Updated guidance for the fourth quarter of fiscal 2007 and the full year:
- Fourth quarter comparable store sales are expected to grow a strong 7% to 9%, when compared to the company’s 26.5% comps in the year-ago quarter, when the PlayStation 3 and Nintendo Wii were first launched. This is an increase from the company’s prior implied guidance of 4% to 5% comps for the fourth quarter.
- Diluted earnings per share for the fourth quarter are expected to range from 95 cents to 97 cents, as compared to 81 cents per share in the prior year quarter, an increase of 3 cents per share from he company’s prior guidance.
- The prior year fourth quarter included an additional 14th week, which added approximately 5 cents per share to EPS.
The company is raising its full year 2007 EPS guidance by 15 cents to range from $1.61 to $1.63 per diluted share, with sales increasing between 28% and 29% and comparable store sales increasing between 20% and 21% for the full year.
The company has completed store remerchandising that will help the gift-giver by creating sections for kids entertainment, music entertainment, and the young female gamers.
The company’s holiday advertising will be focused on the gifters and the newly emerging casual gamer, with media buys in print, online, TV, and radio.
Hardware unit sales are expected to reach an all-time high with the momentum of next generation consoles and handheld systems.
- The Nintendo Wii continues to be a sellout and the price reductions on the PS3 and X-Box 360 have increased sales dramatically.
- On the handheld side, the new PSP Sony bundles are a sellout and the Nintendo DS continues to sell well.
- The relatively new music genre, led by Guitar Hero III from Activision and Rock Band from EA will be sellouts.
- On the avid gamer’s gift list will be newly released Call of Duty 4 from Activision, Assassin’s Creed from Ubisoft, and Mass Effect from Microsoft.
Sports enthusiasts will be asking for WWE Smackdown from THQ, Need for Speed from EA, and NBA 2K8 from Take Two, and the Wii gamer will be buying Super Mario Galaxy and Mario and Sonic Olympic Games from Nintendo.
The $59 price point for the new 360 and PS3 games has continued to hold as the consumer understands the value in these games.
The company’s distribution centers have shipped over 11 million units in the last two weeks in preparation for Thanksgiving weekend. The refurbishment center has been working seven days a week, so the company’s used games are available for the budget consumer.
Key questions and answers from the third quarter fiscal 2007 earnings conference call conducted by GameStop Corp. (GME: chart) on November 20, 2007.
David Magee (Suntrust Robinson Humphrey):
Did you comment about used inventory going into the fourth quarter?
Daniel A. DeMatteo: Used inventory has grown in the third quarter. Sales, as a matter of fact, have accelerated to 22% growth in the third quarter from mid-teens in the first and second quarters, so we are expecting good growth in used videogames, a continued acceleration in the fourth quarter. So inventories are in good shape and we expect accelerating sales.
David Magee (Suntrust Robinson Humphrey):
And how much insight do you have now in terms of title releases in the first part of next year? Besides the obvious one that was delayed, have you seen much information on the other titles?
Steven R. Morgan: We have a list. Sometimes these titles don’t always come out when we anticipate but in the first half of the year, it looks like there is a good lineup of titles, including Super Smash Brothers for the Wii, which should be a very big hit; obviously Grand Theft Auto is scheduled currently to come out some time in April. We have Army of Two which slipped out of the fourth quarter into the first or second quarter, and Metal Gear Solid is projected for either the first or the second quarter.
Daniel A. DeMatteo: The number one thing that will drive hardware sales in the first quarter will be the continued growth in the installed base that we saw in the third and fourth quarter from this year, so we are growing the ever-growing installed base. Again, the third quarter hardware sales reached a record as a percentage of our business and we expect hardware sales will reach a record in units as a percentage of our business in the fourth quarter - not in dollars, because we’ve had price declines on the X-Box 360, the PS3, and the PSP, but certainly in units we will have a record fourth quarter.
R. Richard Fontaine: The diversification of hardware platforms continues to be very strong. We have never had as many platforms represented, so it’s very broad-based, something for everyone, from the handhelds to the super powerful but totally unique in the Wii.
Benjamin Schachter (UBS):
You talked about Rock Band and Guitar Hero. Could you walk through what SKUs exactly you think are going to be sellouts? And what other items do you think there will be supply issues with in the quarter? Then also, on the PlayStation 3, after the price cut we’ve seen some positive momentum. How do you feel about that product going into ’08?
Daniel A. DeMatteo: As usual, there are always product shortages in this category so this year is no different than any other year. Rock Band just released as a matter of fact, its first day of sales are today. We are expecting that to be a sellout. Guitar Hero for the 360 and the PS3 especially have been sellouts, and we are expecting to be resupplied, or we’ve gotten resupplied and we are expecting to get resupplied again right after Thanksgiving.
The Wiis continue to sell as quickly as we can get them into our stores. You really do have to follow the UPS truck to get one of those. And the PS3, we saw a little better than a doubling in sales after the price cut. Of course, now we have seasonality but we are still very pleased with the sale now of the PS3.
