THQ posts $12 million loss, but sales exceed expectations

THQ has published its first quarter financial report for the period ending June 30, revealing a US$12.1 million (9.5 million Euro) net loss - despite the fact that net sales exceeded expectations.

Sales stood at US$138.8 million (109.4 million Euro) - down from USD$158 million last year, but above the forecast figure of US$125 million (98.5 million Euro). However, operating costs totalled US$159.8 million (125.9 million Euro) and this, combined with additional expenses, resulted in the US$12.1 million loss - compared to US$3.96 million a year previously.

In a statement, CEO Brian Farrell observed that sales had been boosted significantly by the successful performance of Disney/Pixar movie tie-in Cars. "We expect sales of Cars to continue to drive our upcoming quarterly results as we complete the global rollout across Europe and Asia this summer and then bring Cars to the Xbox 360 and Nintendo Wii platforms this holiday season," he commented.

"With the rollout of Cars overseas and the launch of our key brands on next-generation hardware, we expect to outperform the market in what is widely viewed as a transition year for the industry."

Sales of Cars during the quarter exceeded sales of Finding Nemo and The Incredibles over a comparable period - both of which performed extremely well. Last week, Cars shot up from No. 16 to No. 2 in the UK charts, despite the fact that the film had yet to open here; it goes on general release today.

THQ has forecast sales of US$195 million (154 million Euro) for the second quarter, with sales for the year set to total between US$900 million and US$950 million (710 million Euro - 750 million Euro). Forthcoming titles such as Saint's Row and Company of Heroes, plus WWE, Nickelodeon and Disney / Pixar licensed games, are expected to perform well.

Wedbush Morgan analyst Michael Pachter described THQ's balance sheet as being in "excellent shape", adding: "We believe current reserve levels are more than adequate to protect the company from the risk of future product returns or price protection."

Pachter said the company's forthcoming release line-up is "stronger than last year's slate, when it released 10 titles that sold more than one million units each.

"We expect Cars to sell a greater number of units throughout the year than prior Pixar titles, notwithstanding expected declines in current generation software sales of as much as 40 per cent." Pachter estimates that 4 million copies of the game will be sold by year-end, with an additional 2 million shifted in quarter 3.

"We think that THQ shares are undervalued, as this yearâs negative effects of the console transition are mitigated by the companyâs focus on exploitation of the current generation consoles," Pachter concluded.

"The company has a significant presence on these platforms with its childrenâs lineup of games, and has grown its development capability for next-generation games substantially over the last two years. We expect the company to deliver earnings at the high end of guidance for FY:07."