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Technology Stocks : Electronics Boutique (ELBO) -- Ignore unavailable to you. Want to Upgrade?

To: Night Writer who wrote (44)	11/30/1998 9:09:00 PM
From: MoonBrother	Respond to of 779

I think ELBO is perhaps the best internet play at this time among all other small internet stocks. Not only ELBO has the strong internet sales momentum, it also has broad based traditional store chains that generate fundamental value. I will post several analysts' recent comments about ELBO in the following pages. Enjoy! MB

To: Night Writer who wrote (44)	11/30/1998 9:10:00 PM
From: MoonBrother	Respond to of 779

09:46am EST 20-Nov-98 Prudential Securities (H.G. KATICA 404-842-9202) ELBO ELBO: STRONG SOFTWARE SALES DRIVE BETTER-THAN-EXPECTED Q3 EPS ELBO: STRONG SOFTWARE SALES DRIVE BETTER-THAN-EXPECTED Q3 EPS R E S E A R C H N O T E S November 20, 1998 Subject: Electronics Boutique Holdings Corp (ELBO-13 1/2)--OTC OPINION ========= Current: Strong Buy Analyst: Harry G. Katica (404) 842-9202 RISK: High 12-Month Target Price: $17 ======================================================================= Ind. Div.: --- Yield: --- Shares: 20.2 mil. 52-Wk.Range: 14-7 _______________________________________________________________________ EPS FY Year P/E 1Q 2Q 3Q 4Q Actual 01/98 $ 0.74 $ 0.08 $(0.09) $ 0.02 $ 0.86* Proforma# $ 0.62 $ 0.07 $(0.06) $ 0.03 $ 0.58 Current 01/99 $ 1.03E 13.1X $ 0.11A $(0.02)A $ 0.08A $ 0.77E Prior 01/99 $ 1.00E 0.06E $ 0.76E Proforma# $ 0.91E $ 0.09E $(0.02) $ 0.06E $ 0.76E Current 01/00 $ 1.17E 11.5X Prior 01/00 $ 1.13E * Includes non-recurring income of $0.08 per share after-tax. # Assuming the offering, reorganization, and S-Corp Dividends were completed at the beginning of 1997. ======================================================================= Electronics Boutique reported diluted third-quarter share earnings per share of $0.08 versus a pro forma $0.02 last year. The performance surpassed our estimate of $0.06 per share, driven by strong sales of video game and entertainment software along with excellent expense leverage. Electronics Boutique continues to maintain a strong competitive position in the growing electronics game market. A Strong Software Outlook And Further Expense Leverage Will Drive Earnings Gains. Based on the excellent third quarter performance, we are raising our 1998 and 1999 EPS estimates to $1.03 and $1.17 from $1.00 and $1.13. Growth for Christmas and into 1999 will be supported by a still growing installed base of video game consoles, which should drive strong increases in software sales. Electronics Boutique also has opportunities for additional expense leverage, based on the experience of the third quarter. Strong Buy Rating Reflects Favorable Earnings Momentum And Attractive Valuation. At a recent price of $13 1/2, the stock is trading at 13.1 and 11.5 times our 1998 and 1999 earnings estimates. These multiples represent a significant discount to an estimated 20% to 25% five-year growth rate. In our view, the stock could easily be awarded a higher multiple if the company were given some credit for its successful Internet sales efforts. Strong Demand For Video Game And Entertainment Software Drove Q3 Results Total sales reached $111.3 million in the third quarter, an 18.2% increase over last year's $94.2 million. Sales of video game software were up 42%, while PC entertainment sales rose 29%. Reflecting a drop in the average selling price, hardware sales were down in dollar