This summary is based on the third quarter fiscal 2006 earnings call conducted by GameStop Corp. (GME: chart) on November 21, 2006.

Key Investors Issues

- Earnings were 17 cents a share compared to a loss of 4 cents a share in the prior year.
- Quarterly revenue grew 89% over the prior year to $1,011.6 billion.
- Q4 EPS is likely to be in the range of $1.53 to $1.59, on same store sales growth of 7% to 9%.

Third Quarter Fiscal 2006 Financial Highlights

The sales for the third quarter increased 89% over the prior year quarter to $1,011.6 billion.

Comparable store sales increased 8.8% for the quarter, with strong sell-through of the Nintendo DS Lite hand-held system and in-stock positions of Xbox 360 hardware spurring the growth. In addition, new video game software increased 14% with MADDEN NFL 2007 and SAINTS ROW topping the bestseller list.

- Hardware sales increased 69% year-over-year led by the Nintendo DS Lite, Xbox 360, and the six-year-old PS2. The management is especially pleased to see the momentum in the PS2 hardware as it signifies a growing base of budget-oriented gamers that will continue to drive sales of PS2 new and used games.

- New software sales increased 14% in the quarter led by Madden all formats, SAINTS ROW, DEAD RISING, and SPLINTER CELL for the Xbox 360.

-The used game business grew 10% in the quarter slightly, less than the new software as used sales lag new.

Net earnings for the quarter were $13.6 million, including merger-related expenses of $1.8 million and debt retirement cost of $2.1 million.

Earnings per share for the quarter were 17 cents, including 5 cents per share of merger-related expenses and debt retirement costs. These results were at the high-end of the firm’s previously released guidance and stemmed from strong sell-through of both new video game hardware and software.

Gross margins declined slightly year-over-year in the quarter due primarily to a higher mix of lower margin hardware than in the prior year quarter.

However, SG&A leverage improved from the prior year quarter by 300 basis points on a pro forma basis. This leverage came primarily from the closing in sale of the EB Westchester general office and the Coatesville distribution center, and improved payroll scheduling during the quarter. Based on these strong results, operating earnings increased fourfold on a GAAP basis and more than doubled on a pro forma basis.

In May, GameStop announced that its board had approved $100 million note repurchase program to be used from time-to-time as market conditions warrant.

Through the third quarter, the company has repurchased approximately 66 million of notes.

- The company’s balance sheet remains strong with over 180 million in cash at the end of the quarter and inventory levels increasing 13%, inline with the sales increase and build up for the holiday selling season.
- As expected, the firm was very promotional during the quarter in order to build its used inventory and the company’s per store used inventory levels are ahead of last year, heading into the holiday season.

GameStop closed the quarter with 4,633 stores worldwide, 3705 in the US, 265 in Canada, 455 in Europe and 208 in Australia and New Zealand.

The company opened 81 stores during the quarter, 40 in the US and 41 internationally. GameStop closed 40 stores worldwide, 19 in the US and 20 internationally, majority of those internationally being in Spain and mainly stores that were marginal when EB Games purchased the portfolio of a 123 stores last year. The company is well on track to achieve its goal of opening 400 stores this year.

Fourth Quarter Fiscal 2006 Outlook

The company is expecting fourth quarter same store sales to range from plus 14% to plus 18%. But these will be highly correlated to the quantity of Sony PS3 that are shipped during the quarter. However, PS3 shipments will have little effect on earnings for the quarter.