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GameStop Q2 profits fall despite Switch strength

A $7.3m gain from the sale of Kongregate also helped to keep profit decline to 20%

The strong performance of Nintendo Switch helped GameStop to arrest its declining profits in the second quarter, with new hardware sales increasing 14.8% over the prior year.

In the quarter ended July 29, GameStop earned $1.69 billion in revenue, up 3.4% year-on-year. The main driver of that growth was new hardware sales, which rose 14.8% due to the performance of Nintendo Switch.

Software sales declined in both the new and pre-owned categories, by 3.4% and 7.5% respectively. In both cases, GameStop flagged up "lagging Xbox One sales" as a contributing factor.

The company had two obvious growth areas: Digital, which increased 28.1% to $46.5 million on the strength of downloadable content and mobile; and Collectibles, which was up 36.1% to an impressive $122.5 million, well on track to meet GameStop's $650 million to $700 million annual target.

Despite these gains, GameStop's profits were still fell 20% year-on-year to $22.2 million. The decline would have been steeper still were it not for the sale of Kongregate, which added $7.3 million to the quarter's bottom line.

"Our second quarter sales results were driven by continued strong demand for Nintendo Switch and Collectibles," said CEO Paul Raines in a statement. "Looking at the second half of 2017, the Nintendo Switch, the launch of Microsoft's Xbox One X, and a solid slate of AAA titles should drive growth in the video game category.

"In addition, we expect that our Technology Brands AT&T Wireless business will benefit from a boost in consumer demand driven by the launch of innovative new mobile handsets, including Apple's next-generation iPhone."

In a call with investors, Raines said that the company had started taking pre-orders for the Xbox One X. "While it's still early, we are pleased with the initial consumer response to this powerful new console," he said.

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