GameStop Q1 Up, But Q2 Expected Down21 May, 2009 By: Chris Tribbey
GameStop reported first-quarter earnings of $70.4 million May 21, up 13.4% from the same period in 2008, but saw its shares drop more than 10% in morning trading after the retailer warned of lower-than-expected earnings per share for the second quarter (started May 3).
“While many people may want to paint the headline as ‘Video games finally hit by the economy,’ I think they are wrong,” GameStop CEO Dan DeMatteo said during an earnings call with investors.
The video game retailer is forecasting 28 cents to 33 cents per share earnings for the second quarter, below Wall Street estimates of roughly 40 cents, and less than the 34 cents per share stockholders earned during the second period of 2008, when GameStop saw its profits rise 162% compared to the second quarter of 2007.
GameStop is projecting its comparable store sales to drop by 8% to 11% in the second quarter, partly attributed to a decline in new console sales. Research firm The NPD Group reported May 14 that North American game software sales were down 23% in April and hardware sales were down 8%. Hardware sales proved particularly embarrassing for Sony in April, as it saw its older gaming system, the PlayStation 2, outsell the next-generation, Blu-ray-equipped PlayStation 3 (172,000 units to 127,000). March was not much better, with hardware sales down 18% and software down 17%, according to NPD.
While pointing out that Nintendo’s DSi handheld system and Capcom’s Resident Evil 5 and Street Fighter IV did well during the first quarter, DeMatteo said price cuts for the next-generation gaming systems could be the best remedy for the industry.
“The hardware price points, where they are right now, given this economy, are potentially too high,” he said during the earnings call. “There will have to be price cuts to get hardware where it needs to be.”
DeMatteo was reiterating a statement he made in April, calling for a PS3 price cut from the $399 entry-level price tag. Sony’s gaming system continues to be outsold by both the industry-leading Wii ($249) and Microsoft’s Xbox 360 ($199).