Weak GameStop Outlook Plays Havoc with Game Stocks

Video game stocks are sliding Tuesday in an otherwise upbeat session for tech stocks, following a slightly disappointing earnings outlook from video game retailer GameStop (GME).

GameStop reported revenue for the fiscal third quarter ended November 3 of $1.61 billion, with EPS of 31 cents a share, including debt retirement costs of 2 cents. That compares to Street expectations of $1.44 billion and 23 cents. Total sales were up 59% year over year; comp store sales were up 46.3%, versus an expected 30%-32%. New video software sales rose 59%; hardware sales rose 149%. (Remember that the year ago quarter was particularly weak, coming just in front of the introductions of the Nintendo Wii and the Sony Playstation 3.)

For the fourth quarter, the company sees same store sales up 7%-9%, with earnings of 95-97 cents a share. The Street had been expecting $1.01. For the full year, GameStop now sees profits of $1.61 to $1.63, above the Street consensus of $1.57. But the disappointing fourth quarter view is weighing on the stock - and the sector.

Top selling video games in the quarter were Microsoft’s (MSFT) Halo 3, Electronic Arts’ (ERTS) Madden NFL ‘08, Guitar Hero III from Activision (ATVI), Bioshock from Take Two (TTWO) and Wii Play with Remote from Nintendo.

A couple of other tidbits: The odd thing about the behavior of the stocks is that the conference call after the earnings announcement provided not a hint that anything was wrong; the analysts kept congratulating the company on their excellent quarter.

Meanwhile, GameStop said it expect supplies of Nintendo Wii consoles to remain tight throughout the holiday shopping season, but they expect to have some on Friday. But get there early.

GameStop shares Tuesday are down $3.24, or 6.1%, to $49.75.

Meanwhile:

• Electronic Arts is down 94 cents, or 1.7%, at $54.81.
• Activision is down 63 cents, or 3.1%, at $19.75.
• Take-Two is down 42 cents, or 2.8%, at $14.43.
• THQ (THQI) is down 63 cents, or 2.4%, at $25.36.