THQ Says It’s ‘Encouraged’ By Initial Reaction to uDraw Peripheral

THQ is “encouraged” with the strong initial reaction to its coming uDraw GameTablet peripheral that will ship Nov. 14 in the U.S., CEO Brian Farrell said in an earnings call Wednesday. Retail partners, as well as parents and children, reacted favorably to the product, he said.

The company is about to start a consumer ad campaign backing uDraw, Farrell said, and THQ boosted its expectations for uDraw. “Based on the reception we've gotten from retail, we have been successful in our efforts to get about another” 250,000-300,000 units manufactured this fiscal year -- and “most of those will be in the fourth quarter,” he said. It “ramped up to about 300,000 units per month,” he said. If uDraw sells even stronger than now expected, THQ will “make appropriate adjustments” in the production schedule, he said. The GameTablet won’t launch in Europe and Asia Pacific until THQ’s Q4 ending March 31, he said.

Farrell also said he was pleased that Microsoft boosted its sales estimate on the new Kinect for Xbox 360 motion-sensing control system device from 3 million units this holiday season to 5 million. Kinect went on sale Thursday. Microsoft increased its estimate for the quarter that started Oct. 1 “based on pre-sales, retail orders and consumer interest,” a Microsoft spokeswoman said.

THQ will launch its first Ultimate Fighting Championship games for the iPhone and iPad later this month, Farrell said. Its first UFC Facebook game is now being beta tested and will commercially launch in early 2011, he said.

But THQ had weaker earnings and sales for Q2 fiscal 2011 ended Sept. 30, although it said the results were “in line with” its forecast (CED Nov 4 p11). Its loss widened to $47 million, 69 cents per share, from $5.6 million, 8 cents, in Q2 last year. Revenue tumbled to $77.1 million from $101.3 million.

Xbox 360 games accounted for 18.5 percent of THQ’s Q2 sales, down from 21.4 percent in Q2 last year, it said. The DS had the largest percentage of THQ’s Q2 sales, increasing to 22.4 percent from 19.6 percent. Wii game sales represented 16.9 percent of THQ’s Q2 sales, up from 9.2 percent, while the PSP’s contribution grew to 8.9 percent from 7.5 percent. But THQ said the PS3’s contribution fell to 15.9 percent from 17.3 percent, while the PS2’s tumbled to only 2.5 percent from 8.1 percent, wireless dipped to 1.9 percent from 2.7 percent, and PC dipped to 13 percent from 14.2 percent.

Key THQ releases for the December quarter, along with uDraw and its accompanying games, include WWE SmackDown vs. Raw 2011 and Megamind, based on the new DreamWorks animated movie of the same name, said Chief Financial Officer Paul Pucino. The Megamind game just shipped on five platforms, Farrell said. THQ was “pleased” that first week sales of the latest WWE wrestling title were “tracking to our expectations,” said Farrell. It was “particularly encouraged” by growth of the “higher-priced and higher-margin” PS3 and Xbox 360 SKUs of the game, he said. THQ opted to not release a DS SKU of the wrestling game this time, and “predicted weakness” on the PSP and PS2 versions that it shipped, he said.

THQ just shipped its first games based on the TV game shows Jeopardy and Wheel of Fortune and was “pleased with the initial indications from retail,” Farrell said. The company plans to release at least one major franchise title in each of the next 10 quarters, he said.

Retailers are again “cautiously optimistic” about the coming holiday season, Farrell said. Like in the past couple of years, retailers will “get behind what they think are drive titles and support them aggressively,” but they'll be “cautious with inventory” on other titles until “they see sellthrough,” he said. He predicted, “We'll see some strength coming out of the Thanksgiving Black Friday weekend, we'll see a lull for a week or two while consumers reload, and then we'll see a lot more activity in the last two weeks before Christmas.” Retailers are probably expecting the same sort of consumer buying pattern, he said.

THQ expects to report Q3 sales of $300 million-$315 million and earnings per share of 20-30 cents. For Q4, it expects to report sales of $295 million-$310 million and earnings per share of 35-45 cents. For fiscal 2011, it expects to report sales of $825 million-$855 million and a loss per share of 10-20 cents. The company expects its digital revenue to “about double this fiscal year” from last year, and “double again” next year, Farrell said.