terms, despite a slight increase in the number of units sold. Twenty-six stores were opened in the quarter, net of closings, bringing the total number of locations to 500. Year over year, the company added 61 stores, for a 13.9% gain. Same Store Sales Rose 6.7% On Strong Demand In Nearly Every Product Category. Sales were up against a difficult comparison with last year's results, when the blockbuster software title Final Fantasy VII sold 110,000 units at $50 each. There was no blockbuster title on sale in this year's third quarter. The nearly 7% same-store sales growth reflected continued robust demand in most of the company's product categories, particularly Playstation and Nintendo 64 software. Higher Freight Costs Pressured The Gross Margin. The gross margin fell 80 basis points, from 25.2% last year to 24.4%. First, freight costs increased as a result of an effort to move a larger percentage of new-release products into the stores. Second, with a drop in the average price per unit, the company needed to ship more product to the stores in order to maintain its sales volume in dollar terms. Finally, the company built up its inventory at the store level in anticipation of the fourth quarter holiday selling season. At the same time, margins on software sales slipped in the quarter. Although the sales mix shifted away from low-margin hardware products, the overall merchandise margin was flat with last year. Strong Sales Increase Leveraged Store Expenses. SG&A expenses accounted for 20.4% of total revenues in the third quarter, down 2.6 percentage points from 23.0% a year earlier. Higher sales helped leverage occupancy costs, which fell as a percentage of total sales. An increase in promotional and marketing reimbursements, including more than $800,000 in advertising income generated from the company's website, contributed to the drop in the SG&A expense ratio. In addition, last year's results were hurt by an unusual charge of $1.0 million relating to the company's Canadian operations. Proceeds From Stock Offering Helped Raise Interest Income. The company recorded interest income of $149,000 in the third quarter, versus an expense of $343,000 in 1997. Proceeds from the recent initial public offering helped retire most of the company's outstanding debt and raised the level of interest-bearing cash assets. The tax rate fell slightly from 41.1% to 39.2%. All told, net income more than tripled year over year. Strong New Release Schedule Likely To Boost Near-Term Outlook Earnings estimates for 1998 and 1999. We look for the company to open 34 new stores in the final quarter of 1999, bringing the yearend total to 534. Next year, more than 80 new locations should increase the store base by 15%. Total revenues are likely to reach $563 million this year and $679 million in 1999. Nintendo 64's Zelda Should Become The Largest Title In Company History... Titles in the Zelda series have been some of the best-selling games for the Nintendo console. Zelda is due out on November 24. Likely blockbuster titles for Nintendo also include Turok 2 and Rogue Squadron, both to be released within the next 30 days. Strong Hardware Sales Should Support Another Good Year For Software In 1999. Hardw are sales continue to exceed expectations. The rising installed base should support strong growth in software sales for the next 12-18 months. In our view, unit sales of hardware consoles could get another lift in 1999 if, and when, prices are reduced from the current $129 to $119 or even $99.

