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GameStop posts $2.5 million Q3 loss

Cost of EB Games acquisition, slow game market one-two punch number one game retailer--though not as hard as expected.

Buying out a rival is never cheap. For GameStop, its purchase of former competitor Electronics Boutique (aka EB Games) poured red ink over a normally profitable quarter. Today, the now-number-one game retailer posted a $2.5 million loss for the quarter ending October 29, 2005, far below the $12.5 million in profits it enjoyed during the same period in 2004. The figure was within expectations, but at the lower end of the predicted loss range.

GameStop's shortcomings could be pinned on two major factors. First was the acquisition of EB, which created $18.8 million in merger costs in addition to the $1.44 billion in stock and cash GameStop paid for the company. Second was a 12 percent drop in "comparable store sales"--ie, sales in retail locations that have been open for more than a year. The company blamed the drop on the lack of major games released in the quarter, singling out the absence of a major title like Grand Theft Auto: San Andreas.

Despite the loss, the company put on a brave face. In a press release, it touted its quarterly net sales for the quarter were actually up 28.2 percent, going from $416.7 million in 2004 to $534.2 million in 2005. GameStop's guidance predicts $0.98-$1.06 per share in earnings for its fourth quarter, and $1.65-$1.75 per-share earnings for the fiscal year.

"We made significant progress during the third quarter to position ourselves for the fourth quarter and the long term," R. Richard Fontaine, GameStop's chairman and CEO, said in a statement. "We successfully completed our merger with Electronics Boutique, integration milestones are being met, and a number of best practices have already been cross-applied to the combined company."

However, Fontaine had a rather gloomy assessment for the rest of the year. "During November we experienced weaker than expected new video game software sales mainly due to core customers waiting for the launch of Microsoft's Xbox 360 and to value consumers continuing to gravitate to used video games," he said. "We anticipate this trend to continue to a degree throughout the holiday season, with gross sales levels declining, but strong margin contributions supporting forecasted earnings."

Analysts went one step further than the downbeat executive. Michael Pachter of Wedbush Morgan Securities downgraded his rating of the stock from "Buy" to "Hold" on account of "management's inability to forecast its allocation of Xbox 360 units; the company's reliance upon used software sales and margin growth as a driver for earnings growth; our lingering concerns about the console transition; and questions about GameStop's market position as a destination for 'hardcore' gamers."

GameStop stock was down slightly in after-hours trading, slipping just $0.04 from its market-close price of $35.14.

34 Comments

  • OPOLO

    Posted Dec 1, 2005 5:41 am GMT

    I no longer do business with EB and/or GS, and plan to never give them my money. I just don't like how they rip off people with game trade-ins. For the most part, their making over 50% profit on used games. They should start a program like Best Buy Rewards...

  • ugemeistro

    Posted Nov 30, 2005 9:07 pm GMT

    I also want to let people know (especially to the mom and dad's out there) Gamestop/EB doesn't control the alottments of 360's, Microsoft does. If you want a 360, you must for now go to a place that didn't do pre-orders or keep checking back when GS/EB preorders are picked up....

  • Mit_Man

    Posted Nov 30, 2005 2:02 pm GMT

    Yeah to whoever said GameStop's all about having a stale attitude and getting you out of the store asap, you have one crapass store.

    On mine it's all about being very friendly, knowing your stuff about games, and yes, offering the preorders and subscriptions, because we get rated on our performance on registers, and there are usually set amounts of preorders/subscriptions they want to shoot for each day.

    If anything, we try to keep you there as long as we can to get you to reserve something or subscribe to GameInformer and get that More card. But at mine we're never forceful or annoying about it. If you make it clear that you know what both things are about and you don't want to do either, we won't offer again.

    But like the fellow GameStop employee said a couple comments back, if you're gonna buy a game the day of, just reserve it plz

    kthxbai

  • RMGreen

    Posted Nov 30, 2005 1:49 pm GMT

    I always liked going to EB. I'm surprised to hear people talk about lower prices elsewhere, because it's always been my experience that EB and Gamestop were ahead of the curve for marking down games. But then again, that may just be because I almost never buy a game right when it comes out, I always wait for the price drop. Bigger, non-specialized stores are always selling year+ old games for full price, while EB and GS have the games for half as much, and even more pre-played. I guess I'm probably unlike most customers. I research what I want here at GameSpot, and then I don't need a salesman to help me figure out what I want. I almost never deal with the sales reps except when they're taking my cash at the register for my purchase.

  • liquid_remix

    Posted Nov 30, 2005 10:19 am GMT

    I feel bad for those of you who have a bad local Gamestop. I personally don't like those negative people who work for the company. Yes it's all about subscriptions and reservations, but still they can be nice. It is upsetting when you come in and ask about a game and they offer a pre-order and you just pass on it and come in the day of and pick up the game. They ask cause it's their job. If you are gonna buy it the day of just pre-order it. You don't pay anything at all. When there is a game I want I just pay for it in full and go pick it up when it comes out. And everyone complaining about the 360s... Gamestop got screwed on that. We were told so many different things and then they changed it all around. Our district manager promised us we'd get plenty, and then told us before the system came out to not expect that many. So my store is porbably booked up till Feb 06. It's not his fault, or our fault... It's Microsofts. You may have frustrations, but taking it out on the people that work their won't make it easier. Trust me. I'm an assistant manager with a Gamestop now. I've been with the company for 2 years now, and stupidity doesn't help the situation.

  • Terminator14

    Posted Nov 30, 2005 7:43 am GMT

    Yes I feel the same way about EB and Gamestop. That's why every once in awhile when i want a good game I go to Walmart or Bestbuy or Circuit City or some other place. They usualy have game for a little cheaper only a few weeks after they come out.

  • ugemeistro

    Posted Nov 30, 2005 7:40 am GMT

    The policy now is like 30 secs with a customer and then get them the game and get them out of the store. It's all about the stats, stats, stats, having a stale attitude, no flexibility about personality. Yes, my mgr is older and doesn't care about the video game industry. The reason why you have a job is because that what you like to do, not just because your collecting a paycheck.....

  • lordbunny

    Posted Nov 30, 2005 6:48 am GMT

    There was a time when video games were just entering into the social arena as a real force. The beginning of this i would place around 98-00. During this time I would often go to the EB in Chula Vista and there would always be new titles at about 5 bucks less than anywhere else. Another bonus was that one could return a title new or used for up to 14 dollars for a full refund! They changeed their policy and it was only used, now i think you can only return used titles for the same used one? I stopped shopping there altogether about 2 years ago. Everytime i go by it is like seeing a pretty ex girlfriend and shaking your head about the way people change when they have something to hold over you. I shop at Fry's now, and if you get a game within the first 2 weeks of launch, you could save anywhere from 10-15 dollars and they have sales all the time.

  • SavoyPrime

    Posted Nov 30, 2005 6:12 am GMT

    After GameStop bought-out EB, I started going to my local Game Crazy. I'm glad I did. Game Crazy is much better when it comes to service, and having games in stock. I'm hoping that Game Crazy will start doing online sales.

  • ewjim

    Posted Nov 30, 2005 1:54 am GMT

    can't say anything good OR bad about GameStop, because i don't use it here, in Russian Federation!

  • spankybebop

    Posted Nov 30, 2005 12:26 am GMT

    I have too much of a conscience to buy things from Wal-Mart. As long as you understand GameStop's policies, which are really quite simple, it's a great place to go for games.

