Video game executives have long done business on a rollercoaster cycle, where their inevitable product updates lead to spending on more advanced technologies to eventual sales until it s time for a new round of replacements. But this time around GameStop (GME) is looking forward to the growing popularity of computer games as more kinds of customers find new ways to play. The Grapevine [Tex.
] retailer sold more video games during recent months and is betting on even better days ahead. GameStop s net earnings rose 52.7% year over year to $129.
8 million in the fourth quarter ended Feb. 3, including debt retirement costs related to a bond buy-back program of $2.5 million.
"While we are in the very early stages of another strong growth cycle, it is not a mirror of the past," CEO R. Richard Fontaine said in a press release March 27. "This cycle will be deeper, wider, and longer than any previous period of new console introductions.
" Fontaine pointed out that the video game business has become more complex, with more console choices and more sophisticated software. You can now play computer games using technologies that range from Wi-Fi to MP3 players to high definition television. Noting the variety of game consoles like Sony s PlayStation 3, Microsoft s Xbox 360 and Nintendo s Wii, Fontaine says "there is a product and a price range to stimulate the core and casual gamer, and attract new customers to the video game experience.
" GameStop managed to have brisk sales in January of Vivendi s World Of Warcraft game and in new video game software titles. Its total revenue rose to $2.3 billion during the Feb.
quarter, up 38.2% compared to the same period last year. Sales at stores open more than a year gained 26.
5% during the quarter. During the first quarter of 2007 ended in May, GameStop is planning to launch Sony s PlayStation 3 in Europe and Australia and its God Of War II game for the PlayStation 2 in the U.S.
The video-game retailer maker will also launch Nintendo s Pokemon Diamond and Pearl games. Thanks to such efforts, the company says its comparable store sales will grow by between 12% and 14%, contributing to earnings per share between 15 cents and 16 cents during the first quarter. After that GameStop thinks it will have comparable store sales growth ranging from 14% to 16% during the full fiscal year 2007 and earnings per share between $1.
37 and $1.40. And then business could pick up even more.
The company says earnings per share will grow by at least 25% annually in the fiscal years 2008 and 2009. "We think the current growth cycle will last several more years, reflecting the improved technology of consoles, more sophisticated software, and vast products and price ranges to satisfy both core and casual gamers," Standard Poor s equity analyst Michael Souers said in a Mar. 27 research note.
[S P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.] Souers raised an estimate on the fiscal 2008 [ending January] to $1.
42 from $1.40 and a 12-month target price on the stock to $35 from $29 per share.
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