In this morning's conference call to investors, GameStop gave investors a snapshot of holiday sales for the important final three months of 2004. While sales were far above those reported for the same quarter in 2003, the company braced Wall Street for flat earnings when its full earnings report is released later on this quarter. The company is blaming the profit shortfall on shortages of the new PlayStation 2, Xbox consoles, and the Nintendo DS handheld.

　　Revenues for the quarter ending January 1, 2005, were $577.7 million, up 13.6 percent over the same quarter a year ago, executives said today. But to listen to GameStop executives tell it, an opportunity for even greater revenues was lost based on the absence of consoles and handhelds in the retail channel. And listen Wall Street did: In trading today, GameStop shares lost $1.60, or 7.6 percent of their value, to $19.55.

　　"After a very successful Thanksgiving holiday weekend and November where comparable store sales increased 22 percent, December comparable store sales turned negative," David Carlson, GameStop's CFO told listeners in today's call.

　　"Console hardware decreased 40 percent on a comparable-store basis during the month of December as severe shortages of both Sony PS2 and Microsoft Xbox caused sluggish customer traffic," Carlson added. "The severity of the shortages was unprecedented, as our stores were rarely in stock for more than a few hours after any hardware shipment arrived and completely out of stock during every weekend in December."

　　In a dramatic portrayal of the difficulties GameStop had in dealing with the shortfall of hardware during the weeks leading into and then during the peak holiday buying season, GameStop chairman and CEO Dick Fontaine gave analysts his assessment:

　　"I honestly believe there's nothing we could have done to forecast or prepare for the dramatic shortage levels we experienced… Unfortunately, we can't sell what we don't have, and I want to assure you the shortfall had nothing to do with buying errors on our part or being too cautious.

　　"In all other product areas, we were in the best stock position ever, yet the impact of not being unable to secure the hardware that we desired left our December month-end inventory numbers $33 million less than last year with over 300 more stores.

　　"To understand the dimension of the shortfall, it's important I think that we really clarify the magnitude of the problem. David [Carlson] said it right; we often were not in stock more than hours at a time… Every weekend, we were virtually out of stock. Although we did anticipate that it was going to improve, we were optimistic or at least hopeful through the season.

　　"But perhaps the number that puts it into perspective most dramatically is the last Saturday and Sunday before Christmas, typically a very huge weekend, we sold 82 PS2s and 104 Xboxes, which was all we had. In short, a total of 186 pieces across 1,768 stores. I don't think it can get more dramatic than that.

　　"There's nothing more frustrating than to have demand without supply, at least as far as hardware goes. That clearly is the headline for the season."

　　In contrast to the dismal conditions on the hardware front, the company charted revenue growth of 15 percent in the category of software sales. High sales of Halo 2 and Grand Theft Auto: San Andreas drove a majority of the dollars spent at the company's 1,700-plus retail outlets worldwide.

　　But hardware shortages continue to this day. In response to an analyst question concerning present day inventory, Fontaine said, "We are out of stock [and] are operating…pretty much hand-to-mouth. Today, if we're talking about our inventory, we are basically out of stock… When we say this is a week-by-week and sometimes a day-by-day piece of information, that is in fact the case."

　　Ending his prepared comments this morning, however, Fontaine made nice with the chief architects of the hardware shortage, the console manufacturers themselves--Sony, Nintendo, and Microsoft. "We were frustrated by the lack of hardware," he said, "but we view this as a fixable problem and we are sure that our hardware manufacturers will be working to fill the demand and can continue to build the user base. This is a strong growth business that hit a manufacturing speed bump and we're not happy about that but we don't intend to let it slow us down."