
Basic 164,555 162,607
Diluted 167,915 167,722
 
 
 

Percentage of Sales:

 
Sales 100.0 % 100.0 %
Cost of sales   72.1 %   73.5 %
 
Gross profit 27.9 % 26.5 %
 
SG&A expenses 20.4 % 18.7 %
Depreciation and amortization   2.1 %   2.0 %
 
Operating earnings 5.4 % 5.8 %
 
Interest expense, net 0.6 % 0.5 %
Debt extinguishment expense   0.1 %   0.1 %
 
Earnings before income
tax expense 4.7 % 5.2 %
 
Income tax expense   1.8 %   1.9 %
 
Net earnings   2.9 %   3.3 %

     
GameStop Corp.
Balance Sheets
(in thousands, except per share data)
 
Aug 1, Aug 2,
2009 2008
ASSETS:
Current assets:
Cash and cash equivalents $ 197,856 $ 539,898
Receivables, net 40,119 60,966
Merchandise inventories 1,099,325 970,057
Prepaid expenses and other current assets 84,898 127,159
Deferred taxes 22,137 26,893
Total current assets 1,444,335 1,724,973
 
Property and equipment:
Land 11,590 12,033
Buildings & leasehold improvements 504,595 414,896
Fixtures and equipment 675,168 583,734
1,191,353 1,010,663
Less accumulated depreciation and amortization 612,197 485,665
Net property and equipment 579,156 524,998
 
Goodwill, net 1,914,979 1,447,572
Other noncurrent assets 310,467 74,854
Total assets $ 4,248,937 $ 3,772,397
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 615,364 $ 692,098
Accrued liabilities 480,287 389,009
Total current liabilities 1,095,651 1,081,107
 
 
Other long-term liabilities 113,493 82,299
Senior notes payable, net of discount 495,807 545,220
Total liabilities 1,704,951 1,708,626
 
Stockholders' equity:
Preferred stock - authorized 5,000 shares; no shares
issued or outstanding -- --
Class A common stock - $.001 par value; authorized 300,000 shares;
164,661 and 163,653 shares issued and outstanding, respectively 165 164
Additional paid-in-capital 1,325,492 1,288,727
Accumulated other comprehensive income 88,721 33,384
Retained earnings 1,129,608 741,496
Total stockholders' equity 2,543,986 2,063,771
Total liabilities and stockholders' equity $ 4,248,937 $ 3,772,397

       
Schedule I
GameStop Corp.
Sales Mix
 
 
13 Weeks Ended 13 Weeks Ended
Aug 1, 2009 Aug 2, 2008
Percent Percent
Sales of Total Sales of Total
Sales (in millions):
 
New video game hardware $ 301.3 17.3 % $ 379.7 21.0 %
New video game software 629.8 36.2 % 705.0 39.1 %
Used video game products 560.8 32.3 % 471.5 26.1 %
Other 246.6 14.2 % 248.2 13.8 %
       
Total $ 1,738.5 100.0 % $ 1,804.4 100.0 %
 
                     
 
Schedule II
GameStop Corp.
Gross Profit Mix
 
 
13 Weeks Ended 13 Weeks Ended
Aug 1, 2009 Aug 2, 2008
Gross Gross
Gross Profit Gross Profit
Profit Percent Profit Percent
 
Gross Profit (in millions):
 
New video game hardware $ 21.6 7.2 % $ 22.6 6.0 %
New video game software 133.6 21.2 % 145.3 20.6 %
Used video game products 256.9 45.8 % 234.1 49.7 %
Other 83.3 33.8 % 82.1 33.1 %
   
Total $ 495.4 28.5 % $ 484.1 26.8 %

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