Who's Winning the Console Wars?

Maybe it's GameStop? After all, the retailer just reported sales of $5 billion in 2006, up 72 percent

Leading video game retailer GameStop has announced its fourth-quarter and full-year earnings for the year ended February 3, 2007. Sales in the fourth quarter rose 38.2 percent to $2.3 billion while net earnings jumped 52.7 percent to $129.8 million. Same store sales were also quite good, rising 26.5 percent during Q4.

These numbers easily beat the company's guidance provided in early January. GameStop said that results were driven by "brisk sales" of Vivendi's World of Warcraft in January and new software titles.

Even better than the Q4 results were GameStop's full-year numbers. Sales for fiscal 2006 skyrocketed to an impressive $5.32 billion, up 72 percent, and same store sales increased almost 12 percent for the year. Net income for the company amounted to $158.3 million, which represented an increase of 57 percent. GameStop noted that this included "merger-related expenses of $6.8 million ($4.3 million, net of tax benefits) and debt retirement costs of $6.1 million ($3.8 million, net of tax benefits)."

"2006 was a remarkable year for GameStop... In addition, we finished the year with a strong balance sheet and a year end cash balance of over $650 million," noted R. Richard Fontaine, GameStop's Chairman and Chief Executive Officer. "During the year we successfully and fully integrated over 2,000 EB Games stores into the GameStop portfolio and opened 421 new stores worldwide; 276 in the United States and 145 in the international divisions. In fact, our internal rate of return for new stores was the highest ever and, in aggregate, significantly exceeded plan.

"While we are in the very early stages of another strong growth cycle, it is not a mirror of the past. In fact, our 2007 guidance is based on our belief that this cycle will be deeper, wider, and longer than any previous period of new console introductions. From the technology powerhouses of Xbox 360 and PS3, to the uniquely engaging ease of play and inventiveness of the Wii, to the portability of the DS Lite, to the value of the PS2, there is a product and a price range to stimulate the core and casual gamer, and attract new customers to the video game experience."

Fontaine added, "No previous cycle has had the diversity of console attributes currently in our stores; no previous cycle has merged other technologies like HDTV, Wi-Fi, and MP3 attributes to make the gaming experience truly the best ever. The video game business has become more complex with more console choices, more sophisticated software, and a huge variety of enhancement accessories. The business is increasingly favoring the game passion and deep expertise of our 22,000 managers and game advisors whose product knowledge differentiates GameStop from the competition and will give us an even greater edge in the marketplace of the future."

For the current fiscal year, which ends February 2, 2008, GameStop is anticipating sales growth between 19 and 21 percent and same store sales growth between 14 and 16 percent, "backed by a strong release slate of video game titles across all platforms." Earnings per share are expected to be in the range of $1.37 to $1.40. In fact, the company expects earnings per share to grow "at least 25 percent" annually in fiscal 2008 and 2009, based on "strong video game industry fundamentals, the company's expanding worldwide retail portfolio, and sound cash generation." During calendar 2007, GameStop plans on opening another 500-550 stores across the globe.