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THQ Posts Loss as Revenue Falls 16%

May 08, 2003|Alex Pham | Times Staff Writer

THQ Inc., maker of video games including "SpongeBob SquarePants," posted a loss for its most recent quarter despite higher-than-expected sales.

For the quarter ended March 31, the Calabasas-based game publisher recorded a net loss of $7.7 million, or 20 cents a share. A year earlier, earnings were $2.8 million, or 7 cents a share. Revenue, though higher than anticipated, fell 16% to $66.8 million from $79.7 million.

Game sales were nearly $17 million higher than THQ had previously forecast, but results took a hit from lower profit margins in Europe, bigger development budgets and higher costs for marketing games scheduled for release this quarter, including one coming out Friday based on the upcoming animated movie "Finding Nemo."

THQ also took a $1.8-million charge to write down the value of its partial ownership of Yuke's Co., a Japanese developer of games based on WWE wrestling.

THQ recently shifted the end of its fiscal year to March from December. For its 2004 fiscal year, which began last month, company executives said they expect revenue of $520 million to $530 million and per-share earnings of 80 cents to 85 cents.

For the current quarter ending in June, THQ forecast revenue of $75 million to $85 million. It raised its per-share loss estimate by 2 cents to between 10 cents and 12 cents to account for the entire cost of promoting its products at the Electronic Entertainment Expo, which takes place next week in Los Angeles. The company previously spread the cost over several quarters.

Chief Executive Brian Farrell said he expects the $10-billion U.S. video game industry to grow 10% to 15% this year. Analysts say that forecast is too modest.

"They're being overly conservative," said Michael Pachter, an analyst with Wedbush Morgan Securities in Los Angeles who thinks the market will grow 24% this year. "They aren't sure about the future, and that's reflected in their stock price." Pachter doesn't own shares of THQ, and Wedbush doesn't do business with the company.

THQ shares rose 23 cents to $15.44 in regular Nasdaq trading before the earnings announcement. In after-hours trading, shares fell to $14.80.

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