GameStop Plans to Close 200 Money-Losing Outlets
GameStop Corp. (GME) the world’s largest video-game retailer, plans to close 200 stores by next year, saying about 3 percent of its outlets worldwide lose money.
The closings, announced on a conference call, follow the Grapevine, Texas-based company’s report today of better-than- expected third-quarter results, excluding an impairment charge. The company also forecast fourth-quarter profit that was in line with analysts’ estimates.
GameStop is showing “strong resilience in the face of challenging category headwinds, and the new categories of digital and mobile are creating new profit pools that we are exploiting aggressively,” Chief Executive Officer J. Paul Raines said today on a conference call.
The retailer heads into the U.S. holidays weighed down by a two-year industry slump as players gravitate to mobile and online play from console-based games. Raines said the company managed to expand margins in a “tough video game market” by expanding into the re-sale of Apple Inc. (AAPL) iPads and other mobile devices and growing its digital download business.
Investors are weighing whether this month’s release of Nintendo Co.’s Wii U, the industry’s first new home console in six years, will spur purchases or confirm declining interest in packaged games. GameStop said 500,000 customers worldwide had placed their names on a waiting list for the device, which goes on sale Nov. 18 in the U.S.
The retailer on its conference call helped alleviate fears that it would report a larger-than-expected number of money- losing stores, said Arvind Bhatia, an analyst at Sterne, Agee & Leach Inc. in Dallas. The majority of GameStop’s losses came from Australian and Canadian acquisitions that underperformed, he said.
“They’re cleaning out the portfolio,” said Bhatia, who rates the shares buy. “Having only 3 percent of your stores losing money generally is a fairly healthy number for a retailer.”
For the fourth quarter, the retailer’s peak earnings period, profit is expected to be $2.07 to $2.27 a share, GameStop said in the statement. The midpoint of $2.17 is 1 cent above the average of estimates compiled by Bloomberg.
Sales from existing stores may range from a decline of 7 percent to a gain of 1 percent, the company said.
For the third quarter ended Oct. 27, GameStop posted a net loss of $624.3 million, or $5.08 a share, after impairment and goodwill costs of $678.8 million, mostly tied to international operations. That compared with net income of $53.9 million, or 39 cents, a year earlier.
Excluding the impairment expenses, earnings of 38 cents topped the 33-cent average of estimates.
Sales declined 8.9 percent to $1.77 billion, compared with projections of $1.79 billion. International operations accounted for about 32 percent of revenue last year.
The video-game industry is entering the U.S. holiday season amid an extended drop in sales. Existing consoles, which include Microsoft Corp.’s Xbox 360 and Sony Corp.’s PlayStation 3, are aging, while mobile and online options attract players. Last year, the fourth quarter accounted for 51 percent of GameStop’s annual profit.
The company said on Oct. 26 it will open about 80 GameStop Kids stores featuring products including toys and collectibles for children under age 13 in time for holiday shopping.
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