When the job market is weak and the economy lukewarm, dinner out may take a back seat to spending Friday night at home with a videogame as the gaming generation enters its 30s and even early 40s. GameStop (GME), the world's largest specialty retailer of video game products and PC entertainment software, is happy to oblige. GameStop sales for the first quarter of 2011 rose 9.5 percent to $2.28 billion, compared to $2.08 billion during the same period a year earlier.
Net earnings increased 6.9 percent to $80.4 million compared to net earnings of $75.2 million in the same period in 2010. Total comparable store sales were up 5.3 percent, driven by strong HD console sales, the Nintendo 3DS launch, and 9.5 percent growth in sales of pre-owned products, the company says.
Digital sales, which include things like mobile programs or games that can be downloaded, rose 53 percent over last year. Previous company investments in growth projects are paying off, too.
"GameStop continues to execute its strategic plan. Our strong comparable store sales reflect record share gains, pre-owned sales acceleration, robust digital sales growth and extraordinary consumer acceptance of our PowerUp Rewards(TM) loyalty program," says Paul Raines, the company's chief executive officer.
"Our unique, multichannel business model makes the GameStop network the premier gaming provider."
Nevertheless, business could cool a bit. For the second quarter of fiscal 2011, comparable store sales should fall by 2 percent or come in flat at best, the company projects. Investments to make the company grow may be bearing fruit now, but that can't pump up sales forever.
"As expected, the decline in year-over-year earnings stems primarily from the previously announced planned investments GameStop is making in its strategic initiatives, which will be approximately 4 cents per share in the second quarter," the company says in an earnings statement.
GameStop says it is sticking with its full year diluted earnings per share guidance range of $2.82 to $2.92, representing a 6.4 percent to 10.2 percent increase over fiscal 2010.
Full year comparable store sales are expected to increase from between 3.5 percent and 5.5 percent.
Analysts are satisfied with GameStop so far. The company is well positioned to take advantage of the growing market for videogame products and PC entertainment software, says Zacks Investment Research.
Growing through store expansions in select locations and making key products quickly available to consumers is a plus as well.
Nevertheless, videogames are not must-haves for families cutting down on expenses. That makes GameStop sensitive to swings in the economy.
Plus technology will allow more users to download video and other forms of entertainment from the Internet without having to go to the store and buy equipment, although GameStop has expanded into that area of the business.
Moody's has said that the company is a solid one but adds it is keeping an eye on "longer term concerns around electronic gaming sales shifting to the Internet and away from bricks and mortar stores," the ratings agency says in a recent statement on GameStop.
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