GameStop Sees Kinect, Move In Short Supply For Holiday

The Kinect for Xbox 360 and PlayStation Move motion-sensing control systems will “be in short supply during the holiday season,” GameStop President Tony Bartel predicted on a Thursday earnings call.

GameStop is “very excited” with initial sales of both control systems, Bartel said. GameStop is seeing “a new customer coming into our stores” as a result of the Kinect and Move, and the stores are “selling hardware as well,” he said. There is also “a very high attach rate” between the control systems and games, with titles targeted at non-core gamers, including Microsoft’s Kinect Sports and Dance Central from Harmonix and MTV Games, also for Kinect, “attaching extremely well,” he said.

While the retailer is offering a “guaranteed in-stock promise” on the most in-demand new videogames this holiday season, CEO Paul Raines said that didn’t extend to the Kinect sensor. “We've got huge expectations around that product and we're just trying to get as much as we can” for the stores, he said.

As part of the in-stock guarantee, GameStop will ship a game for free in the unlikely case that it’s not available at a store, Raines said. He didn’t say whether the guarantee extended to PlayStation Move. But GameStop spokesman Chris Olivera said “the in-stock guarantee does not apply to” Move either, “only the top 40-selling games.” GameStop will heavily promote the in-stock guarantee, said Raines.

Raines told Consumer Electronics Daily at an investor conference last week that Kinect and Move were both selling well, with no clear winner between the two, for GameStop (CED Nov 15 p5). They were both in stock at the retailer’s stores at the time, he said, although the SKU including the Kinect sensor and Kinect Adventures was unavailable for online purchase when we checked the next day, while all Move SKUs seemed to be available at GameStop.com. That was again the case on Thursday, but this time the $399.99 Kinect bundle that comes with the 250-GB Xbox 360 console was also not available at the website. Supplies of the $399.99 bundle were also spotty at Long Island GameStop stores Thursday, according to the site.

GameStop moved up the national U.S. rollout of its new PowerUp Rewards customer loyalty program to Q3 to have it in place in time for the holiday season, Raines said Thursday. It’s “been accepted beyond our expectations” by customers, said Executive Chairman Daniel DeMatteo. PowerUp members are shopping at GameStop “three times as often as non-members,” Raines said.

The company’s recently revamped e-commerce website, meanwhile, is “driving huge sales increases,” DeMatteo said. GameStop recently added the ability for customers to order products online and pick them up at GameStop stores. It also added e-commerce websites in Germany, Ireland and Spain, DeMatteo said. GameStop.com became the No. 2 online game retailer, behind only Amazon, and “more than doubled our sales in Q3” from a year ago, said Bartel.

GameStop also made downloadable content (DLC) for games available for sale at all its U.S. stores, DeMatteo said. It became “the first retailer to have the technology and marketing to sell DLC from retail doors,” he said. Transactions including a digital game SKU grew to 9.9 percent of total sales in Q3, Raines said.

Sales for Q3 ended Oct. 30 increased 3.5 percent from a year ago to $1.9 billion. Profit grew to $54.7 million, 36 cents per share, from $52.2 million, 31 cents. GameStop saw “continued significant market share gains on a strong slate of new title releases” that it said “drove a 9 percent increase in new software sales.” U.S. same-store sales grew 5.3 percent. But Chief Financial Officer Robert Lloyd said total company same-store sales inched up only 1.1 percent, weaker than its expected growth of 3-6 percent. New software sales were strong globally, but it said weakness in global hardware sales hurt same-store sales outside the U.S. Overall hardware sales tumbled 14 percent “due to price cuts and international weakness in hardware,” Raines said.

Used product sales grew 4 percent in Q3, Raines said. Its “same-store used inventory levels are in excellent shape going into the peak holiday season,” and average inventories are “well above” last year’s levels, he said. GameStop is seeing “no impact” to its used business from rivals’ used product efforts, he said.

The top five-selling games in Q3 for GameStop, it said, were Microsoft’s Halo: Reach for the Xbox 360, Madden NFL 2011 and Medal of Honor from Electronic Arts, Fallout: New Vegas by Bethesda Softworks, and NBA 2K11 from Take-Two Interactive’s 2K Sports.

Total GameStop inventory levels grew 8.3 percent from a year ago, on a per-store basis, due to its efforts to have adequate supplies of Kinect and Black Ops in stock ahead of their launches and increases in used inventory, said Lloyd.

GameStop is backing the coming release of the Halo: Reach Noble Map Pack with “a full media campaign focused on pre-ordering,” said Bartel. A TV spot started running for it Thursday and “we're already pleased with the pre-orders that we are receiving,” he said. The title’s launch marks the start of GameStop’s strategy of pre-selling and digitally releasing DLC for the Microsoft and Sony platforms, he said. GameStop is “in discussions” with Nintendo about offering DLC for their systems also, Bartel said. But he said “we don’t have a plan or a roadmap with them in the first half of next year that would put them in our stores."

Thanks to “brisk sales trends of new software titles and motion controller launches,” GameStop was “enthusiastic about our business” and boosted its earnings forecast for the fiscal year, Raines said. It now expects to report earnings per share of $2.63-$2.69, a 16-19 percent increase from fiscal 2009 and up from its prior estimate of $2.58-$2.68, it said. GameStop expects to report Q4 EPS of $1.53-$1.59, 19-23 percent growth over 2009. Fiscal 2010 same-store sales are expected to be flat to up 2 percent, and Q4 same-store sales are expected to grow 2-4 percent, it said. The company expects used product sales to grow 8-12 percent growth in Q4, Lloyd said.

GameStop opened 156 net new stores so far this year, including 89 in the U.S., 47 in Europe, 8 in Canada and 12 in Australia and New Zealand, it said. It opened 78 new stores and closed 21 in Q3, and plans to open 300-400 stores and close 100-200 next year, Lloyd said.