Why GameStop Earnings Didn’t Live Up to Expectations

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GameStop Corp. (NYSE: GME) reported its most recent earnings results after the markets closed on Thursday. The company watched its shares sink early on Friday following a weaker-than-expected report. The main issues that we saw in this report concerned the top line, comparable sales and guidance.

The company said that it had $0.27 in earnings per share (EPS) on $1.63 billion in revenue for the fiscal second-quarter. The consensus estimates from Thomson Reuters had called for $0.27 EPS and revenue of $1.72 billion. In the same period of the previous year, GameStop posted EPS of $0.31 and $1.76 billion in revenue.

Consolidated comparable store sales declined 10.6% (−12.5% in the U.S. and −5.9% internationally). Video game sales were affected by a lack of new titles to offset strong title launches in the second quarter from last year, such as “Batman: Arkham Knight” and “Elder Scrolls Online,” as well as a decline in hardware sales caused primarily by new information being released about upcoming new consoles. Pre-owned sales significantly outperformed the new side of the video game business, declining only 3.2% compared to last year.

In terms of guidance for the fiscal third-quarter, the company expects EPS to be in the range of $0.53 to $0.58, and for comparable sales to range from −2.0% to 1.0%. The consensus estimates are $0.53 in EPS on $2.07 billion in revenue for the quarter.

The board of directors declared a quarterly cash dividend of $0.37 per common share payable on September 22 to shareholders of record as of the close of business on September 9.

Paul Raines, CEO of GameStop, commented on earnings:

As expected, the continued growth and increased profit contribution of our non-physical gaming businesses drove our second quarter results. Tech Brands sales grew more than 50%, omni-channel sales increased 16%, Collectibles sales more than doubled and year-to-date, more than half of GameStop’s operating earnings have come from non-physical gaming categories. These new businesses offset a tough quarter for video gaming and prove that our diversification strategy is succeeding.

On the books, GameStop’s cash and cash equivalents totaled $289.5 million at the end of the quarter, versus $136.2 million in the same period from last year.

Shares of GameStop closed Thursday up 1.4% at $32.16, with a consensus analyst price target of $35.10 and a 52-week trading range of $24.33 to $47.62. Following the release of the earnings report, the stock was down 8% at $29.60 in early trading indications Friday.