To: Night Writer who wrote (44)	11/30/1998 9:11:00 PM
From: MoonBrother	Respond to of 779

07:33am EST 20-Nov-98 Salomon Smith Barney (MCGRATH/MULLINS (212) 816-3808) ELB ELBO: Electronics Boutique Reports Strong 3Q98 --SUMMARY:--Electronics Boutique--Emerging Growth--Specialty Retail * Electronics Boutique reported third quarter EPS of $0.08 versus our estimate of $0.06 and $0.02 last year. * Same-store sales increased 6.7%, in-line with 2Q97 and our expectations * Gross margins declined somewhat as a result of a higher shipping costs associated with lower ASPs and more units shipped, as well as a higher shipping costs associated with the build-up of Christmas inventory. * Operating margins increased 160 basis points, due largely to co-op advertising revenue generated by the company's Web site. * We expect the fourth quarter to be strong given a solid line-up of new release titles. * We are maintaining our 1-S (BUY, SPECULATIVE) rating on the stock and our $18 price target. --EARNINGS:----------------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 01/98 EPS $0.08A $(0.08)A $0.02A $0.74A $0.76A Previous 01/99 EPS $0.11E $(0.02)E $0.06E $0.75E $0.99E Current 01/99 EPS $0.11A $(0.02)A $0.08A $0.75E $0.99E Previous 01/00 EPS $0.13E $0.01E $0.08E $0.91E $1.13E Current 01/00 EPS $0.13E $0.01E $0.08E $0.91E $1.13E Previous 01/01 EPS $N/A $N/A $N/A $N/A $N/A Current 01/01 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: --FUNDAMENTALS:------------------------------------------------------------- Current Rank........:1-S Price 11/19/98......:$13.50 Prior Rank..........: Target Price........:$18.00 P/E 01/99...........:13.6X 52 Wk Price Range...:14.00 - 7.00 P/E 01/00...........:11.9X Proj. 5yr EPS Grth..:20.0% Return on Equity 98.:49.20% BookValue...........:$5.70 LT Debt-to-Capital..:9.06% Dividend............:$N/A Revenue 1999........:$553.51 mil Yield...............:N/A% Shares Outstanding..:20.16 mil Convertible.........:No Mkt. Capitalization.:$272.16 mil Hedge Clause(s).....:# Comments............: --OPINION:------------------------------------------------------------------ Electronics Boutique reported strong third quarter earnings of $0.08, beating our estimate of $0.06 and vs. pro forma earnings (assuming C corp. status) of $0.02 last year. Same-store sales were up 6.7%, which is in-line with prior-year, but particularly impressive given the fact that sales this year were not aided by a last year's blockbuster "Final Fantasy VII" which sold 110,000 units at $50 each. Sales were strong in all categories. The most popular titles were "Madden 99," "Metal Gear Solid," and "NFL Gameday" for Playstation and "NCW NWO Revenge" for Nintendo 64. For PCs, the most popular titles were "Starcraft," "Rainbow 6," "Unreal," "Fallout II," and "Sin." Gross margins declined 80bp due to: 1) a large number of new release products 2) an increase in the number of units shipped as a result of lower ASPs on an increase in sales 3) an effort to get the products to the stores earlier for the Christmas selling season. SG&A expenses fell dramatically to 20.55% of sales from 23.1% in 3Q97, largely as a result of increased co-op advertising revenues from dollars and good sales leverage. Operating margins increased 160bp in the quarter to 2.3% of total revenues vs. 0.7% a year earlier and operating income more than doubled to $2.5 million from $640,000. ELBO redesigned their Web site in September, experiencing an almost immediate 200% increase in sales and a 347% increase vs. 3Q97. Co-op advertising revenues from the site also increased substantially to $800,000. The site now offers 4,800 titles. The outlook for 4Q98 remains strong, given a broad assortment of new software titles and the company's excellent 4Q 97 inventory position. Company Description Electronics Boutique is among the world's largest specialty retailers of electronic games, including video games, personal computer entertainment software, some video game hardware, and PC productivity software and accessories. At the end of the third quarter, Electronics Boutique operated 500 stores in 43 states in the U.S. as well as Puerto Rico, Canada, Australia, and South Korea. Stores are operated under the Electronics Boutique and Stop 'N Save names. EB stores are typically located in choice, high-traffic locations in regional malls, average 1,100 square feet, and offer 2,600 stock keeping units. Stop 'N Save stores are located in strip centers, average 1,500 square feet and also carry 2,600 stock keeping units. Almost 90% of stores are in the U.S.. The company plans to open 80-85 new stores per year over the next two years, including 50-55 in the U.S. and 30-35 in foreign markets.

To: Night Writer who wrote (44)	11/30/1998 9:12:00 PM
From: MoonBrother	Read Replies (1) \| Respond to of 779

