GameStop Corp. (GME) is a video game and entertainment software retailer.  The Company sells new and used video game software as well as hardware and hardware and accessories for video game systems from Sony, Nintendo and Microsoft.  The Company also sells PC entertainment software, related accessories and other merchandise.  As of August 20, 2009, GME operated 6,333 retail stores in 17 countries and an e-commerce site, GameStop.com.  The Company also publishes Game Informer® magazine, a leading multi-platform video game publication.

The Company was founded in 1994 and is headquartered in Grapevine, Texas.

Share Statistics*			2007	2008	%Chg	Q2 2008	Q2 2009	% Chg
Sep-08-2009
Symbol	GME	Revenue, Mn	7,094.0	8,805.9	24.13%	1,804.4	1,738.5	-3.7%
Current price	$24.93	Gross margin	25.6%	25.8%	20 b.p.	26.8%	28.5%	170 b.p.
52wk Range:	$16.91-$46.36	Oper. margin	6.9%	7.6%	70 b.p.	5.5%	4.1%	-140 b.p.
Avg Vol (3m):	5.49M	Net margin	4.1%	4.5%	40 b.p.	3.2%	2.2%	-100 b.p.
Market Cap.	4.10B
Dil. Shares Outst.	164.66M	EPS	1.80	2.40	33.3%	0.34	0.23	-32.4%

Source: Google Finance, SEC Filings.

*GME’s financial years ended February 2, 2008 and January 31, 2009.  GME’s second quarters ended August 2, 2008, and August 1, 2009.

The Company reported a net income of $38.7 million ($0.23 per diluted share) for the three months ended August 1, 2009, a 32.4% decrease from the same period in 2008.  The Company attributed the decline to low consumer spending as a result of the recession and strong prior year comparisons (the three months ended August 2, 2008, represented the highest earnings in a summer quarter in GME’s history).

Operating Results

Total revenues for the three months ended August 1, 2009, were $1.74 billion, as compared to $1.80 billion for the same period in 2008.  Comparable store sales (sales from stores open for over one year) were down 14.1% as a result of lower new console unit sales, a lack of strong new software titles compared to record releases in the previous year, and customer caution due to the continued weak economy.  While new hardware sales and sales of new software were low, GME’s used product sales increased 19% over the year, as a lack of new game releases and significant promotions caused some customers to shift to the Company’s buy-sell trade model.

Gross margins for the three months ended August 1, 2009, improved 170 basis points over the year to 28.5%.  This was due to a change in product mix from low margin hardware sales to high margin software sales and control of inventory shrinkage.

Balance Sheet

The Company maintained a strong balance sheet in the three months ended August 1, 2009.  On August 1, 2009, the Company had $197.9 million in cash and cash equivalents.  The Company also maintained tight control over its inventories during the period, with average store inventories declining 1% over the year.  Total inventory on August 1, 2009, was 1.1 million.

The Company expects free cash flow for fiscal 2009 to be between $400 million and $425 million.  The Company has committed $100 million of this to debt buy-back.  As of August 1, 2009, the Company had $495.8 million in liabilities related to senior notes payable.

Outlook

GME expects positive earnings growth for the second half of 2009 as more new video game titles will be released. The Company expects diluted earnings per share to be range from $0.27 to $0.33 for the three months ending November 1, 2009, as compared to actual diluted earnings per share of $0.28 for the three months ended November 1, 2008.  Comparable store sales for this period are projected to fall from 6% to 11% over the year.

GME is forecasting diluted earnings per share for the three months ending January 31, 2010, to be between $1.47 and $1.65, as compared to actual diluted earnings per share of  $1.39 for the three months ended January 31, 2009.  Comparable store sales for this period are expected to drop from 1% to 7% over the year.

Upon releasing earnings results for the three months ended August 1, 2009, the Company lowered its diluted earnings per share guidance for fiscal 2009 from the range of $2.83 to $2.93 to a range of $2.40 to $2.64, as compared to actual diluted earnings per share of $2.40 for fiscal 2008.  The Company expects that comparable store sales for fiscal 2009 will be 4% to 8% lower than the previous year.

Analysts polled by Thompson Reuters rate GME as a “Buy,” with 10 analysts rating the stock as a “Buy,” the same as three months ago; four analysts expecting the stock to “Outperform,” the same as three months ago; and two analysts rating the stock as a “Hold,” the same as three months ago.

