GameStop Corp. (GME)
Q1 2009 Earnings Call Transcript
May 21, 2009 11:00 a.m. ET

Executives

R. Richard Fontaine - Executive Chairman
Daniel A. DeMatteo - Chief Executive Officer & Director
David W. Carlson - Executive Vice President & Chief Financial Officer
J. Paul Raines - Chief Operating Officer
Tony D. Bartel - Executive Vice President, Merchandising & Marketing

Analysts

Colin Sebastian - Lazard Capital Markets
Arvind Bhatia - Sterne, Agee & Leach
Mike Hickey - Janco Partners, Inc.
David Magee - SunTrust Robinson Humphrey
Anthony Gikas - Piper Jaffray & Co.
William Armstrong - C.L. King & Associates

Presentation

Operator

Good morning, welcome to GameStop Corporation’s first quarter 2009 earnings conference call. Today’s call is being recorded. At the conclusion of the announcement, a question-and-answer session will be conducted electronically. Anyone wishing to ask a question may signal us by pressing the “*” key followed by the digit “1”. If you find your question has been asked, you may remove yourself by pressing the “#” key. I would like to remind you that this call is covered by the Safe Harbor disclosure contained in GameStop’s public documents and is the property of GameStop. It is not for rebroadcast or use by any other party without the prior written consent of GameStop.

At this time, I would like to turn the call over to Dan DeMatteo, Chief Executive Officer of GameStop Corporation. Please go ahead, sir.

Daniel A. DeMatteo

Thank you, moderator and welcome all of you to GamesStop’s first quarter 2009 conference call. With me today are Dick Fontaine, Executive Chairman; Paul Raines, our Chief Operating Officer; David Carlson, our Executive VP and CFO; and Tony Bartel, our EVP of Merchandising and Marketing.

This morning we will discuss our first quarter 2009 financial performance and our outlook for Q2 and the rest of the year. As our release indicates, we had record earnings to beat the high end of our guidance with comp sales coming in slightly negative against last year’s record 27% comp gain. We are extremely pleased with our performance in this weak global economic environment as we’ve focused on our buy-sell trade model and expense control to drive sales and earnings.

New game sales declined 3% due to last year’s mega hits that launched in Q1, but used game sales grew an amazing 32% as consumers traded games in record numbers to buy new games and we have seen no impact from new entrants in the used game business.

Hardware sales in April were driven by the launch of Nintendo’s new DSi handheld system and we had the largest US market share. In the quarter we opened 115 new stores, 69 in the US and 46 internationally, and our new store performance continues to be excellent. I want to thank the thousands of GameStop employees and our publisher partners for their support that made this performance possible in spite of this worldwide recession.

David will give you more information on Q1 financials and I will discuss Q2 and beyond.

We are forecasting negative comp sales this quarter as we’re comparing to last year’s 20% comp store gains and an EPS gain of 162% that were driven by a strong title lineup, strong console sales, and government stimulus checks. Sales will be driven this quarter by new title releases such as EA Sports Active, UFC 2009 from THQ, NCAA Football and Fight Night from EA. However, given current trend we forecast a significant decline in console unit sales. We expect growth in handheld sales led by Nintendo’s DSi.

In the quarter, we will continue our worldwide expansion and expect to open between 75 and 100 stores with a goal of around 400 new stores for the year. The opportunity to drive new users to video gaming and grow overall sales of new videogames is working due to the consumer acceptance of our buy-sell trade model and our successful new store growth programs.

The back half of the year is forecasted to be better than the first half due to a strong new title lineup and weaker LY comparisons. Should hardware price cuts be announced, we would expect a commensurate lift in console unit sales. We will continue to improve our strategic positioning through improving our customer service, improvements in store merchandizing, and marketing programs. Hopefully, the economic environment will improve later in the year and we will be well positioned to capitalize on the growth in video gaming worldwide.

With that, I will turn it over to David for a more in-depth financial review and then we will come back for a Q&A session.

David W. Carlson