08:39am EST 2-Nov-98 Prudential Securities (H.G. KATICA 404-842-9202) ELBO ELBO: REITERATING STRONG BUY FOLLOWING VISIT TO BI-ANNUAL VENDOR SHOW ELBO: REITERATING STRONG BUY FOLLOWING VISIT TO BI-ANNUAL VENDOR SHOW R E S E A R C H N O T E S November 2, 1998 Subject: Electronics Boutique Holdings (ELBO-12 1/2)--OTC OPINION ========= Current: Strong Buy Analyst: Harry G. Katica (404) 842-9202 RISK: High 12-Month Target Price: $17 ======================================================================= Ind. Div.: --- Yield: --- Shares: 20.2 mil. 52-Wk.Range: 14-7 _______________________________________________________________________ EPS FY Year P/E 1Q 2Q 3Q 4Q Actual 01/98 $ 0.74 $ 0.08 $(0.09) $ 0.02 $ 0.86* Proforma# $ 0.62 $ 0.07 $(0.06) $ 0.03 $ 0.58 Current 01/99 $ 1.00E 12.5X $ 0.11A $(0.02)A $ 0.06E $ 0.76E Proforma# $ 0.87E $ 0.09E $(0.04) $ 0.06E $ 0.76E Current 01/00 $ 1.13E 11.1X * Includes non-recurring income of $0.08 per share after-tax. # Assuming the offering, reorganization, and S-Corp Dividends were completed at the beginning of 1997. ======================================================================= Last week, Electronics Boutique held its bi-annual gathering for store managers and vendors called Electronics Boutique University. The event is an opportunity for store managers to get additional training on important topics and to learn more about the products and technologies carried by the chain. We were impressed with the product knowledge of the store managers and learned several things about the industry and upcoming product introductions. Nintendo 64's Zelda Should Become The Largest Title In Company History... The Legend Of Zelda: Ocarina Of Time is the latest chapter for a character that has been an integral part of Nintendo's franchise. As a role-playing game, Zelda should appeal to the core customer of Electronics Boutique, which is typically the game enthusiast interested in the most sophisticated and challenging games. The title is due out on November 24. ...And We Believe The Company Has Received A Larger Than Normal Allocation. Based on its effective pre-release programs, the pre-sell and reserve lists, Electronics Boutique already recorded a substantial number of sales. As a result, we believe the company has received a higher than normal allotment of the new title, which is especially important given the likelihood of limited initial availability. Robust Sales Of Hardware Should Support Another Good Year For Software In 1999. Sony expects to ship nine million PlayStation hardware consoles in 1998, doubling the sales of Nintendo 64. More importantly, the combined sales will be 13-14 million units, bringing the life-to-date sales of the current generation platforms to nearly 30 million. This substantial installed base should support strong growth in software sales for the next 12-18 months. In our view, unit sales of hardware consoles could get another lift in 1999 if, and when, prices are reduced from the current $129 to $119 or even $99. Video Games And PC Software Are Becoming An Ever-More Popular Home Entertainment Category... With the introduction of more powerful hardware technologies and storage devices like CD-Rom and DVD, electronic games become more and more realistic for the player. At the same time, publishers are broadening the scope of their games and the targeted audiences, (i.e. girls and older customers). As a result, we believe the electronic game category will become an even more important entertainment category over the next five years. ...While A Growing Number Of Publishers Should Insure A Steady Flow Of Titles. While a handful of well-oiled vendors, like Sony, Nintendo, and Electronic Arts, account the largest percentage of software titles, many new, smaller publishers are starting to break-away from the larger companies and develop new lower cost titles. This development could have a positive impact on the industry and Electronics Boutique in particular if a greater number of less-marketed titles become available over the next few years. The Introduction Of Dreamcast In 1999 Could Ignite A Slowing Hardware Market. Sega plans to re-enter the video game market next fall with the introduction of its 128-bit Dreamcast system. This new technology received rave reviews by store managers. Since Electronics Boutique typically sells well with early adopters, Sega is counting on the chain to represent a significant portion of its initial sales. A successful launch of the new system would positively impact hardware sales at a time when the PlayStation and Nintendo 64 systems will have likely peaked.

