GameStop 2nd-quarter profit rises 4 percent; company cuts 3rd-quarter outlook, citing expenses

GameStop 2Q profit rises but misses estimates

NEW YORK — GameStop Corp., the world’s biggest video game retailer, said Thursday that its second-quarter profit rose 4 percent, but its shares dropped as the results came in short of Wall Street estimates.

GameStop also lowered its third-quarter profit estimate because of expenses connected with its new customer rewards program and its sales of downloadable content in stores, along with acquisition and investment costs.

The company said its net income grew to $40.3 million, or 26 cents per share, in the three months ended July 31. That compares with $38.7 million, or 23 cents per share, a year earlier.

The company said the best-selling games during the quarter were “Red Dead Redemption,” ”Super Mario Galaxy 2,” ”UFC Undisputed 2010,” ”StarCraft II: Wings of Liberty,” and “NCAA Football 11.” Revenue rose 3 percent to $1.8 billion from $1.74 billion.

Analysts expected earnings per share of 27 cents and revenue of $1.82 billion, according to a survey by Thomson Reuters.

GameStop said revenue at stores open at least a year rose 0.9 percent because of sales of new hardware systems and new titles. Sales at stores open at least a year is considered an important measurement of a retailer’s health because it excludes stores that have opened or closed in the last 12 months.

GameStop now expects to earn 35 cents to 38 cents per share in the third quarter, down from a prior range of 38 cents to 41 cents per share. Analysts expect 41 cents per share, on average.

Wedbush Morgan analyst Michael Pachter called the quarter’s results “sloppy” and said he expects GameStop shares to remain under “mild pressure” until an expected industry rebound begins this fall. He lowered his target price to $26 from $28 and kept his rating at “Outperform.”

For the full year, the company still expects a profit of $2.58 to $2.68 per share. Analysts estimate $2.63 per share. GameStop said sales at stores open at least a year will be flat to up 2 percent for the year. It expects growth of 3 to 6 percent in the third quarter.

CEO J. Paul Raines noted the rise in stores open at least and said GameStop has been gaining market share. The company also is focusing more on its website and selling digital content like add-ons for games that shoppers download at home.

GameStop said 5.4 percent of its in-store transactions had a digital element to them — such as the downloadable “map packs” for “Call of Duty: Modern Warfare 2.” This is up 80 percent from a year earlier.

Shares of GameStop, based in Grapevine, Texas, sank $1.62, or 7.8 percent, to $19.14 Thursday. In the past 52 weeks, the stock has traded between $17.12 and $28.62.