May 22, 2014

GameStop reports 25% profit increase

The Grapevine-based video game retailer is benefiting from strong demand for the Xbox One and PlayStation 4 and growing digital sales.

GameStop said Thursday that first-quarter profit increased by nearly 25 percent as the Grapevine-based retailer benefited from strong demand for new Xbox One and PlayStation 4 systems and growth from two recently acquired store chains.

Net income totaled $68 million as total sales grew by 7 percent to $2 billion and same-store sales increased by 5.8 percent. Diluted earnings per share were 59 cents, up 28.3 percent.

The results, released in the afternoon after the close of trading, sent GameStop shares (ticker: GME) about 3 percent higher in after-hours trading after they hardly moved in regular trading.

The company projected that second-quarter same-store sales would increase from 12 to 19 percent and that earnings per share would range from 12 to 20 cents. That could more than double profits from a year ago.

Sales of new video games declined by 20.4 percent as fewer new titles were released in the first quarter, but that is expected to pick up as the year goes on.

Meanwhile, sales of used games, a high-margin business for GameStop, improved 5.3 percent “as ongoing trade-ins toward new consoles improved inventory levels and subsequent sales growth,” the company said.

Top executives said they were pleased with the results, which support their strategy of increasing digital sales and diversifying beyond video games into other electronics segments.

This year, GameStop announced an aggressive growth strategy for two chains it bought last year: Spring Mobile, which sells AT&T products, and Simply Mac, which sells Apple products in markets too small for an Apple store. The company plans to add 300 to 400 of the stores this year.

In the first quarter, sales in these “technology brands” — which also include Cricket prepaid wireless stores — totaled $60.2 million and generated $6 million in operating profit. That helped produce the highest first-quarter gross margin ever — 31.4 percent.

GameStop also recorded $190 million in digital receipts, up 9 percent, reflecting growth in downloaded games.

While some analysts have questioned whether the emergence of digital content poses a long-term threat to GameStop, Chief Executive Paul Raines said digital sales present an opportunity.

“The growth of digital gaming is very good for GameStop,” Raines said during a conference call with analysts. He said the retailer is using its relationships with customers to sell them digital content and believes its buy-sell-trade model and PowerUp Rewards program will keep buyers coming to its 6,000-plus stores.

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