Strong Initial Results for PowerUp, In-Store DLC, GameStop Says
GameStop is getting strong initial results from its PowerUp customer-loyalty program and in-store downloadable content (DLC) sales pilot program, executives said Thursday on an earnings call. Based on that success, the retailer said, the programs will be rolled out across all its U.S. stores in Q3, which runs through October.
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But the PowerUp and DLC expansion, and the costs of buying social-game company Kongregate (CED July 28 p7) and investing in e-commerce efforts, caused GameStop to cut its Q3 earnings per share forecast to 35-38 cents from its 38-41 cents prediction in May (CED May 21 p4). The reduced forecast, and profit and revenue for Q2 ended July 31 coming in lower than analysts had expected, sent GameStop’s shares falling Thursday by $1.70 or 8.19 percent.
PowerUp recently launched at more than 500 GameStop stores in multiple U.S. markets, and “we have over 350,000 affiliated members,” CEO Paul Raines said. “Our projections put us on a path to several million members in the first year, and in the lead markets the program is already twice the size” of its previous customer loyalty program, Edge, he said. Raines said, “After only 10 weeks in pilot, members represent over 50 percent of all transactions in those markets, and we are seeing growth in consumer segments that were not participating previously in our Edge program. PowerUp members are shopping at roughly twice the frequency of non-members, and 15 percent of members have shopped us five times or more in the last 10 weeks. We are also seeing a higher level of trades and used sales from PowerUp members.” GameStop also is finding “strong interest” in the program from game publishers that want to participate, he said.
GameStop started its in-store DLC program at 35 stores in conjunction with Microsoft during Q2, Raines said. Customers have reacted favorably to the opportunity to download add-on content from digital kiosks while shopping at the company’s stores, he said. The assortment of DLC content available “continues to grow,” Raines said. GameStop will roll out the program to all U.S. stores this month and will add DLC content from Sony Computer Entertainment at an unspecified time in Q3, he said. “As discovery of DLC in-store increases, so do the number of transactions with a digital SKU, and that number is now 5 percent of total transactions,” an 80 percent increase from last year, he said.
Q2 profit increased to $40.3 million, 26 cents per share, from $38.7 million, 23 cents, a year earlier. Revenue grew 3.4 percent to $1.8 billion. Comparable-store sales increased 0.9 percent. Driving the growth was demand for new software titles and for new hardware SKUs of the PS3, Wii and Xbox 360, Raines said. “Strong market share gains contributed to a 5.3 percent increase in new videogame software sales,” GameStop said. Videogame console sales jumped 43 percent year-to-year in Q2, Executive Chairman Dan DeMatteo said.
The best-selling games of Q2 were Take-Two Interactive’s Red Dead Redemption, Nintendo’s Super Mario Galaxy 2, THQ’s UFC Undisputed 2010, Activision Blizzard’s StarCraft II: Wings of Liberty and NCAA Football 11 from Electronic Arts, GameStop said.
GameStop said it has opened 99 stores net this year -- 48 in the U.S., 35 in Europe, six in Canada and 10 in Australia and New Zealand. The company still expects to report earnings per share of $2.58-$2.68 for the fiscal year, a 14-18 percent increase from fiscal 2009. It projects comparable store sales to be flat to up 2 percent. GameStop expects earnings of 3 cents per share in Q4 from its new initiatives and the coming Microsoft launch of the Kinect for Xbox 360 motion-control system, it said. It expects comparable store sales growth of 3-6 percent for Q3.
The significant increase in game-hardware sales will probably drive software sales in the second half, DeMatteo said. That, and a strong slate of coming games, should help lead to “a strengthening videogame industry,” he said. He predicted GameStop will continue to gain share.