GameStop Seeing ‘Very Strong Demand’ for 3DS, President Says

GameStop is seeing “very strong demand for the 3DS” ahead of its launch, said Tony Bartel, the chain’s president, in a Thursday earnings call. Nintendo’s device launches Friday in Europe and Sunday in the U.S. GameStop started taking 3DS preorders in January.

GameStop has been “working very closely with Nintendo to maintain our reservations” for the 3DS, and the manufacturer has “been very good with providing us with additional” supplies of the device “so that we can keep our reservations open,” Bartel said. “Demand has been so strong that literally we are working every day with Nintendo to ensure that we have sufficient product, and they have been very good partners on this. … We fully expect to have sufficient product at launch.”

The retailer said it expects strong-selling 3DS games to include Capcom’s Super Street Fighter IV 3D Edition and Nintendo’s nintendogs + cats. GameStop will hold 3DS “demo day” events at 1,400 stores Saturday, and “based on the volume of reservations” some stores will host midnight launches, Bartel said. The retailer is seeing “a lot of activity” in trading in of DS systems by customers who may be looking to use the store credits they receive to buy a 3DS, it said.

GameStop expects growth in overall hardware sales this year “because of the 3DS launch and what we think that is going to bring,” said Chief Financial Officer Robert Lloyd. The company predicted that Kinect will “continue to grow very aggressively.” GameStop said it didn’t make assumptions about price cuts on current hardware systems this year because it didn’t know manufacturers’ plans.

There’s still “strong demand” for the Kinect for Xbox 360, but “Microsoft is meeting that demand” and GameStop has “good supply” on the motion sensor, Bartel said. The software-to-hardware attach rate has been “where we anticipated it would be,” he said. GameStop recently met with publishers, and “most” of them “are developing games for the Kinect platform,” providing “strong support” for it, he said.

But GameStop has “struggled to stay in stock on” the PlayStation Move controller, Bartel said. There has been “a tremendous amount of demand” for them, and if the retailer can get enough stock and there are no “unforeseen shortages in Japan, we should see strong growth” from the product this year, it said.

The retailer’s Kongregate mobile game application is now available for all Android devices only, but Bartel said it’s “expanding that to other platforms” this year. It didn’t specify when or which platforms.

GameStop now has “well over 8 million members” in its PowerUp Rewards loyalty program, CEO Paul Raines said. It “added a million members in December alone,” he said.

The chain still has felt “no impact” to its used product sales from rivals, Raines said. And it continued to gain market share in console gaming in Q4 fiscal 2010 ended Jan. 29, he said.

Q4 profit grew to $237.8 million, $1.56 per share, from $215.9 million, $1.29, in Q4 the prior year, GameStop said. Revenue grew 4.8 percent to $3.69 billion, and same-store sales edged up 2.6 percent. For fiscal 2010, profit grew to $408 million, $2.65 per share, from $377.3 million, $2.25, and revenue grew 4.3 percent to $9.47 billion and same-store sales inched up 1.1 percent. GameStop customers bought $290 million of console and PC digital content in 2010, a 61 percent increase over 2009, it said.

GameStop boosted its Q4 new game market share in the U.S. “by 200 basis points” from a year earlier as its PowerUp Rewards program and “e-commerce enhancements improved our competitive position” during the holiday period, Lloyd said. Used product sales grew 3.7 percent to “a record” $805.6 million in Q4, he said. New hardware sales grew to $781.4 million from $737.9 million, and new software sales increased to $1.59 billion from $1.56 billion, GameStop said. For the year, used product sales grew 3.2 percent to $2.5 billion and new software sales grew 6.4 percent to $4 billion, but new hardware sales fell 2.1 percent to $1.7 billion despite strong Kinect and Xbox 360 sales, Lloyd said.

GameStop “saw improvement in Europe’s performance” but saw “continued challenges in Australia and Canada,” Raines said. It plans to build its international business in “mature and high-potential markets,” but “in struggling markets, we are focused on restructuring and closing poorly performing stores,” he said. GameStop expanded its e-commerce business in 2010 by adding websites in Germany, Ireland and Spain, Raines said. It just launched in-store sales of console downloadable content (DLC) in France as “the first step in offering DLC to all of our customers globally as we move forward with our multi-channel strategy in each market,” he said.

The chain opened 359 stores and closed 139 in fiscal 2010, ending the year with 107 new stores in the U.S. and 113 additional stores elsewhere, Lloyd said. In 2011, GameStop said, it expects to open about 200 new stores in the U.S., “focusing on underserviced markets.” The company said it expects to close 200 stores, “primarily those overlapping store locations due to past acquisitions with expiring leases."

GameStop expects the digital category to grow more than 20 percent industrywide and new packaged videogame sales to be flat to up 3 percent this year in the U.S., Bartel said. The company expects to “significantly outpace” the industry in digital sales, he said. DLC, in particular, will be “a very strong growth vehicle,” he predicted. GameStop is “on pace to sell more DLC in the first quarter this year than we sold all of last year,” he said. Some of its DLC programs hadn’t been put into effect a year ago. “As GameStop introduced console digital DLC for the first time this holiday, thousands of consumers bought both physical games and DLC in our stores,” Raines said. NPD’s sales data “measures less of our complete business every day,” because it hasn’t taken account of digital sales, he said.

Recent game releases that have been selling especially well for GameStop included Nintendo’s Pokemon Black Version and White Version, THQ’s Homefront, and Dragon Age II from Electronic Arts, Raines said. The company said it expects to report a 6-8 percent increase in revenue and earnings per share of 53-55 cents for Q1, and a 6-8 percent rise in revenue and $2.82-$2.92 in EPS for fiscal 2011.

Raines said the company “restructured our merchandising teams to drive greater focus … on emerging digital channels,” and is focusing on “greater loyalty and other marketing for the pre-owned business” as part of a “strategy to grow the used business aggressively.” GameStop said it will provide additional information about its efforts at an “investor day” April 1 in Southlake, Texas.