GameStop Corp. reported a better-than-expected 8.5% increase in
quarterly earnings, boosted in part by new videogames.
"Strong sales of downloadable content for new releases, such as
'Evolve' and 'Mortal Kombat X,' along with increases in mobile game
downloads and Steam currency, were the primary growth drivers
during the quarter," GameStop said, noting that its new software
market share was a record 45% in the first quarter.
The company has incorporated the digital market into its retail
operations by selling subscriptions to upcoming downloadable
content when customers buy a videogame, and investing in a site,
Kongregate, that develops online and mobile games.
Shares, up nearly 7% over the past 12 months, rose 3.9% to
$42.50 in after-hours trading.
For the current quarter, GameStop projects a profit of 21 cents
to 25 cents, compared with the consensus of 21 cents profit, with
sales at established stores remaining flat to increasing 3% from
the year-ago period.
GameStop, which on Thursday affirmed its growth projection for
sales at established stores, raised the profit projection for the
year by three cents, saying it now expects $3.63 to $3.83 a share.
The adjustment reflects a reduction in shares outstanding as of the
end of the first quarter.
It didn't offer guidance on overall sales. Previously, it
projected sales falling 1% to rising 4%.
Sales at established stores, which include online sales, are a
key performance metric that looks at sales at stores open for at
least 12 months. However, sales at GameStop's Technology Brands
segment—which includes the operations of its Simply Mac
business and Spring Mobile-managed AT&T Inc.- and Cricket
Wireless-branded stores—are excluded.
GameStop's largest source of profit has been sales of used
videogames, consoles and related equipment. These sales have a high
profit margin, but analysts fear this will be threatened by gamers'
shift to mobile games.
The company reported revenue from the "preowned" category fell
3.4% in the latest period. Adjusting for currency fluctuations,
GameStop said, revenue would have been up 0.8%.
Meanwhile, to help offset the declines in its videogame business
and ease revenue fluctuations by quarter, GameStop has been
building a side business, Technology Brands, that sells
smartphones, tablets and other devices. In the latest period,
revenue from Technology Brands surged 70% to $102.2 million,
boosted by new stores.
The Grapevine, Texas, company, which operates 6,700 stores in 14
countries, generally makes most of its sales in the fourth
quarter.
GameStop has said it plans to open 400 to 600 stores this year,
including 350 to 550 Technology Brands stores. It had 484
Technology Brands stores as of Jan. 31, the end of its fiscal
year.
Overall, for the 13 weeks ended May 2, GameStop reported a
profit of $73.8 million, or 68 cents a share, up from $68 million,
or 59 cents a share, a year earlier.
Revenue rose 3% to $2.06 billion.
GameStop had projected a profit of 53 cents to 60 cents a share
with sales ranging from a 2% contraction to a 1% increase.
Sales at established stores rose 8.6%, driven by software sales,
topping its projection of 2.5% to 5.5% growth.
Write to Maria Armental at maria.armental@wsj.com
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