To: Night Writer who wrote (44)	11/30/1998 9:13:00 PM
From: MoonBrother	Respond to of 779

07:12am EST 26-Oct-98 Prudential Securities (H.G. KATICA 404-842-9202) ELBO ELBO: REITERATING STRONG BUY FOLLOWING CLIENT VISITS WITH MANAGEMENT LAST WEEK ELBO: REITERATING STRONG BUY FOLLOWING CLIENT VISITS WITH MANAGEMENT LAST WEEK R E S E A R C H N O T E S October 26, 1998 Subject: Electronics Boutique Holdings (ELBO-11 1/8)--OTC OPINION ========= Current: Strong Buy Prior: Analyst: Harry G. Katica (404) 842-9202 RISK: High 12-Month Target Price: $20 ======================================================================= Ind. Div.: $0.00 Yield: --- Shares: 20.2 mil. 52-Wk.Range: 14-10 _______________________________________________________________________ EPS FY Year P/E 1Q 2Q 3Q 4Q Actual 01/98 $ 0.74 $ 0.08 $(0.09) $ 0.02 $ 0.86* Proforma# $ 0.62 $ 0.07 $(0.06) $ 0.03 $ 0.58 Current 01/99 $ 1.00E 11.1X $ 0.11A $(0.06)E $ 0.06E $ 0.76E Proforma# $ 0.87E $ 0.09E $(0.04) $ 0.06E $ 0.76E Current 01/00 $ 1.13E 9.8X * Includes non-recurring income of $0.08 per share after-tax. # Assuming the offering, reorganization, and S-Corp Dividends were completed at the beginning of 1997. ======================================================================= Last week, we accompanied the management of Electronics Boutique on several visits with institutional investors. The discussions highlighted the company's strong competitive position, the current health of the industry, and several new initiatives being undertaken by the company. Based on these factors, we believe Electronics Boutique is well-positioned to meet or exceed our earnings per share estimates for 1998 and 1999. A Steady Flow Of New Software Titles Should Lead To Solid Third Quarter Results... An example of the strong demand for new titles is the recent release of Metal Gear, which recorded the fourth highest day of sales for a new release. Same-store sales have rebounded since a slowdown in September (due to a tough comparison) and are expected to meet or slightly exceed our estimate of a 6% gain in the quarter. In turn, we believe there is a good possibility of a positive earnings surprise in the third quarter. ...While Expense Leverage Could Be The Source Of Stronger Earnings Growth Next Year. Over the last few years, Electronics Boutique has developed an efficient distribution system, built-out its corporate infrastructure, and reorganized its field management to support future store growth. In turn, we believe these expense categories will grow slower than the overall revenues during the next two years. Since our forecast calls for only a 10 basis point improvement in the expense ratio in 1999, we believe there is plenty of room for a better-than expected performance. New Store Openings Could Exceed Our Current Forecast Of 80-85 In 1999. We now anticipate 50-55 domestic store openings and 15 each in Canada and Australia. Management indicated that it would like to maintain a stable growth rate in 1999, suggesting as many as 90-95 store openings. An acceleration of store growth would be a positive for future growth rates and indicate that the format remains well short of saturation in the United States. Stores Will Soon Begin To Carry Pre-Owned PC Software... Electronics Boutique has already established a very strong business selling pre-owned video games, which now represents 5%-6% of sales and a much higher proportion of gross margin dollars. Similar results have been achieved in a test run in Canada for the PC software business. While it is difficult to assess the financial impact of this new business, our current estimates do not include significant expectations from this new program. ...And The Sale Of Personal Computers Will Be Tested On A Limited Basis. For the Christmas season, Electronics Boutique plans to a single personal computer model in about 40 stores. The computer will carry a sub-$1,000 price point, will be competitively priced in the market, and be designed for the game player (with a graphics card). While the gross margin on hardware sales will be below the company average, we expect high sales per square foot. In addition, software and accessory sales should benefit from the additional foot traffic. Management Is Focused On Generating Sales Growth Through The Next Cycle. Since the industry is now three years into the current product cycle, Electronics Boutique is already working ways to stimulate sales and margins when sales begin to slow. The additional of computers and pre-owned software should be a positive for sales. In addition, the company should be able to increase marketing support from vendors as mass merchants are less aggressive with the category. Also, PC entertainment software should grow consistently over the next five years, helped by rising penetration levels, and will provide a partial offset to any weakness in the video game business. Lastly, Electronics Boutique typically enjoys higher market share in the early parts of a product launch and should benefit from the introduction of the Dreamcast system by Sega in late 1999.