Arts Optical : Electronics Arts cuts profit outlook, shares fall
10/30/2008| 06:36pm US/Eastern
Video game publisher Electronic Arts Inc slashed its full-year profit forecast due to slowing demand at retail stores and a delay in the latest "Harry Potter" video game, driving its stock down 14 percent.
EA, whose popular titles include "Rock Band", said on Thursday plans to cut about 6 percent of its workforce of 9,671, or about 580 jobs, in response to slowing sales, after posting a quarterly loss on par with Wall Street expectations.
The company cut its forecast for fiscal 2009 earnings per share excluding special items to a range of $1.00 and $1.40, from a previous range of $1.30 to $1.70. Analysts were expecting $1.45 per share, according to Reuters Estimates.
The forecast proves that even the video game market -- often thought of as "recession-proof" -- may fall victim to a global economic crisis that has forced many companies to scale back their outlook as consumers trim spending.
"We are not saying the sky is falling," Chief Executive John Riccitiello said in a conference call. "What we are bringing to the table is caution, a recognition that catalog (sales are) weaker, and a commitment to managing our cost...with the specter of a recession over our shoulder."
With the economy in mind, analysts questioned EA's adherence to its retail pricing plan, which calls for marquis games like "Madden NFL" to sell for $60 and special editions like the new "Rock Band" bundle, which includes accessories, can go for up to $200.
"For the rest of us that live in the real world, $60 is a lot of money," said Janco Partners analyst Mike Hickey. "The entertainment value is compelling, but it's still a large dollar purchase."
EA posted a net loss of $310 million, or 97 cents, compared with a loss of $195 million, or 62 cents per share, one year ago. Excluding special items, EA showed a loss of 6 cents per share, matching analysts expectations, according to Reuters Estimates.
Last month, EA said it would push the release of the "Harry Potter and the Half-Blood Prince" game from November 2008 to next summer, to coincide with a delay in the film of the same name by Warner Bros Pictures.
Chief Financial Officer Eric Brown, when discussing the lowered profit forecast, noted that EA had already paid for development costs for the "Harry Potter" game. He also blamed a "dramatic" strengthening of the dollar for the new outlook.
"We are facing some foreign exchange headwinds," he said in an interview, adding that EA was keeping intact its full-year revenue forecast of $5.0 billion to $5.3 billion.
The company said it would take a charge of about $10 million in the third quarter for the cost-cutting action, and as a result expects to save about $50 million annually.
Net revenue in the second quarter was $894 million, up about 39.7 percent from a year ago.
The company said sales were driven by its major franchises, including "Madden NFL" and new title "Spore."
"There's a lot of reasons to believe that the sector will hold up better than most, if not almost all others, as we move through a recession."
EA shares fell to $23.80 from their Nasdaq close of $27.73.
(Reporting by Franklin Paul; editing by Carol Bishopric)