GameStop Corporation (GME)
Q3 2009 Earnings Call Transcript
November 19, 2009 11:00 a.m. ET

Executives

Dan DeMatteo - Chief Executive Officer
Cathy Smith - Chief Financial Officer and Executive Vice President
Paul Raines - Chief Operating Officer
Tony Bartel - Executive Vice President of Merchandising and Marketing

Analysts

Colin Sebastian - Lazard Capital Markets
Ben Schachter - Broadpoint
Bill Armstrong - C.L. King & Associates
David Magee - SunTrust Robinson Humphrey
Tony Wible - Janney Montgomery Scott
Arvind Bhatia - Sterne, Agee
Edward Williams - BMO Capital Markets
Anthony Chukumba - FTN Equity Capital Markets

Presentation

Operator

Good morning. Welcome to GameStop Corporation''s third 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 star key followed by the digit one. If you find your question has already been answered or asked you may remove yourself by pressing star two. We ask that you limit yourself to one question to allow everyone an opportunity to ask their question.

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''d like to turn the call over to Dan DeMatteo, Chief Executive Officer of GameStop Corporation. Please go ahead, sir.

Dan DeMatteo

Thank you, moderator, and welcome to GameStop''s third quarter conference call. With me today are Paul Raines, our COO, Cathy Smith, our EVP and CFO and Tony Bartel, our EVP of Merchandising and Marketing.

This morning, we released our third quarter financial results and our forecast for Q4 and the full year. Given the state of the worldwide economy, we couldn''t be more pleased with our results. In spite of softness in the industry, we managed our business well and had earnings at the high end of the range.

In addition, as our release indicates, we once again gained significant market share as a budget strapped consumer migrated to the value provided by our buy, sell, trade model. New software sales grew 9.4% and used software sales grew 19%, as comps declined 7.8%, primarily due to new hardware sales declines.

In the quarter, we opened 86 stores, 48 in the U.S. and 38 internationally. Also, we brought online new e-commerce sites in Australia, Italy and a bilingual site in Canada. Next year, we plan on completing our e-commerce expansion into the remaining countries, where we have significant retail door presence.

Just two weeks ago, we announced a new executive in charge of our digital and e-commerce business, Shawn Freeman. He will be leading our efforts to make our e-commerce sites important portals for the distribution of not only box product, but digital also as well as integrating our sites with our vast store network.

Last week, we attended the BMO Capital Markets conference and announced several new initiatives. Working with our publisher partners and platform holders, we are developing the capability to market add-on digital content in our stores and providing a seamless method for consumers to purchase this content.

We believe this segment of the industry underperforms due to lack of awareness and friction points in the purchasing transaction, which we will eliminate. Fresh add-on content extends game play and satisfaction, thus maintaining higher ARPs later in the cycle, and provides an add-on source of income for the developer and retailer.

Earlier in the quarter, we announced the formation of a Digital Ventures Group led by Chris Petrovich. The charter for this group is to explore investment opportunities that would benefit through association with GameStop as we understand that gamers are playing games on many platforms.

I''m pleased to announce that we have acquired a majority interest in Jolt Games, a developer of browser games based in Ireland. Their model converts existing IP from many of our publisher partners, and ports it into a browser environment. Working with Jolt, we plan on promoting their games in our retail doors, thus increasing traffic and therefore revenue.

With that, I''ll turn it over to Cathy, for more in-depth financial review and then Paul will discuss in more detail what we see driving sales and our plans for Q4. Cathy?