GameStop Sales Top $5 Billion

GameStop Corp. (NYSE:GME), the world’s largest video game and entertainment software retailer, today reported sales and earnings for the fourth quarter and the full year ended February 3, 2007. Please note that all per share data has been adjusted for the Class B share conversion and the two-for-one stock split that occurred subsequent to February 3, 2007. Fourth Quarter Financial Results Net earnings were $129.8 million for the 14-week fourth quarter of 2006, including debt retirement costs related to the bond buy-back program of $2.5 million ($1.6 million, net of tax benefits), as compared to net earnings of $85.0 million for the 13-week fourth quarter of 2005, an increase of 52.7%. Diluted earnings per share were $0.81, including debt retirement costs of $0.01 per diluted share, compared to $0.55 per diluted share in the prior year quarter, considerably beating guidance issued on January 4, 2007. Brisk sales in January of Vivendi’s WORLD OF WARCRAFT and new video game software titles drove the greater than anticipated results. GameStop sales increased 38.2% to $2,304.0 million in the fourth quarter, in comparison to $1,666.9 million in the prior year quarter. On a comparable store basis, sales increased 26.5% during the fourth quarter. Full Year Financial Results Net earnings were $158.3 million for the 53-week fiscal year 2006, including merger-related expenses of $6.8 million ($4.3 million, net of tax benefits) and debt retirement costs of $6.1 million ($3.8 million, net of tax benefits), as compared to earnings of $100.8 million in fiscal 2005, an increase of 57.0%. Diluted earnings per share were $1.00 for fiscal 2006, including merger related expenses and debt retirement costs of $0.05 per diluted share, as compared to $0.81 per diluted share in fiscal 2005. GameStop sales were $5,318.9 million for fiscal 2006, an increase of 72.0% over fiscal 2005 sales of $3,091.8 million. On a comparable store basis, sales increased 11.9% during fiscal 2006. "2006 was a remarkable year for GameStop. Total sales increased 72%, operating earnings grew by 73%, net earnings were up 57%, and comparable store sales increased 12%; by any retail measurement, a remarkable year,” indicated R. Richard Fontaine, GameStop’s Chairman and Chief Executive Officer. "In addition, we finished the year with a strong balance sheet and a year end cash balance of over $650 million. "During the year we successfully and fully integrated over 2,000 EB Games stores into the GameStop portfolio and opened 421 new stores worldwide; 276 in the United States and 145 in the international divisions. In fact, our internal rate of return for new stores was the highest ever and, in aggregate, significantly exceeded plan. "While we are in the very early stages of another strong growth cycle, it is not a mirror of the past. In fact, our 2007 guidance is based on our belief that this cycle will be deeper, wider, and longer than any previous period of new console introductions. From the technology powerhouses of Xbox 360 and PS3, to the uniquely engaging ease of play and inventiveness of the Wii, to the portability of the DS Lite, to the value of the PS2, there is a product and a price range to stimulate the core and casual gamer, and attract new customers to the video game experience,” continued Fontaine. "No previous cycle has had the diversity of console attributes currently in our stores; no previous cycle has merged other technologies like HDTV, Wi-Fi, and MP3 attributes to make the gaming experience truly the best ever. "The video game business has become more complex with more console choices, more sophisticated software, and a huge variety of enhancement accessories. The business is increasingly favoring the game passion and deep expertise of our 22,000 managers and game advisors whose product knowledge differentiates GameStop from the competition and will give us an even greater edge in the marketplace of the future.” Business Outlook For fiscal 2007 (the 52-week year ending February 2, 2008), sales are projected to grow between 19.0% and 21.0%, with comparable store sales ranging from +14.0% to +16.0%, backed by a strong release slate of video game titles across all platforms. Diluted earnings per share for the full year are expected to range from $1.37 to $1.40. GameStop expects to open between 500-550 stores worldwide in 2007. For the first quarter of fiscal 2007, the company expects comparable store sales to range from +12.0% to +14.0%, driven by the expected launches of Sony’s PlayStation 3 in Europe and