GameStop Corporation (GME), the leading video game and entertainment software retailer, recently reported fourth-quarter 2009 results that came a penny ahead of the Zacks Consensus Estimate, but fell year-over-year.

The quarterly earnings of $1.29 per share beat the Zacks Consensus Estimate of $1.28 marginally, but dropped 3.7% from $1.34 delivered in the prior-year quarter due to an increase in SG&A expenses (up 11.5%) and a rise in depreciation and amortization (up 13.9%), partially offset by a marginal increase in the top-line, a slight dip in the cost of sales (0.1%) and a major drop in interest expense (20.9%).

Despite a fall in the bottom-line, the Grapevine, Texas-based company expects its earnings to rebound in fiscal 2010. GameStop now expects first-quarter 2010 earnings between 46 cents and 48 cents a share, reflecting a year-over-year increase of 7% to 12%, and fiscal 2010 earnings between $2.58 and $2.68, depicting a rise of 14% to 18%.

The current Zacks Consensus Estimate for first-quarter and fiscal 2010 are 47 cents and $2.59 per share, respectively. Shares of GameStop rose an impressive 6.55% ($1.30 per share) in Thursday trading.

Revenue for the quarter rose marginally by 0.9% to $3,524 million, following an increase of 8.2% in third-quarter 2009. For fiscal 2010, management expects a revenue growth of 4% to 6%.

By sales mix, new video game hardware sales fell 9.2% to $737.9 million, whereas sales of new video game software climbed 5.2% to $1,561.2 million. The demand for used video games marked sales growth of 8.8% to $777.1 million.

GameStop expects the weakness in new video game hardware sales to remain in fiscal 2010, and forecasted a decline of 5% to 15% for the year. The company predicts sales growth of 2% to 5% in new video game software, and between 5% and 10% in used video games.

The video game retailer expects to achieve its sales and earnings growth target on the heels of operational efficiencies, increasing its market share and adopting a buy-sell trade model.

Despite being the global leader in retailing software, hardware, and game accessories for video game systems and personal computers, competition from other retail heavyweights such as Wal-Mart Stores Inc. (WMT) continues to hurt the company’s sales. Comparable-stores sales tumbled 7.9% in the quarter.

However, GameStop now foresees an improvement in comparable-store sales. The company expects first-quarter 2010 comps in the range of flat to down 3%, and fiscal 2010 comps in the range of flat to up 2%.

GameStop also hinted about its intention to implement its previously announced capital allocation strategy. The company plans to spend $75 million for opening 400 stores, $125 million for other capital expenditures, and $100 million for buyouts.

The company’s Board of Directors also approved a $300 million share repurchase program as part of its capital allocation plan for fiscal year 2010, and said that the buyback would be accretive to earnings by 10%. Till date, GameStop has repurchased 12,642,200 shares at a price of $19.56 per share, aggregating $247 million.

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