Take-Two Warns 2006 Results Won’t Meet Expectations

But the publisher gave no specifics on its 2006 results. Take-Two also cut its Q1 estimate due to “continued retail weakness for videogame software during the holiday selling season in both North America and Europe.” It also cited lags in delivering Top Spin 2 for Xbox 360, Nintendo DS and Game Boy Advance and College Hoops 2K6 for Xbox 360 until its 2nd quarter to provide more development time, CFO Karl Winters told analysts in a conference call. He said the company now expects to report $230-$250 million in sales and a loss per share for Q1 ending Jan. 31.

The company reported preliminary, unaudited results for its 4th quarter and fiscal 2005 ended Oct. 31 in line with its previous lowered estimate. It said sales fell to $308 million in Q4 from $438 million a year ago, reporting a diluted per-share profit for the quarter of 27 cents, down from $1.36. The company said its diluted fiscal year per-share profit shrank to 53 cents from $1.43. But Take- Two said sales for the year edged up slightly, to $1.2 billion from $1.13 billion.

Winters said the Q4 and fiscal 2005 figures were called “preliminary” because Take-Two needed more time to complete its year-end results, including assessments required for the first year of its reporting under Section 404 of the Sarbanes-Oxley Act. But Take-Two said it expects to file a 10-K report “within the timeframe required” by the SEC.

The firm said the drop in Q4 results stemmed largely from the stark comparison to last year, when it released hit game Grand Theft Auto: San Andreas. Winters said that title added $236 million to overall sales in Q4 2004 -- about 54% of total sales. In comparison, he said, the company’s top-selling game in 2005’s Q4 was Grand Theft Auto: Liberty City Stories for PSP, which represented only about 12% of total sales in the quarter. Winters said The Warriors represented about 12% of overall sales, followed by Civilization IV and San Andreas (about 7% each) and Midnight Club 3: Dub Edition (about 4%).

“The level of sales we anticipated for our titles” during Q4 “just didn’t materialize” due in part to “the continued sluggish retail environment for videogames and the lighter than expected Xbox 360 hardware shipments,” Winters said. He said Take-Two is seeing pricing pressure on games for current platforms.

Take-Two is “pleased” with consumer reaction to Liberty City Stories, Winters said. Liberty City Stories was the #1-selling title for the PSP in the U.S. in Oct. and Nov., Take-Two said, citing NPD Funworld data. But N. American PSP hardware sales were “lower than we expected for the holiday season,” which hurt its overall PSP game sales, Winters said. However, he said the company did see “some pickup” in sales in late Dec.

Sales in its Jack of All Games distribution unit dropped about 5% in Q4 from a year ago “due primarily to lower sales volume of software titles and a decrease in average selling prices of interactive entertainment products as the industry transitions to next-generation platforms,” the company said. Jack of All Games will focus on fiscal 2006 performance via increased sales of value-priced exclusive titles, hardware and software bundles and multi-game compilations. Winters said the company put in a new inventory management software system at Jack of All Games’s new facility late in the fiscal year and “implementation did not go as smoothly as planned.” Jack of All Games business also endured the same issues impacting game business overall: “Conservative ordering by retailers and lackluster demand,” he said.

Winters said San Andreas was Take-Two’s biggest seller, representing about 32% of revenue. Dub Edition accounted for about 8% of sales while Liberty City and The Warriors each represented about 3%.

The company expects Sony’s PS3 console to ship near the end of fiscal 2006 in Oct., it said. Sony has said it plans to ship the console in spring 2006 but has not said which markets will get it first. Many analysts believe the launch will come first in Japan, following in N. America and Europe a few months later, as with Sony’s prior consoles. But Sony could attempt a world launch, akin to Microsoft’s recent move with the Xbox 360, which would cut the 360’s lead. Take-Two’s main market is N. America; its Japan business is minimal.

“We remain confident in the resilience and future prospects of Take-Two and the global videogame business,” said CEO Paul Eibeler: “We have assembled some of the industry’s best development capabilities supported by strong financial resources, and we expect to capture market share in an expanding Xbox 360 installed base and from the anticipated introduction of the PlayStation 3 later this year.” Eibeler said the company sees the Nintendo DS as “one area where we think there’s a growth opportunity” for Take-Two. He also revealed that the company’s game Bully was delayed from Q2 until the 2nd half of Take-Two’s fiscal year.

Analysts were split on whether investors should fret over Take-Two’s woes. Harris Nesbitt’s Edward Williams said in a research note he believes the publisher’s “long- term outlook looks bright.” But Wedbush Morgan Securities’ Michael Pachter said he’s “disappointed that the company has not provided any additional details to the next major console launch of its flagship Grand Theft Auto.” He complained “the company’s management continues to rely upon the enormous success of its Grand Theft Auto franchise” to drive its revenue and “we are beginning to believe that the oft-heard refrain that Take-Two is a ‘one trick pony’ is closer to the truth than we thought in the past.” Take-Two “alienated investors by continually lowering its outlook to the point where it has declined to provide specific” results estimate for fiscal 2006, he said.

Take-Two said Gary Lewis resigned as global COO to move back to Europe. The company is looking for a successor, it said.