Australia, Sony’s GOD OF WAR II for the PlayStation 2 in the U.S., the worldwide launch of Nintendo’s POKEMON DIAMOND and PEARL for the Nintendo DS, as well as continued strong demand for Microsoft Xbox 360 titles. Diluted earnings per share are expected to range from $0.15 to $0.16. This compares to earnings per share of $0.07 in the first quarter of 2006. Based on expected strong video game industry fundamentals, the company’s expanding worldwide retail portfolio, and sound cash generation, GameStop currently expects earnings per share to grow at least 25% annually in fiscals 2008 and 2009. Note that guidance does not include debt retirement costs. Fourth quarter and full year 2005 pro forma statements of operations have been provided in Schedules III and IV as if the acquisition of Electronics Boutique Holding Corp. took place at the beginning of fiscal 2005. In addition, the pro forma statements of operations include stock-based compensation expense as if SFAS No. 123(R) was implemented at the beginning of fiscal 2005. Conference Call and Webcast Information A conference call with GameStop Corp.’s management is scheduled for March 27, 2007 at 11:00 AM ET to discuss the fourth quarter and full year 2006 sales and earnings results. The conference call will be simulcast on the Internet at (http://www.gamestop.com/investor-relations/). The conference call will be archived on the website until April 10, 2007. About GameStop Corp. Headquartered in Grapevine, TX, GameStop Corp. is the world’s largest video game and entertainment software retailer. The company operates 4,778 retail stores across the United States and in fourteen countries worldwide. The company also owns two e-commerce sites, GameStop.com and EBgames.com, and Game Informer(R) magazine, a leading video and computer game publication. GameStop Corp. sells the most popular new software, hardware and game accessories for the PC and next generation video game systems from Sony, Nintendo, and Microsoft. In addition, the company sells PC entertainment software, related accessories and other merchandise. General information on GameStop Corp. can be obtained at the company’s corporate website: http://www.gamestop.com/corporate. Safe Harbor This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, the outlook for fiscal 2007 and beyond, future financial and operating results, projected store openings, the company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of GameStop's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the inability to obtain sufficient quantities of product to meet consumer demand, including Sony’s PlayStation 3 and Nintendo’s Wii; the timing of release of video game titles for next generation consoles; the risks associated with expanded international operations, and economic and other events that could reduce or impact consumer demand. Additional factors that could cause GameStop's results to differ materially from those described in the forward-looking statements can be found in GameStop’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006 filed with the SEC and available at the SEC's Internet site at http://www.sec.gov.   GameStop Corp. Balance Sheets (in thousands, except per share data)   February 3, January 28, 2007  2006  ASSETS: Current assets: Cash and cash equivalents $ 652,403  $ 401,593  Receivables, net 34,268  38,738  Merchandise inventories 675,385  603,178  Prepaid expenses and other current assets 37,882  16,339  Prepaid taxes 5,545  21,068  Deferred taxes 34,858  41,051  Total current assets 1,440,341  1,121,967    Property and equipment: Land 10,712  10,257  Buildings & leasehold improvements 305,806  262,908  Fixtures and equipment 425,841  343,897  742,359  617,062  Less accumulated depreciation and amortization 285,896  184,937  Net property and equipment 456,463  432,125    Goodwill, net 1,403,907  1,392,352  Assets held for sale --  19,297  Other noncurrent assets 48,873  50,080  Total assets $ 3,349,584  $ 3,015,821      LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 717,868  $ 543,288  Accrued liabilities 357,013  331,859  Note payable, current portion 12,176  12,527  Total current liabilities 1,087,057  887,674    Deferred taxes --  13,640  Other long-term liabilities 42,926  36,331  Notes payable, long-term portion 412  21,675  Senior floating and fixed rate notes payable, net of discount 843,311  941,788  Total liabilities 1,973,706  1,901,108    Stockholders' equity: Preferred stock - authorized 5,000 shares; no shares issued or outstanding --  --  Class A common stock - $.001 par