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PSP, Software Fuel GameStop Record Q1

25 May, 2005 By: Erik Gruenwedel

The launch of Sony's PlayStation Portable console and strong sales of video games Gran Turismo 4 and God of War, among others, helped GameStop Corp. post first-quarter fiscal 2005 (ended April 30) net income of $10.3 million, or 19 cents per diluted share, compared to $6.6 million, or 11 cents per diluted share, during the same period last year.

Revenue for the Grapevine, Texas-based video game retailer was $474.7 million, up 27.6 percent from 371.7 million last year. The company opened 81 stores and shuttered 14 locations while maintaining a 72 percent strip mall-based penetration.

Other strong performing titles included Doom 3 from Activision, Ubisoft Entertainment's Splinter Cell: Chaos Theory and Namco Hometek's Tekken 5.

“This was the most productive quarter ever for GameStop,” said Richard Fontaine, chairman and CEO of GameStop.

That said, sales of used video games increased 7 percent, to 16 percent of revenue, while sales of new titles dropped 6 percent, to 48 percent of revenue, according to estimates from Wedbush Morgan Securities in Los Angeles.

Hardware sales increased 2 percent, to 20 percent of quarterly sales. GameStop does not separate new and used game sales.

GameStop, which last month announced it would merge with rival Electronics Boutique Holdings Corp. (EB) in a $1.4 billion cash and stock transaction, said it expects the deal to close by the end of the third quarter.

The combined companies would generate revenue of about $3.8 billion, with more than 3,800 stores located in the U.S. and internationally.

Wedbush media analyst Michael Pachter, in a research note, said GameStop and EB control about 30 percent of video game sales in the United States, and even more in used game sales, where he said margins could run as high as 50 percent.

GameStop expects sales of Sony's PlayStation 2 to top 7.5 million units this year.

“Although we think it unlikely that the Federal Trade Commission will challenge the merger based upon market concentration of the used [video] business, we think that this concentration poses some risk to the transaction,” Pachter said.

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