This summary is based on the fourth quarter fiscal 2007 earnings call conducted by GameStop Corp. (GME) on March 18, 2008.
Management:
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Chairman of the Board, Chief Executive Officer: R. Richard Fontaine
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Chief Financial Officer, Executive Vice President: David W. Carlson
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Vice Chairman of the Board, Chief Operating Officer: Daniel A. DeMatteo
Key Investors Issues
- Earnings were $189.8 million or $1.14 a share, up 46% over the prior year.
- Sales increased 24% to $2.9 billion from $2.3 billion in the prior year.
- The firm repurchased notes of $23 million related to the new buy-back program.
Full Year Highlights:
- Sales increased 33% to over $7.1 billion, with comparable store sales growing 24.7%.
- Net earnings grew 82% to $288.3 million or $1.75 a share from $158 million or $1 a share, including $7.9 million of debt retirement costs.
- The firm opened 586 new stores.
Fourth Quarter Highlights
Sales increased 24% to $2.9 billion as compared to $2.3 billion in the prior year as comparable store sales increased 17.4%, driven by exceptional results across all categories.
- New hardware sales grew 19%, with sell-outs of Nintendo’s Wii and DS systems, Microsoft’s Xbox 360, and Sony’s PSP handheld.
- New software sales grew 38%, driven by strong sell-through of Call of Duty 4, Guitar Hero 3, Rock Band and Super Mario Galaxy.
- Used sales grew 25% during the holiday quarter, with value conscious customers purchasing these products at astounding rates.
Net earnings were $189.8 million or $1.14 a share, increasing 46% over prior year earnings of $129.8 million or 81 cents a share due to lower than expected foreign tax expense resulting from profitability in many European countries.
- Gross margins were fairly flat year over year; however, SG&A leverage improved by 50 basis points due to strong sales comps, cost controls, and international growth leverage.
- The balance sheet remains strong with over $850 million in cash at the end of the year and inventories growing only 19% on a 33% sales growth rate.
- The firm also retired $280 million of debt and in early February, the board approved an additional $130 million note repurchase program, and the firm has since repurchased notes of $23 million related to that new buy-back program.
Operational Highlights:
- During the year, the firm opened 586 new stores worldwide and all stores were funded with operating cash flow, with 328 new stores in the U.S. and 258 in the international markets.
- In 2008, the firm is forecasting that it will open between 575 and 600 additional stores, split equally between the U.S. and international with between 175 and 200 of these openings internationally slated for Europe.
The firm sees many growth opportunities into a robust video game market in the U.S. and abroad as the firm is gaining more brand traction every year.
- The value proposition of customers being able to trade product as a form of price reduction is a concept that all customers value, regardless of country or culture.
- During the year, the business reached a transformative stage and a lot of the plans are driven by the belief that the video game business has broken through the important core customer and is rapidly expanding on a broadening demographic.
Update on Transformation:
- Innovative technology, i.e. the Wii effect has ushered in not only new ways to play but will lead the creative forces in the industry to see the market potential of games through a far wider lens, leading to many more diverse products.
- Genre-busting titles create new customers.
- More girls and women are playing videogames than ever before as industry figures indicate that 38% of game players are female and gaming is emerging as a family activity, with the family entertainment category growing by 141%.
There are a multiplicity of buying choices to be made within each platform, and the game experience has become richer than ever.
- The power of the new consoles, coupled with the wow factor of HD game play has taken gaming to another level.
- With Blu-Ray being the winner in the DVD race, the PS3 sales are already accelerating and will be an even better buy in 2008 and into the future.
- The firm refurbished over 10 million software units and one million pieces of hardware and is going to commit over $175 million to capital expenditure, not only to open new stores but to remodel selected higher performance stores.
- Funds will also be used to upgrade the POS systems, ad refinements to the distribution around the world and aggressively promoting the brand.
Product Portfolio Outlook:
