GameStop Needs a 'Modern Warfare' Boost

The video game Call of Duty: Modern Warfare 2 just came out, and it couldn't come at a better time. Retailers that depend on video game revenue could really use a push from this title, which some predict could break sales records.

One chain in particular that needs help right now is GameStop (GME), the largest specialty retailer of video games in the country, with more than 6,100 stores internationally. The company, which seemed recession immune for a while, is now experiencing serious sales declines, and Call of Duty might help give it a holiday season boost.

GameStop's management recently reiterated its prior guidance for the quarter ended Oct. 31, saying that sales at stores open a least a year will drop somewhere between six percent and 11 percent from the same year-ago period. As late as May, GameStop still recorded record results, with net earnings rising 13.4 percent, hitting $70.4 million. The retailer also opened 114 new stores in the first quarter, and at that time, predicted full-year same-store sales to come in from flat to a two-percent gain year over year.

Fast forward a few months, and things changed. GameStop's sales at stores open at least a year plunged 14.1 percent during the second quarter, and net earnings plummeted 32.3 percent. Executives then revised their full-year outlook on same-store sales to a four-percent-to-eight-percent decrease. They said the chain was hurt by slowing sales of game consoles and not many popular new-game releases in the first half of the year.

Now comes Call of Duty. GameStop, as did many other retailers that sell video games, kept most of its stores open late Monday leading up to the title's midnight release. And for good reason. Some are predicting it could be the best-selling video game of all time.

The release might not prove to be enough to help out GameStop in the near future, though, according to one analyst. Goldman Sachs' Robert Higginbotham says that October video-game sales will likely fall 20 percent from the same period last year and sees "less upside to near-term earnings" at GameStop.

The company will release the full quarter's results on Nov. 19. At that, time management might give us a better picture of what to expect from Call of Duty and whether or not the this hit can turn around sales during the all-important holiday season.

Store image by Flickr page user Moe_'s photostream.