GameStop to Cut Store Number by 2%; Forecast Comes Short

GameStop Corp. (GME) forecast full-year profit that trailed analysts’ estimates and said it will cut the number of its video-game stores by about 2 percent after last quarter’s sales fell short.

The retailer predicted 2014 earnings of $3.40 to $3.70 a share, compared with the $3.76 average of estimates compiled by Bloomberg. Fourth-quarter sales rose 3.4 percent to $3.68 billion, according to a statement, while analysts anticipated $3.79 billion. The shares declined as much as 8.7 percent.

The Grapevine, Texas-based company is depending on new generation machines from Sony Corp. and Microsoft Corp. (MSFT) to breathe new life into an industry hurt by consumers shifting play to social networks and mobile phones. GameStop, which has about 6,400 stores in its video-game brands segments in the U.S., Canada, Australia and Europe, lowered its forecast for fourth-quarter profit in January because of disappointing sales of titles and reduced profit margin on consoles in the holidays.

The stock dropped 7.2 percent to $36.10 at 10:02 a.m. in New York. Through yesterday, the shares had slumped 21 percent this year, while the Standard & Poor’s 500 Index gained 0.2 percent.

GameStop executives said in January that a higher percentage of sales in the hardware category, driven by demand for Sony’s PlayStation 4 and Microsoft’s Xbox One, would result in lower profit margins.

The retail, which generates profit from software sales and from buying used games and consoles and reselling them for a markup, is facing rising competition from rivals both online and in stores. Sony said in January it would test a video-game streaming service, and Wal-Mart Stores Inc. said this month it will begin offering store credit for used video games.

GameStop’s net income fell 16 percent to $220.5 million, or $1.89 a share, in fiscal fourth quarter ended Feb. 1, from $261.1 million, or $2.15, a year earlier. Analysts estimated $1.93 on average.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net Cecile Daur, John Lear

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