	# of Estimates	Mean	High	Low	1 Year
					Ago
SALES (in millions)
Quarter Ending Oct-09	13	1721.82	1810.87	1618.5	2048.5
Quarter Ending Jan-10	13	3560.69	3689.05	3378.2	3756.23
Year Ending Jan-10	14	9006.38	9219	8867.3	9937.9
Year Ending Jan-11	12	9,450.83	9,846.00	8,593.70	11,182.10
Earnings (per share)
Quarter Ending Oct-09	16	0.3	0.35	0.25	0.5
Quarter Ending Jan-10	16	1.56	1.66	1.47	1.75
Year Ending Jan-10	16	2.55	3.05	2.39	3.09
Year Ending Jan-11	14	2.88	3.05	2.7	3.45

Source: Thompson Financial.

Delayed Releases

According the research group NPD Group Inc., sales in the U.S. video game industry have fallen 14% in 2009, including a 28% decline from May 2009 to July 2009. Video game sales were affected by the poor economic climate and the lack of new game releases. GME’s results for the three months ended August 1, 2009, were hurt by delayed released dates of key games titles including “Bioshock 2,” “StarCraft II” and “Splinter Cell: Conviction.” However, the Company anticipates strong sales in 2010 due to the release of the delayed titles and releases of new titles including “Halo Reach,” “Final Fantasy 13,” “Gran Turismo 5,” “God of War III,” “Metal Gear Solid,” and “Super Mario Galaxy II.” The Company’s record results for the three months ended August 1, 2008, were heavily driven by blockbuster sales of “Grand Theft Auto 4.”

Increasing Competition

GME faces increasing competition from large retailers that may be able to under cut prices such as Wal-Mart Stores Inc. (NYSE: WMT), Amazon.com Inc. (Nasdaq: AMZN) and Best Buy Co. Inc. (NYSE: BBY).  A key concern is that these retailers have started to sell used games, which are a significant source of sales and high margins for GME.  Used games represented 45.8% of the Company’s gross profit for the three months ended August 1, 2009. GME may also face increased competition from online downloadable and streaming video games, and potentially from Coinstar Inc.’s (Nasdaq: CSTR) Redbox, which currently rents DVDs for $1 from vending machines and is testing video-game rentals.

Console Price Reductions

In mid-August 2009, video game console maker Sony Corp. (NYSE: SNE) lowered the price on its PS3 system by 25% to $299. This may prompt other video game console makers to cut prices, such as Nintendo Co. (TYO: 7974), which makes the Wii selling at $249.99.  Renewed interest in games consoles could cause increased traffic in GME’s stores leading to higher sales.

Source: http://stockcharts.com/h-sc/ui

GME is trading above its 13-day moving average. While this is normally considered to be a bullish sign, the moving average is downward sloping which means that investors have been liquidating shares during this time period and tempers the bullishness of the signal.

GME has been relatively stable recently. This is evidenced by the width of its Bollinger Bands which are tighter than normal. Additionally,  GME is trading near its upper Bollinger Band. This suggests that the stock price is high relative to its recent price action.

The MACD for GME currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

Company Name	Ticker	Price per	Mrkt. Cap.	P/E		P/S
Sep-08-2009	symbol	Share, $	$ Mn	2009	2010	2009	2010
Best Buy Co. Inc.	BBY	41.12	17,120	14.48	13.31	0.36	0.34
The Game Group PLC	GMG	296.77	1,023	7.63	9.24	0.32	0.33
Circuit City Stores Inc.	CCTYQ	0.01	2	n/a	n/a	n/a	n/a
RadioShack Corp.	RSH	15.61	1,950	10.07	10.48	0.47	0.47
Egghead.com Inc.	EGHDQ	0	1	n/a	n/a	n/a	n/a
Median				10.07	10.48	0.36	0.34
GameStop Corp.	GME	24.93	4,100	9.78	8.66	0.46	0.43

Source: Google Finance, Reuters.com.

Net Share Purchase Activity

Insider Purchases – Last 6 Months Shares Trans Purchases 50,000 2 Sales 54,400 3 Net Shares Purchased (Sold) (4,400) 5 Total Insider Shares Held 8.59M N/A % Net Shares Purchased (Sold) (0.00) N/A

Net Institutional Purchases – Prior Qtr to Latest Qtr Shares Net Shares Purchased (Sold) (13,922,500) % Change in Institutional Shares Held (10.40%)

Data provided by Thomson Financial

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