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GameStop Corp. (GME)

Q3 2010 Earnings Call Transcript

November 18, 2010 11:00 am ET

Executives

Dan Dematteo – Executive Chairman

Paul Raines – CEO

Rob Lloyd – EVP and CFO

Tony Bartel – President

Mike Mauler – EVP

Analysts

Mark Andre – Goldman Sachs

Brian Nagle – Oppenheimer

Mike Hickey – Janco Partners

Tony Wible – Janney

Colin Sebastian – Lazard

Gary Balter – Credit Suisse

Arvind Bhatia – Sterne Agee

David Magee – SunTrust Robinson Humphrey

Anthony Chukumba – BB&T Capital Markets

Bill Armstrong - CL King & Associates

Presentation

Operator

Good morning. Welcome to GameStop Corporation’s Q3 2010 earnings conference call. Today’s call is being recorded. At the conclusion of the announcement a question-and-answer session will be conducted electronically. (Operator Instructions)

I would like to remind you this call is covered by the Safe Harbor disclosure contained in GameStop’s public documents and is the property of GameStop. It is not for rebroadcast or use by any other party without prior written consent of GameStop.

At this time I would like to turn the call over to Mr. Dan Dematteo of GameStop Corporation. Please go ahead, sir.

Dan DeMatteo

Good morning. And thank you for attending today’s conference call. With me today are Paul Raines our CEO, Tony Bartel, our President, Rob Lloyd, our EVP and CFO and Mike Mauler, our EVP of International. This morning we announced we met the high end of our Q3 EPS range and raised our full year guidance due to continued market share gains, product and product releases that are exceeding expectations.

In the quarter, we rolled out several new initiatives that are performing extremely well. Our new loyalty program, PowerUp rewards has been accepted beyond our expectations by the consumer and Paul will speak more on this initiative later. GameStop now has the ability to sell add-on digital content in all U.S. stores, making us the first retailer to have the technology and marketing to sell DLC from retail doors.

Our recently retooled GameStop.com commerce site is driving huge sales increases and allows the customer now to buy on-line and pick up in-store and Tony will provide more color on this. We have added E-commerce sites in Spain, Germany and Ireland during the quarter and we are now driving traffic to congregate our on-line game platform from our e-commerce site and retail stores. Tony will discuss plans for this business in his discussion.

So, 2010 has been a great year for making huge strides on our strategic initiatives, but we are not done yet. We are planning on taking these all to new levels in 2011 to drive in-store E-commerce and digital revenues. Also, we understand the evolving nature of gaming and are identifying opportunities to expand the GameStop brand wherever gamers are playing as we have proven that there’s a huge base of customers that shop at our stores and play games digitally such as on Kongregate. We remain focused on continuous growth in our return on invested capital through prudent store growth, strategic initiatives to grow market share, aligned investments in the digital space and cash returns to shareholders.

With that, I will turn it over to Paul for his comments on the quarter and the outlook for the balance of the year.

Paul Raines

Thanks, Dan. I would like to start off my remarks by thanking our team of over 50,000 associates worldwide. GameStop associates around the world continued to wring power to the players by providing the best customer service, value and assortment in video gaming. We saw strength in the core business this quarter driven by new software titles and record market share.

New software grew 9% as new game players reacted well to our unique launch process and buy/sell/trade value proposition. We were pleased to have the first global launch of unique content with Halo Reach as GameStop stores around the world offered consumers unique body armor to drive market share at launch.

Hardware sales declined 14% due to price cuts and international weakness in hardware. We were also pleased to see positive comps again in our U.S. business. The used business, which is overlapping 19% growth in the third quarter of 2009, grew 4%. Next-generation used software continues to grow, while older generation continues to decline. As we have seen in the past, consumers are spending on new titles at launch with some impact being felt in used software.

Our same-store used inventory levels are in excellent shape going into the peak holiday season. As we have pointed out in the past, we build inventory aggressively during this time of the year to drive higher sell-through at holiday and our average inventory levels are well above last year in the used business.

We are also following closely competitor initiatives in the used business and execute weekly analysis of used sales in stores within competitor trade areas. That analysis indicates no impacts from competitors to our used sales. As we told you the on our last call, we chose to accelerate the rollout of our PowerUp rewards program into the third quarter and have now completed that rollout in the United States. Millions of game consumers are now enjoying the unique benefits of the program and we are building relationships with them that will drive share of wallet through holiday.

A few color items on PowerUp rewards. Members are shopping with us three times as often as non-members and they are above-average customers on both trading games as well as multi-channel shopping.

Read the rest of this transcript for free on seekingalpha.com