THQ Sales Soar but Profit Sinks

Despite record quarterly sales of its video games, THQ Inc.’s profit tumbled 89% because of higher development and marketing costs and lower than expected sales of its key titles, including “Red Faction 2.”

The Calabasas company posted net income of just $3.1 million, or 8 cents a share, in the fourth quarter on sales of $217.8 million. A year earlier, it had $28.5 million in profit, or 75 cents, and sales of $196.4 million.

For the year, sales rose 27% to $480.5 million. Net income was $13 million, or 32 cents a share, compared with $36 million, or $1.01, in 2001.

Its results took a $18.6-million hit from one-time expenses, including a $12-million charge for canceling 20 games, about one-fifth of its planned lineup.

“The recent holiday season revealed new challenges for our company and our industry,” THQ Chief Executive Brian Farrell said in a statement, “and we have adjusted our business plan to reflect the changing competitive environment.”

A record number of new console games, including such established titles as the latest in the “Grand Theft Auto” series, flooded store shelves last year, making it harder for lesser-known titles to succeed. Further, retailers ordered smaller quantities than usual. The result was blockbuster sales for a few well-known franchises, but poor sales for all others. For instance, THQ’s marquee wrestling game “WWE Smackdown!” and its Nickelodeon-licensed products sold well, but virtually everything else disappointed.

Farrell projected THQ’s sales would grow 8% to 10% this year.

THQ shares rose 2 cents to $13.35 on Nasdaq, but fell to as low as $12.15 in after-hours trading after the earnings announcement.