GameStop Corp (GME)
Q4 2008 Earnings Call Transcript
March 26, 2009 11:00 a.m. ET

Executives

Daniel A. DeMatteo –Vice Chairman of the Board and Chief Executive Officer
David W. Carlson - Chief Financial Officer and Executive Vice President
Tony D. Bartel - Executive Vice President of Merchandising and Marketing
R. Richard Fontaine - Executive Chairman of the Board

Analysts

William Armstrong - C.L. King & Associates, Inc.
Anthony Gikas - Piper Jaffray & Co.
David Magee - SunTrust Robinson Humphrey
Thomas Andrews - BMO Capital Markets
Arvind Bhatia - Sterne, Agee & Leach
Paul Bieber – Lazard Capital Markets

Presentation

Operator

Good morning, welcome to GameStop Corporation''s -- GameStop''s fourth quarter and full year 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 I thank all of you for attending GamesStop''s conference call this morning. With me are Dick Fontaine, Executive Chairman; Paul Raines our COO; David Carlson, Executive VP and CFO; and Tony Bartel, our EVP of Merchandising and Marketing.

This morning, we will discuss our 2008 performance and the results of our fourth quarter and also give more information on what we see in 2009. As our release indicated our sales and earnings for the fourth quarter hit the high end of the range we previously gave you and therefore, our earnings for the year were also at the high end. And, according to U.S. NPD data we gained significant game market share in our Q4.

I wish to thank the thousands of GameStop associates around the world that executed a brilliant fourth quarter plan and our developer/publisher partners for the continued creation of exciting and diverse content. And we are predicting record sales and earnings growth in 2009. David will give you more information on 2008 sales and earnings as well as 2009 forecast. Now I will discuss what''s driving them.

As most of you know 2008 set a record for increasing the installed base to new console and handheld system owners with only over 34 new million new units being sold. These new videogame players who are as varied as the overall population, coupled with the growth over the past three years -- two years, would drive software sales this year to an all-time high. Again, the creativity by our software developer and publisher partners who create new games and genres for the ever expanding game player base contribute to this success.

In spite of the recession, video games are viewed as relatively cheap entertainment and we see software sales growing 5% to 10% in the U.S. as they already grew about 10% in both January and February. And we believe international growth will approximate U.S. growth. As a matter of fact without this recession, games would probably have grown even more this year. And we are 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.

Our new store expansion program is driving our sales and expanding the market around the world. We see adding 400 plus stores this year about half domestically and half internationally. While reduction of last year''s 1000 stores either opened or acquired, it is still a large commitment and is warranted given the superior performance of our new stores last year and so far this year. And as we expected we are seeing great deals of new store rents and lease renewals.

Once again, we opened stores to expand share not cannibalize it and to help expand the entire gaming market. We see our number one goal is driving new users to video gaming and to drive sales of new title releases through our pre-release marketing programs. As a video game specialist, we are in the unique position to do this through conveniently located stores, the largest assortment of games, and knowledgeable sales support.

Now we are forecasting positive comps and earnings growth in Q1 in spite of the tremendous comp last year due to the mega hit releases of Grand Theft Auto, Super Smash Brothers and Mario Kart. David will give you more detail on this in his discussion.

Lastly, we have been asked by many of you what impact we''re seeing on our used game market trading program due to new entrants. As most of you know we have seen attempts at mastering the used game model we have developed by others over the past years many times, all without success.