This summary is based on the fourth quarter fiscal 2008 earnings call conducted by GameStop Corporation (GME) on March 26, 2009.
Management:
Executive Chairman: R. Richard Fontaine
CEO: Daniel A. DeMatteo
CFO and EVP: David W. Carlson
EVP of Merchandising and Marketing: Tony D. Bartel
Key Investor Issues:
- Full year net earnings grew 38.2% to $398.3 million versus $288.3 million in 2007.
- EPS for 2008 were $2.38, an increase of 36% from $1.75 last year.
- Total yearly sales gained 24.1% to $8.8 billion from $7.1 billion in 2007.
- The comparable store sales increased 12.3% for the full year.
Fourth Quarter Financial Highlights:
Fiscal 2008 set a record for increasing the installed base to new console and handheld system owners with only more than 34 new million new units being sold.
- The new videogame players, coupled with the growth over the past two years, would drive software sales this year to an all-time high.
- The creativity by the software developer and publisher partners who create new games and genres for the ever expanding game player base contributed to this success.
- In spite of the recession, video games are viewed as relatively cheap entertainment.
- The management anticipates software sales growing 5% to 10% in the US as they already grew about 10% in both January and February.
- It is forecast that international growth will approximate U.S. growth.
- The management is predicting growth in hardware units to approximate last year''s numbers as potential price reductions and new entrants like the Nintendo DSi will continue to drive demand.
The new store expansion program is driving sales and expanding the market around the world.
- The company plans to add 400 plus stores this year about half domestically and half internationally.
- The management also reported several deals of new store rents and least renewals.
- The company is forecasting positive comps and earnings growth in Q1.
- This is in spite of the tremendous comp last year due to the mega hit releases of Grand Theft Auto, Super Smash Brothers and Mario Kart.
The online trade model was reportedly tested and very little consumer acceptance was recorded.
- This is because the consumer needs the immediacy of the used game values to purchase new games.
- The management does not believe that this will work as the consumer that is willing to wait will sell peer-to-peer as they always have.
GameStop''s sales for the fourth quarter increased 22% to $3.5 billion as compared with $2.9 billion in the prior fiscal quarter.
- Comparable store sales growth for the fourth quarter was particularly strong considering the world wide economic recession that is underway.
- The results were driven by exceptional results across all merchandise categories.
- New hardware sales grew 13% driven by Nintendo''s Wii and Microsoft''s Xbox 360.
- New software sales grew 23% with top title such as Call of Duty, World at War, Gears of War 2 and Wii Fit leading the way.
- The used sales grew 31% during the holiday quarter as customer''s traded in games in record amounts to buy the newly released titles.
Fourth quarter EPS were at the high end of the previously released guidance.
- Gross margins increased by 10 basis points as products mix shifted from low margin hardware sales to higher margin new and used software sales.
- This positive mix shift was partially offset by lower margins on new software and used products due primarily to the success of value messaging and promotions during the holiday period.
- SG&A expenses leveraged by 10 basis points allowing operating margins excluding merger related income to expand from 10.2% in the prior year quarter to 10.5% this year.
Full year operating margins expanded from 7.1% to 7.7% with 35% growth in operating earnings.
- Net earnings for the year grew 38% to 398.3 million, including $4.4 million of debt retirement costs and merger-related expenses.
- Diluted EPS for fiscal 2008 were $2.38, including 2 cents per share of debt retirement costs and merger-related expenses.
- The merger related expenses represented 36% EPS growth for the fiscal year.
The balance sheet remains strong with more than $575 million in cash at the end of the year.
- The total senior debt reduced to 55 million over the course of 2008.
- Inventories increased 34% from the prior year with the acquisition of Micromania accounting for approximately one third of the increase.
- The remaining increase was consistent with sales growth.
Fiscal 2009 Guidance:
