GameStop profits trimmed, expectations lowered

When GameStop reported its fiscal second-quarter figures in August, things were looking up. Anticipating a holiday season packed with potential blockbusters like Spore, Gears of War 2, Little Big Planet, and more, the world's largest gaming retailer boosted its earnings per share projections for the remainder of the year.

GameStop pulled an about-face as it reported results for its third fiscal quarter ended November 1. Despite posting record sales, the retailer missed its profit projections for the quarter, and lowered its expectations for its fourth quarter and full-year earnings as well.

The retailer posted revenues of $1.7 billion for the quarter, a 5 percent bump over the prior year's third-quarter haul of $1.61 billion. As GameStop executives were quick to point out in the company's conference call, that quarter featured the company's biggest game launch of all time, Halo 3.

While the sales were up, profits were down. GameStop's net earnings for the quarter amounted to $46.7 million, off 10 percent from the previous third quarter's $52 million take. That worked out to a diluted earnings per share of $.29, significantly short of the $.36-$.38 range the retailer projected for investors.

GameStop also reined in expectations for the current quarter, saying the crucial holiday period would yield investors diluted earnings per share between $1.29 and $1.34. While that's up 13 to 18 percent from the previous holiday quarter's profits, it's still below the $1.37-$1.40 range it had pegged for the quarter just three months earlier.

As has become commonplace in recent weeks, GameStop CEO Dan DeMatteo framed the chain's results in light of the larger economy.

"Despite the dramatic decline of the global economy and its severe impact on the entire retail industry, GameStop had a strong quarter," DeMatteo said in a statement, adding, "We believe that video games provide real entertainment value to consumers in these trying economic times and will be sought out gift purchases for the holiday season."

As of press time, GameStop shares were trading at $18.80, down more than 8 percent from yesterday's closing price of $20.56.