PS3s Out Of Stock 80% of Q1, GameStop Says

"We continue to deal with product shortages” on the PS3, GameStop interim Chief Financial Officer Robert Lloyd said on a Thursday earnings call. The problem was so bad in Q1 ended May 1 that the retailer, “on an average daily basis,” was out of stock on Sony’s console “80 percent of the time” at its U.S. stores, Chief Operating Officer Paul Raines said.

Wii console shortages also continued, but weren’t nearly as bad as those on the PS3, Raines said. Nintendo’s console was out of stock 50 percent of the time on an average daily basis at U.S. stores, he said. Hardware supplies overall were “a continued challenge,” but GameStop still gained market share on sales of the PS3, Wii and Xbox 360 in Q1, he said.

GameStop’s Q1 comparable store sales fell 1.6 percent, “primarily due to the supply constraint on new videogame consoles throughout the quarter” and a decline in hardware pricing, Lloyd said. New hardware sales fell 12 percent from the year-ago quarter, he said. PS3 and Xbox 360 unit sales were up, but DS and Wii sales were down, he said.

The retailer had “a successful launch” on Nintendo’s new DSi XL handheld system in Q1 and “led market share at launch,” Raines said.

CEO Dan DeMatteo expressed little concern over Wal-Mart’s new game initiative. Wal-Mart began Gamecenter on Thursday, calling it a “one-stop online destination for the latest videogame previews, first-look exclusives and special savings for gamers and families.” In conjunction with the launch, it’s offering a $50 eGift Card to customers that preorder three or more titles including the latest Medal of Honor game from Electronic Arts, Ubisoft’s Assassin’s Creed: Brotherhood and Fallout: New Vegas from Bethesda Softworks, Wal-Mart said. Wal-Mart is also now charging only 97 cents to ship videogames ordered at its website. Gamecenter will feature new videogames, exclusive content and special offers each month, it said.

Wal-Mart’s aggressive initiative for the reservation of new videogames “is an obvious attempt to increase first week market share, which we dominate,” DeMatteo said. GameStop has a 60-70 percent share on many new releases, he said. “We believe our pre-release marketing, exclusive content and the immediate currency provided by our trade-in program will allow us to continue to gain market share” as it has “for the last few years."

There’s “a great deal of concern over the health of the industry” based on NPD’s April sales data for the U.S., DeMatteo said. GameStop’s Q1 software sales were up about 13 percent from the year-ago period, he said. But the overall industry was weaker due to a weaker catalog of games compared with Q1 2009, he said.

GameStop had “a great quarter” overall, DeMatteo said. The retailer “gained significant market share on new releases” due to its marketing initiatives in Q1, he said. Earnings “came in at the high end of expectations,” he said. Used game sales were up 4 percent from Q1 last year after a 32 percent increase in Q1 last year, he said. GameStop opened 47 new stores in the U.S. in Q1 and 27 outside the U.S., Lloyd said.

Q1 profit increased to $75.2 million, or 48 cents per share, from $70.4 million, 42 cents, a year earlier. Revenue increased 5.1 percent to $2.08 billion. New videogame software sales increased 13.3 percent, helped by “a very strong slate of new games” that included the top sellers Battlefield: Bad Company 2 from Electronic Arts, Sony’s God of War III for the PS3, Final Fantasy XIII by Square Enix, Pokemon SoulSilver and HeartGold from Nintendo, and Take Two-Interactive’s Bioshock 2, GameStop said.

GameStop’s in-store test of the downloadable game Legends of Zork “proved highly successful in economically acquiring and converting our customers to browser game players,” DeMatteo said.

The retailer will begin an in-store downloadable content (DLC) pilot program with Microsoft at 35 stores “at the end of May,” Raines said. “These stores will merchandise a limited amount of DLC and promote that digital content to consumers.” The process “will eliminate a lot of the friction of searching and discovering content online,” he said. The DLC SKU count will grow throughout the summer and the program will be expanded to all U.S. GameStop stores in the fall, he said. The retailer has a “leading market share on download cards,” he also said. GameStop is “having conversations with multiple publishers on leveraging the potential of digital sales” at its stores, he said.

Also on tap is the start of GameStop’s enhanced loyalty program, Raines said. It’s been in development for more than a year and will begin in four unspecified U.S. markets and at 204 stores May 28, he said. It will roll out to the rest of its U.S. stores in the fall, he said.

The retailer expects new videogame software sales will be up in May from the same month in 2009 thanks to the release of titles including Take-Two Interactive’s Red Dead Redemption, which “is doing extremely well” initially, DeMatteo said. He offered no specifics on that game’s sales. For Q2, the retailer expects to report comparable store sales ranging from down 2 percent to up 2 percent and earnings per share of 25 cents to 27 cents, a 9-17 percent increase from Q2 last year. Q3 earnings per share are expected to come in at 38 cents to 41 cents, a 19-28 percent year-over-year increase. The company still expects to report earnings per share of $2.58 to $2.68 for the year, a 14-18 percent increase from fiscal 2009. Full year comparable store sales are still expected to be flat to up 2 percent, it said.

Sales of Microsoft “Project Natal” and Sony PlayStation Move products were not factored into GameStop’s results forecast, it said. The retailer expects to get more details about Natal and Move products at E3 next month, it said.