GameStop Corp. Reports Record Sales for 2004; Fiscal 2004 Sales Grow 17%; EPS, Before Special Charges, Grows 10.4% In Line with Revised Guidance; Guidance for 2005 Issued
GRAPEVINE, Texas--(BUSINESS WIRE)--March 23, 2005--GameStop Corp. (NYSE:GME)(NYSE:GME.B), the nation's largest video game and entertainment software specialty retailer, today reported record sales and earnings for the fourth quarter and for the full year ended January 29, 2005.
GameStop Corp. sales were $1,842.8 million for fiscal 2004, an increase of 16.7% over fiscal 2003 sales of $1,578.8 million. On a comparable store basis, sales increased 1.7% during fiscal 2004. For the fourth quarter ended January 29, 2005, total sales increased 13.3% to $708.7 million, in comparison to $625.4 million in the prior year quarter. Comparable store sales increased 0.2% during the quarter; with total video game software sales increasing by 14% for the quarter and 22% for the full year.
Before special charges as detailed on Schedule I, fiscal 2004 earnings per diluted share were $1.17, an increase of 10.4%, as compared to $1.06 per diluted share in the prior fiscal year. For the fourth quarter of 2004 earnings per diluted share were $0.70, as compared to $0.67 per diluted share in the fourth quarter of 2003. These earnings were at the high end of our previously revised guidance.
Earnings after special charges were $34.5 million, or $0.64 per diluted share, for the fourth quarter of 2004, and $60.9 million, or $1.05 per diluted share, for the full year.
"2004 was a superb year for GameStop with record sales, not withstanding the severe, and universal, shortage of hardware for all systems throughout the important fourth quarter," said R. Richard Fontaine, Chairman and Chief Executive Officer. "Last year GameStop opened 338 new stores, our most aggressive and successful new store roll-out ever, and this year we plan to continue our rapid growth initiatives by opening between 370 to 400 new stores.
"GameStop's new and used business model continues to be refined and generate a superior return on investment while generating significant cash flows. We finished the year with a strong balance sheet and a $171 million cash balance. Finally, we continue to grow our market share, positioning GameStop to be an even more important retailer in a fast-growing business with a bright future."
Guidance for First Quarter and Full Year 2005
While much of the industry is already looking ahead to major new system launches in late 2005 and early 2006, GameStop believes that the continued demand for the slimmed down PlayStation 2, and the excitement generated by the launch of Sony's first ever multi-function hand-held system, PlayStation Portable (PSP), combined with demand for legacy software titles, will provide the Company with significant product excitement to make 2005 another strong year.
For the first quarter of fiscal 2005, the company expects comparable store sales to range from +5.0% to +7.0%, while diluted earnings per share are expected to range from $0.16 to $0.17. For the fiscal year ending January 28, 2006, sales are expected to grow between 15% and 20%, with comparable store sales ranging from flat to 5%. Diluted earnings per share for the full year are expected to range from $1.30 to $1.40, an increase of 11% to 20%. GameStop notes that the wide range of guidance is due to its inability to control or predict the timing of release of new platforms, as well as the initial allocations.
Fiscal 2005 guidance is before any charges related to expensing the estimated fair value of stock options which should commence in the third quarter of 2005.
Lease Accounting
The Company, similar to many other retailers, has revised its method of accounting for rent expense (and related deferred rent liability) and leasehold improvements funded by landlord incentives for allowances under operating leases (tenant improvement allowances) to conform to generally accepted accounting principles, as recently clarified by the Chief Accountant of the SEC in a February 7, 2005 letter to the American Institute of Certified Public Accountants. A one-time, non-cash, after-tax adjustment of $3.3 million was made in the fourth quarter of fiscal 2004 to correct the calculation of straight-line rent expense. For all stores opened since the beginning of fiscal 2002, the Company has calculated straight-line rent expense using the initial lease term, but was depreciating leasehold improvements over the initial lease term plus the option periods. The Company is correcting its calculation of straight-line rent expense to include the impact of escalating rents for periods in which we are reasonably assured of exercising lease options and to include any "rent holiday" period the lease allows while the store is being constructed. The company is also correcting its calculation of depreciation expense for leasehold improvements for those leases which do not include an option period. The impact of these corrections on fiscal 2002 and 2003 was not material and the adjustments do not affect historical or future cash flows or the timing of payments under related leases.