value; authorized 300,000 shares; 152,305 and 145,594 shares issued and outstanding, respectively 152  146  Additional paid-in-capital 1,021,903  921,335  Accumulated other comprehensive income 3,227  886  Retained earnings 350,596  192,346  Total stockholders' equity 1,375,878  1,114,713  Total liabilities and stockholders' equity $ 3,349,584  $ 3,015,821    GameStop Corp. Statements of Operations (in thousands, except per share data)   14 weeks 13 weeks ended ended Feb. 3, 2007 Jan. 28, 2006   Sales $ 2,303,966  $ 1,666,914  Cost of sales   1,749,478    1,225,796    Gross profit 554,488  441,118    Selling, general and administrative expenses 294,025  259,974  Depreciation and amortization 30,321  26,283  Stock-based compensation 5,272  --  Merger-related expenses   --    2,271    Operating earnings 224,870  152,590    Interest expense, net 14,138  18,635  Debt extinguishment expense   2,497    --    Earnings before income tax expense 208,235  133,955    Income tax expense   78,432    48,940    Net earnings $ 129,803  $ 85,015    Earnings per common share: Basic $ 0.85  $ 0.59  Diluted $ 0.81  $ 0.55    Weighted average common shares outstanding: Basic 151,832  144,812  Diluted 159,832  154,774        Percentage of Sales:   Sales 100.0% 100.0% Cost of sales   75.9%   73.5%   Gross profit 24.1% 26.5%   SG&A expenses 12.8% 15.6% Depreciation and amortization 1.3% 1.6% Stock-based compensation 0.2% --  Merger-related expenses   0.0%   0.2%   Operating earnings 9.8% 9.1%   Interest expense, net 0.7% 1.1% Debt extinguishment expense   0.1%   --    Earnings before income tax expense 9.0% 8.0%   Income tax expense   3.4%   2.9%   Net earnings   5.6%   5.1%   GameStop Corp. Statements of Operations (in thousands, except per share data)   53 weeks 52 weeks ended ended Feb. 3, 2007 Jan. 28, 2006   Sales $ 5,318,900  $ 3,091,783  Cost of sales   3,847,458    2,219,753    Gross profit 1,471,442  872,030    Selling, general and administrative expenses 1,000,135  598,996  Depreciation and amortization 109,862  66,355  Stock-based compensation 20,978  347  Merger-related expenses   6,788    13,600    Operating earnings 333,679  192,732    Interest expense, net 73,324  25,292  Merger-related financing costs --  7,518  Debt extinguishment expense   6,059    --    Earnings before income tax expense 254,296  159,922    Income tax expense   96,046    59,138    Net earnings $ 158,250  $ 100,784    Earnings per common share: Basic $ 1.06  $ 0.87  Diluted $ 1.00  $ 0.81    Weighted average common shares outstanding: Basic 149,924  115,840  Diluted 158,284  124,972        Percentage of Sales:   Sales 100.0% 100.0% Cost of sales   72.3%   71.8%   Gross profit 27.7% 28.2%   SG&A expenses 18.8% 19.4% Depreciation and amortization 2.1% 2.2% Stock-based compensation 0.4% --  Merger-related expenses   0.1%   0.4%   Operating earnings 6.3% 6.2%   Interest expense, net 1.4% 0.8% Merger-related financing costs --  0.2% Debt extinguishment expense   0.1%   --    Earnings before income tax expense 4.8% 5.2%   Income tax expense   1.8%   1.9%   Net earnings   3.0%   3.3%   Schedule I GameStop Corp. Sales Mix     14 Weeks Ended 13 Weeks Ended Feb. 3, 2007 Jan. 28, 2006 Percent Percent Sales of Total Sales of Total Sales (in millions):   New video game hardware $ 604.9  26.3% $ 329.1  19.8% New video game software 873.7  37.9% 705.5  42.3% Used video game products 436.5  18.9% 348.6  20.9% Other 388.9  16.9% 283.7  17.0%         Total $ 2,304.0  100.0% $ 1,666.9  100.0%       53 Weeks Ended 52 Weeks Ended Feb. 3, 2007 Jan. 28, 2006 Percent Percent Sales of Total Sales of Total Sales (in millions):   New video game hardware $ 1,073.7  20.2% $ 503.2  16.3% New video game software 2,012.5  37.8% 1,244.9  40.3% Used video game products 1,316.0  24.8% 808.0  26.1% Other 916.7  17.2% 535.7  17.3%         Total $ 5,318.9  100.0% $ 3,091.8  100.0%                                 Schedule II GameStop Corp. Gross Profit Mix     14 Weeks Ended 13 Weeks Ended Feb. 3, 2007 Jan. 28, 2006 Gross Gross Gross Profit Gross Profit Profit Percent Profit Percent   Gross Profit (in millions):   New video game hardware $ 33.5  5.5% $ 21.0  6.4% New video game software 178.7  20.5% 150.2  21.3% Used video game products 213.0  48.8% 171.6  49.2% Other 129.3  33.2% 98.3  34.6%     Total $ 554.5  24.1% $ 441.1  26.5%       53 Weeks Ended 52 Weeks Ended Feb. 3, 2007 Jan. 28, 2006 Gross Gross Gross Profit Gross Profit Profit Percent Profit Percent   Gross Profit (in millions):   New video game hardware $ 77.0  7.2% $ 30.9  6.1% New video game software 427.3  21.2% 266.5  21.4% Used video game products 651.9  49.5% 383.0  47.4% Other 315.2  34.4% 191.6  35.8%     Total $ 1,471.4  27.7% $ 872.0  28.2%   Schedule III GAMESTOP CORP. