GameStop Corp.
Q3 2005 Earnings Call Transcript

Published: 29 Nov 2005

[Operator:]

Good morning and welcome to GameStop Corporation's Third-Quarter 2005 Earnings Results Conference Call. Today's call is being recorded. At the conclusion of the announcement, a question-and-answer session will be conducted electronically.

[Operator Instructions:]

I would like to remind you that this call is covered by the Safe Harbor disclosure contained in GameStop's public documents and is property of GameStop. It is not for rebroadcast or use by any other party without prior written consent of GameStop. At this time, I would like to turn the call over to Dick Fontaine, Chairman and Chief Executive Officer of GameStop Corporation. Please go ahead, sir.

[Dick Fontaine:]

Thank you. Good morning and thanks to everyone for joining us for our third-quarter conference call. I am Dick Fontaine, the Chairman and CEO of GameStop. With me today, as is our usual lineup, are Dan Dematteo, our Vice Chairman and COO and David Carlson, our executive VP and Chief Financial Officer. Historically, we have released our third quarter about a week and a half before the kickoff to the holiday season. But this year due to the work pertaining to our merger with EB, we are already into the holiday season and to that degree, we will be touching on some early trends of the fourth quarter, but I want to reinforce that we will not be discussing in detail specifics of that quarter. As we reported this morning before the market opened, GameStop had another solid and I might add a very busy third quarter. There are three significant aspects to the quarter that I want to stress before I turn the call over to David and Dan. David will take you through the numbers and Dan will talk about some of the trends in the titles and with a number of the pieces of hardware. First of all, the quarter was a real test of the resiliency of the GameStop model and it came through with flying colors. Given the dual challenges of comping against a gigantic new title schedule in 2004 led by Grand Theft Auto

[David Carlson:]

Good morning. Before the market opened today we released our sales and earnings results for the third quarter of fiscal 2005. GameStop's sales for the third quarter increased 28.2% over the prior year to 534.2 million. This included three weeks of sales from Electronics Boutique from the closing date of the merger. As expected, comparable store sales decreased 12% for the quarter due to difficult comparisons with the prior year when Grand Theft Auto

[Dan Dematteo:]

Thank you, David. As mentioned in our press release, the highly anticipated Xbox 360 has had a negative effect on new title releases in the first three weeks of the quarter as core gamers needed to conserve their cash for this big ticket purchase. As reported everywhere, the very limited quantities sold out in record time and our tie ratios of software and accessories has hit all-time highs. We are attributing this high tie ratio to the continued growth in our trade-in model, which allows consumers to purchase new games with less out-of-pocket cash. Going forward, we expect Xbox 360 to be extremely constrained and we will fall short of our sales plan in the category. But we do not expect this sales shortfall to have a much effect on fourth-quarter earnings due to very low margins of videogame hardware. As we demonstrated in the third quarter, high levels of used games drive used sales and our inventory per store in the used category has never been higher. So we are well-poised to serve the budget-oriented consumer that drives sales at this point in the cycle. Our marketing plans for the Company are in place and we have run our first combined company, FSI, this weekend and we will be running others in the quarter. In summary, we expect sales for the fourth quarter to be driven by games for the current platforms, handheld systems and used games. Some of the best-selling titles are expected to be Call of Duty for the Xbox 360 for Mac division, WWE Smackdown for the PS2 from THQ, Mario Cart for Nintendo DS from Nintendo, 50 Cent Bulletproof for the PS2 and Xbox from Vivendi, Star Wars Battle Front II for PS2 and Xbox from Lucas Arts and Nintendogs for the Nintendo DS. Thank you and I'll turn it over to the moderator for a question-and-answer period.