Thursday, March 23, 2006

Gamestop Earnings

From IGN
March 22, 2006 - Leading videogame retailer GameStop today reported record earnings of $85 million for the fiscal forth quarter of 2005, an increase of $50.5 million or 68% over the same period in 2004. Furthermore, the company revealed plans to open 1,600 more retail outlets over the next three years.

In addition to the significantly increased earnings, the company reported that sales had jumped in the same period to almost $1.7 billion when compared to $709 million for fourth quarter 2004 -- an increase of 135% -- though a large portion of this increase can be attributed to the integration of newly-acquired Electronics Boutique retail outlet sales into GameStop's financial reports.

I mention these earnings because I've said for about the last nine months that I expect
Gamestop to puke all over itself by the end of the year. And for the sake of accuracy, let me just say that at this point, I am totally wrong.

Wrong, wrong, wrong.

And they're going to open 1,600 new stores in the next three years? I already have one upstairs in the exercise room and two more within a hundred yards of our house. Some of these stores are already so close together that they could share employees--in real-time.

Now if this goes the way I expect it to, here's the sequence of events when they start to unravel.
1. They announce lower than expected earnings, announcing at the same time that planned store expansions are being cut back.
2. The next quarter, lower than expected earnings and the first wave of store closings are announced.

At that point, every analyst in the world jumps on their business model, saying it can't survive with both increased competition and a move by game makers toward digital distribution, which will start to eat away at the used games market.

Right now, though, they can claim that they've still got The Smartâ„¢.

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