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data)     For the thirteen weeks ended January 28, 2006 HistoricalGameStop Corp.January 28,2006 (a)   HistoricalElectronics BoutiqueOctober 8,2005 (a) Pro FormaAdjustments GameStopCorp.Pro Forma   Sales $ 1,666,914  $ -  $ -  $ 1,666,914    Cost of sales   1,225,796  -    -    1,225,796  Gross profit 441,118  -  -  441,118      Selling, general and administrative expenses 259,974  -  -  259,974  Depreciation and amortization 26,283  -  -  26,283  Merger-related expenses 2,271  -  (2,271) (b) -  Stock-based compensation   -    -    2,422  (d)   2,422  Operating earnings (loss) 152,590  -  (151) 152,439    Interest expense, net 18,635  -  -  18,635  Merger-related interest expense   -    -    -    -  Earnings (loss) before income tax expense (benefit) 133,955  -  (151) 133,804    Income tax expense (benefit)   48,940    -    (56) (g)   48,884    Net earnings (loss) $ 85,015  $ -  $ (95) $ 84,920      Net earnings per common share--basic $ 0.59  $ -  $ 0.59      Weighted average shares of common stock--basic   144,812    -    -    144,812    Net earnings per common share--diluted $ 0.55  $ -  $ 0.55      Weighted average shares of common stock--diluted   154,774    -    -    154,774    Schedule IV GAMESTOP CORP. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data)     For the fifty-two weeks ended January 28, 2006 HistoricalGameStop Corp.January 28,2006 (a) HistoricalElectronics BoutiqueOctober 8,2005 (a) Pro FormaAdjustments GameStopCorp.Pro Forma   Sales $ 3,091,783  $ 1,302,107  $ -  $ 4,393,890    Cost of sales   2,219,753    935,175    -    3,154,928  Gross profit 872,030  366,932  -  1,238,962      Selling, general and administrative expenses 599,343  331,424  -  930,767  Depreciation and amortization 66,355  30,573  (2,640) (c) 94,288  Merger-related expenses 13,600  2,900  (16,500) (b) -  Stock-based compensation   -    -    10,581  (d)   10,581  Operating earnings 192,732  2,035  8,559  203,326    Interest expense, net 25,292  (1,927) 54,974  (e),(f) 78,339  Merger-related interest expense   7,518    -    (7,518)   -  Earnings (loss) before income tax expense (benefit) 159,922  3,962  (38,897) 124,987    Income tax expense (benefit)   59,138    1,415    (14,933) (g)   45,620    Net earnings (loss) $ 100,784  $ 2,547  $ (23,964) $ 79,367      Net earnings per common share--basic $ 0.87  $ 0.05  $ 0.55      Weighted average shares of common stock--basic   115,840    50,130    (22,120) (h)   143,850    Net earnings per common share--diluted $ 0.81  $ 0.05  $ 0.52      Weighted average shares of common stock--diluted   124,972    50,792    (22,782) (h)   152,982  GAMESTOP CORP. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (a) Certain reclassifications have been made to the historical presentation of GameStop and EB to conform to the presentation used in the unaudited pro forma condensed consolidated statement of operations. (b) To give effect to the exclusion of certain expenses which are directly attributable to the merger and are believed to be of a one-time or short-term nature. (c) To give effect to the intangible asset amortization and depreciation on the property and equipment adjustment based on the preliminary allocation of the purchase price over estimated useful lives. (d) To give effect to the stock-based compensation expense as if SFAS 123(R) had been adopted as of January 30, 2005. (e) To give effect to the interest expense incurred related to the receipt of $941,472 resulting from issuance of $650,000 in senior notes, at an interest rate of 8.0% and $300,000 in senior floating rate notes at an interest rate of LIBOR plus 3.875%. The senior notes were issued at a discount of $8,528 and interest expense includes the amortization of this discount over seven years. (f) To give effect to the amortization of deferred financing fees relating to the $400 million revolving credit facility, the senior floating rate notes and the senior notes over five, six and seven years to match the terms, respectively. (g) Represents the aggregate pro forma effective income tax effect of Notes (b), (c), (d), (e) and (f) above. (h) The pro forma earnings per share have been adjusted to reflect the issuance of 40,458 shares of GameStop Class A common stock to EB common stockholders as if they were issued on January 30, 2005 and to reflect the elimination of the outstanding shares of Electronics Boutique.