In addition, the Company is changing its classification of tenant improvement allowances on the balance sheets and statements of cash flows. Like many other retailers, the Company has historically classified tenant improvement allowances as reductions of property and equipment on the Company's balance sheet, as reductions in depreciation and amortization in the Company's statements of operations and as reductions in capital expenditures, an investing activity, on the Company's statements of cash flows. In order to comply with the provisions of FASB Technical Bulletin No. 88-1, "Issues Relating to Accounting for Leases" (FTB 88-1), however, the Company will classify tenant improvement allowances as deferred rent liabilities (in long-term liabilities) on the Company's balance sheet, as a reduction of rent expense (in selling, general and administrative expenses) in the statements of operations and as an operating activity on the statements of cash flows. The effect of this correction increased property and equipment and long-term liabilities on the Company's balance sheets by $4.7 million as of January 29, 2005 and $3.3 million as of January 31, 2004, and increased net cash flows provided by operating activities and increased net cash flows used in investing activities in the Company's statements of cash flows by $2.3 million, $1.5 million and $1.1 million in fiscal 2004, 2003 and 2002, respectively. The effect of this correction on the Company's statements of operations was not material in fiscal 2004, 2003 or 2002.
Conference Call and Webcast Information
A conference call with GameStop Corp.'s management will be simulcast on the Web at (http://www.gamestop.com/investor-relations/) beginning at 11:00 a.m. ET on March 23, 2005, and will be accessible at (http://www.gamestop.com/investor-relations/), where it will be archived until April 6, 2005.
About GameStop Corp.
Headquartered in Grapevine, Texas, GameStop Corp. (NYSE:GME) (NYSE:GME.B) is the nation's largest video game and entertainment software specialty retailer, based on the number of U.S. stores and U.S. revenues. The company operates 1,826 retail stores throughout the 50 states, the District of Columbia, Puerto Rico and Ireland, primarily under the GameStop(R) brand. In addition, the company owns a commerce-enabled Web property, GameStop.com, and Game Informer(R) magazine, a leading video and computer game publication.
GameStop Corp. sells the most popular new software, hardware and game accessories for the PC and next-generation video game systems from Sony, Nintendo, and Microsoft, and is also the industry's largest reseller of used video games. In addition, the company sells computer and video game magazines and strategy guides, action figures, and other related merchandise to more than 30 million customers.
General information on GameStop Corp. can be obtained via the Internet by visiting the company's corporate Website: http://www.gamestop.com/investor-relations/.
Safe Harbor
This press release (including the attached schedules) contains "forward-looking statements." GameStop Corp. is including this statement for the express purpose of availing itself of the protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. These forward-looking statements are based on currently available information and represent the beliefs of the management of the company. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks include, but are not limited to, general economic and market conditions, seasonality, decreased consumer demand for the company's products, possible disruptions in the company's computer or telephone systems, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to obtain suitable sites for new stores, possible disruptions or delays in successfully transferring the company's headquarters and distribution center to a new facility during 2005, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the company's online and other initiatives, the successful integration of acquired businesses, unanticipated increases in merchandise or occupancy costs, unanticipated adverse litigation results or effects, product shortages, and other factors which may be outside of the company's control. In addition, the video game industry has historically been cyclical in nature and dependent upon the introduction of new generation systems and related interactive software. Please refer to the company's reports on file with the SEC for a more detailed discussion of these and other risks that could cause results to differ materially.
