GameStop Shares Soar Following Improved Guidance

Shares of GameStop [GME] surged almost 12 percent in morning trading as the video game retail giant upped its Q4 sales and profit guidance.

GameStop said its total sales were $3.5 billion, a 22 percent increase compared  to the previous year’s Q4. The company expects its net income to be in the range of $1.33 to $1.34 per share, a 17 to 18 percent increase over last year’s profit. GameStop will report its full earnings for the year and Q4 in mid-March.

For fiscal 2009 ending January 30, 2010, GameStop predicts its sales will grow between 10 and 12 percent, and expects its net income to increase between 18 and 22 percent.

GameStop’s used game trade-in model has been a topic of controversy, because neither developers nor publishers see any of the money from GameStop’s high-margin used game sales. CEO Dan DeMatteo credits used game sales for the company’s positive performance, but says there’s more to it the story. “Although our trade-in model is widely known as a driver of new software sales, our exceptional growth is also a function of thousands of conveniently located stores, excellent supply chain management, and the expertise of our associates who operate GameStop stores. Also of note is our US advertising penetration, and the power of our magazine, Game Informer, which is the twelfth largest consumer magazine in America, with over 3 million subscribers. We are energized by the fact that video gaming has gone mainstream, with recent industry data showing that nearly half of new gamers are over 35 years old and 40% are female.”

DeMatteo and other GameStop executives have benefitted handsomely from its strong fiscal 2008. Both he and Chairman R. Richard Fontaine have collected bonuses of $2.4 million each following the banner year, according to a company Securities and Exchange Commission filing. Other executives received bonuses ranging from $300,000 to $900,000.