GameStop Reports Record Second Quarter 2007 Results

By: GameStop Corp. via Business Wire News Releases

August 23, 2007 at 08:30 AM EDT

GameStop Corp. (NYSE:GME), the world’s largest video game and entertainment software retailer, today announced record financial results for the second quarter ended August 4, 2007.

GameStop’s net earnings were $21.8 million for the second quarter of 2007, including debt retirement costs of $2.0 million ($1.3 million, net of tax benefits), a 586% increase over the second quarter of 2006. Diluted earnings per share were $0.13 for the second quarter of 2007, including debt retirement costs of $0.01 per diluted share, exceeding the high-end of previously released guidance by $0.06 per share.

Total sales increased 38.9% to $1,338.2 million 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 16.0% to 18.0%. 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 ’08 by Electronic Arts, MARIO PARTY 8 by Nintendo, Nintendo’s POKEMON DIAMOND and PEARL, and FORZA MOTORSPORT 2 from Microsoft.

R. Richard Fontaine, GameStop’s Chairman and Chief Executive Officer, stated, “GameStop’s outstanding second quarter was fueled by continued consumer demand for all the prevalent hardware platforms and the compelling games released during the quarter. It is apparent that the growing base of gaming consumers is well served by GameStop’s new and used model, our increasing number of convenient locations and outstanding customer service provided by our store ‘gamers’.

“Our 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, we opened 150 new stores and now operate 4,954 stores in 16 countries. GameStop surpassed the 1,000 store count internationally and we are well on our way to achieving our forecast of opening between 500 and 550 new stores during the year,” concluded Chairman Fontaine.

Daniel DeMatteo, GameStop’s Vice Chairman and Chief Operating Officer, stated, “Looking at this year’s holiday season, the new video game software line-up is exceptional. MADDEN NFL ’08 from Electronic Arts, HALO 3 from Microsoft, ROCK BAND from Electronic Arts, SUPER MARIO GALAXY from Nintendo, GUITAR HERO III by Activision and ASSASSIN’S CREED from Ubisoft, are all part of a diversified group of titles that will appeal to core gamers, casual, young and entry-level players.”

Updated Guidance

For the third quarter of fiscal 2007, GameStop is forecasting comparable store sales to range from +30.0% to +32.0%. Diluted earnings per share are expected to range from $0.19 to $0.21 compared to earnings per share of $0.09 in the third quarter of 2006.

Due to the excellent results in the second quarter, we are raising our full year 2007 diluted earnings per share guidance to range from $1.45 to $1.48. Total revenues are now projected to grow between 20.0% and 22.0%, with expected comparable store sales ranging from +15.0% to +17.0%.

Note that guidance does not include debt retirement costs.

Note that all per share data has been adjusted for the Class B share conversion and the two-for-one stock split that occurred subsequent to February 3, 2007.

Conference Call and Webcast Information

A conference call with GameStop Corp.’s management is scheduled for August 23, 2007 at 11:00 AM ET to discuss the second quarter sales and earnings results. The conference call will be simulcast on the Internet at (http://www.gamestop.com/investor-relations/). The conference call will be archived on the website until September 6, 2007.

About GameStop Corp.

Headquartered in Grapevine, TX, GameStop Corp. is the world’s largest video game and entertainment software retailer. The company operates 4,954 retail stores across the United States and in sixteen countries worldwide. The company also operates two e-commerce sites, GameStop.com and EBgames.com, and publishes Game Informer® magazine, a leading multi-platform video game publication. GameStop Corp. sells new and used video game software, hardware and accessories for next generation video game systems from Sony, Nintendo, and Microsoft. In addition, the company sells PC entertainment software, related accessories and other merchandise. General information on GameStop Corp. can be obtained at the company’s corporate website: http://www.gamestop.com/corporate.

Safe Harbor

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, the outlook for fiscal 2007 and beyond, future financial and operating results, projected store openings, the company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of GameStop's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the inability to obtain sufficient quantities of product to meet consumer demand, including Nintendo’s Wii; the timing of release of video game titles for next generation consoles; the risks associated with expanded international operations; and economic and other events that could reduce or impact consumer demand. Additional factors that could cause GameStop’s results to differ materially from those described in the forward-looking statements can be found in GameStop’s Annual Report on Form 10-K for the fiscal year ended February 3, 2007 filed with the SEC and available at the SEC's Internet site at http://www.sec.gov.


GameStop Corp.
Statements of Operations
(in thousands, except per share data)

		13 weeks			13 weeks
		ended			ended
		Aug 4, 2007			July 29, 2006

Sales	$	1,338,193		$	963,347
Cost of sales		976,894			664,083

Gross profit		361,299			299,264

Selling, general and administrative expenses		271,751			239,251
Depreciation and amortization		32,118			26,328
Stock-based compensation		6,683			5,360
Merger-related expenses		--			2,572

Operating earnings		50,747			25,753

Interest expense, net		13,346			20,209
Debt extinguishment expense		2,027			191


Earnings before income tax expense		35,374			5,353

Income tax expense		13,564			2,176

Net earnings	$	21,810		$	3,177

Earnings per common share:
Basic	$	0.14		$	0.02
Diluted	$	0.13		$	0.02

Weighted average common shares outstanding:
Basic		158,438			150,149
Diluted		164,769			157,658



Percentage of Sales:

Sales		100.0	%		100.0	%
Cost of sales		73.0	%		68.9	%

Gross profit		27.0	%		31.1	%

SG&A expenses		20.3	%		24.8	%
Depreciation and amortization		2.4	%		2.7	%
Stock-based compensation		0.5	%		0.6	%
Merger-related expenses		--			0.3	%

Operating earnings		3.8	%		2.7	%

Interest expense, net		1.0	%		2.1	%
Debt extinguishment expense		0.2	%		--


Earnings before income tax expense		2.6	%		0.6	%

Income tax expense		1.0	%		0.3	%

Net earnings		1.6	%		0.3	%


GameStop Corp.
Statements of Operations
(in thousands, except per share data)

		26 weeks			26 weeks
		ended			ended
		Aug 4, 2007			July 29, 2006

Sales	$	2,617,176		$	2,003,374
Cost of sales		1,907,108			1,402,076

Gross profit		710,068			601,298

Selling, general and administrative expenses		521,905			470,721
Depreciation and amortization		63,153			52,260
Stock-based compensation		13,645			10,550
Merger-related expenses		--			3,898

Operating earnings		111,365			63,869

Interest expense, net		27,462			39,538
Debt extinguishment expense		8,751			191

Earnings before income tax expense		75,152			24,140

Income tax expense		28,619			9,262

Net earnings	$	46,533		$	14,878

Earnings per common share:
Basic	$	0.30		$	0.10
Diluted	$	0.29		$	0.09

Weighted average common shares outstanding:
Basic		155,938			148,466
Diluted		163,013			157,301



Percentage of Sales:

Sales		100.0	%		100.0	%
Cost of sales		72.9	%		70.0	%

Gross profit		27.1	%		30.0	%

SG&A expenses		19.9	%		23.5	%
Depreciation and amortization		2.4	%		2.6	%
Stock-based compensation		0.5	%		0.5	%
Merger-related expenses		--			0.2	%

Operating earnings		4.3	%		3.2	%

Interest expense, net		1.1	%		2.0	%
Debt extinguishment expense		0.3	%		--

Earnings before income tax expense		2.9	%		1.2	%

Income tax expense		1.1	%		0.5	%

Net earnings		1.8	%		0.7	%


GameStop Corp.
Balance Sheets
(in thousands, except per share data)

				Aug 4,		July 29,
				2007		2006
ASSETS:
Current assets:
	Cash and cash equivalents		$	349,277	$	218,726
	Receivables, net			29,798		28,596
	Merchandise inventories			713,836		574,067
	Prepaid expenses and other current assets			51,951		37,374
	Prepaid taxes			74,952		79,395
	Deferred taxes			35,979		46,349
		Total current assets		1,255,793		984,507

Property and equipment:
	Land			11,298		10,073
	Buildings & leasehold improvements			334,904		280,723
	Fixtures and equipment			477,492		375,736
				823,694		666,532
	Less accumulated depreciation and amortization			349,927		235,299
		Net property and equipment		473,767		431,233

Goodwill, net				1,402,845		1,392,926
Other noncurrent assets				49,100		46,570
		Total assets	$	3,181,505	$	2,855,236


LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
	Accounts payable		$	517,233	$	366,221
	Accrued liabilities			339,940		281,969
	Note payable, current portion			12,173		12,173
		Total current liabilities		869,346		660,363

Deferred taxes				--		12,196
Other long-term liabilities				72,492		39,380
Notes payable, long-term portion				--		12,173
Senior floating and fixed rate notes payable, net of discount				693,993		935,431
		Total liabilities		1,635,831		1,659,543

Stockholders' equity:
	Preferred stock - authorized 5,000 shares; no shares issued or outstanding			--		--
	Class A common stock - $.001 par value; authorized 300,000 shares; 158,993 and 150,293 shares issued and outstanding, respectively			159		150
	Additional paid-in-capital			1,145,706		983,546
	Accumulated other comprehensive income			19,359		4,773
	Retained earnings			380,450		207,224
		Total stockholders' equity		1,545,674		1,195,693
		Total liabilities and stockholders' equity	$	3,181,505	$	2,855,236


Schedule I
GameStop Corp.
Sales Mix


		13 Weeks Ended				13 Weeks Ended
		Aug 4, 2007				July 29, 2006
			Percent				Percent
		Sales	of Total			Sales	of Total
Sales (in millions):

New video game hardware	$	293.8	22.0	%	$	157.5	16.4	%
New video game software		494.2	36.9	%		330.7	34.3	%
Used video game products		357.3	26.7	%		308.7	32.0	%
Other		192.9	14.4	%		166.4	17.3	%

Total	$	1,338.2	100.0	%	$	963.3	100.0	%






Schedule II
GameStop Corp.
Gross Profit Mix


		13 Weeks Ended				13 Weeks Ended
		Aug 4, 2007				July 29, 2006
			Gross				Gross
		Gross	Profit			Gross	Profit
		Profit	Percent			Profit	Percent

Gross Profit (in millions):

New video game hardware	$	21.5	7.3	%	$	14.0	8.9	%
New video game software		100.2	20.3	%		72.7	22.0	%
Used video game products		173.2	48.5	%		153.9	49.9	%
Other		66.4	34.4	%		58.7	35.3	%

Total	$	361.3	27.0	%	$	299.3	31.1	%

Contacts:

Media Contact:
Chris Olivera
Divisional Vice President,
Corporate Communications
GameStop Corp.
(817) 424-2130
or
Investor Contact:
David W. Carlson
Executive Vice President &
Chief Financial Officer
GameStop Corp.
(817) 424-2130