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
13 weeks 13 weeks
ended ended
January 29, January 31,
2005 2004
----------- -----------
Sales $708,740 $625,381
Cost of sales 527,622 461,705
----------- -----------
Gross profit 181,118 163,676
Selling, general and administrative expenses 114,302 90,041
Depreciation and amortization 10,836 8,680
----------- -----------
Operating earnings 55,980 64,955
Interest expense (income), net 489 (156)
----------- -----------
Earnings before income tax expense 55,491 65,111
Income tax expense 20,974 25,554
----------- -----------
Net earnings $34,517 $39,557
=========== ===========
Earnings per common share:
Basic $0.68 $0.71
Diluted $0.64 $0.67
Weighted average common shares
outstanding:
Basic 50,702 55,705
Diluted 54,155 59,195
Percentage of sales:
----------------------------------------------
Sales 100.0% 100.0%
Cost of sales 74.4% 73.8%
----------- -----------
Gross profit 25.6% 26.2%
SG&A expenses 16.1% 14.4%
Depreciation and amortization 1.6% 1.4%
----------- -----------
Operating earnings 7.9% 10.4%
Interest expense (income), net 0.1% --
----------- -----------
Earnings before income tax expense 7.8% 10.4%
Income tax expense 2.9% 4.1%
----------- -----------
Net earnings 4.9% 6.3%
=========== ===========
GameStop Corp.
Statements of Operations
(in thousands, except per share data)
52 weeks 52 weeks
ended ended
January 29, January 31,
2005 2004
------------ -------------
Sales $1,842,806 $1,578,838
Cost of sales 1,328,611 1,142,264
------------ -------------
Gross profit 514,195 436,574
Selling, general and administrative
expenses 378,029 302,703
Depreciation and amortization 37,019 29,487
------------ -------------
Operating earnings 99,147 104,384
Interest expense (income), net 236 (804)
------------ -------------
Earnings before income tax expense 98,911 105,188
Income tax expense 37,985 41,721
------------ -------------
Net earnings $60,926 $63,467
============ =============
Earnings per common share:
Basic $1.11 $1.13
Diluted $1.05 $1.06
Weighted average common shares
outstanding:
Basic 54,662 56,330
Diluted 57,796 59,764
Percentage of sales:
-------------------------------------------
Sales 100.0% 100.0%
Cost of sales 72.1% 72.4%
------------ -------------
Gross profit 27.9% 27.6%
SG&A expenses 20.5% 19.2%
Depreciation and amortization 2.0% 1.8%
------------ -------------
Operating earnings 5.4% 6.6%
Interest expense (income), net -- --
------------ -------------
Earnings before income tax expense 5.4% 6.6%
Income tax expense 2.1% 2.6%
------------ -------------
Net earnings 3.3% 4.0%
============ =============
GameStop Corp.
Balance Sheets
(in thousands, except per share data)
January January
29, 31,
2005 2004
--------- ---------
ASSETS:
Current assets:
Cash and cash equivalents $170,992 $204,905
Receivables, net 9,812 9,545
Merchandise inventories 216,296 223,526
Prepaid expenses and other current assets 18,400 14,340
Prepaid taxes 3,053 12,775
Deferred taxes 5,435 7,661
--------- ---------
Total current assets 423,988 472,752
--------- ---------
Property and equipment:
Land 2,000 --
Leasehold improvements 106,428 64,227
Fixtures and equipment 184,536 131,556
--------- ---------
292,964 195,783
Less accumulated depreciation and amortization 124,565 88,487
--------- ---------
Net property and equipment 168,399 107,296
--------- ---------
Goodwill, net 320,888 320,826
Other noncurrent assets 1,708 1,315
--------- ---------
Total other assets 322,596 322,141
--------- ---------
Total assets $914,983 $902,189
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $206,739 $204,011
Accrued liabilities 94,983 79,839
Note payable, current portion 12,173 --
--------- ---------
Total current liabilities 313,895 283,850
Deferred taxes 20,257 17,731
Note payable, long-term portion 24,347 --
Other long-term liabilities 13,473 6,575
--------- ---------
58,077 24,306
--------- ---------
Total liabilities 371,972 308,156
--------- ---------
Stockholders' equity:
Preferred stock -- authorized 5,000 shares; no
shares issued or outstanding -- --
Class A common stock -- $.001 par value;
authorized 300,000 shares; 24,189 and 22,993
shares issued, respectively 24 23
Class B common stock -- $.001 par value;
authorized 100,000 shares; 29,902 and 36,009
shares issued, respectively 30 36
Additional paid-in-capital 500,769 510,597
Accumulated other comprehensive income 567 296
Retained earnings 91,621 118,087
Treasury stock, at cost, 3,263 and 2,304 shares,
respectively (50,000) (35,006)
--------- ---------
Total stockholders' equity 543,011 $594,033
--------- ---------
Total liabilities and stockholders' equity $914,983 $902,189
========= =========
GameStop Corp.