  • Jimmc31

    Posted Nov 29, 2005 10:44 pm GMT

    I'm just about out of patience with the guy who runs GameStop here in Central Virginia. I preordered an XBox 360 on June 14th....and on that day he told me that I was #5 "in line" to recieve a console. One week before launch he tells me they were only getting 4. I felt like a frickin' person on the Titanic trying to get into the last lifeboat with no room left in it. So I said I'd be patient and wait for the second shipment....whenever the hell that is suppossed to be. On 11-23 I went to Walmart to pick up a few 360 games just to be ready for the system, and the cashier asks me,"Oh did you get a 360 last night?" I responded by saying "No, I have one pre-ordered at Gamestop here in town and I have to wait till the 2nd shipment." She then asked me what # I was. When I told her #5 she looked shocked and said in a panic..."You can't be #5 , my cousin is #5 for the 2nd shipment at that same store!" She could have just been forkin with me but who knows. But now GameStop has $420 of my money and I not only don't know when the hell I'll be getting mine...but I don't know what damn # I am. That salesman could sell a freezer to an Eskimo.

  • Zidaneski

    Posted Nov 29, 2005 10:30 pm GMT

    I like pre-ordering at game stop...because they always misplace my order. Then I go to pick up the game and show them my receipt then they spend about 10 minutes looking for it. Finally they give up and take off five dollars from the total price, yay!

  • naeemmahmood

    Posted Nov 29, 2005 9:49 pm GMT

    I really am disapponted with Gamestop.... With the lack of serivce and just have people who don;t understand what type of face they should keep/..... Also I paid for my 360 back in june and was not told until the last minute the shipment will be dealyed....

  • bigboyclone

    Posted Nov 29, 2005 8:16 pm GMT

    You must have obviously worked for the wrong boss.

  • rusty_ghia

    Posted Nov 29, 2005 5:04 pm GMT

    Since when is a job meant to be fun?

  • ugemeistro

    Posted Nov 29, 2005 4:33 pm GMT

    have you ever worked at one? the bosses really don't make it fun to work there.....

  • bigboyclone

    Posted Nov 29, 2005 4:11 pm GMT

    The only reason GameStop is out of stock on the 360 is because Microsoft cut their initial shipment in half to the united states, and they keep telling lies about weekly shipments to replenish the retailers. They also told every retailer that they would be getting 90% of the 360 shipments. How can 10 major retailers all get 90% of 360 shipments? GameStop started taking reservations on the 360 May 13, and the first shipment of systems filled up in 10 days. Every single person who preordered before May 23 and came within 48 hours to pick up their system got one. Although sometimes it can be frustrating to tell a gamer they have to wait, if you want to guarantee yourself something like a next-gen console, you will have to preorder early. I know there are those who feel they have been burned on preordering stuff before, but I can assure you that if you are one of the first to preorder a next - gen system, you will have your hands on it before anyone else. A little inside tip; GameStop is planning to start taking reservations on the PS3 and the Nintendo Revolution either the last part of January or the first part of February. I can guarantee that preorders on both of these systems will fill up fast. Just remember, if you change your mind about a preorder, it is always refundable. Also keep in mind that companies like GameStop cannot control when a developer ships them a title or if UPS loses something. The only control they have is with what is in the store already.

  • metal_snake33

    Posted Nov 29, 2005 3:47 pm GMT

    if you want to get a new title, you should go to Sam's Club if you guys have any by you. they sell the new titles for $5 cheaper.

  • bdub20791

    Posted Nov 29, 2005 3:39 pm GMT

    cmon EB, beat em'!

  • cappimofo

    Posted Nov 29, 2005 2:53 pm GMT

    EB game and gamestop are the devil. Thats all that needs to be said. Just go to Best buy it will be cheaper anyway.

  • HitmanAgent47

    Posted Nov 29, 2005 2:49 pm GMT

    E-bay is the way to go for me. ;-)

  • Kidou

    Posted Nov 29, 2005 2:46 pm GMT

    Eh, the one in my area is good enough. I have a Gamespot near my house and usually whenever i'm in need for a game, they usually do have it. Unless it's something huge, then I won't bother getting it for a whlie.

    Other than that, their service and selection is great. It's understandable why their sales might've dropped, since San Andreas didn't release it's 2nd version until just the other month.

  • Hell3ent

    Posted Nov 29, 2005 2:41 pm GMT

    I've completely lost all respect for EB (no Gamestop up here...yet). Their customer service has gone down the tubes, their prices have been jacked up, they have piss-poor selection of pc games, and their staff don't know sweet f.a. about anything other than the xbox 360. The previous staff, before the buy-out were helfpul, friendly, and not afraid to help you out if you accidently threw out the cardboard box for your pc trade-ins. Looks like any staff member with more than half a brain got canned in favor of mindless zombies who never question the register computer.

  • JoshChambers

    Posted Nov 29, 2005 2:36 pm GMT

    I love my local gamestop. 99% of the time I want something they have it and I even received my preordered xbox 360 from then. I receive excellent service from them and they always look out for deals for me when I'm there.

    jfolds1 - dont be pissed at gamestop for there not being enough units available. I was lucky and got mine because I preordered early. If anything you should be pissed at microsoft for not making enough available.

  • MadGamer132

    Posted Nov 29, 2005 1:59 pm GMT

    i been to every single store to check out (Best Buy, Circuit City, EB games GameStop, etc.). but, when you try to find one, it doesn't matter, and that's final!.

  • jimmysjams

    Posted Nov 29, 2005 1:44 pm GMT

    all video game stores are out of the way for me. i either have to pay $15 to drive somewhere to buy it at regular price or pay an additional $15 on the market price to buy it in town, if a local store even has a copy of what i want let alone in special edition. consequently i do most of my video game shopping online, gamestop is preorder firendly for when i want a game when it comes out and they frequently have some kind of special. i can't blame them for the 360, the whole launch was a fiasco.

  • ghostadv

    Posted Nov 29, 2005 1:32 pm GMT

    i kinda wish they'd stop selling used games, cuz the developers of the game never see much of profit if so many buy them used.

  • CountZero

    Posted Nov 29, 2005 1:29 pm GMT

    My local Gamestop provides good service and selection. The only reason why I don't shop there more is because it's at the north end of town and it's a royal pain in the neck to get there. Thus I can't particularly go up there just to browse, necessarily - at least in the winter (it tends to rain here in Oregon).

    Perhaps once I get the brakes on my bike replaced I might go up there more often, but otherwise, it's not necessarily worth the hassle.

  • jfolds1

    Posted Nov 29, 2005 1:26 pm GMT

    I don't know why they are counting sales from local retail stores, as if you call gamestop and ask where your local retail store xbox 360 preorder is you'll be told that orders placed there are not actually placed with gamestop.

    what?? yep, that was the answer i received, if you don't belive me call the #'s provided on gamestop.com and ask them where your xbox 360 is if you preordered it in a actual store.

    Hopefully they will go broke, and have to close down all these 'fake' stores so poor saps wont be lured into ordering from a non existant retail store.


  • MrCHUP0N

    Posted Nov 29, 2005 1:25 pm GMT

    Oftentimes they're also simply overpriced for new titles, though of course I always go there for bargains on used stuff or neglected titles (BG&E). For instance, every $34.99 DS title in Gamestop was selling for $29.99 at Virgin Megastore.

  • JumpingMirrior

    Posted Nov 29, 2005 1:25 pm GMT

    I dont have problems most of the time at my Gamestop, im happy with they're service.

  • bluedevl420

    Posted Nov 29, 2005 1:23 pm GMT

    jst go to walmart, they will most likely have your game for u and for a cheaper price (bout $0.04 cheaper)

  • Adam_B

    Posted Nov 29, 2005 1:17 pm GMT

    Personally, I'm a little tired of shopping at places like EB and GameStop. At the local EB in downtown San Francisco, it seems impossible to get a copy of a hot title for the couple weeks after it came out unless I preordered it.

    So I've just started going to Circuit City and Best Buy. Sure, a game might come in a few days late, but at least they have it in stock.

    Whether that's how most people feel remains to be seen, but it just seems like these boutique shops are more of a headache than anything these days, just because they want to get their preorders up.

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