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GameStop reports strong third quarter, but stock sinks on outlook

Shares of Grapevine-based GameStop plunged nearly 7 percent Thursday after the video game retailer reported strong third-quarter earnings but projected a softer-than-expected fourth quarter.

Net earnings for the quarter that ended Nov. 2 were $68.6 million, up 45 percent from adjusted net income of $47.2 million a year ago. Sales totaled $2.11 billion, compared with $1.77 billion the prior year, and comparable-store sales — at stores open at least a year, an industry benchmark — rose 20.5 percent.

Looking ahead, GameStop said it expects earnings in the crucial fourth quarter to be $1.97 to $2.14 a share, below the analyst consensus of $2.16. GameStop shares (ticker: GME), which have more than doubled this year, closed down $3.64 to $48.80 on the New York Stock Exchange.

“Our strong third-quarter sales results give us great momentum as we enter the new console cycle,” CEO Paul Raines said, referring to this month’s release of the PlayStation 4 and Xbox One systems.

“Consumer appetite for the new consoles is very strong, judging by last week’s successful PS4 launch and the excitement for tonight’s Xbox One launch event,” Raines said. “Globally, we are executing our unique playbook to maximize our position of strength.”

During a conference call with analysts, executives said that the company’s initial allocation of PlayStation 4 consoles sold out and that 2.3 million customers are waiting for new players from Sony and Microsoft.

Initial sales of the Sony console exceeded those of its predecessor, PlayStation 3, by more than 80 percent in the first few days, the executives said. They also expect a large waiting list for Microsoft’s Xbox One, suggesting that a prolonged industry slump is ending.

“We still have over 2.3 million customers on the First to Know List, which indicates continued demand for months to come,” GameStop President Tony Bartel said on the call.

Microsoft’s $499 Xbox One goes on sale today in 13 countries and is expected to be in high demand after a seven-year drought on new home consoles from the two companies. GameStop is staging midnight openings for the launch.

The retailer, which accounts for more than half of Sony’s and Microsoft’s video game software sales, will benefit from the console transition based on its ability to lure gamers who trade in older titles and hardware for discounts on new gear, said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. He recommends buying the stock.

This report includes material from Bloomberg News.

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