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GameStop Pulls Back as Holiday Sales Drop

The Exchange

Two of the most powerful franchises in console gaming had new releases leading up to the 2012 shopping season, but that wasn't enough to give GameStop (GME) a big quarter to end the year.

GameStop's shares were sinking 5% to $23.57 Tuesday after the video-game seller said sales for the nine-week holiday period, which ended Dec. 29, totaled $2.88 billion, down 4.6% from the results recorded in 2011. For investors, the good news here is the stock was much weaker in the premarket, at one point showing a loss of 10%, so the damage has been mitigated as the news has been processed. The bad news is it wasn't limited to GameStop, and related game stocks were selling off.

Same-store sales for the holidays fell 4.4%, GameStop, which is planning to close 200 shops, said in a press release. In the U.S., comparable sales were off 3.5%, while international same-store sales dropped 6.4%. The Grapevine, Texas, company is now expecting fourth-quarter same-store sales to decline 4% to 7%, making for the third negative reading in five years, with the worst of those being the fourth quarter of 2009, when comps skidded 7.9%. Previously, GameStop forecast a range of down 7% to up 1%.

GameStop Holiday Sales

Source: GameStop. Data in millions of $.

Full-year same-store sales will fall 7.5% to 9%, the company believes, vs. its prior outlook of a decline between 6% and 9%. The current range would be the weakest showing in at least five years, according to FactSet data.

Even though November included the launch of Microsoft's (MSFT) Halo 4 and Activision Blizzard's (ATVI) Call of Duty: Black Ops II, GameStop said sales of new games decreased 5.1%, hurt by a downturn in shoppers visiting its more than 6,600 stores.

“GameStop experienced mixed results during the holiday selling period. Our successful Wii U [Nintendo's (NTDOY) new system] launch, strong digital growth and continued momentum in the mobile space were countered by a decline in store traffic,” CEO Paul Raines said in a press release. Because of the weak showing, GameStop believes fourth-quarter earnings will be at the low end of its projected range of $2.07 to $2.27.

Video games weren't the only segment to see a loss during the holidays. New hardware sales fell 2.7%; this figure includes 320,000 Wii U units sold worldwide. Pre-owned game sales slid 15.6%.

GameStop, being a specialty retailer where you essentially go for games, consoles and accessories, doesn't have a monopoly on the category in which it operates, and that's a factor during the year-end retail rush. It's got competitors who sell a lot of other merchandise in addition to games, namely Target (TGT), Best Buy (BBY), Wal-Mart (WMT) and online venues. All of these are viable when shopping for multiple things or for multiple people, so even when strong overall sales of new titles are recorded by the video-game industry, not all of those dollars will flow to GameStop.

As for GameStop's stock price, the past holiday season was also abnormally weak, as shares slipped 1.3%. Going back to 2006, GameStop has averaged an increase of around 7% from just before Thanksgiving up to Christmas Eve. The only shopping year in the period before 2012 that had a decline was 2009.

Meanwhile, stocks throughout the game sector were pulling back along with GameStop, including the aforementioned Nintendo and Activision. Game publisher Electronic Arts (EA) was weaker, as was PlayStation maker Sony (SNE).