This summary is based on the second quarter fiscal 2007 earnings call conducted by GameStop Corp Inc. (GME: chart) on August 23, 2007.

Management

President: Steve Morgan
Chairman and Chief Executive Officer: Richard Fontaine
Vice Chairman and Chief Operating Officer: Daniel DeMatteo
Chief Financial Officer: David Carlson

Key Investors Issues

- Earnings per share increased to 13 cents compared to 2 cents in the prior year.
- Quarterly revenue grew to $1.33 billion from $963.3 million in last year.
- During this quarter, the firm opened 150 new stores and now operates 4,954 stores.
- The Q2 earnings are expected to range from 19 cents per share to 21 cents per share.

Second Quarter Fiscal 2007 Financial Highlights

GameStop''s net earnings were $21.8 million for the second quarter of 2007, including debt retirement costs of $2 million, a 586% increase over the second quarter of 2006.

Diluted earnings per share were 13 cents for the second quarter of 2007, including debt retirement costs of 1 cent per diluted share, exceeding the high-end of previously released guidance by 6 cents per share.

Total sales increased 38.9% to $1.33 billion in comparison to $963.3 million in the prior year quarter.

Comparable store sales increased 29.1% during the second quarter, also beating previously released guidance of 16% to 18%. During the second quarter, new video game software sales surged 49% and new hardware sales soared 87%. The top selling video games during the quarter were Guitar Hero II from Activision, NCAA Football 2008 by Electronic Arts, Mario Party 8 by Nintendo, Nintendo''s Pokemon Diamond and Pearl, and Forza Motorsport 2 from Microsoft.

The second quarter performance was very broad-based, with the U.S., Canada, Australia and Europe all exceeding expectations. New store growth, and more importantly, new store performance worldwide, continues to be impressive. During this quarter, the firm opened 150 new stores and now operates 4,954 stores in 16 countries. GameStop surpassed the 1,000 store count internationally and it is well on its way to achieving its forecast of opening between 500 and 550 new stores during the year.

Gross margins declined year-over-year in the quarter.

This was due primarily to the higher mix of lower-margin hardware related to the strong sell-through of next-generation systems and to a planned increase in the amount of co-op income that was spent on brand advertising.

The SG&A leverage improved from the prior-year quarter by 450 basis points.

This leverage came primarily from the strong comp sales, continued efficiencies from refining the business model, and to a lesser degree the closing of the EB Games Pennsylvania general office and distribution center in May of last year. As such, the firm was able to grow operating margins by 110 basis points during the quarter.

- The balance sheet remains very strong with nearly $350 million in cash at the end of the quarter.
- Inventories grew 24% from the prior year, significantly lower than the sales growth experience.
- To date in fiscal 2007, the firm has repurchased $150 million of notes, completing the authorization the Board approved in February 2007. During the second quarter, the board approved the call of the remaining floating rate notes on October 1, 2007. This redemption of $120 million in floating rate notes will bring total note redemptions to $270 million for the fiscal year, leaving GameStop with only $580 million of fixed-rate notes.

The hardware sales percentage in the quarter, at 22%, is a record for a summer quarter.

This means that the all-important installed base of players is growing at an all-time high, and given the systems that are selling, the base continues to get even broader. The Nintendo Wii that continues to sell out almost immediately after being received in the stores. Supply still can''t match demand even nine months after launch. The price reduction on the PS3 has doubled the sales from the prior sales rate, and this sell-through has continued for weeks now. Even in its seventh year, the PS2 continues to grow the installed base of budget- minded consumers. The sales in units were only down 17% in the quarter, and that with the new PS3 in the system.

On the Xbox front, sales of all three of the consoles including the new Xbox Elite have nearly doubled since Microsoft cut prices. Handheld system sales also had a great quarter led by the Nintendo DS Lite, which is now in stock. Also the firm’s data shows that PSP hardware sales have increased over 50% from last year''s second quarter, due to the price reduction. This has caused such demand for the PSP that supply has not caught up. The firm expects that will abate in September with the introduction of several new PSP SKUs.