Retail Sales Mix
52 weeks 52 weeks
ended ended
January 29, 2005 January 31, 2004
---------------- ----------------
Video Game Hardware 16% 16%
Video Game Software 66% 63%
Video Game Accessories 11% 12%
PC Software 5% 6%
PC Accessories and Other 2% 3%
13 weeks 13 weeks
ended ended
January 29, 2005 January 31, 2004
---------------- ----------------
Video Game Hardware 18% 18%
Video Game Software 63% 63%
Video Game Accessories 12% 12%
PC Software 5% 5%
PC Accessories and Other 2% 2%
Schedule I
GameStop Corp.
Schedule of Special Charges
(in thousands)
13 weeks 52 weeks
ended ended
January 29, 2005 January 29, 2005
---------------- -----------------
California class action settlement
costs $-- $2,750
Spin-off professional fees -- 2,800
Cumulative adjustment for change in
accounting for operating leases 5,373 5,373
---------------- -----------------
Total special charges $5,373 $10,923
================ =================
California class action settlement
costs, net of income taxes $-- $1,708
Spin-off professional fees, net of
income taxes -- 1,739
Cumulative adjustment for change in
accounting for operating leases,
net of income taxes 3,312 3,312
---------------- -----------------
Total special charges, net of
income taxes $3,312 $6,759
================ =================
Schedule II
GameStop Corp.
Reconciliation of Special Charges
(in thousands, except per share data)
13 weeks Percentage
ended Of
January 29, 2005 Sales
---------------- -----------------
Selling, general and administrative
expenses $114,302 16.1%
Less: Special charges (5,134) (0.7%)
---------------- ----------------
Selling, general and administrative
expenses excluding special charges $109,168 15.4%
================ ================
Depreciation and amortization $10,836 1.6%
Less: Special charges (239) --
---------------- ----------------
Depreciation and amortization
excluding special charges $10,597 1.6%
================ ================
Operating earnings $55,980 7.9%
Add: Special charges 5,373 0.7%
---------------- ----------------
Operating earnings excluding
special charges $61,353 8.6%
================ ================
Net earnings $34,517 4.9%
Add: Special charges, net of income
taxes 3,312 0.4%
---------------- ----------------
Net earnings excluding special
charges, net of income taxes $37,829 5.3%
================ ================
Net earnings per common share --
diluted $0.64
Add: Special charges per common
share -- diluted $0.06
----------------
Net earnings excluding special
charges per common share --
diluted $0.70
================
Schedule III
GameStop Corp.
Reconciliation of Special Charges
(in thousands, except per share data)
52 weeks
ended Percentage
January Of
29, 2005 Sales
--------- ----------
Selling, general and administrative expenses $378,029 20.5%
Less: Special charges (10,684) (0.6%)
--------- ---------
Selling, general and administrative expenses
excluding special charges $367,345 19.9%
========= =========
Depreciation and amortization $37,019 2.0%
Less: Special charges (239) --
--------- ---------
Depreciation and amortization excluding special
charges $36,780 2.0%
========= =========
Operating earnings $99,147 5.4%
Add: Special charges 10,923 0.6%
--------- ---------
Operating earnings excluding special charges $110,070 6.0%
========= =========
Net earnings $60,926 3.3%
Add: Special charges, net of income taxes 6,759 0.4%
--------- ---------
Net earnings excluding special charges, net of
income taxes $67,685 3.7%
========= =========
Net earnings per common share -- diluted $1.05
Add: Special charges per common share -- diluted $0.12
---------
Net earnings excluding special charges per common
share -- diluted $1.17
=========
CONTACT: GameStop Corp., Grapevine
Media Contact:
Lori M. Milovich, 817-424-2130
Director, Public & Investor Relations
or
Investor Contact:
David W. Carlson, 817-424-2130
Executive Vice President & Chief Financial Officer
SOURCE: GameStop Corp.