GameStop 2005 Annual Report Download - page 4

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By any account, 2005 was a spectacular year for Game-
Stop and our stockholders. And the years ahead are expect-
ed to be even more exciting, more productive, and more prof-
itable because of the foundation we built in 2005. The year
at GameStop is not only recapped by our exceptional re-
sults, but also through the opportunities behind the num-
bers. We have timed our major initiatives to maximize the po-
tential just when the market is, once again, ready to take off.
Fiscal 2005 sales increased an exceptional 67.7% to $3,091.8
million. Net earnings grew to $100.8 million up from $60.9
million in fi scal 2004. Our gross margin increased to 28.2%
from 27.6%, while SG&A decreased from 20.3% to 19.4%.
Diluted earnings per share rose to $1.61 compared to $1.05
per diluted share in 2004, a 53% increase. At the beginning
of this fi scal year, our stock was trading at $18.90 and we
closed the year at $39.14, an extraordinary 107% increase.
Our strong sales, margin, and earnings growth are the direct
result of our singular focus on continuing to refi ne and build
on our very distinctive new and used business model. It is the
confi dence we have in the future of this model that led to
the October completion of the merger combining GameStop
and EB Games into one great and very effi cient company.
When we began to bring the two companies together, we did so
under the unifying banner of “Better Together” which, to date, has
exceeded our expectations. Better Together has led to a smooth
integration of two former competitors and transcended being
a simple slogan; it has become the reality of our new company.
By quickly bringing both management teams into a joint assessment
of the business, we embarked on a very productive course
of instituting best practices in all stores. The result has been
signifi cant fi nancial and operational synergies that have contributed
to a 6.2% operating margin, an end of year cash balance of over
$400 million, and operating cash fl ows of approximately $291 million.
While there is more work to be done to complete the merger, we are
off to a strong start with considerable early benefi ts. In 2006, we are
forecasting merger synergies of between $70 million and $80 million.
Although the company did take on $950 million in debt to complete
the transaction, we are fully confi dent that the debt load is reasonable.
We are now a worldwide company.
GameStop completed the year with 4,490 stores in the U.S. and
14 countries around the world. In many of these countries we have
signifi cant market share, along with sizable growth opportunities.
In the U.S., our market share in fi scal 2005 grew to just over
21% of all new video games sold according to NPD Group
data. In Canada and Australia that share is even higher, while
Germany, Italy and Ireland are approaching those numbers.
We have achieved both size and presence, and are growing
faster than our own rapidly expanding industry; and are now in a
position to do so on a worldwide scale.
During 2005, the combined companies opened 792 new
stores, 450 domestically and 342 in international markets,
clearly demonstrating that we continue to be a rapid-growth
company. In 2006, we plan to open another 400 new stores with
approximately half in the U.S. and the remainder internationally.
letter to stockholders: