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GameStop expects higher sales this year

By Liana B. Baker

(Reuters) - GameStop Corp gave a fiscal-year outlook on the high end of analysts' estimates, saying it expects to boost sales of used videogames and to benefit from new hardware from Nintendo Co Ltd.

But the retailer's shares turned 6 percent lower after opening higher, with some analysts saying the company would be hurt by a weak economy. Consoles from Microsoft Corp and Sony Corp may still be years away, which also could weigh on GameStop.

"We believe performance will continue to be challenged from relatively weak international economic conditions, late cycle hardware and software consumer fatigue," said National Alliance analyst Mike Hickey.

The sales of traditional video game products such as consoles have been struggling globally as gamers turn to lower-priced online offerings and spend more time on their tablets and phones.

One of GameStop's rivals, Britain's Game Group Plc, has been struggling to stay afloat as large videogame publishers such as Electronic Arts Inc suspended some shipments. Game said its board of directors has declared its equity shares worthless and appointed an administrator to deal with creditors.

On a conference call, GameStop laid out a business strategy until 2014 that will create a new unit to focus on mobile products. Last year, it announced it would let customers trade in Apple devices for cash or store credits. It refurbishes the products and then sells them in stores at a gross margin of 30 percent.

Chief Executive Paul Raines told investors GameStop is targeting sales of $150 million to $200 million in 2012 and of as much as $600 million by 2014, which would give it a "leading market share position" in the $1 billion market for these services.

To ramp up its ability to buy and sell used electronics, it bought the Denver-based reseller "BuyMyTronics" for an undisclosed sum.

Sterne Agee analyst Arvind Bhatia said buying and selling tablets and phones could be meaningful for GameStop and add 45 cents to 70 cents to its earnings by 2014.

The company expects earnings per share of $3.10 to $3.30 for the fiscal year, which began on January 29. Analysts on average have been expecting $3.16, according to Thomson Reuters I/B/E/S.

Raines said in an interview that GameStop had taken market share from other retailers last year and that business was looking up for this year.

"I think the market will like our outlook," he said. "Our digital growth and pre-owned and mobile growth will give us a pretty healthy earnings and margin improvement."

The company expected sales to rise 1 percent to 5 percent this year.

Nintendo will come out with its follow-up to the Wii console, the Wii U, for the holiday shopping season. This is the first new home console in years and GameStop expects it to boost sales of games and hardware.

The company's chief financial officer also hinted a new console besides Nintendo's could be sold in 2014.

"As we look ahead, candidly, we've made some assumptions about a hardware launch that will come in 2014," said Rob Lloyd, GameStop's CFO.

For the fourth quarter ended on January 28, GameStop's sales fell 3 percent to $3.58 billion, which missed analysts' expectations of $3.71 billion.

Net income fell to $174.7 million, or $1.27 per share, from $237.8 million, or $1.56 per share, a year earlier.

Excluding an impairment and restructuring charge of $81 million, earnings per share rose to $1.73 from $1.56.

For this year, the company forecast its operating margin would expand at least 20 basis points to a range of 7.0 percent to 7.3 percent, with capital expenditures declining 15 percent.

The retailer, which has more than 6,200 stores globally, expects to open 100 new outlets and to close 150. Square footage will fall 1 percent in the United States.

The company's shares closed down $1.51, or 6.1 percent, at $23.16 on Thursday.

(Reporting By Liana B. Baker; editing by Gerald E. McCormick, Lisa Von Ahn and Andre Grenon)