GameStop Corp, a leading video game retailer, said during a conference call with financial analysts that it would expect Nintendo and Sony Computer Entertainment Inc. to reduce the pricing of the Wii and the PlayStation 3 video game systems in the third quarter of 2009. The retailer believes that economic environment as well as shipments projections will force both companies to reconsider their prices.
“There will be price-cuts on the PS3 and potentially one on the Wii. It is hard to tell if we actually need a price cut on the Wii to get to our numbers. There are some price-cuts built into that assumption, but not until the third quarter,” said Daniel A. Dematteo chief executive officer of GameStop.
David W. Carlson, chief financial officer of GameStop, said that as a result of the economic recession, the company now predicts that 33.5 million video game consoles will be sold in the USA this year, down 1.5 million from 35 million units.
“The hardware price points, where they are at right now, given this economic environment, are potentially too high or are too high. If the platform holders are going to make the numbers that they forecasted for the year, those prices would have to change. So, I am assuming their goal is to still make their numbers. So, I am assuming therefore that [prices] would have to change,” added Mr. Dematteo.
Both Nintendo Wii and Sony PlayStation 3 will turn three years old this year. During their lifespan, Wii has not changed its pricing at all, whereas Sony only introduced cut-down version of the PS3 for $399, a still rather high price-point for a video game console. As a result, the chief exec of GameStop believes that price-cuts are inevitable.
“If you think about it, these hardware prices have stayed up longer in this cycle than in any other time before, and in a very dire economic environment those two things seem to be mutually exclusive,” claimed Mr. Dematteo.
GameStop reported record sales and earnings for the first quarter ended May 2, 2009. Total sales for the first quarter increased 9.2% to $1.98 billion, as compared to $1.81 billion in the prior year period. Net earnings for the first quarter increased 13.4% to $70.4 million, including debt retirement costs of $2.9 million ($1.8 million, net of tax benefits), as compared to net earnings of $62.1 million in the prior year period. Diluted earnings per share were $0.42, including debt retirement costs of $0.01 per diluted share, and exceeded the high-end of guidance, an increase of 13.5% compared to $0.37 in the prior year quarter.